Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-9605 September 30, 1957

GAUDIOSO EREZO, ET AL., plaintiff-appellee,

vs.
AGUEDO JEPTE, defendant-appellant.

Gesolgon, Matti and Custodio for appellees.

Aguedo Y. Jepte in his own behalf.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay plaintiff
Gaudioso Erezo P3,000 on the death of Ernesto Erezo, son of plaintiff Gaudioso Erezo.

Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253. 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. The
driver was prosecuted for homicide through reckless negligence in criminal case No. 10663 of the
Court of First Instance of Manila. 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 defendant-appellant. The circumstances material to the case are stated by the court
in its decision.

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 defendant-appellant 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. (Section 68 [a], Rule 123, and Art. 1431, New
Civil Code.).

Against the judgment, the defendant has prosecuted this appeal claiming that at the time of the
1

accident the relation of employer and employee between the driver and defendant-appellant was not
Page

established, it having been proved at the trial that the owner of the truck was the Port Brokerage, of
which defendant-appellant was merely a broker. We find no merit or justice in the above contention.
In previous decisions, We already have held that the registered owner of a certificate of public
convenience is liable to the public for the injuries or damages suffered by passengers or third
persons caused by the operation of said vehicle, even though the same had been transferred to a
third person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off. Gaz., 108; Roque vs. Malibay Transit
Inc.,1 G. R. No. L- 8561, November 18,1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off.
Gaz., [10], 4606.)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 this 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. What is
the legal basis for his (defendant-appellant's) liability?.

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the
registered owner in the Motor Vehicle Office. Should he not be allowed to prove the truth, that he
had sold it to another and thus shift the responsibility for the injury to the real and actual owner? The
defendant holds the affirmative of this proposition; the trial court held the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used
or operated upon any public highway unless the same is properly registered. It has been stated that
the system of licensing and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the danger of injury to
pedestrians and other travelers from the careless management of automobiles, and to furnish a
means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed
and operation of machines upon the highways (2 R. C. L. 1176). 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. (Section 5 [c], Act. No. 3992, as amended.).

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 vehicles 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
2

of the owner or drivers, or with very scant means of identification. It is to forestall those
Page

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.

One of the principal purposes of motor vehicles legislation is identification of the vehicle and
of the operator, in case of accident; and another is that the knowledge that means of
detection are always available may act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the
violator of the law or of the rules of safety shall not escape because of lack of means to
discover him." The purpose of the statute is thwarted, and the displayed number becomes a
"snare and delusion," if courts will entertain such defenses as that put forward by appellee in
this case. No responsible person or corporation could be held liable for the most outrageous
acts of negligence, if they should be allowed to place a "middleman" between them and the
public, and escape liability by the manner in which they recompense their servants. (King vs.
Brenham Automobile Co., 145 S. W. 278,279.)

With the above policy in mind, the question that defendant-appellant poses is: should not be
registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance
with such proof escape or evade responsibility and lay the same on the person actually owning the
vehicle? We hold with the trial court that the laws does not allow him to do so; 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 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 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. 1wphl.nt

The above policy and application of the law may appear quite harsh and would seem to conflict with
truth and justice. We do not think it is so. A registered owner who has already sold or transferred a
vehicle has the 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.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-
appellant) 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. 1wphl.nt

Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.
Montemayor, J., concurs in the result.
3 Page
 SECOND DIVISION

[G.R. No. 125817. January 16, 2002]

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT

OF APPEALS and DONATO H. GONZALES, respondents.

DECISION
BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience is sold to

another who continues to operate it under the same certificate of public convenience
under the so-calledkabit system, and in the course thereof the vehicle meets an
accident through the fault of another vehicle, may the new owner sue for damages
against the erring vehicle? Otherwise stated, does the new owner have any legal
personality to bring the action, or is he the real party in interest in the suit, despite the
fact that he is not the registered owner under the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu
passenger jeepney from Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying the 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
4

passenger jeepney repaired at his shop. Private respondent however did not accept the
Page

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. For his part, petitioner Gunnaban averred that the accident
[1]

was a fortuitous event which was beyond his control. [2]

Meanwhile, the damaged passenger jeepney was left by the roadside to corrode
and decay. Private respondent explained that although he wanted to take his jeepney
home he had no capability, financial or otherwise, to tow the damaged vehicle. [3]

The main point of contention between the parties related to the amount of damages
due private respondent. Private respondent Gonzales averred that per estimate made
by an automobile repair shop he would have to spend P236,000.00 to restore his
jeepney to its original condition. On the other hand, petitioners insisted that they could
[4]

have the vehicle repaired for P20,000.00. [5]

On 1 October 1993 the trial court upheld private respondent's claim and awarded
him P236,000.00 with legal interest from 22 July 1990 as compensatory damages
and P30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated
that as vendee and current owner of the passenger jeepney private respondent stood
for all intents and purposes as the real party in interest. Even Vallarta himself supported
private respondent's assertion of interest over the jeepney for, when he was called to
testify, he dispossessed himself of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident since he panicked in the face of
an emergency which was rather palpable from his act of directing his vehicle to a
perilous streak down the fast lane of the superhighway then across the island and
ultimately to the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was
premised on his want of diligence in supervising his employees. It was admitted during
trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he
was neither tutored nor trained to handle such task. [6]

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996,

affirmed the decision of the trial court. In upholding the decision of the court a quo the
appeals court concluded that while an operator under the kabit system could not sue
without joining the registered owner of the vehicle as his principal, equity demanded that
the present case be made an exception. Hence this petition.
[7]

It is petitioners' contention that the Court of Appeals erred in sustaining the decision
of the trial court despite their opposition to the well-established doctrine that an operator
of a vehicle continues to be its operator as long as he remains the operator of
5

record. According to petitioners, to recognize an operator under the kabit system as the
Page

real party in interest and to countenance his claim for damages is utterly subversive of
public policy. Petitioners further contend that inasmuch as the passenger jeepney was
purchased by private respondent for onlyP30,000.00, an award of P236,000.00 is
inconceivably large and would amount to unjust enrichment. [8]

Petitioners' attempt to illustrate that an affirmance of the appealed decision could be

supportive of the pernicious kabit system does not persuade. Their labored efforts to
demonstrate how the questioned rulings of the courts a quo are diametrically opposed
to the policy of the law requiring operators of public utility vehicles to secure a certificate
of public convenience for their operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been granted a
certificate of public convenience allows other persons who own motor vehicles to
operate them under his license, sometimes for a fee or percentage of the earnings.
Although the parties to such an agreement are not outrightly penalized by law,
[9]

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 the Court explained that one of the primary
[10]

factors considered in the granting of a certificate of public convenience for the business
of public transportation is the financial capacity of the holder of the license, so that
liabilities arising from accidents may be duly compensated. The kabit system renders
illusory such purpose and, worse, may still be availed of by the grantee to escape civil
liability caused by a negligent use of a vehicle owned by another and operated under
his license. If a registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle
to another who possesses no property with which to respond financially for the damage
done. Thus, for the safety of passengers and the public who may have been wronged
and deceived through the baneful kabit system, the registered owner of the vehicle is
not allowed to prove that another person has become the owner so that he may be
thereby relieved of responsibility. Subsequent cases affirm such basic doctrine. [11]

It would seem then that the thrust of the law in enjoining the kabit system is not so
much as to penalize the parties but to identify the person upon whom responsibility may
be fixed in case of an accident with the end view of protecting the riding public. The
policy therefore loses its force if the public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in
enjoining the kabit system does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages. Second, the case arose from
the negligence of another vehicle in using the public road to whom no representation, or
misrepresentation, as regards the ownership and operation of the passenger jeepney
was made and to whom no such representation, or misrepresentation, was
necessary. Thus it cannot be said that private respondent Gonzales and the registered
owner of the jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor
inconvenienced at the very least by the illegal arrangement. On the contrary, it was
private respondent himself who had been wronged and was seeking compensation for
6

the damage done to him. Certainly, it would be the height of inequity to deny him his
Page

right.
 In light of the foregoing, it is evident that private respondent has the right to proceed
against petitioners for the damage caused on his passenger jeepney as well as on his
business. Any effort then to frustrate his claim of damages by the ingenuity with which
petitioners framed the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to
provide for adequate compensation by putting the plaintiff in the same financial position
he was in prior to the tort. It is a fundamental principle in the law on damages that a
defendant cannot be held liable in damages for more than the actual loss which he has
inflicted and that a plaintiff is entitled to no more than the just and adequate
compensation for the injury suffered. His recovery is, in the absence of circumstances
giving rise to an allowance of punitive damages, limited to a fair compensation for the
harm done. The law will not put him in a position better than where he should be in had
not the wrong happened. [12]

In the present case, petitioners insist that as the passenger jeepney was purchased
in 1982 for only P30,000.00 to award damages considerably greater than this amount
would be improper and unjustified. Petitioners are at best reminded that indemnification
for damages comprehends not only the value of the loss suffered but also that of the
profits which the obligee failed to obtain.In other words, indemnification for damages is
not limited to damnum emergens or actual loss but extends to lucrum cessans or the
amount of profit lost.
[13]

Had private respondent's jeepney not met an accident it could reasonably be

expected that it would have continued earning from the business in which it was
engaged. Private respondent avers that he derives an average income of P300.00 per
day from his passenger jeepney and this earning was included in the award of damages
made by the trial court and upheld by the appeals court. The award therefore
of P236,000.00 as compensatory damages is not beyond reason nor speculative as it is
based on a reasonable estimate of the total damage suffered by private
respondent, i.e. damage wrought upon his jeepney and the income lost from his
transportation business. Petitioners for their part did not offer any substantive evidence
to refute the estimate made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that
upon the award of compensatory damages legal interest should be imposed beginning
22 July 1990, i.e.the date of the accident. Upon the provisions of Art. 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonable certainty." It is axiomatic that if the suit
were for damages, unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof, interest at the rate of six percent (6%) per
annum should be from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to be reasonably ascertained). [14]

In this case, the matter was not a liquidated obligation as the assessment of the
damage on the vehicle was heavily debated upon by the parties with private
respondent's demand forP236,000.00 being refuted by petitioners who argue that they
7

could have the vehicle repaired easily for P20,000.00. In fine, the amount due private
Page

respondent was not a liquidated account that was already demandable and payable.
 One last word. We have observed that private respondent left his passenger
jeepney by the roadside at the mercy of the elements. Article 2203 of the Civil Code
exhorts parties suffering from loss or injury to exercise the diligence of a good father of
a family to minimize the damages resulting from the act or omission in question. One
who is injured then by the wrongful or negligent act of another should exercise
reasonable care and diligence to minimize the resulting damage. Anyway, he can
recover from the wrongdoer money lost in reasonable efforts to preserve the property
injured and for injuries incurred in attempting to prevent damage to it.
[15]

However we sadly note that in the present case petitioners failed to offer in
evidence the estimated amount of the damage caused by private respondent's
unconcern towards the damaged vehicle. It is the burden of petitioners to show
satisfactorily not only that the injured party could have mitigated his damages but also
the amount thereof; failing in this regard, the amount of damages awarded cannot be
proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato
Gonzales P236,000.00 with legal interest from 22 July 1990 as compensatory damages
and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%)
per annum shall be computed from the time the judgment of the lower court is made
until the finality of this Decision. If the adjudged principal and interest remain unpaid
thereafter, the interest shall be twelve percent (12%) per annum computed from the time
judgment becomes final and executory until it is fully satisfied.
Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
8 Page
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner,

vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO
and FRANCISCA P. GARCIA, respondents.

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: +.wph!1

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim
that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his acts.

The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota
Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they
contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the
use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00
and a monthly rental of P200.00 per taxicab unit. To effectuate 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, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio
Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries
sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a
civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against
Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of
the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for
damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent
spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one
Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon
9

and sold at public auction for P8,000.00 to a certain Mr. Lopez.

Page
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name.
He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to
him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita
Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff
of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of
the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which reads: t.hqw

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita

Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of
Manila are concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of

the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and
2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the
plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for
the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a
month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied
by the court a quo on October 27, 1975. (p. 121, Ibid.)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court
modified the decision by including as part of its dispositive portion another paragraph, to wit: t.hqw

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 as of July 22, 1975. (Annex
"D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying
that:t.hqw

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing,

annulling or amending the decision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the
lower court (CFI) be deleted;

(b) that private respondents be declared liable to petitioner for whatever amount the
latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First
Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante
Galvez, who died as a result ot the gross negligence of private respondents' driver
10

while driving one private respondents' taxicabs. (p. 39, Rollo.)

Page
Unquestionably, the parties herein operated under an arrangement, comonly 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, 1 "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: t.hqw

ART. 1412. if the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed;

(1) when the fault, is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the other's
undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by
ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot
give efficacy to contracts that are null 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." 3 Although certain
exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should
not be applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and
Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First
Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica,
Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate
Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No
costs.

SO ORDERED. 1wph1.t

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro,
Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
11

Aquino, J., took no part.

Page
 FIRST DIVISION

OSCAR VILLAMARIA, JR. G.R. No. 165881

Petitioner,
Present:

PANGANIBAN, C.J.,
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ.
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

COURT OF APPEALS and Promulgated:

JERRY V. BUSTAMANTE,
Respondents. April 19, 2006

x-----------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised

Rules of Court assailing the Decision [1] and Resolution[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 78720 which set aside the Resolution [3] of the National
Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn
affirmed the Decision[4] of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole
proprietorship engaged in assembling passenger jeepneys with a public utility
12

franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped

assembling jeepneys and retained only nine, four of which he operated by
Page

employing drivers on a boundary basis.One of those drivers was respondent

Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante
remitted P450.00 a day to Villamaria as boundary and kept the residue of his daily
earnings as compensation for driving the vehicle. In August 1997, Villamaria
verbally agreed to sell the jeepney to Bustamante under the boundary-
hulogscheme, where Bustamante would remit to Villarama P550.00 a day for a
period of four years; Bustamante would then become the owner of the vehicle and
continue to drive the same under Villamarias franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng

Bilihan ng Sasakyan sa Pamamagitan ng Boundary-Hulog [5] over the passenger
jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No.
SL-26647. The parties agreed that if Bustamante failed to pay the boundary-
hulog for three days, Villamaria Motors would hold on to the vehicle until
Bustamante paid his arrears, including a penalty of P50.00 a day; in case
Bustamante failed to remit the daily boundary-hulog for a period of one week,
the Kasunduan would cease to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle
without prior authority from Villamaria Motors. Thus, Bustamante was authorized
to operate the vehicle to transport passengers only and not for other purposes. He
was also required to display an identification card in front of the windshield of the
vehicle; in case of failure to do so, any fine that may be imposed by government
authorities would be charged against his account. Bustamante further obliged
himself to pay for the cost of replacing any parts of the vehicle that would be lost
or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing
repairs. Bustamante was not allowed to wear slippers, short pants or undershirts
while driving. He was required to be polite and respectful towards the
passengers.He was also obliged to notify Villamaria Motors in case the vehicle was
leased for two or more days and was required to attend any meetings which may be
called from time to time. Aside from the boundary-hulog, Bustamante was also
obliged to pay for the annual registration fees of the vehicle and the premium for
the vehicles comprehensive insurance. Bustamante promised to strictly comply
with the rules and regulations imposed by Villamaria for the upkeep and
maintenance of the jeepney.
13

Bustamante continued driving the jeepney under the supervision and control of
Page

Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of

the purchase price of the vehicle. Bustamante failed to pay for the annual
registration fees of the vehicle, but Villamaria allowed him to continue driving the
jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement
with Villamaria Motors failed to pay their respective boundary-hulog. This
prompted Villamaria to serve a Paalala,[6] reminding them that under
the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean
their respective jeepneys would be returned to him without any complaints. He
warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante
and barred the latter from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint[7] for Illegal Dismissal

against Villamaria and his wife Teresita. In his Position Paper,[8] Bustamante
alleged that he was employed by Villamaria in July 1996 under the boundary
system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented
the Kasunduan for his signature, with the assurance that he (Bustamante) would
own the jeepney by March 2001 after paying P550.00 in daily installments and that
he would thereafter continue driving the vehicle along the same route under the
same franchise. He further narrated that in July 2000, he informed the Villamaria
spouses that the surplus engine of the jeepney needed to be replaced, and was
assured that it would be done. However, he was later arrested and his drivers
license was confiscated because apparently, the replacement engine that was
installed was taken from a stolen vehicle. Due to negotiations with the
apprehending authorities, the jeepney was not impounded. The Villamaria spouses
took the jeepney from him on July 24, 2000, and he was no longer allowed to drive
the vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed

that judgment be rendered ordering the respondents, jointly and severally, the
following:
14

1. Reinstate complainant to his former position without loss of seniority

rights and execute a Deed of Sale in favor of the complainant relative to the PUJ
Page

with Plate No. PVU-660;

 2. Ordering the respondents to pay backwages in the amount of P400.00 a
day and other benefits computed from July 24, 2000 up to the time of his actual
reinstatement;

3. Ordering respondents to return the amount of P10,000.00

and P180,000.00 for the expenses incurred by the complainant in the repair and
maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred

(P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or a total
of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed
[9]
for.

In their Position Paper,[10] the spouses Villamaria admitted the existence of

the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00
downpayment and the vehicles annual registration fees. They further alleged that
Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a
day, which prompted them to issue thePaalaala. Instead of complying with his
obligations, Bustamante stopped making his remittances despite his daily trips and
even brought the jeepney to the province without permission. Worse, the jeepney
figured in an accident and its license plate was confiscated; Bustamante even
abandoned the vehicle in a gasoline station in Sucat, Paraaque Cityfor two
weeks. When the security guard at the gasoline station requested that the vehicle
be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante
told her:Di kunin ninyo. When the vehicle was finally retrieved, the tires were
worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v.

[11] [12]
NLRC and Canlubang Security Agency Corporation v. NLRC, the spouses
Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the employer-employee
relationship into that of vendor-vendee. Hence, the spouses concluded, there was
no legal basis to hold them liable for illegal dismissal. They prayed that the case be
15

dismissed for lack of jurisdiction and patent lack of merit.

Page
 In his Reply,[13] Bustamante claimed that Villamaria exercised control and
supervision over the conduct of his employment. He maintained that the rulings of
the Court inNational Labor Union v. Dinglasan,[14] Magboo v. Bernardo,
[15]
and Citizen's League of Free Workers v. Abbas[16] are germane to the issue as
they define the nature of the owner/operator-driver relationship under the boundary
system. He further reiterated that it was the Villamaria spouses who presented
the Kasunduan to him and that he conformed thereto only upon their representation
that he would own the vehicle after four years. Moreover, it appeared that
the Paalala was duly received by him, as he, together with other drivers, was made
to affix his signature on a blank piece of paper purporting to be an attendance
sheet.

On March 15, 2002, the Labor Arbiter rendered judgment [17] in favor of the spouses
Villamaria and ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as

the PAALALA, to prove their claim that complainant violated the terms of their
contract and afterwards abandoned the vehicle assigned to him. As against the
foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and
attorney's fees.[18]

Bustamante appealed the decision to the NLRC,[19] insisting that

the Kasunduan did not extinguish the employer-employee relationship between
him and Villamaria. While he did not receive fixed wages, he kept only the excess
of the boundary-hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was
engaged to perform activities which were necessary or desirable to Villamarias
trade or business.
The NLRC rendered judgment[20] dismissing the appeal for lack of merit,
thus:

WHEREFORE, premises considered, complainant's appeal is hereby

DISMISSED for reasons not stated in the Labor Arbiter's decision but mainly on a
jurisdictional issue, there being none over the subject matter of the controversy.[21]

The NLRC ruled that under the Kasunduan, the juridical relationship
between Bustamante and Villamaria was that of vendor and vendee, hence, the
16

Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion
Page

for Reconsideration, which the NLRC resolved to deny on May 30, 2003.[22]
 Bustamante elevated the matter to the CA via Petition for Certiorari,
alleging that the NLRC erred

I
IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN
THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL
ISSUE;
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.[23]

Bustamante insisted that despite the Kasunduan, the relationship between him and
Villamaria continued to be that of employer-employee and as such, the Labor
Arbiter had jurisdiction over his complaint. He further alleged that it is common
knowledge that operators of passenger jeepneys (including taxis) pay their drivers
not on a regular monthly basis but on commission or boundary basis, or even the
boundary-hulog system. Bustamante asserted that he was dismissed from
employment without any lawful or just cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of
their employer-employee relationship. He further pointed out that
the Dinglasan case pertains to the boundary system and not the boundary-
hulog system, hence inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and Bustamante was
transformed into a vendor-vendee relationship. Noting that he was engaged in the
manufacture and sale of jeepneys and not in the business of transporting
passengers for consideration, Villamaria contended that the daily fees which
Bustmante paid were actually periodic installments for the the vehicle and were not
the same fees as understood in the boundary system. He added that the boundary-
hulog plan was basically a scheme to help the driver-buyer earn money and
eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria
further asserted that the apparently restrictive conditions in the Kasunduan did not
mean that the means and method of driver-buyers conduct was controlled, but were
mere ways to preserve the vehicle for the benefit of both parties: Villamaria would
17

be able to collect the agreed purchase price, while Bustamante would be assured
that the vehicle would still be in good running condition even after four
Page

years. Moreover, the right of vendor to impose certain conditions on the buyer
should be respected until full ownership of the property is vested on the
latter.Villamaria insisted that the parallel circumstances obtaining in Singer Sewing
Machine Company v. Drilon[24] has analogous application to the instant issue.

In its Decision[25] dated August 30, 2004, the CA reversed and set aside the
NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned

resolutions of the NLRC must be, as they are hereby are, REVERSED AND
SET ASIDE, and judgment entered in favor of petitioner:

18Page
 1. Sentencing private respondent Oscar Villamaria, Jr. to
pay petitioner Jerry Bustamante separation pay computed from the
time of his employment up to the time of termination based on the
prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to

pay petitioner Jerry Bustamante back wages computed from the
time of his dismissal up to March 2001 based on the prevailing
minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.[26]

The appellate court ruled that the Labor Arbiter had jurisdiction over
Bustamantes complaint. Under the Kasunduan, the relationship between him and
Villamaria was dual: that of vendor-vendee and employer-employee. The CA
ratiocinated that Villamarias exercise of control over Bustamantes conduct in
operating the jeepney is inconsistent with the formers claim that he was not
engaged in the transportation business. There was no evidence that petitioner was
allowed to let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in
the Kasunduan, it did not mean that Villamaria could not exercise it. It explained
that the existence of an employment relationship did not depend on how the worker
was paid but on the presence or absence of control over the means and method of
the employees work. In this case, Villamarias directives (to drive carefully, wear an
identification card, don decent attire, park the vehicle in his garage, and to inform
him about provincial trips, etc.) was a means to control the way in which
Bustamante was to go about his work. In view of Villamarias supervision and
control as employer, the fact that the boundary represented installment payments of
the purchase price on the jeepney did not remove the parties employer-employee
relationship.

While the appellate court recognized that a weeks default in paying the
boundary-hulog constituted an additional cause for terminating Bustamantes
employment, it held that the latter was illegally dismissed. According to the CA,
assuming that Bustamante failed to make the required payments as claimed by
Villamaria, the latter nevertheless failed to take steps to recover the unit and waited
19

for Bustamante to abandon it. It also pointed out that Villamaria neither submitted
any police report to support his claim that the vehicle figured in a mishap nor
Page
presented the affidavit of the gas station guard to substantiate the claim that
Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed,

on September 17, 2004, a motion for reconsideration thereof. The CA denied the
motion in a Resolution[27] dated November 2, 2004, and Villamaria received a copy
thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review
on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed
grave abuse of its discretion amounting to excess or lack of jurisdiction in
reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA
erred in ruling that the juridical relationship between him and respondent under
the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of theKasunduan clearly state that he and
respondent Bustamante had entered into a conditional deed of sale over the
jeepney; as such, their employer-employee relationship had been transformed into
that of vendor-vendee. Petitioner insists that he had the right to reserve his title on
the jeepney until after the purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of
petitioner was an appeal via a petition for review on certiorari under Rule 45 of the
Rules of Court and not a special civil action of certiorari under Rule 65. He argues
that petitioner failed to establish that the CA committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in its decision, as the said
ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by

petitioner which provides for a boundary-hulog scheme was a devious
circumvention of the Labor Code of the Philippines. Respondent insists that his
juridical relationship with petitioner is that of employer-employee because he was
engaged to perform activities which were necessary or desirable in the usual
business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally
construed in his favor; hence, it behooves the Court to resolve the merits of his
petition.
20

We agree with respondents contention that the remedy of petitioner from the CA
Page

decision was to file a petition for review on certiorari under Rule 45 of the Rules
of Court and not the independent action of certiorari under Rule 65. Petitioner had
15 days from receipt of the CA resolution denying his motion for the
reconsideration within which to file the petition under Rule 45. [28] But instead of
doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004,
which did not, however, suspend the running of the 15-day reglementary period;
consequently, the CA decision became final and executory upon the lapse of the
reglementary period for appeal. Thus, on this procedural lapse, the instant petition
stands to be dismissed.[29]

It must be stressed that the recourse to a special civil action under Rule 65 of the
Rules of Court is proscribed by the remedy of appeal under Rule 45. As the Court
elaborated inTomas Claudio Memorial College, Inc. v. Court of Appeals:[30]

We agree that the remedy of the aggrieved party from a decision or final
resolution of the CA is to file a petition for review on certiorari under Rule 45 of
the Rules of Court, as amended, on questions of facts or issues of law within
fifteen days from notice of the said resolution. Otherwise, the decision of the CA
shall become final and executory. The remedy under Rule 45 of the Rules of
Court is a mode of appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A review is not a
matter of right but is a matter of judicial discretion. The aggrieved party may,
however, assail the decision of the CA via a petition for certiorari under Rule 65
of the Rules of Court within sixty days from notice of the decision of the CA or its
resolution denying the motion for reconsideration of the same. This is based on
the premise that in issuing the assailed decision and resolution, the CA acted with
grave abuse of discretion, amounting to excess or lack of jurisdiction and there is
no plain, speedy and adequate remedy in the ordinary course of law. A remedy is
considered plain, speedy and adequate if it will promptly relieve the petitioner
from the injurious effect of the judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is
available, for the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive. The aggrieved party is, likewise, barred from filing a
petition for certiorari if the remedy of appeal is lost through his negligence. A
petition for certiorari is an original action and does not interrupt the course of the
principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further
proceeding. A petition for certiorari must be based on jurisdictional grounds
because, as long as the respondent court acted within its jurisdiction, any error
committed by it will amount to nothing more than an error of judgment which
may be corrected or reviewed only by appeal.[31]
21

However, we have also ruled that a petition for certiorari under Rule 65 may
Page

be considered as filed under Rule 45, conformably with the principle that rules of
procedure are to be construed liberally, provided that the petition is filed within the
reglementary period under Section 2, Rule 45 of the Rules of Court, and where
valid and compelling circumstances warrant that the petition be resolved on its
merits.[32] In this case, the petition was filed within the reglementary period and
petitioner has raised an issue of substance: whether the existence of a boundary-
hulog agreement negates the employer-employee relationship between the vendor
and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a
complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as
well as, which court or agency of the government has jurisdiction over the same,
are determined by the material allegations of the complaint in relation to the law
involved and the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs. [33] A prayer or demand
for relief is not part of the petition of the cause of action; nor does it enlarge the
cause of action stated or change the legal effect of what is alleged. [34] In
determining which body has jurisdiction over a case, the better policy is to
consider not only the status or relationship of the parties but also the nature of the
action that is the subject of their controversy.[35]

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter
exclusive original jurisdiction only over the following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wage, rates of pay, hours of
work, and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from violation of Article 264 of this
Code, including questions involving the legality of strikes and
lockouts; and
22 Page
 6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relationship, including those of
persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective

bargaining agreements, and those arising from the interpretation or enforcement
of company personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary arbitration as may be
provided in said agreements.

In the foregoing cases, an employer-employee relationship is an

indispensable jurisdictional requisite.[36] The jurisdiction of Labor Arbiters and the
NLRC under Article 217 of the Labor Code is limited to disputes arising from an
employer-employee relationship which can only be resolved by reference to the
Labor Code, other labor statutes or their collective bargaining agreement. [37] Not
every dispute between an employer and employee involves matters that only the
Labor Arbiter and the NLRC can resolve in the exercise of their adjudicatory or
quasi-judicial powers. Actions between employers and employees where the
employer-employee relationship is merely incidental is within the exclusive
original jurisdiction of the regular courts.[38] When the principal relief is to be
granted under labor legislation or a collective bargaining agreement, the case falls
within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a
claim for damages might be asserted as an incident to such claim.[39]

We agree with the ruling of the CA that, under the boundary-hulog scheme
incorporated in the Kasunduan, a dual juridical relationship was created between
petitioner and respondent: that of employer-employee and vendor-
vendee. The Kasunduan did not extinguish the employer-employee relationship of
the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v.
Dinglasan[40] that the jeepney owner/operator-driver relationship under the
boundary system is that of employer-employee and not lessor-lessee. This doctrine
was affirmed, under similar factual settings, in Magboo v.
[41] [42]
Bernardo and Lantaco, Sr. v. Llamas, and was analogously applied to govern
23

the relationships between auto-calesa owner/operator and driver,[43] bus

Page

owner/operator and conductor,[44] and taxi owner/operator and driver.[45]

 The boundary system is a scheme by an owner/operator engaged in
transporting passengers as a common carrier to primarily govern the compensation
of the driver, that is, the latters daily earnings are remitted to the owner/operator
less the excess of the boundary which represents the drivers compensation. Under
this system, the owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control over the
chattel leased but the lessee is still ultimately responsible for the consequences of
its use. The management of the business is still in the hands of the owner/operator,
who, being the holder of the certificate of public convenience, must see to it that
the driver follows the route prescribed by the franchising and regulatory authority,
and the rules promulgated with regard to the business operations. The fact that the
driver does not receive fixed wages but only the excess of the boundary given to
the owner/operator is not sufficient to change the relationship between
them. Indubitably, the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.[46]

Under the Kasunduan, respondent was required to remit P550.00 daily to

petitioner, an amount which represented the boundary of petitioner as well as
respondents partial payment (hulog) of the purchase price of the jeepney.
24Page
 Respondent was entitled to keep the excess of his daily earnings as his daily
wage. Thus, the daily remittances also had a dual purpose: that of petitioners
boundary and respondents partial payment (hulog) for the vehicle. This dual
purpose was expressly stated in the Kasunduan. The well-settled rule is that an
obligation is not novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not incompatible
with the old provisions or where the new contract merely supplements the previous
one. [47] The two obligations of the respondent to remit to petitioner the boundary-
hulog can stand together.

In resolving an issue based on contract, this Court must first examine the
contract itself, keeping in mind that when the terms of the agreement are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of
its stipulations shall prevail.[48] The intention of the contracting parties should be
ascertained by looking at the words used to project their intention, that is, all the
words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.[49] The parts and
clauses must be interpreted in relation to one another to give effect to the
whole. The legal effect of a contract is to be determined from the whole read
together.[50]

Under the Kasunduan, petitioner retained supervision and control over the
conduct of the respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng

boundary hulog ay ang mga sumusunod:
25Page
 1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG
PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG

IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o pangangalakal
sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG

IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan, kasiraan
o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG

PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang

maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito ay
madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA
MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng]

multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang ID card
sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang

materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang
kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang

hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang

ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG IKALAWANG
PANIG ay obligadong itawag ito muna sa VILLAMARIA MOTORS bago
ipagawa sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa

panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas, naka short
pants at nakasando lamang.Dapat ang nagmamaneho ay laging nasa maayos
ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang

driver ay magpapakita ng magandang asal sa mga pasaheros at hindi dapat
26

magsasalita ng masama kung sakali man may pasaherong pilosopo upang

Page

maiwasan ang anumang kaguluhan na maaaring kasangkutan.

 12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang
TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina
ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing
sasakyan hanggang matugunan ang lahat ng

27Page
 responsibilidad. Ang halagang dapat bayaran sa opisina ay may
karagdagang multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng
VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa

rehistro, comprehensive insurance taon-taon at kahit anong uri ng aksidente
habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo

sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag
ang mga tagapangasiwa nito upang maipaabot ang anumang mungkahi sa
ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng

mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga darating
na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng
Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging

buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan ang
pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang

kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman ay
sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng

dalawa o higit pang araw sa lalawigan ay dapat lamang na ipagbigay alam
muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang
suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang

pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon

sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating agad
ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang
28

maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA

Page

MOTORS.
 22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso
kong sinasang-ayunan at buong sikap na pangangalagaan ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa
paghahanapbuhay at wala nang iba pa.[51]

The parties expressly agreed that petitioner, as vendor, and respondent, as

vendee, entered into a contract to sell the jeepney on a daily installment basis
of P550.00 payable in four years and that petitioner would thereafter become its
owner. A contract is one of conditional sale, oftentimes referred to as contract to
sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to the vendee unless and
until there is full payment of the purchase price and/or upon faithful compliance
with the other terms and conditions that may lawfully be stipulated. [52] Such
payment or satisfaction of other preconditions, as the case may be, is a positive
suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to
convey title from acquiring binding force.[53] Stated differently, the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event so that if the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never
existed.[54] The vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already received, where
such rights are expressly provided for.[55]

Under the boundary-hulog scheme, petitioner retained ownership of the

jeepney although its material possession was vested in respondent as its driver. In
case respondent failed to make his P550.00 daily installment payment for a week,
the agreement would be of no force and effect and respondent would have to return
the jeepney to petitioner; the employer-employee relationship would likewise be
terminated unless petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the termination of their
vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and

respondent was not negated by the foregoing stipulation in the Kasunduan,
considering that petitioner retained control of respondents conduct as driver of the
vehicle. As correctly ruled by the CA:
29

The exercise of control by private respondent over petitioners conduct in

Page

operating the jeepney he was driving is inconsistent with private respondents

 claim that he is, or was, not engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive the unit, it was not shown
that he did so; that the existence of an employment relation is not dependent on
how the worker is paid but on the presence or absence of control over the means
and method of the work; that the amount earned in excess of the
boundary hulog is equivalent to wages; and that the fact that the power of
dismissal was not mentioned in the Kasunduan did not mean that private
respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to

wear an identification card, or to don a decent attire, or to park the vehicle in
Villamaria Motors garage, or to inform Villamaria Motors about the fact that the
unit would be going out to the province for two days of more, or to drive the unit
carefully, etc. necessarily related to control over the means by which the petitioner
was to go about his work; that the ruling applicable here is not Singer Sewing
Machine but National Labor Union since the latter case involved jeepney
owners/operators and jeepney drivers, and that the fact that the boundary here
represented installment payment of the purchase price on the jeepney did not
withdraw the relationship from that of employer-employee, in view of the overt
presence of supervision and control by the employer.[56]

Neither is such juridical relationship negated by petitioners claim that the

terms and conditions in the Kasunduan relative to respondents behavior and
deportment as driver was for his and respondents benefit: to insure that respondent
would be able to pay the requisite daily installment of P550.00, and that the vehicle
would still be in good condition despite the lapse of four years. What is primordial
is that petitioner retained control over the conduct of the respondent as driver of
the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the
franchise, is entitled to exercise supervision and control over the respondent, by
seeing to it that the route provided in his franchise, and the rules and regulations of
the Land Transportation Regulatory Board are duly complied with. Moreover, in a
business establishment, an identification card is usually provided not just as a
security measure but to mainly identify the holder thereof as a bona fide employee
of the firm who issues it.[57]

As respondents employer, it was the burden of petitioner to prove that

respondents termination from employment was for a lawful or just cause, or, at the
very least, that respondent failed to make his daily remittances of P550.00 as
30

boundary. However, petitioner failed to do so. As correctly ruled by the appellate

court:
Page
 It is basic of course that termination of employment must be effected in
accordance with law. The just and authorized causes for termination of
employment are enumerated under Articles 282, 283 and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here,

the default in the remittance of the boundary hulog for one week or longer may be
considered an additional cause for termination of employment. The reason is
because the Kasunduan would be of no force and effect in the event that the
purchaser failed to remit the boundary hulog for one week. The Kasunduan in this
case pertinently stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving
that the dismissal of an employee is for a just cause. The failure of the employer
to discharge this burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the
Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee
of P10,000.00 and the yearly registration of the unit; that petitioner also stopped
remitting the boundary hulog, prompting him (private respondent) to issue
a Paalala, which petitioner however ignored; that petitioner even brought the unit
to his (petitioners) province without informing him (private respondent) about it;
and that petitioner eventually abandoned the vehicle at a gasoline station after
figuring in an accident. But private respondent failed to substantiate these
allegations with solid, sufficient proof. Notably, private respondents allegation
viz, that he retrieved the vehicle from the gas station, where petitioner abandoned
it, contradicted his statement in the Paalala that he would enforce the provision
(in the Kasunduan) to the effect that default in the remittance of the
boundary hulog for one week would result in the forfeiture of the
unit. ThePaalala reads as follows:

Sa lahat ng mga kumukuha ng sasakyan

Sa pamamagitan ng BOUNDARY HULOG

Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular

na ang paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng
Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing
sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.
31Page
 Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong
ipatutupad ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat na
tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo

makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na
hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang
hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

Sumasainyo

Attendance: 8/27/99
(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR.

If it were true that petitioner did not remit the boundary hulog for one week or
more, why did private respondent not forthwith take steps to recover the unit, and
why did he have to wait for petitioner to abandon it?

On another point, private respondent did not submit any police report to support
his claim that petitioner really figured in a vehicular mishap. Neither did he
present the affidavit of the guard from the gas station to substantiate his claim that
petitioner abandoned the unit there.[58]

Petitioners claim that he opted not to terminate the employment of

respondent because of magnanimity is negated by his (petitioners) own evidence
that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The

decision of the Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs
against petitioner.

SO ORDERED.
32 Page
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23733 October 31, 1969

HERMINIO L. NOCUM, plaintiff-appellee,

vs.
LAGUNA TAYABAS BUS COMPANY, defendant-appellant.

Fernando M. Mangubat and Felimon H. Mendoza for plaintiff-appellee.

Domingo E. de Lara and Associates for defendant-appellant.

BARREDO, J.:

Appeal of the Laguna Tayabas Bus Co., defendant in the Court below, from a judgment of the said
court (Court of First Instance of Batangas) in its Civil Case No. 834, wherein appellee Herminio L.
Nocum was plaintiff, sentencing appellant to pay appellee the sum of P1,351.00 for actual damages
and P500.00 as attorney's fees with legal interest from the filing of the complaint plus costs.
Appellee, who was a passenger in appellant's Bus No. 120 then making a trip within the barrio of
Dita, Municipality of Bay, Laguna, was injured as a consequence of the explosion of firecrackers,
contained in a box, loaded in said bus and declared to its conductor as containing clothes and
miscellaneous items by a co-passenger. The findings of fact of the trial court are not assailed. The
appeal is purely on legal questions.

Appellee has not filed any brief. All that We have before Us is appellant's brief with the following
assignment of errors:

BASED ON THE FACTS THE LOWER COURT FOUND AS ESTABLISHED, IT ERRED AS A

MATTER OF LAW IN NOT ABSOLVING APPELLANT FROM LIABILITY RESULTING FROM
THE EXPLOSION OF FIRECRACKERS CONTAINED IN A PACKAGE, THE CONTENTS OF
WHICH WERE MISREPRESENTED BY A PASSENGER.

II

THE LOWER COURT ERRED, AS A MATTER OF LAW, IN AWARDING DAMAGES WITH

LEGAL INTEREST IN FAVOR OF THE APPELLEE.

III

THE LOWER COURT ERRED IN NOT DISMISSING THE COMPLAINT, WITH COSTS
AGAINST THE APPELLEE.
33

Upon consideration of the points raised and discussed by appellant, We find the appeal to be well
Page

taken.
The main basis of the trial court's decision is that appellant did not observe the extraordinary or
utmost diligence of a very cautious person required by the following articles of the Civil Code:

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

Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.

ART. 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.

ART 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Analyzing the evidence presented by the parties, His Honor found:

According to Severino Andaya, a witness for the plaintiff, a man with a box went up the
baggage compartment of the bus where he already was and said box was placed under the
seat. They left Azcarraga at about 11:30 in the morning and when the explosion occurred, he
was thrown out. PC investigation report states that thirty seven (37) passengers were injured
(Exhibits "O" and "2").

The bus conductor, Sancho Mendoza, testified that the box belonged to a passenger whose
name he does not know and who told him that it contained miscellaneous items and clothes.
He helped the owner in loading the baggage which weighed about twelve (12) kilos and
because of company regulation, he charged him for it twenty-five centavos (P0.25). From its
appearance there was no indication at all that the contents were explosives or firecrackers.
Neither did he open the box because he just relied on the word of the owner.

Dispatcher Nicolas Cornista of defendant company corroborrated the testimony of Mendoza

and he said, among other things, that he was present when the box was loaded in the truck
and the owner agreed to pay its fare. He added that they were not authorized to open the
baggages of passengers because instruction from the management was to call the police if
there were packages containing articles which were against regulations.

xxx xxx xxx

There is no question that Bus No. 120 was road worthy when it left its Manila Terminal for
Lucena that morning of December 5, 1960. The injuries suffered by the plaintiff were not due
to mechanical defects but to the explosion of firecrackers inside the bus which was loaded by
a co-passenger.
34

... Turning to the present case, it is quite clear that extraordinary or utmost diligence of a very
cautious person was not observed by the defendant company. The service manual, exhibits
Page

"3" and "3-A," prohibits the employees to allow explosives, such as dynamite and
 firecrackers to be transported on its buses. To implement this particular rule for 'the safety of
passengers, it was therefore incumbent upon the employees of the company to make the
proper inspection of all the baggages which are carried by the passengers.

But then, can it not be said that the breach of the contract was due to fortuitous event? The
Supreme Court in the case of Lasam vs. Smith, 45 Phil. 657, quoted Escriche's definition
of caso fortuito as "an unexpected event or act of God which could neither be foreseen nor
resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsions,
insurrections, destructions of buildings by unforeseen accidents and other occurrences of a
similar nature." In other words, the cause of the unexpected event must be independent of
the will of man or something which cannot be avoided. This cannot be said of the instant
case. If proper and rigid inspection were observed by the defendant, the contents of the box
could have been discovered and the accident avoided. Refusal by the passenger to have the
package opened was no excuse because, as stated by Dispatcher Cornista, employees
should call the police if there were packages containing articles against company
regulations. Neither was failure by employees of defendant company to detect the contents
of the packages of passengers because like the rationale in the Necesito vs. Paras case
(supra), a passenger has neither choice nor control in the exercise of their discretion in
determining what are inside the package of co-passengers which may eventually prove fatal.

We cannot agree. No doubt, the views of His Honor do seem to be in line with the reasons that the
Code Commission had for incorporating the above-quoted provisions in its draft of the Civil Code.
Indeed, in approving the said draft, Congress must have concurred with the Commission that by
requiring the highest degree of diligence from common carriers in the safe transport of their
passengers and by creating a presumption of negligence against them, the recklessness of their
drivers which is a common sight even in crowded areas and, particularly, on the highways
throughout the country may, somehow, if not in a large measure, be curbed. We are not convinced,
however, that the exacting criterion of said provisions has not been met by appellant in the
circumstances of this particular case.

It is undisputed that before the box containing the firecrackers were allowed to be loaded in the bus
by the conductor, inquiry was made with the passenger carrying the same as to what was in it, since
its "opening ... was folded and tied with abaca." (Decision p. 16, Record on Appeal.) According to His
Honor, "if proper and rigid inspection were observed by the defendant, the contents of the box could
have been discovered and the accident avoided. Refusal by the passenger to have the package
opened was no excuse because, as stated by Dispatcher Cornista, employees should call the police
if there were packages containing articles against company regulations." That may be true, but it is
Our considered opinion that the law does not require as much. Article 1733 is not as unbending as
His Honor has held, for it reasonably qualifies the extraordinary diligence required of common
carriers for the safety of the passengers transported by them to be "according to all the
circumstances of each case." In fact, Article 1755 repeats this same qualification: "A common carrier
is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances."

In this particular case before Us, it must be considered that while it is true the passengers of
appellant's bus should not be made to suffer for something over which they had no control, as
enunciated in the decision of this Court cited by His Honor, 1 fairness demands that in measuring a
common carrier's duty towards its passengers, allowance must be given to the reliance that should
be reposed on the sense of responsibility of all the passengers in regard to their common safety. It is
35

to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of
his co-passengers, not to speak of his own. Not to be lightly considered must be the right to privacy
Page

to which each passenger is entitled. He cannot be subjected to any unusual search, when he
protests the innocuousness of his baggage and nothing appears to indicate the contrary, as in the
case at bar. In other words, inquiry may be verbally made as to the nature of a passenger's baggage
when such is not outwardly perceptible, but beyond this, constitutional boundaries are already in
danger of being transgressed. Calling a policeman to his aid, as suggested by the service manual
invoked by the trial judge, in compelling the passenger to submit to more rigid inspection, after the
passenger had already declared that the box contained mere clothes and other miscellaneous, could
not have justified invasion of a constitutionally protected domain. Police officers acting without
judicial authority secured in the manner provided by law are not beyond the pale of constitutional
inhibitions designed to protect individual human rights and liberties. Withal, what must be importantly
considered here is not so much the infringement of the fundamental sacred rights of the particular
passenger herein involved, but the constant threat any contrary ruling would pose on the right of
privacy of all passengers of all common carriers, considering how easily the duty to inspect can be
made an excuse for mischief and abuse. Of course, when there are sufficient indications that the
representations of the passenger regarding the nature of his baggage may not be true, in the interest
of the common safety of all, the assistance of the police authorities may be solicited, not necessarily
to force the passenger to open his baggage, but to conduct the needed investigation consistent with
the rules of propriety and, above all, the constitutional rights of the passenger. It is in this sense that
the mentioned service manual issued by appellant to its conductors must be understood.

Decisions in other jurisdictions cited by appellant in its brief, evidently because of the paucity of local
precedents squarely in point, emphasize that there is need, as We hold here, for evidence of
circumstances indicating cause or causes for apprehension that the passenger's baggage is
dangerous and that it is failure of the common carrier's employee to act in the face of such evidence
that constitutes the cornerstone of the common carrier's liability in cases similar to the present one.

The principle that must control the servants of the carrier in a case like the one before us is
correctly stated in the opinion in the case of Clarke v. Louisville & N.R. Co. 20 Ky L. Rep.
839, 49 S.W. 1120. In that case Clarke was a passenger on the defendant's train. Another
passenger took a quantity of gasoline into the same coach in which Clarke was riding. It
ignited and exploded, by reason of which he was severely injured. The trial court
peremptorily instructed the jury to find for the defendant. In the opinion, affirming the
judgment, it is said: "It may be stated briefly, in assuming the liability of a railroad to its
passengers for injury done by another passenger, only where the conduct of this passenger
had been such before the injury as to induce a reasonably prudent and vigilant conductor to
believe that there was reasonable ground to apprehend violence and danger to the other
passengers, and in that case asserting it to be the duty of the conductor of the railroad train
to use all reasonable means to prevent such injury, and if he neglects this reasonable duty,
and injury is done, that then the company is responsible; that otherwise the railroad is not
responsible."

The opinion quotes with approval from the case of Gulf, C. & S. F. R. Co. vs. Shields, 9 Tex.
Civ. App. 652, 29 S. W. 652, in which case the plaintiff was injured by alcohol which had
been carried upon the train by another passenger. In the opinion in that case it is said: "It
was but a short period of time after the alcohol was spilt when it was set on fire and the
accident occurred, and it was not shown that appellant's employees knew that the jug
contained alcohol. In fact, it is not shown that the conductor or any other employee knew that
Harris had a jug with him until it fell out of the sack, though the conductor had collected ...
(his) fare, and doubtless knew that he had the sack on the seat with him. ... It cannot be
successfully denied that Harris had the right as a passenger to carry baggage on the train,
36

and that he had a right to carry it in a sack if he chose to do so. We think it is equally clear
that, in the absence of some intimation or circumstance indicating that the sack contained
Page

something dangerous to other passengers, it was not the duty of appellant's conductor or
any other employee to open the sack and examine its contents." Quinn v. Louisville & N. R.
 Co. 98 Ky. 231, 32 S. W. 742; Wood v. Louisville & N. R. Co. 101 Ky. 703, 42 S. W. 349;
Louisville & N. R. Co. v. Vincent, 29 Ky. L. Rep. 1049, 96 S. W. 898; Louisville & N. R. Co. v.
Renfro, 142 Ky. 590, 33 L. R. A. (N. S.) 133, 135 S. W. 266.2 (Emphasis supplied)

Explosive or Dangerous Contents. A carrier is ordinarily not liable for injuries to

passengers from fires or explosions caused by articles brought into its conveyances by other
passengers, in the absence of any evidence that the carrier, through its employees, was
aware of the nature of the article or had any reason to anticipate danger therefrom. (Bogard
v. Illinois C. R Co. 144 Ky. 649, 139 S. W. 855, 36 L. R. A.[N. S.] 337; Clarke v. Louisville &
N. R. Co. 101 Ky. 34, 39 S. W. 840, 36 L. R. A. 123 [explosion of can of gasoline]; East
Indian R. Co. v. Mukerjee [1901] A. C. [Eng.] 396, 3 B. R. C. 420 P. C. [explosion of
fireworks]; Annotation: 37 L. R. A. [N. S.] 725.)3

Appellant further invokes Article 1174 of the Civil Code which relieves all obligors, including, of
course, common carriers like appellant, from the consequence of fortuitous events. The court a
quo held that "the breach of contract (in this case) was not due to fortuitous event and that,
therefore, the defendant is liable in damages." Since We hold that appellant has succeeded in
rebutting the presumption of negligence by showing that it has exercised extraordinary diligence for
the safety of its passengers, "according to the circumstances of the (each) case", We deem it
unnecessary to rule whether or not there was any fortuitous event in this case.

ACCORDINGLY, the appealed judgment of the trial court is reversed and the case is dismissed,
without costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Fernando, JJ., concur.
Castro, J., concurs in the result.
Teehankee, J., reserves his vote.
37Page
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22985 January 24, 1968

BATANGAS TRANSPORTATION COMPANY, petitioner,

vs.
GREGORIO CAGUIMBAL, PANCRACIO CAGUIMBAL, MARIA MARANAN DE CAGUIMBAL,
BIAN TRANSPORTATION COMPANY and MARCIANO ILAGAN, respondents.

Ozaeta, Gibbs and Ozaeta and Domingo E. de Lara for petitioner.

Victoriano H. Endaya for respondents.

CONCEPCION, C.J.:

Appeal by certiorari from a decision of the Court of Appeals.

The main facts are set forth in said decision from which we quote:

There is no dispute at all that the deceased Pedro Caguimbal, Barrio Lieutenant of Barrio
Calansayan, San Jose, Batangas, was a paying passenger of BTCO bus, with plate TPU-
507, going south on its regular route from Calamba, Laguna, to Batangas, Batangas, driven
by Tomas Perez, its regular driver, at about 5:30 o'clock on the early morning of April 25,
1954. The deceased's destination was his residence at Calansayan, San Jose, Batangas.
The bus of the Bian Transportation Company, bearing plate TPU-820, driven by Marciano
Ilagan, was coming from the opposite direction (north-bound). Along the national highway at
Barrio Daraza, Tanauan, Batangas, on the date and hour above indicated, a horse-driven rig
(calesa) managed by Benito Makahiya, which was then ahead of the Bian bus, was also
coming from the opposite direction, meaning proceeding towards the north. As to what
transpired thereafter, the lower court chose to give more credence to defendant Batangas
Transportation Company's version which, in the words of the Court a quo, is as follows: "As
the BTCO bus was nearing a house, a passenger requested the conductor to stop as he was
going to alight, and when he heard the signal of the conductor, the driver Tomas Perez
slowed down his bus swerving it farther to the right in order to stop; at this juncture, a calesa,
then driven by Benito Makahiya was at a distance of several meters facing the BTCO bus
coming from the opposite direction; that at the same time the Bian bus was about 100
meters away likewise going northward and following the direction of the calesa; that upon
seeing the Bian bus the driver of the BTCO bus dimmed his light as established by Magno
Ilaw, the very conductor of the Bian bus at the time of the accident; that as the calesa and
the BTCO bus were passing each other from the opposite directions, the Bian bus following
the calesa swerved to its left in an attempt to pass between the BTCO bus and thecalesa;
that without diminishing its speed of about seventy (70) kilometers an hour, the Bian bus
passed through the space between the BTCO bus and the calesa hitting first the left side of
the BTCO bus with the left front corner of its body and then bumped and struck
38

the calesa which was completely wrecked; that the driver was seriously injured and the horse
was killed; that the second and all other posts supporting the top of the left side of the BTCO
Page

bus were completely smashed and half of the back wall to the left was ripped open. (Exhibits
1 and 2). The BTCO bus suffered damages for the repair of its damaged portion.
As a consequence of this occurrence, two (2) passengers of BTCO died, namely, Pedro Caguimbal
and Guillermo Tolentino, apart from others who were injured. The widow and children of Caguimbal
instituted the present action, which was tried jointly with a similar action of the Tolentinos, to recover
damages from the Batangas Transportation Company, hereinafter referred to as BTCO. The latter, in
turn, filed a third-party complaint against the Bian Transportation Company hereinafter referred
to as Bian and its driver, Marciano Ilagan. Subsequently, the Caguimbals amended their
complaint, to include therein, as defendants, said Bian and Ilagan.

After appropriate proceedings, the Court of First Instance of Batangas rendered a decision
dismissing the complaint insofar as the BTCO is concerned, without prejudice to plaintiff's right to
sue Bian which had stopped participating in the proceedings herein, owing apparently, to a case
in the Court of First Instance of Laguna for the insolvency of said enterprise and Ilagan, and
without pronouncement as to costs.

On appeal taken by the Caguimbals, the Court of Appeals reversed said decision and rendered
judgment for them, sentencing the BTCO, Bian and Ilagan to, jointly and severally, pay to the
plaintiffs the aggregate sum of P10,500.00 1 and the costs in both instances. Hence, this appeal by
BTCO, upon the ground that the Court of Appeals erred: 1) in finding said appellant liable for
damages; and 2) in awarding attorney's fees.

In connection with the first assignment of error, we note that the recklessness of defendant was,
manifestly, a major factor in the occurrence of the accident which resulted, inter alia, in the death of
Pedro Caguimbal. Indeed, as driver of the Bian bus, he overtook Benito Makahiya's horse-driven
rig or calesa and passed between the same and the BTCO bus despite the fact that the space
available was not big enough therefor, in view of which the Bian bus hit the left side of the BTCO
bus and then the calesa. This notwithstanding, the Court of Appeals rendered judgment against the
BTCO upon the ground that its driver, Tomas Perez, had failed to exercise the "extraordinary
diligence," required in Article 1733 of the new Civil Code, "in the vigilance for the safety" of his
passengers. 2

The record shows that, in order to permit one of them to disembark, Perez drove his BTCO bus
partly to the right shoulder of the road and partly on the asphalted portion thereof. Yet, he could have
and should have seen to it had he exercised "extraordinary diligence" that his bus was
completely outside the asphalted portion of the road, and fully within the shoulder thereof, the width
of which being more than sufficient to accommodate the bus. He could have and should have done
this, because, when the aforementioned passenger expressed his wish to alight from the bus, Ilagan
had seen the aforementioned "calesa", driven by Makahiya, a few meters away, coming from the
opposite direction, with the Bian bus about 100 meters behind the rig cruising at a good
speed. 3 When Perez slowed down his BTCO bus to permit said passenger to disembark, he must
have known, therefore, that the Bian bus would overtake the calesa at about the time when the
latter and BTCO bus would probably be on the same line, on opposite sides of the asphalted
portions of the road, and that the space between the BTCO bus and the "calesa" would not be
enough to allow the Bian bus to go through. It is true that the driver of the Bian bus should have
slowed down or stopped, and, hence, was reckless in not doing so; but, he had no especial
obligations toward the passengers of the BTCO unlike Perez whose duty was to exercise "utmost" or
"extraordinary" diligence for their safety. Perez was thus under obligation to avoid a situation which
would be hazardous for his passengers, and, make their safety dependent upon the diligence of the
Bian driver. Such obligation becomes more patent when we considered the fact of which the
Court may take judicial cognizance that our motor vehicle drivers, particularly those of public
39

service utilities, have not distinguished themselves for their concern over the safety, the comfort or
the convenience of others. Besides, as correctly stated in the syllabus to Brito Sy vs. Malate Taxicab
Page

& Garage, Inc., 4

 In an action based on a contract of carriage, the court need not make an express finding of
fault or negligence on the part of the carrier in order to hold it responsible to pay the
damages sought for by the passenger. By the contract of carriage, the carrier assumes the
express obligation to transport the passenger to his destination safely and to observe
extraordinary diligence with a due regard for all the circumstances, and any injury that might
be suffered by the passenger is right away attributable to the fault or negligence of the carrier
(Article 1756, new Civil Code). This is an exception to the general rule that negligence must
be proved, and it is therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the new Civil Code.

In the case at bar, BTCO has not proven the exercise of extraordinary diligence on its part. For this
reason, the case of Isaac vs. A. L. Ammen Trans. Co., Inc. 5 relied upon by BTCO, is not in point, for,
in said case, the public utility driver had done everything he could to avoid the accident, and could
not have possibly avoided it, for he "swerved the bus to the very extreme right of the road," which
the driver, in the present case, had failed to do.

As regards the second assignment of error, appellant argues that the award of attorney's fees is not
authorized by law, because, of the eleven (11) cases specified in Article 1208 of the new Civil Code,
only the fifth and the last are relevant to the one under consideration; but the fifth case requires bad
faith, which does not exist in the case at bar. As regards the last case, which permits the award,
"where the court deems it just and equitable that attorney's fees . . . should be recovered," it is urged
that the evidence on record does not show the existence of such just and equitable grounds.

We, however, believe otherwise, for: (1) the accident in question took place on April 25, 1954, and
the Caguimbals have been constrained to litigate for over thirteen (13) years to vindicate their rights;
and (2) it is high time to impress effectively upon public utility operators the nature and extent of their
responsibility in respect of the safety of their passengers and their duty to exercise greater care in
the selection of drivers and conductor and in supervising the performance of their duties, in
accordance, not only with Article 1733 of the Civil Code of the Philippines, but, also, with Articles
1755 and 1756 thereof 6 and the spirit of these provisions, as disclosed by the letter thereof, and
elucidated by the Commission that drafted the same. 7

WHEREFORE, the decision appealed from, should be, as it is hereby, affirmed, with the costs of this
instance against appellant Batangas Transportation Company.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P., J., took no part.

Footnotes

1
For funeral expenses P1,000
For the death of Pedro Caguimbal 6,000
For moral damages 2,000
40

For attorney's fees 1,500

Page
 P10,000

2
"Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case."

3
70 km. p.h.

4
102 Phil. 482.

5
101 Phil. 1046.

6
"Art. 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances."

"Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755."

7
"A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard
for all the circumstances. This extraordinary diligence required of common carriers is
calculated to protect the passengers from the tragic mishaps that frequently occur in
connection with rapid modern transportation. This high standard of care is imperatively
demanded by the preciousness of human life and by the consideration that every person
must in every way be safeguarded against all injury." (Report of the Code Commission, pp.
35-36.)
41Page
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20761 July 27, 1966

LA MALLORCA, petitioner,
vs.
HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents.

G. E. Yabut, R. Monterey and M.C. Lagman for petitioner.

Ahmed Garcia for respondents.

BARRERA, J.:

La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No. 23267-R,
holding it liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et al.,
P6,000.00 for the death of his minor daughter Raquel Beltran, plus P400.00 as actual damages.

The facts of the case as found by the Court of Appeals, briefly are:

On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their
minor daughters, namely, Milagros, 13 years old, Raquel, about 4 years old, and Fe, over 2
years old, boarded the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953
Pampanga), owned and operated by the defendant, at San Fernando, Pampanga, bound for
Anao, Mexico, Pampanga. At the time, they were carrying with them four pieces of baggages
containing their personal belonging. The conductor of the bus, who happened to be a half-
brother of plaintiff Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full
fares of the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and Fe,
since both were below the height at which fare is charged in accordance with the appellant's
rules and regulations.

After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers
bound therefor, among whom were the plaintiffs and their children to get off. With respect to
the group of the plaintiffs, Mariano Beltran, then carrying some of their baggages, was the
first to get down the bus, followed by his wife and his children. Mariano led his companions
to a shaded spot on the left pedestrians side of the road about four or five meters away from
the vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which
he had left behind, but in so doing, his daughter Raquel followed him, unnoticed by her
father. While said Mariano Beltran was on the running board of the bus waiting for the
conductor to hand him his bayong which he left under one of its seats near the door, the bus,
whose motor was not shut off while unloading, suddenly started moving forward, evidently to
resume its trip, notwithstanding the fact that the conductor has not given the driver the
customary signal to start, since said conductor was still attending to the baggage left behind
by Mariano Beltran. Incidentally, when the bus was again placed into a complete stop, it had
42

travelled about ten meters from the point where the plaintiffs had gotten off.
Page
 Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the
running board without getting his bayong from the conductor. He landed on the side of the
road almost in front of the shaded place where he left his wife and children. At that precise
time, he saw people beginning to gather around the body of a child lying prostrate on the
ground, her skull crushed, and without life. The child was none other than his daughter
Raquel, who was run over by the bus in which she rode earlier together with her parents.

For the death of their said child, the plaintiffs commenced the present suit against the
defendant seeking to recover from the latter an aggregate amount of P16,000 to cover moral
damages and actual damages sustained as a result thereof and attorney's fees. After trial on
the merits, the court below rendered the judgment in question.

On the basis of these facts, the trial court found defendant liable for breach of contract of carriage
and sentenced it to pay P3,000.00 for the death of the child and P400.00 as compensatory damages
representing burial expenses and costs.

On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract
in the case, for the reason that when the child met her death, she was no longer a passenger of the
bus involved in the incident and, therefore, the contract of carriage had already terminated. Although
the Court of Appeals sustained this theory, it nevertheless found the defendant-appellant guilty
of quasi-delict and held the latter liable for damages, for the negligence of its driver, in accordance
with Article 2180 of the Civil Code. And, the Court of Appeals did not only find the petitioner liable,
but increased the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00
granted by the trial court.

In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable
for quasi-delict, considering that respondents complaint was one for breach of contract, and (2) in
raising the award of damages from P3,000.00 to P6,000.00 although respondents did not appeal
from the decision of the lower court.

Under the facts as found by the Court of Appeals, we have to sustain the judgement holding
petitioner liable for damages for the death of the child, Raquel Beltran. It may be pointed out that
although it is true that respondent Mariano Beltran, his wife, and their children (including the
deceased child) had alighted from the bus at a place designated for disembarking or unloading of
passengers, it was also established that the father had to return to the vehicle (which was still at a
stop) to get one of his bags or bayong that was left under one of the seats of the bus. There can be
no controversy that as far as the father is concerned, when he returned to the bus for
hisbayong which was not unloaded, the relation of passenger and carrier between him and the
petitioner remained subsisting. For, the relation of carrier and passenger does not necessarily cease
where the latter, after alighting from the car, aids the carrier's servant or employee in removing his
baggage from the car.1 The issue to be determined here is whether as to the child, who was already
led by the father to a place about 5 meters away from the bus, the liability of the carrier for her safety
under the contract of carriage also persisted.

It has been recognized as a rule that the relation of carrier and passenger does not cease at the
moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point
of destination, but continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay
within this rule is to be determined from all the circumstances. Thus, a person who, after alighting
43

from a train, walks along the station platform is considered still a passenger. 2 So also, where a
passenger has alighted at his destination and is proceeding by the usual way to leave the company's
Page

premises, but before actually doing so is halted by the report that his brother, a fellow passenger,
has been shot, and he in good faith and without intent of engaging in the difficulty, returns to relieve
his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger
entitled as such to the protection of the railroad and company and its agents. 3

In the present case, the father returned to the bus to get one of his baggages which was not
unloaded when they alighted from the bus. Raquel, the child that she was, must have followed the
father. However, although the father was still on the running board of the bus awaiting for the
conductor to hand him the bag or bayong, the bus started to run, so that even he (the father) had to
jump down from the moving vehicle. It was at this instance that the child, who must be near the bus,
was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had
exercised the "utmost diligence" of a "very cautions person" required by Article 1755 of the Civil
Code to be observed by a common carrier in the discharge of its obligation to transport safely its
passengers. In the first place, the driver, although stopping the bus, nevertheless did not put off the
engine. Secondly, he started to run the bus even before the bus conductor gave him the signal to go
and while the latter was still unloading part of the baggages of the passengers Mariano Beltran and
family. The presence of said passengers near the bus was not unreasonable and they are, therefore,
to be considered still as passengers of the carrier, entitled to the protection under their contract of
carriage.

But even assuming arguendo that the contract of carriage has already terminated, herein petitioner
can be held liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article
2180 of the Civil Code. Paragraph 7 of the complaint, which reads

That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiffs'
daughter, was caused by the negligence and want of exercise of the utmost diligence of a
very cautious person on the part of the defendants and their agent, necessary to transport
plaintiffs and their daughter safely as far as human care and foresight can provide in the
operation of their vehicle.

is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while
incompatible with the other claim under the contract of carriage, is permissible under Section 2 of
Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of action in the alternative,
be they compatible with each other or not, to the end that the real matter in controversy may be
resolved and determined.4

The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when
it was alleged in the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by
the negligence and want of exercise of the utmost diligence of a very cautious person on the part of
the defendants and their agent." This allegation was also proved when it was established during the
trial that the driver, even before receiving the proper signal from the conductor, and while there were
still persons on the running board of the bus and near it, started to run off the vehicle. The
presentation of proof of the negligence of its employee gave rise to the presumption that the
defendant employer did not exercise the diligence of a good father of the family in the selection and
supervision of its employees. And this presumption, as the Court of Appeals found, petitioner had
failed to overcome. Consequently, petitioner must be adjudged peculiarily liable for the death of the
child Raquel Beltran.

The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals,
however, cannot be sustained. Generally, the appellate court can only pass upon and consider
44

questions or issues raised and argued in appellant's brief. Plaintiffs did not appeal from that portion
of the judgment of the trial court awarding them on P3,000.00 damages for the death of their
Page

daughter. Neither does it appear that, as appellees in the Court of Appeals, plaintiffs have pointed
out in their brief the inadequacy of the award, or that the inclusion of the figure P3,000.00 was
merely a clerical error, in order that the matter may be treated as an exception to the general
rule.5Herein petitioner's contention, therefore, that the Court of Appeals committed error in raising the
amount of the award for damages is, evidently, meritorious. 1wph1.t

Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the petitioner to
pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child,
Raquel Beltran, and the amount of P400.00 as actual damages. No costs in this instance. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,
concur.
Makalintal, J., concurs in the result.

Footnotes

1
Ormond v. Hayer, 60 Tex. 180, cited in 10 C.J. 626.

2
Keefe v. Boston, etc., R. Co., 142 Mass. 251, 7 NE 874.

3
Layne v. Chesapeake, etc. R. Co., 68 W. Va. 213, 69 SE 700, 31 LRANS 414.

4
Melayan, et al. v. Melayan, et al., G.R. No. L-14518, Aug. 29, 1960.

5
Sec. 7, Rule 51, new Rules of Court.
45
Page
 Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 161745 September 30, 2005

LEA MER INDUSTRIES, INC., Petitioners,

vs.
MALAYAN INSURANCE CO., INC.,* Respondent.

DECISION

PANGANIBAN, J.:

ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods
entrusted to them, as required by the nature of their business and for reasons of public policy.
Consequently, the law presumes that common carriers are at fault or negligent for any loss or
damage to the goods that they transport. In the present case, the evidence submitted by petitioner to
overcome this presumption was sorely insufficient.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9,
2002 Decision2and the December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV
No. 66028. The challenged Decision disposed as follows:

"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial
Court of Manila, Branch 42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE.
[Petitioner] is ordered to pay the [herein respondent] the value of the lost cargo in the amount
of P565,000.00. Costs against the [herein petitioner]."4

The assailed Resolution denied reconsideration.

The Facts

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment
of 900 metric tons of silica sand valued at P565,000.5 Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila. On October 25, 1991, the
silica sand was placed on board Judy VII, a barge leased by Lea Mer.6 During the voyage, the vessel
sank, resulting in the loss of the cargo.7

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. 8 To recover the
amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from
Lea Mer, which refused to comply. Consequently, Malayan instituted a Complaint with the Regional
Trial Court (RTC) of Manila on September 4, 1992, for the collection of P565,000 representing the
amount that respondent had paid Vulcan.9
46 Page

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss
was a fortuitous event.10 The RTC noted that the vessel had sunk because of the bad weather
condition brought about by Typhoon Trining. The court ruled that petitioner had no advance
knowledge of the incoming typhoon, and that the vessel had been cleared by the Philippine Coast
Guard to travel from Palawan to Manila.11

Ruling of the Court of Appeals

Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila.
Thus, the loss of the cargo was occasioned by petitioners fault, not by a fortuitous event. 12

Hence, this recourse.13

The Issues

Petitioner states the issues in this wise:

"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been
presented as a witness of the said report during the trial of this case before the lower court can be
admitted in evidence to prove the alleged facts cited in the said report.

"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of
fact of the Regional Trial Court which clearly and unequivocally held that the loss of the cargo
subject of this case was caused by fortuitous event for which herein petitioner could not be held
liable.

"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse
of discretion in disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y
Villegal, to the effect that the vessel Judy VII was seaworthy at the time of incident and further in
disregarding the testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the
effect that typhoon Trining did not hit Metro Manila or Palawan."14

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2)
whether the survey report of Jesus Cortez is admissible in evidence.

The Courts Ruling

The Petition has no merit.

First Issue:

Liability for Loss of Cargo

Question of Fact

The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous
event. This issue involves primarily a question of fact, notwithstanding petitioners claim that it
pertains only to a question of law. As a general rule, questions of fact may not be raised in a petition
for review.15 The present case serves as an exception to this rule, because the factual findings of the
47

appellate and the trial courts vary.16 This Court meticulously reviewed the records, but found no
reason to reverse the CA.
Page
Rule on Common Carriers

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 -- when this service is
offered to the public for compensation.17 Petitioner is clearly a common carrier, because it offers to
the public its business of transporting goods through its vessels.18

Thus, the Court corrects the trial courts finding that petitioner became a private carrier when Vulcan
chartered it.19 Charter parties are classified as contracts of demise (or bareboat) and affreightment,
which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer; anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all." 20

The distinction is significant, because a demise or bareboat charter indicates a business undertaking
that isprivate in character. 21 Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by the law on common carriers. 22

The Contract in the present case was one of affreightment, as shown by the fact that it was
petitioners crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily,
petitioner was a common carrier, and the pertinent law governs the present factual circumstances.

Extraordinary Diligence Required

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and
the safety of the passengers they transport, as required by the nature of their business and for
reasons of public policy.24Extraordinary diligence requires rendering service with the greatest skill
and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery. 25

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage
to the goods that they have transported.26 This presumption can be rebutted only by proof that they
observed extraordinary diligence, or that the loss or damage was occasioned by any of the following
causes:27

"(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."28

48

Rule on Fortuitous Events

Page
Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event
which could not be foreseen, or which, though foreseen, was inevitable." Thus, if the loss or damage
was due to such an event, a common carrier is exempted from liability.

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply with their obligations,
must have been independent of human will; (b) the event that constituted the caso fortuito must have
been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and
(d) the obligor must have been free from any participation in the aggravation of the resulting injury to
the creditor.29

To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate
and only cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize
the loss before, during and after the occurrence of the fortuitous event. 31

Loss in the Instant Case

There is no controversy regarding the loss of the cargo in the present case. As the common carrier,
petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the loss,
or that the loss had been occasioned by a fortuitous event -- an exempting circumstance.

It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the
loss of the cargo was due to the bad weather condition brought about by Typhoon Trining. 32 Evidence
was presented to show that petitioner had not been informed of the incoming typhoon, and that the
Philippine Coast Guard had given it clearance to begin the voyage.33 On October 25, 1991, the date
on which the voyage commenced and the barge sank, Typhoon Trining was allegedly far from
Palawan, where the storm warning was only "Signal No. 1."34

The evidence presented by petitioner in support of its defense of fortuitous event was sorely
insufficient. As required by the pertinent law, it was not enough for the common carrier to show that
there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a
fact it miserably failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before,
during or after the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no
longer remember whether anything had been done to minimize loss when water started entering the
barge.36 This fact was confirmed during his cross-examination, as shown by the following brief
exchange:

"Atty. Baldovino, Jr.:

Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by
you and the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?

xxxxxxxxx

Atty. Baldovino, Jr.:

49

Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit
Page

and barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx

Court:

Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?

Joey Draper:

I can no longer remember sir, because that happened [a] long time ago."37

Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a
preponderance of evidence that the barge was not seaworthy when it sailed for
Manila.38 Respondent was able to prove that, in the hull of the barge, there were holes that might
have caused or aggravated the sinking.39 Because the presumption of negligence or fault applied to
petitioner, it was incumbent upon it to show that there were no holes; or, if there were, that they did
not aggravate the sinking.

Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna,
testified that the barge was in "tip-top" or excellent condition, 40 but that he had not personally
inspected it when it left Palawan.41

The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31,
1991, did not conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the
Certificate is disputably presumed.43 It could be contradicted by competent evidence, which
respondent offered. Moreover, this evidence did not necessarily take into account the actual
condition of
the vessel at the time of the commencement of the voyage. 44

Second Issue:

Admissibility of the Survey Report

Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor, should not
have been admitted in evidence. The Court partly agrees. Because he did not testify during the
trial,46 then the Report that he had prepared was hearsay and therefore inadmissible for the purpose
of proving the truth of its contents.

The Survey Report Not the Sole Evidence

The facts reveal that Cortezs Survey Report was used in the testimonies of respondents witnesses
-- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of
Toplis and Harding Company.47 Soriano testified that the Survey Report had been used in preparing
the final Adjustment Report conducted by their company.48 The final Report showed that the barge
was not seaworthy because of the existence of the holes. Manlapig testified that he had prepared
that Report after taking into account the findings of the surveyor, as well as the pictures and the
sketches of the place where the sinking occurred.49 Evidently, the existence of the holes was proved
by the testimonies of the witnesses, not merely by Cortez Survey Report.
50

Rule on Independently
Page

Relevant Statement
That witnesses must be examined and presented during the trial, 50 and that their testimonies must be
confined to personal knowledge is required by the rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. A witness can
testify only to those facts which he knows of his personal knowledge; that is, which are derived from
his own perception, except as otherwise provided in these rules." 51

On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which respondent had
offered as evidence.52 Well-settled is the rule that, unless the affiant is presented as a witness, an
affidavit is considered hearsay.53

An exception to the foregoing rule is that on "independently relevant statements." A report made by a
person is admissible if it is intended to prove the tenor, not the truth, of the
statements.54 Independent of the truth or the falsity of the statement given in the report, the fact that
it has been made is relevant. Here, the hearsay rule does not apply.55

In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of
the testimonies of respondents witnesses. The referral to Cortezs Report was in relation to
Manlapigs final Adjustment Report. Evidently, it was the existence of the Survey Report that was
testified to. The admissibility of that Report as part of the testimonies of the witnesses was correctly
ruled upon by the trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome the
presumption of fault that applies to common carriers.

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED.
Costs against petitioner.

SO ORDERED.

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman, Third Division

51Page
 SECOND DIVISION

[G.R. No. 136960. December 8, 2003]

IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner,

vs. REMINGTON INDUSTRIAL SALES
CORPORATION, respondent.

DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the August 28, 1998 Decision and the December 24, 1998 Resolution of the
[1]

Court of Appeals in CA-G.R. CV No. 49725, affirming in toto the decision of the
[2]

Regional Trial Court of Manila (Branch 9).

The factual background of the case is summarized by the appellate court, thus:

Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation
(hereafter Remington for short) ordered from defendant Wangs Company, Inc.
(hereafter Wangs for short) 194 packages of hot rolled steel sheets, weighing 686.565
metric tons, with a total value of $219,380.00, then equivalent
to P6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd.,
in Hongkong. On or about November 26, 1991, the 194 packages were loaded on
board the vessel MV Indian Reliance at the Port of Gdynia, Poland, for transportation
to the Philippines, under Bill of Lading No. 27 (Exh. C). The vessels owner/charterer
is represented in the Philippines by defendant Iron Bulk Shipping Phils., Inc.
(hereafter Iron Bulk for short).

Remington had the cargo insured for P6,469,759.17 during the voyage by Marine
Insurance Policy No. 7741 issued by defendant Pioneer Asia Insurance Corporation
(hereafter Pioneer for short).

On or about January 3, 1992, the MV Indian Reliance arrived in the Port of Manila,
and the 194 packages of hot rolled steel sheets were discharged from the vessel. The
cargo was inspected twice by SGS Far East Ltd. and found to be wet (with slight trace
of salt) and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal
52

claims for loss amounting to P544,875.17 with Pioneer, Iron Bulk, Manila Port
Page
Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such
claims.

Thus, plaintiff filed an action for collection, plus attorneys fees, against Wangs,
Pioneer and Iron Bulk. . . .[3]

and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:

The evidence on record shows that the direct and immediate cause of the rusting of
the goods imported by the plaintiff was the water found inside the cargo hold of M/V
Indian Reliance wherein those goods were stored during the voyage, particularly the
water found on the surface of the merchandise and on the floor of the vessel
hatch. And even at the time the cargoes were being unloaded by crane at the Pier of
Manila, Iron Bulks witnesses noticed that water was dripping from the cargoes. (TSN
dated July 20, 1993, pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN
dated June 3, 1994, pp. 31-32; TSN dated July 14, 1994, pp. 10-11).

SGS Far East Limited, an inspection agency hired by defendant Wangs, issued
Certificate of Inspection and Analysis No 6401/35071 stating the following findings:

Results of tests indicated that a very slight trace of salt was present in the sample as
confirmed by the test of Sodium. The results however does not necessarily indicate
that the rusty condition of the material was caused by seawater.

Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer,
submitted a Report (Exh. 10-Pioneer) dated February 20, 1992 to Pioneer which
pertinently reads as follows:

All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of
cotton were rubbed by us on different rusty steel sheets and submitted to Precision
Analytical Services, Inc. to determine the cause of wetting. Result thereof as per
Laboratory Report No. 077-92 of this firm showed that: The sample was
wetted/contaminated by fresh water.

After considering the foregoing test results and the other evidence on record, the
Court found no clear and sufficient proof showing that the water which stayed in the
cargo hold of the vessel and which contaminated the merchandise was seawater. The
Court, however, is convinced that the subject goods were exposed to salt conditions as
evidenced by the presence of about 17% Sodium on the rust sample tested by SGS.
53

As to the source of the water found in the cargo hold, there is also no concrete and
Page

competent evidence on record establishing that such water leaked from the pipe
installed in Hatch No. 1 of M/V Indian Reliance, as claimed by plaintiff. Indeed, the
plaintiff based such claim only from information it allegedly received from its
supplier, as stated in its letter to defendant Iron Bulk dated March 28, 1992 (Exh. K-
3). And no one took the witness stand to confirm or establish the alleged leakage.

Nevertheless, since Iron Bulks own evidence shows that there was water inside the
cargo hold of the vessel and that the goods stored therein were wet and full of rust,
without sufficient explanation on its part as to when and how water found its way into
the vessel holds, the Court finds and so holds that Iron Bulk failed to exercise the
extraordinary diligence required by law in the handling and transporting of the goods.

.....

Iron Bulk did not even exercise due diligence because admittedly, water was dripping
from the cargoes at the time they were being discharged from the vessel. Had Iron
Bulk done so, it could have discovered by ordinary inspection that the cargo holds and
the cargoes themselves were affected by water and it could have provided some
remedial measures to prevent or minimize the damage to the cargoes. But it did not,
showing its lack of care and diligence over the goods.

Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to
establish by any clear and convincing evidence any of the exempting causes provided
for in Article 1734 of the Civil Code, it is presumed to have been at fault or to have
acted negligently.

.....

WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby
renders judgment in favor of it and against all the defendants herein as follows:

1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the

following amounts:

a) P544,875.17 representing the loss allowance for the goods insured, plus interest at
the legal rate (6% p.a.) reckoned from the time of filing of this case until full payment
is made;

b) P50,000.00 for and as attorneys fees; and

c) the cost of suit.

54Page
2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by
defendant Pioneer of the foregoing award to the plaintiff, to reimburse defendant
Pioneer the total amount it paid to the plaintiff, in respect to its right of subrogation.

3. Denying the counterclaims of all the defendants and the cross-claim of defendant
Wangs Company, Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.

4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against

defendant Iron Bulk by virtue of its right of subrogation.

5. Dismissing the case against defendant Wangs Company, Inc.

SO ORDERED. [4]

Only Iron Bulk filed the present petition raising the following Assignment of Errors:

FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of
Lading to establish the condition of the cargo upon loading;

SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo
was not contaminated during the time the same was in possession of the vessel, as
evidenced by the express finding of the lower court that the contamination and rusting
was chemically established to have been caused by fresh water;

THRIDLY, the Court of Appeals erred in making a sweeping finding that the
petitioner as carrier failed to exercise the requisite diligence under the law, which is
contrary to what is demonstrated by the evidence adduced; and

FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated
by the Court below, which is at best speculative and not supported by damages. [5]

The general rule is that only questions of law are entertained in petitions for review
by certiorari under Rule 45 of the Rules of Court. The trial courts findings of fact, which
the Court of Appeals affirmed, are generally binding and conclusive upon this court.
There are recognized exceptions to this rule, among which are: (1) the conclusion is
[6]

grounded on speculations, surmises or conjectures; (2) the inference is manifestly

mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment
is based on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there
is no citation of specific evidence on which the factual findings are based; (7) the finding
of absence of facts is contradicted by the presence of evidence on record; (8) the
findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly
55

overlooked certain relevant and undisputed facts that, if properly considered, would
justify a different conclusion; (10) the findings of the CA are beyond the issues of the
Page

case; and (11) such findings are contrary to the admissions of both parties. Petitioner
[7]
failed to demonstrate that its petition falls under any one of the above exceptions,
except as to damages which will be discussed forthwith.
Anent the first assigned error: That the Court of Appeals erred in relying on the pro
forma Bills of Lading to establish the condition of the cargo upon landing.
There is no merit to petitioners contention that the Bill of Lading covering the subject
cargo cannot be relied upon to indicate the condition of the cargo upon loading. It is
settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. vs.
United States Lines, we held that:

[A] bill of lading operates both as a receipt and as a contract. It is a receipt for the
goods shipped and a contract to transport and deliver the same as therein
stipulated. As a receipt, it recites the date and place of shipment, describes the goods
as to quantity, weight, dimensions, identification marks and condition, quality and
value. As a contract, it names the contracting parties, which include the consignee,
fixes the route, destination, and freight rate or charges, and stipulates the rights and
obligations assumed by the parties. [8]

We find no error in the findings of the appellate court that the questioned bill of lading is
a clean bill of lading, i.e., it does not indicate any defect in the goods covered by it, as
shown by the notation, CLEAN ON BOARD and Shipped at the Port of Loading in
[9]

apparent good condition on board the vessel for carriage to Port of Discharge. [10]

Petitioner presented evidence to prove that, contrary to the recitals contained in the
subject bill of lading, the cargo therein described as clean on board is actually wet and
covered with rust.Indeed, having the nature of a receipt, or an acknowledgement of the
quantity and condition of the goods delivered, the bill of lading, like any other receipts,
may be explained, varied or even contradicted. However, we agree with the Court of
[11]

Appeals that far from contradicting the recitals contained in the said bill, petitioners own
evidence shows that the cargo covered by the subject bill of lading, although it was
partially wet and covered with rust was, nevertheless, found to be in a fair, usually
accepted condition when it was accepted for shipment. [12]

The fact that the issued bill of lading is pro forma is of no moment. If the bill of
lading is not truly reflective of the true condition of the cargo at the time of loading to the
effect that the said cargo was indeed in a damaged state, the carrier could have refused
to accept it, or at the least, made a marginal note in the bill of lading indicating the true
condition of the merchandise. But it did not. On the contrary, it accepted the subject
cargo and even agreed to the issuance of a clean bill of lading without taking any
exceptions with respect to the recitals contained therein. Since the carrier failed to
annotate in the bill of lading the alleged damaged condition of the cargo when it was
loaded, said carrier and the petitioner, as its representative, are bound by the
description appearing therein and they are now estopped from denying the contents of
the said bill.
56

Petitioner presented in evidence the Mates Receipts and a Survey Report to

[13] [14]
Page

prove the damaged condition of the cargo. However, contrary to the asseveration of
petitioner, the Mates Receipts and the Survey Report which were both dated November
6, 1991, are unreliable evidence of the true condition of the shipment at the time of
loading since said receipts and report were issued twenty days prior to loading and
before the issuance of the clean bill of lading covering the subject cargo on November
26, 1991. Moreover, while the surveyor, commissioned by the carrier to inspect the
subject cargo, found the inspected steel goods to be contaminated with rust he,
nonetheless, estimated the merchandise to be in a fair and usually accepted condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not
finding that the contamination and rusting was chemically to have been caused by fresh
water; and that the appellate court erred in finding that petitioner failed to exercise the
requisite diligence under the law.
Petitioners arguments in support of the assigned errors are not plausible. Even
granting, for the sake of argument, that the subject cargo was already in a damaged
condition at the time it was accepted for transportation, the carrier is not relieved from
its responsibility to exercise due care in handling the merchandise and in employing the
necessary precautions to prevent the cargo from further deteriorating. It is settled that
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 safe carriage and delivery. It
[15]

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. Under Article 1742 of the Civil Code, even if the loss,
[16]

destruction, or deterioration of the goods should be caused, among others, by the

character of the goods, the common carrier must exercise due diligence to forestall or
lessen the loss. This extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them. In the instant case, if
[17]

the carrier indeed found the steel sheets to have been covered by rust at the time that it
accepted the same for transportation, such finding should have prompted it to apply
additional safety measures to make sure that the cargo is protected from
corrosion. This, the carrier failed to do.
Article 1734 of the Civil Code states that:

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;

57

(3) Act or omission of the shipper or owner of the goods;

Page
(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Except in the cases mentioned under Article 1734, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required
under the law. The Court of Appeals did not err in finding that no competent evidence
[18]

was presented to prove that the deterioration of the subject cargo was brought about by
any of the causes enumerated under the aforequoted Article 1734 of the said Code. We
likewise agree with appellate courts finding that the carrier failed to present proof that it
exercised extraordinary diligence in its vigilance over the goods. The presumption that
the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the
amount of damages awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that the
amount of damages adjudicated by the trial court and affirmed by the appellate court is
not in consonance with the evidence presented by the parties. The judgments of both
lower courts are based on misapprehension of facts as we find no competent evidence
to prove the actual damages sustained by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the
steel sheets, the cargo consigned to Remington consisted of hot rolled steel sheets with
lengths of eight feet and twenty feet. The eight-foot length steel sheets contained in 142
packages had a weight of 491.54 metric tons while the twenty-foot steel sheets which
were contained in 52 packages weighed 194.25 metric tons. The goods were valued
[19]

at $320.00 per metric ton. [20]

It is not disputed that at the time of inspection of the subject merchandise conducted
by SGS Far East Limited on January 21-24, 1992 and January 27-28, 1992, only 30 % of
said goods originally consigned to Remington was available for examination at
Remingtons warehouse in Manila and that Remington had already disposed of the
remaining 70%. In the Certificate of Inspection issued by SGS, dated February 18, 1992,
it was reported that the surface of the steel sheets with length of twenty feet were found
to be rusty extending from 60 % to 80% per plate. However, there was no proof to show
[21]

how many metric tons of twenty-foot and eight-foot length steel sheets, respectively,
comprise the remaining 30% of the cargo. No competent evidence was presented to
prove the weight of the remaining twenty-foot length steel sheets, on the basis of which
the amount of actual damages could have been ascertained.
Remington claims that 70 % of the twenty-foot length steel sheets were
damaged. Remingtons general manager, Rowina Tan Saban, testified that the
70% figure was based on the reports submitted by SGS and Tan-Gatue and Remingtons
58

independent survey to confirm these reports. Saban further testified that on the basis
[22]

of these reports, Remington came up with a summary of the amount of damages

Page

sustained by the subject cargo, to wit:

Plates 8 ft lengths 491.540 MT - US$157,292.80
Quantity Damaged 25%
Loss Allowance 13%
Total Plates 8 ft lengths US$ 15,211.56
Plates 20 ft lengths 194.025 MT - US$ 62,088.00
Quantity Damaged 70%
Loss Allowance 35%
Total Plates 20 ft lengths P544,875.71
with the following detailed computation:
Plates under 8 ft lengths 491.540 MT @ $320./MT
US $157,292.80
%
Multiply by 25 Qty. damaged $ 39,323.20
13% Loss allowance $ 5,112.02
Plates under 20 ft. lengths 194.025 MT @ $320./MT
US $ 62,088.00
Multiple 70% Qty. damaged US $ 43,461.60
35% Loss allowance $ 15,211.56
Total claim US $ 5,112.02
$15,211.56
US $20,323.58 @ $26.81 = P544,875.17
and which the trial court based the actual damages awarded in favor of Remington.
However, after a careful examination of the reports submitted by SGS and Tan-
Gatue, we find nothing in the said reports and computation to justify the claim of
Remington that 70% of the twenty-foot length steel sheets were damaged. Neither does
the alleged survey conducted by Remington consisting only of photographs, prove the [23]

quantity of the damaged cargo.

As to the eight-foot length steel sheets, SGS reported that they were found oiled all
over which makes it hard to determine the rust condition on its surface. On the other
[24]

hand, the report issued by Tan-Gatue did not specify the extent of damage done to the
said merchandise. There is also no proof of the weight of the remaining eight-foot
[25]

length steel sheets. From the foregoing, it is evident that the extent of actual damage to
the subject cargo is likewise not satisfactorily proven.
It is settled that actual or compensatory damages are not presumed and should be
proven before they are awarded. In Spouses Quisumbing vs. Meralco , we held that
[26]

Actual damages are compensation for an injury that will put the injured party in the
59

position where it was before it was injured. They pertain to such injuries or losses that
Page

are actually sustained and susceptible of measurement. Except as provided by law or

stipulation, a party is entitled to an adequate compensation only for such pecuniary
loss as it has duly proven.

Hence, for failure of Remington to present sufficient evidence which is susceptible of

measurement, it is not entitled to actual damages.
Nonetheless, since it was established that the subject steel sheets sustained
damage by reason of the negligence of the carrier, albeit no competent proof was
presented to justify the award of actual damages, we find that Remington is entitled to
temperate damages in accordance with Articles 2216, 2224 and 2225 of the Civil Code,
to wit:

Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. The assessment of
such damages, except liquidated ones, is left to the discretion of the court, according
to the circumstances of each case.

Art. 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
proved with certainty.

Art. 2225. Temperate damages must be reasonable under the circumstances.

Thirty percent of the alleged cost of damages, i.e., P544, 875.17 or P165,000.00 is
reasonable enough for temperate damages.
We likewise agree with petitioners claim that it should not be held liable for the
payment of attorneys fees because it was always willing to settle its liability by offering
to pay 30% of Remingtons claim and that it is only Remingtons unwarranted refusal to
accept such offer that led to the filing of the instant case. As found earlier, there is no
evidence that the 70% of the 20-foot length steel sheets which had been disposed of had
been damaged. Neither is there competent evidence proving the actual extent of
damage sustained by the eight-foot length steel sheets.Petitioner was therefore justified
in refusing to satisfy the full amount of Remingtons claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28,
1998 and the Resolution dated December 24, 1998, in CA-G.R. CV No. 49725 are
MODIFIED as follows:The award of actual damages and attorneys fees are
deleted. Respondent is awarded temperate damages in the amount of P165,000.00. In
all other respects, the appealed decision and resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.
60

Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga. JJ., concur.

Page
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 140349 June 29, 2005

SULPICIO LINES, INC., petitioner,

vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals
reversing the Decision2 of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the
complaint for damages for failure of the plaintiff to prove its case with a preponderance of evidence.
Assailed as well is the Resolution3 of the Court of Appeals denying petitioners Motion for
Reconsideration.

THE FACTS

On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper)
entered into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor
of the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3)
wooden crates containing one hundred thirty-six (136) cartons of inductors and LC compound on
board the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden
Singapore Pte, Ltd.

For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of
the vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier).
The vessel arrived at the North Harbor, Manila, on 24 February 1992.

During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the
cargo hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an
alleged finding that the contents of the crate were no longer usable for their intended purpose, they
were rejected as a total loss and returned to Cebu City.

The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment
from respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance
policy issued to the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage
value or P194, 220.31.

The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated
the latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and
61

petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement
from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied.
Page
On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-
63337 with the trial court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993,
petitioner-carrier filed its Answer with Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer
with Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were
truly in bad order, fault is with herein petitioner-carrier which was responsible for the unloading of the
crates.

Petitioner-carrier filed its Answer to Delbros, Inc.s cross-claim asserting that it observed
extraordinary diligence in the handling, storage and general care of the shipment and that
subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed
that the contents of the third crate that had fallen were found to be in apparent sound condition,
except that "2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were
unaccounted for and missing as per packaging list."

After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed
by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the
RTC:

The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about the
payment of the claim based on the documents accompanying the claim which were the Packing List,
Commercial Invoices, Bill of Lading, Claims Statement, Marine Policies, Survey Report, Marine Risk
Note, and the letter to Third Party carriers and shipping lines (Exhibit A-J).

The check was paid and delivered to the assured as evidenced by the check voucher and the
subrogation receipt.

On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the claim
less 35% salvage value based on the adjuster report. This testimony is hearsay.

The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together with a
co-surveyor and a representative of Sulpicio Lines had conducted a survey of the shipment at the
compound of Sulpicio Lines. He prepared a survey report (Exhibits G and G-1) and took a picture of
shipment (Exhibit G-2).

On cross-examination, he said that two cartons were torn at the sides with top portion flaps opened
and the 41 cartons were properly sealed and in good order conditions. Two cartons were already
opened and slightly damaged. He merely looked at them but did not conduct an inspection of the
contents. What he was referring to as slightly damaged were the cartons only and not the contents.

From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a
preponderance of evidence.

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the
Complaint, defendant Sulpicio Lines counterclaim and defendant Delbros Inc.s cross-claim. 4

A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently denied
62

by the trial court in an Order dated 07 February 1995 on the ground that it did not raise any new
issue. Thus, respondent-insurer instituted an appeal with the Court of Appeals, which reversed the
Page

dismissal of the complaint by the lower court, the decretal portion of which reads:
WHEREFORE, the appeal is granted. The decision appealed from is REVERSED. Defendants-
appellees Delbros and Sulpicio Lines are hereby ordered to pay, jointly and severally, plaintiff-
appellant the sum of P194,220.31 representing actual damages, plus legal interest counted from the
filing of the complaint until fully paid.5

The appellate court disposed of the issues in the case in this wise:

Furthermore, the evidence shows that one of the three crates fell during the unloading at the pier in
Manila. The wooden crate which fell was damaged such that this particular crate was not anymore
sent to Singapore and was instead shipped back to Cebu from Manila. Upon examination, it was
found that two (2) cartons of the forty-two (42) cartons contained in this crate were externally
damaged. They were torn at the sides and their top portions or flaps were open. These facts were
admitted by all the parties. Defendant-appellees, however, insist that it was only the external
packaging that was damaged, and that there was no actual damage to the goods such that would
make them liable to the shipper. This theory is erroneous. When the goods are placed at a common
carriers possession for delivery to a specified consignee, they are in good order and condition and
are supposed to be transported and delivered to the consignee in the same state. In the case herein,
the goods were received by defendant-appellee Delbros in Cebu properly packed in cardboard
cartons and then placed in wooden crates, for delivery to the consignee in Singapore. However,
before the shipment reached Singapore (while it was in Manila) one crate and 2 cartons contained
therein were not anymore in their original state. They were no longer fit to be sent to Singapore.

As We have already found, there is damage suffered by the goods of the shipper. This consists in
the destruction of one wooden crate and the tearing of two of the cardboard boxes therein rendering
then unfit to be sent to Singapore. Defendant-appellee Sulpicio Lines admits that this crate fell while
it was being unloaded at the Manila pier. Falling of the crate was negligence on the part of
defendant-appellee Sulpicio Lines under the doctrine of res ipsa loquitur. Defendant-appellee
Sulpicio Lines cannot exculpate itself from liability because it failed to prove that it exercised due
diligence in the selection and supervision of its employees to prevent the damage. 6

On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the
Court of Appeals which was subsequently denied in a Resolution dated 13 October 1999. Hence, the
instant petition.

During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that
its appeal7filed before this Court had been dismissed for being filed out of time and thus the case as
against it was declared closed and terminated. As a consequence, it paid in full the amount of the
damages awarded by the appellate court to the respondent-insurer. Before this Court, Delbros, Inc.
prays for reimbursement, contribution, or indemnity from its co-defendant, herein petitioner-carrier
Sulpicio Lines, Inc. for whatever it had paid to respondent-insurer in consonance with the decision of
the appellate court declaring both Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and
severally liable.

ISSUES

Petitioner-carrier raises the following issues in its petition:

63

1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed
Page

the complaint against Sulpicio Lines, which dismissal is already final.

 2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply
with the technical requirement of the Rules of Court.

RULING OF THE COURT

We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc. that the
Court of Appeals should have dismissed the appeal for failure of respondent-insurer to attach a copy
of the decision of the trial court to its appellants brief in violation of Rule 44, Section 13(h) of the
Rules of Civil Procedure.8

A perusal of the records will show, however, that in a Resolution 9 dated 13 August 1996, the Court of
Appeals required herein respondent-insurer to submit seven (7) copies of the questioned decision
within five (5) days from notice. Said Resolution was properly complied with.

As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply
with the manner required by the pertinent rules for the perfection of an appeal. Nevertheless, this
Court has allowed the filing of an appeal upon subsequent compliance with the requirements
imposed by law, where a strict application of the technical rules will impair the proper administration
of justice. As enunciated by the Court in the case of Jaro v. Court of Appeals:10

There is ample jurisprudence holding that the subsequent and substantial compliance of an
appellant may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336
SCRA 113] and Piglas-Kamao vs. National Labor Relations Commission [357SCRA 640], we ruled
that the subsequent submission of the missing documents with the motion for reconsideration
amounts to substantial compliance. The reasons behind the failure of the petitioners in these two
cases to comply with the required attachments were no longer scrutinized. 11

We see no error, therefore, on the part of the Court of Appeals when it gave due course to the
appeal after respondent-insurer had submitted copies of the RTC decision, albeit belatedly.

We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to be
considered in the resolution of this issue is whether or not, based on the evidence presented during
the trial, the owner of the goods, respondent-insurers predecessor-in-interest, did incur damages,
and if so, whether or not petitioner-carrier is liable for the same.

It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It
is not disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while
petitioner-carrier was unloading the cargo from its vessel. Neither is it impugned that upon
inspection, it was found that two (2) cartons were torn on the side and the top flaps were open and
that two (2) cello bags, each of 50 pieces ferri inductors, were missing from the cargo.

Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss
and should not include the lack of fitness of the shipment for transport to Singapore due to the
damaged packing. This is erroneous. Petitioner-carrier seems to belabor under the misapprehension
that a distinction must be made between the cargo packaging and the contents of the cargo.
According to it, damage to the packaging is not tantamount to damage to the cargo. It must be
stressed that in the case at bar, the damage sustained by the packaging of the cargo while in
petitioner-carriers custody resulted in its unfitness to be transported to its consignee in Singapore.
64

Such failure to ship the cargo to its final destination because of the ruined packaging, indeed,
resulted in damages on the part of the owner of the goods.
Page
The falling of the crate during the unloading is evidence of petitioner-carriers negligence in handling
the cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of
goods placed in its possession for transport.12 The standard of extraordinary diligence imposed upon
common carriers is considerably more demanding than the standard of ordinary diligence, i.e., the
diligence of a good paterfamiliasestablished in respect of the ordinary relations between members of
society.13 A common carrier is bound to transport its cargo and its passengers safely "as far as
human care and foresight can provide, using the utmost diligence of a very cautious person, with
due regard to all circumstances."14 The extraordinary diligence in the vigilance over the goods
tendered for shipment requires the common carrier to know and to follow the required precaution for
avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery. 15It
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." 16

Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed
to have been negligent in the handling of the damaged cargo. Under Articles 1735 17 and 175218 of the
Civil Code, common carriers are presumed to have been at fault or to have acted negligently in case
the goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption
of liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must
prove that they observed extraordinary diligence as required in Article 1733 19 of the Civil Code.20

Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary
diligence to overcome the presumption that it was negligent in transporting the cargo.

Coming now to the issue of the extent of petitioner-carriers liability, it is undisputed that respondent-
insurer paid the owner of the goods under the insurance policy the amount of P194,220.31 for the
alleged damages the latter has incurred. Neither is there dispute as to the fact that Delbros, Inc. paid
P194,220.31 to respondent-insurer in satisfaction of the whole amount of the judgment rendered by
the Court of Appeals. The question then is: To what extent is Sulpicio Lines, Inc., as common carrier,
liable for the damages suffered by the owner of the goods?

Upon respondent-insurers payment of the alleged amount of loss suffered by the insured (the owner
of the goods), the insurer is entitled to be subrogated pro tanto to any right of action which the
insured may have against the common carrier whose negligence or wrongful act caused the
loss.21 Subrogation is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or
claim, including its remedies or securities.22 The rights to which the subrogee succeeds are the same
as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire
any claim, security or remedy the subrogor did not have. 23 In other words, a subrogee cannot
succeed to a right not possessed by the subrogor.24 A subrogee in effect steps into the shoes of the
insured and can recover only if the insured likewise could have recovered. 25

As found by the Court of Appeals, there was damage suffered by the goods which consisted in the
destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered
them unfit to be sent to Singapore.26 The falling of the crate was negligence on the part of Sulpicio
Lines, Inc. for which it cannot exculpate itself from liability because it failed to prove that it exercised
extraordinary diligence.27

Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the
65

amount paid by respondent-insurer for the damages sustained by the owner of the goods.
Page
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been
paid the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust
enrichment for respondent-insurer to again recover damages from herein petitioner-carrier.

With respect to Delbros, Inc.s prayer contained in its manifestation that, in case the decision in the
instant case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement,
indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not
pass upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to
the instant case. Notwithstanding, this shall not bar any action Delbros, Inc. may institute against
petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay.

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May
1999 and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

66 Page
 FIRST DIVISION

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, petitioner, vs. PKS SHIPPING COMPANY, respondent.

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million Three Hundred Seventy-Five Thousand Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods
were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On
the evening of 22 December 1988, about nine oclock, whileLimar I was being
towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of
miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down
with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought reimbursement
from PKS Shipping of the sum paid to DUMC but the shipping company
refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the
cargo could have been caused either by a fortuitous event, in which case the
ship owner was not liable, or through the negligence of the captain and crew
67

of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by
Page
abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not
being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on
the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such
carrier can be held exempt for the loss of the cargo would be if the loss were
caused by natural disaster or calamity. Petitioner avers that typhoon
"APIANG" has not entered the Philippine area of responsibility and that, even
if it did, respondent would not be exempt from liability because its employees,
particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier and,
in either case, to the other question of whether or not it has observed the
proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
68

reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court. The conclusions derived from those factual findings, however, are
[1]
Page

not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be raised as being
appropriate issues in a petition for review before this Court.Thus, an issue
whether a carrier is private or common on the basis of the facts found by a
trial court or the appellate court can be a valid and reviewable question of law.
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.

Complementary to the codal definition is Section 13, paragraph (b), of the

Public Service Act; it defines public service to be

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, 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, 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 communication
systems, wire or wireless broadcasting stations and other similar public services. x x
x. (Underscoring supplied).

The prevailing doctrine on the question is that enunciated in the leading

case of De Guzman vs. Court of Appeals. Applying Article 1732 of the Code,
[2]

in conjunction with Section 13(b) of the Public Service Act, this Court has 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
69

general population. We think that Article 1732 deliberately refrained from making
Page

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

Much of the distinction between a common or public carrier and a private

or special carrier lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the
general public or to a limited clientele, although involving the carriage of
goods for a fee, the person or corporation providing such service could very
[3]

well be just a private carrier. A typical case is that of a charter party which
includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages and gets the control of the vessel and
[4]

its crew. Contrary to the conclusion made by the appellate court, its factual
[5]

findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry
such goods for a fee. The regularity of its activities in this area indicates more
than just a casual activity on its part. Neither can the concept of a common
[6]

carrier change merely because individual contracts are executed or entered

into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on them.
The provisions of Article 1733, notwithstanding, common carriers are exempt
[7]

from liability for loss, destruction, or deterioration of the goods due to any of
the following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

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

(3) Act or omission of the shipper or owner of the goods;

70Page
 (4) The character of the goods or defects in the packing or in the containers;
and

(5) Order or act of competent public authority. [8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong
winds of 1.5 knots resulting in the entry of water into the barges hatches. The
official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the
appellate court.
Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual findings
of the Court of Appeals and the trial court are contradictory; (2) when the
conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is
a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when
the findings of fact are conclusions without citation of the specific evidence on
which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in
this instance.
All given then, the appellate court did not err in its judgment absolving
PKS Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
71

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,

Page

JJ., concur.
Page 72
 THIRD DIVISION

PERLA COMPANIA DE SEGUROS, G.R. No. 147746

INC. and BIENVENIDO S. PASCUAL,

Petitioners, Present :

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,

- versus - CORONA,

CARPIO MORALES and

GARCIA, JJ.

SPS. GAUDENCIO SARANGAYA III

and PRIMITIVA B. SARANGAYA,

Respondents. Promulgated :

October 25, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
73Page
CORONA, J.:

This is an appeal by certiorari under Rule 45 of the 1997

Rules of Civil Procedure seeking to annul the decisions of the Court
of Appeals (CA) dated June 29, 2000 and March 31, 2001,
respectively, which affirmed the decision of the Regional Trial Court
(RTC), Branch 21 of Santiago, Isabela.

In 1986, respondent spouses Gaudencio Sarangaya III and

Primitiva Sarangaya erected a semi-concrete, semi-narra, one-

storey commercial building fronting the provincial road of Santiago,

Isabela. The building was known as Super A Building and was

subdivided into three doors, each of which was leased out. The two-

storey residence of the Sarangayas was behind the second and third

doors of the building. On the left side of the commercial building

stood the office of the Matsushita Electric Philippine Corporation

(Matsushita).

In 1988, petitioner Perla Compania de Seguros, Inc.

(petitioner-corporation), through its branch manager and co-
74

petitioner Bienvenido Pascual, entered into a contract of lease of the

Page

first door of the Super A Building, abutting the office of Matsushita.

Petitioner-corporation renovated its rented space and divided it into
two. The left side was converted into an office while the right was
used by Pascual as a garage for a 1981 model 4-door Ford Cortina,
a company-provided vehicle he used in covering the different towns
within his area of supervision.

On July 7, 1988, Pascual left for San Fernando, Pampanga

but did not bring the car with him. Three days later, he returned to
Santiago and, after checking his appointments the next day,
decided to warm up the car. When he pulled up the handbrake and
switched on the ignition key, the engine made an odd sound and
did not start. Thinking it was just the gasoline percolating into the
engine, he again stepped on the accelerator and started the car.
This revved the engine but petitioner again heard an unusual
sound. He then saw a small flame coming out of the engine.
Startled, he turned it off, alighted from the vehicle and started to
push it out of the garage when suddenly, fire spewed out of its rear
compartment and engulfed the whole garage. Pascual was trapped
inside and suffered burns on his face, legs and arms.

Meanwhile, respondents were busy watching television when

they heard two loud explosions. The smell of gasoline permeated the
air and, in no time, fire spread inside their house, destroying all
their belongings, furniture and appliances.
75
Page
 The city fire marshall conducted an investigation and
thereafter submitted a report to the provincial fire marshall. He
concluded that the fire was accidental. The report also disclosed
that petitioner-corporation had no fire permit as required by law.

Based on the same report, a criminal complaint for Reckless

Imprudence Resulting to (sic) Damage in (sic) Property[1] was filed
against petitioner Pascual. On the other hand, petitioner-
corporation was asked to pay the amount of P7,992,350, inclusive
of the value of the commercial building. At the prosecutors office,
petitioner Pascual moved for the withdrawal of the complaint, which
was granted.

Respondents later on filed a civil complaint based on quasi-

delict against petitioners for a sum of money and damages, alleging
that Pascual acted with gross negligence while petitioner-
corporation lacked the required diligence in the selection and
supervision of Pascual as its employee. They prayed for payment of
the following damages:

1. P2,070,000.00 - representing the value of the 2-storey

residential building and the 3-door apartment;

2. P5,922,350.00 - representing the value of the jewelries,

appliances, [furniture], fixtures and cash;
76Page
 3. P8,300.00 a month for [lost rental] income from July 1995
until such time that the premises is restored to its former
condition or payment for its value, whichever comes first;

4. P2,000,000.00 for moral damages;

5. P1,000,000.00 for exemplary damages, and

6. Attorneys fees equivalent to 15% of the total amount to be

awarded to the plaintiffs.[2]

During the trial, respondents presented witnesses who

testified that a few days before the incident, Pascual was seen

buying gasoline in a container from a nearby gas station. He then

placed the container in the rear compartment of the car.

In his answer, Pascual insisted that the fire was purely an

accident, a caso fortuito, hence, he was not liable for damages. He
also denied putting a container of gasoline in the cars rear
compartment. For its part, petitioner-corporation refused liability
for the accident on the ground that it exercised due diligence of a
good father of a family in the selection and supervision of Pascual
as its branch manager.
77

After the trial, the court a quo ruled in favor of respondents.

Page

The decretal portion of the decision read:

 WHEREFORE, in the light of the foregoing considerations
judgment is hereby rendered ORDERING the defendants,
Bienvenido Pascual and Perla Compania de Seguros, Inc. to
pay jointly and solidarily to the plaintiffs spouses Gaudencio and
Primitiva Sarangaya the total sum of Two Million Nine Hundred
Four Thousand Eight Hundred and Eighty Pesos
([P]2,904,880.00) as actual damages with legal interest thereon
from December 12, 1995 until fully paid.[3] (emphasis supplied)

The court a quo declared that, although the respondents failed

to prove the precise cause of the fire that engulfed the garage,
Pascual was nevertheless negligent based on the doctrine of res
ipsa loquitur.[4] It did not, however, categorically rule that the
gasoline container allegedly placed in the rear compartment of the
car caused the fire. The trial court instead declared that both
petitioners failed to adduce sufficient evidence to prove that they
employed the necessary care and diligence in the upkeep of the car.
[5]
Contrary to the claims of petitioner-corporation, the trial court
also found that it failed to employ the diligence of a good father of a
family, as required by law, in the selection and supervision of
Pascual.

With respect to the amount of damages, the trial court

awarded to respondents no more than their claim for actual
damages covering the cost of the 2-storey residential building and
78Page
the commercial building, including their personal properties. It
explained:

According to the plaintiff Gaudencio Sarangaya III, he made

a list of what was lost. His list includes the commercial building
that was burned which he valued atP2,070,000.00. The
defendants take exception to the value given by the plaintiff and
for this purpose they submitted the tax declaration of the building
which states that the market value is P183,770.00. The Court
takes judicial notice that the valuation appearing on the tax
declaration of property is always lower [than] the correct value
thereof. Considering that the building that was burned was a two-
storey residential house with a commercial building annex with a
total floor area of 241 square meters as stated in the tax
declaration, mostly concrete mixed with narra and other lumber
materials, the value given by the plaintiffs of P2,070,000.00 is
reasonable and credible and it shall be awarded to the plaintiffs.

The other items listed are assorted [furniture] and fixtures

totaling P307,000.00 assorted appliances worth P358,350.00; two
filing cabinets worth P7,000.00 and clothing and other personal
effects costing P350,000.00, household utensils
costing P15,000.00. The Court finds them reasonable and
credible considering the social and financial stature of the plaintiffs
who are businessmen. There could be no question that they were
able to acquire and own quite a lot of home furnishings and
personal belongings. The costing however is high considering that
these belongings were already used for quite some time so a 20%
depreciation should be equitably deducted from the cost of
acquisition submitted by plaintiffs. Thus, the total amount
recoverable would be P1,037,350.00 less 20% or a total
79

of P829,880.00. The P5,000.00 representing foodstock can also

Page

be ordered paid to the plaintiffs. x x x.[6]

On appeal to the Court of Appeals, the appellate court again ruled
in favor of respondents but modified the amount of damages
awarded by the trial court. It held:

x x x the Decision of the Court a quo is AFFIRMED, with the

modification that the Appellants are hereby ordered to pay the
Appellees, jointly and severally, the total amount ofP600,000.00
by way of nominal damages under Articles 2222 and 2223 of the
New Civil Code, with interest thereon, at the rate of 6% per
annum from the date of the Decision of this Court.[7]

The appellate court was in accord with the trial courts findings
that the doctrine of res ipsa loquitur was correctly applied in
determining the liability of Pascual and that petitioner-corporation,
as the employer, was vicariously liable to respondents. Nonetheless,
for respondents failure to substantiate their actual loss, the
appellate court granted nominal damages of P600,000 to them.

Petitioners and respondents filed their respective motions for

reconsideration.
80Page
 In their MR, petitioners contested the findings of fact of the
appellate court. They denied any liability whatsoever to respondents
but this was rejected by the CA for lack of merit. Thus, the present
appeal.

Respondents, on the other hand, argued in their MR that the

award of nominal damages was erroneous. They prayed that, in lieu
of the award of nominal damages, the case should instead be
remanded to the trial court for reception of additional evidence on
their claim for actual damages. The CA granted respondents MR.
Hence they did not appeal the CAs decision to us. According to the
CA:

Anent Plaintiffs-Appellees plea that, in lieu of the Courts

award of nominal damages, the case be remanded to the Court a
quo, in the interest of justice, to enable them to adduce evidence
to prove their claim for actual damages, we find the same
meritorious.

Accordingly, the Decision of the Court is hereby amended to

read as follows:

IN THE LIGHT OF ALL THE FOREGOING, the Decision of

the Court a quo appealed from is AFFIRMED. The award of
nominal damages is set aside. Let the records be remanded
81

to the Court a quo for the reception of additional evidence by

the Plaintiffs-Appellees and the Defendants-Appellants anent
Page
 Plaintiffs-Appellees claim for actual damages.[8] (emphasis
supplied)

Via this petition, petitioners ascribe the following errors to the

appellate court:

(a) THE COURT OF APPEALS ERRED IN APPLYING THE

DOCTRINE OF [RES IPSA LOQUITUR] IN THE PRESENT
CASE;

(b) THE COURT OF APPEALS ERRED WHEN IT FOUND

PERLA NEGLIGENT IN THE SUPERVISION OF
PASCUAL, AND CONSEQUENTLY, VICARIOUSLY LIABLE
FOR THE FIRE BECAUSE PERLA FAILED TO ADDUCE
EVIDENCE OF SUPERVISION OF EMPLOYEES CARE
AND UPKEEP OF COMPANY VEHICLES REQUIRED BY
THE SUPREME COURT ON TRANSPORTATION
COMPANIES; AND

(c) THE COURT OF APPEALS ERRED WHEN IT ORDERED

THE REMAND OF THE CASE TO RTC ISABELA FOR
RECEPTION OF ADDITIONAL EVIDENCE BY THE
SARANGAYA SPOUSES ON THEIR CLAIM FOR ACTUAL
DAMAGES.[9]
82
Page
 Res ipsa loquitur is a Latin phrase which literally means the
thing or the transaction speaks for itself. [10] It relates to the fact of
an injury that sets out an inference to the cause thereof or
establishes the plaintiffs prima facie case. [11] The doctrine rests on
inference and not on presumption. [12] The facts of the occurrence
warrant the supposition of negligence and they furnish
circumstantial evidence of negligence when direct evidence is
lacking.[13]

The doctrine is based on the theory that the defendant either

knows the cause of the accident or has the best opportunity of
ascertaining it and the plaintiff, having no knowledge thereof, is
compelled to allege negligence in general terms. [14] In such instance,
the plaintiff relies on proof of the happening of the accident alone to
establish negligence.[15]

The doctrine provides a means by which a plaintiff can pin

liability on a defendant who, if innocent, should be able to explain
the care he exercised to prevent the incident complained of. Thus, it
is the defendants responsibility to show that there was no
negligence on his part.[16]

To sustain the allegation of negligence based on the doctrine

83

of res ipsa loquitur, the following requisites must concur:

Page
 1) the accident is of a kind which does not ordinarily
occur unless someone is negligent;

2) the cause of the injury was under the exclusive

control of the person in charge and

3) the injury suffered must not have been due to any

voluntary action or contribution on the part of the person
injured.[17]

Under the first requisite, the occurrence must be one that

does not ordinarily occur unless there is negligence. Ordinary refers
to the usual course of events.[18] Flames spewing out of a car engine,
when it is switched on, is obviously not a normal event. Neither
does an explosion usually occur when a car engine is revved.
Hence, in this case, without any direct evidence as to the cause of
the accident, the doctrine of res ipsa loquitur comes into play and,
from it, we draw the inference that based on the evidence at hand,
someone was in fact negligent and responsible for the accident.

The test to determine the existence of negligence in a

particular case may be stated as follows: did the defendant in
committing the alleged negligent act, use reasonable care and
84Page
caution which an ordinarily prudent person in the same situation
would have employed?[19]If not, then he is guilty of negligence.

Here, the fact that Pascual, as the caretaker of the car, failed
to submit any proof that he had it periodically checked (as its year-
model and condition required) revealed his negligence. A prudent
man should have known that a 14-year-old car, constantly used in
provincial trips, was definitely prone to damage and other defects.
For failing to prove care and diligence in the maintenance of the
vehicle, the necessary inference was that Pascual had been
negligent in the upkeep of the car.

Pascual attempted to exculpate himself from liability by

insisting that the incident was a caso fortuito. We disagree.

The exempting circumstance of caso fortuito may be availed

only when: (a) the cause of the unforeseen and unexpected
occurrence was independent of the human will; (b) it was
impossible to foresee the event which constituted the caso
fortuito or, if it could be foreseen, it was impossible to avoid; (c) the
occurrence must be such as to render it impossible to perform an
obligation in a normal manner and (d) the person tasked to perform
the obligation must not have participated in any course of conduct
that aggravated the accident.[20]
85Page
 In fine, human agency must be entirely excluded as the
proximate cause or contributory cause of the injury or loss. [21] In a
vehicular accident, for example, a mechanical defect will not release
the defendant from liability if it is shown that the accident could
have been prevented had he properly maintained and taken good
care of the vehicle.[22]

The circumstances on record do not support the defense of

Pascual. Clearly, there was no caso fortuito because of his want of
care and prudence in maintaining the car.

Under the second requisite, the instrumentality or agency that

triggered the occurrence must be one that falls under the exclusive
control of the person in charge thereof. In this case, the car where
the fire originated was under the control of Pascual. Being its
caretaker, he alone had the responsibility to maintain it and ensure
its proper functioning. No other person, not even the respondents,
was charged with that obligation except him.

Where the circumstances which caused the accident are

shown to have been under the management or control of a certain
person and, in the normal course of events, the incident would not
have happened had that person used proper care, the inference is
86

that it occurred because of lack of such care. [23] The burden of

Page

evidence is thus shifted to defendant to establish that he observed

all that was necessary to prevent the accident from happening. In
this aspect, Pascual utterly failed.

Under the third requisite, there is nothing in the records to

show that respondents contributed to the incident. They had no
access to the car and had no responsibility regarding its
maintenance even if it was parked in a building they owned.

On the second assigned error, we find no reason to reverse the

decision of the Court of Appeals. The relationship between the two
petitioners was based on the principle of pater familias according to
which the employer becomes liable to the party aggrieved by its
employee if he fails to prove due diligence of a good father of a
family in the selection and supervision of his employees. [24] The
burden of proof that such diligence was observed devolves on the
employer who formulated the rules and procedures for the selection
and hiring of his employees.

In the selection of prospective employees, employers are

required to examine them as to their qualifications, experience and
service records.[25] While the petitioner-corporation does not appear
to have erred in considering Pascual for his position, its lack of
supervision over him made it jointly and solidarily liable for the fire.
87Page
 In the supervision of employees, the employer must formulate
standard operating procedures, monitor their implementation and
impose disciplinary measures for the breach thereof. [26] To fend off
vicarious liability, employers must submit concrete proof, including
documentary evidence, that they complied with everything that was
incumbent on them.[27] Here, petitioner-corporations evidence
hardly included any rule or regulation that Pascual should have
observed in performing his functions. It also did not have any
guidelines for the maintenance and upkeep of company property
like the vehicle that caught fire. Petitioner-corporation did not
require periodic reports on or inventories of its properties either.
Based on these circumstances, petitioner-corporation clearly did
not exert effort to be apprised of the condition of Pascuals car or its
serviceability.

Petitioner-corporations argument that the liability attached to

employers only applies in cases involving the supervision of
employees in the transportation business is incorrect. Article 2180
of the Civil Code states that employers shall be liable for the
damage caused by their employees. The liability is imposed on all
those who by their industry, profession or other enterprise have
other persons in their service or supervision. [28] Nowhere does it
state that the liability is limited to employers in the transportation
business.
88 Page
 WHEREFORE, the petition is hereby DENIED and the

decision[29] of the Court of Appeals affirmed in toto.

Costs against petitioners.

SO ORDERED.

RENATO C. CORONA

Associate Justice
89
Page
 THIRD DIVISION

[G.R. No. 113003. October 17, 1997]

ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT

OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN
TUMBOY,respondents.

DECISION
ROMERO, J.:

In this petition for review on certiorari of the decision of the Court of Appeals, the
issue is whether or not the explosion of a newly installed tire of a passenger vehicle is a
fortuitous event that exempts the carrier from liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named
Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for
Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of
the bus exploded. The bus fell into a ravine around three (3) feet from the road and
struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical
injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages
and attorneys fees was filed by Leny and her children against Alberta Yobido, the owner
of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao
City. When the defendants therein filed their answer to the complaint, they raised the
affirmative defense of caso fortuito.They also filed a third-party complaint against
Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer
with compulsory counterclaim. At the pre-trial conference, the parties agreed to a
stipulation of facts.
[1]

Upon a finding that the third party defendant was not liable under the insurance
contract, the lower court dismissed the third party complaint. No amicable settlement
having been arrived at by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and
the defendants was brought about by the drivers failure to exercise the diligence
required of the carrier in transporting passengers safely to their place of
destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 oclock in the
afternoon. The winding road it traversed was not cemented and was wet due to the rain;
it was rough with crushed rocks. The bus which was full of passengers had cargoes on
90

top. Since it was running fast, she cautioned the driver to slow down but he merely
Page
stared at her through the mirror. At around 3:30 p.m., in Trento, she heard something
explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a
fortuitous event. Abundio Salce, who was the bus conductor when the incident
happened, testified that the 42-seater bus was not full as there were only 32
passengers, such that he himself managed to get a seat. He added that the bus was
running at a speed of 60 to 50 and that it was going slow because of the zigzag
road. He affirmed that the left front tire that exploded was a brand new tire that he
mounted on the bus on April 21, 1988 or only five (5) days before the incident. The
Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao
Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by
Salce. She stated that all driver applicants in Yobido Liner underwent actual driving tests
before they were employed. Defendant Cresencio Yobido underwent such test and
submitted his professional drivers license and clearances from the barangay, the fiscal
and the police.
On August 29, 1991, the lower court rendered a decision dismissing the action for
[2]

lack of merit. On the issue of whether or not the tire blowout was a caso fortuito, it found
that the falling of the bus to the cliff was a result of no other outside factor than the tire
blow-out. It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De
Jesus that a tire blowout is a mechanical defect of the conveyance or a fault in its
[3]

equipment which was easily discoverable if the bus had been subjected to a more
thorough or rigid check-up before it took to the road that morning is inapplicable to this
case. It reasoned out that in said case, it was found that the blowout was caused by the
established fact that the inner tube of the left front tire was pressed between the inner
circle of the left wheel and the rim which had slipped out of the wheel. In this case,
however, the cause of the explosion remains a mystery until at present. As such, the
court added, the tire blowout was a caso fortuito which is completely an extraordinary
circumstance independent of the will of the defendants who should be relieved of
whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to
Article 1174 of the Civil Code.
[4]

Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the
lower court the following errors: (a) finding that the tire blowout was a caso fortuito; (b)
failing to hold that the defendants did not exercise utmost and/or extraordinary diligence
required of carriers under Article 1755 of the Civil Code, and (c) deciding the case
contrary to the ruling in Juntilla v. Fontanar, and Necesito v. Paras.
[5] [6]

On August 23, 1993, the Court of Appeals rendered the Decision reversing that of
[7]

the lower court. It held that:

To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of
the blow-out, if due to a factory defect, improper mounting, excessive tire pressure, is
not an unavoidable event. On the other hand, there may have been adverse conditions
91

on the road that were unforeseeable and/or inevitable, which could make the blow-out
a caso fortuito. The fact that the cause of the blow-out was not known does not relieve
Page

the carrier of liability. Owing to the statutory presumption of negligence against the
carrier and its obligation to exercise the utmost diligence of very cautious persons to
carry the passenger safely as far as human care and foresight can provide, it is the
burden of the defendants to prove that the cause of the blow-out was a fortuitous
event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is
not caso-fortuito.

Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge
defendants burden. As enunciated in Necesito vs. Paras, the passenger has neither
choice nor control over the carrier in the selection and use of its equipment, and the
good repute of the manufacturer will not necessarily relieve the carrier from liability.

Moreover, there is evidence that the bus was moving fast, and the road was wet and
rough. The driver could have explained that the blow-out that precipitated the accident
that caused the death of Toto Tumboy could not have been prevented even if he had
exercised due care to avoid the same, but he was not presented as witness.

The Court of Appeals thus disposed of the appeal as follows:

WHEREFORE, the judgment of the court a quo is set aside and another one entered
ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito
Tumboy, P30,000.00 in moral damages, andP7,000.00 for funeral and burial expenses.

SO ORDERED.

The defendants filed a motion for reconsideration of said decision which was denied
on November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the
position that the tire blowout that caused the death of Tito Tumboy was a caso
fortuito. Petitioners claim further that the Court of Appeals, in ruling contrary to that of
the lower court, misapprehended facts and, therefore, its findings of fact cannot be
considered final which shall bind this Court. Hence, they pray that this Court review the
facts of the case.
The Court did re-examine the facts and evidence in this case because of the
inapplicability of the established principle that the factual findings of the Court of
Appeals are final and may not be reviewed on appeal by this Court. This general
principle is subject to exceptions such as the one present in this case, namely, that the
lower court and the Court of Appeals arrived at diverse factual findings. However, upon
[8]

such re-examination, we found no reason to overturn the findings and conclusions of

the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental
to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its
92

passengers and is not bound absolutely and at all events to carry them safely and
without injury. However, when a passenger is injured or dies while travelling, the law
[9]
Page

presumes that the common carrier is negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Article 1755 provides that (a) common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances. Accordingly, in culpa
contractual, once a passenger dies or is injured, the carrier is presumed to have been at
fault or to have acted negligently. This disputable presumption may only be overcome
by evidence that the carrier had observed extraordinary diligence as prescribed by
Articles 1733, 1755 and 1756 of the Civil Code or that the death or injury of the
[10]

passenger was due to a fortuitous event. Consequently, the court need not make an
[11]

express finding of fault or negligence on the part of the carrier to hold it responsible for
damages sought by the passenger. [12]

In view of the foregoing, petitioners contention that they should be exempt from
liability because the tire blowout was no more than a fortuitous event that could not
have been foreseen, must fail. A fortuitous event is possessed of the following
characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the
failure of the debtor to comply with his obligations, must be independent of human will;
(b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it
can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the
obligor must be free from any participation in the aggravation of the injury resulting to
the creditor. As Article 1174 provides, no person shall be responsible for a fortuitous
[13]

event which could not be foreseen, or which, though foreseen, was inevitable. In other
words, there must be an entire exclusion of human agency from the cause of injury or
loss.
[14]

Under the circumstances of this case, the explosion of the new tire may not be
considered a fortuitous event. There are human factors involved in the situation. The
fact that the tire was new did not imply that it was entirely free from manufacturing
defects or that it was properly mounted on the vehicle. Neither may the fact that the tire
bought and used in the vehicle is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days use. Be that as it may, it is settled
that an accident caused either by defects in the automobile or through the negligence of
its driver is not a caso fortuito that would exempt the carrier from liability for damages.
[15]

Moreover, a common carrier may not be absolved from liability in case of force
majeure or fortuitous event alone. The common carrier must still prove that it
was not negligent in causing the death or injury resulting from an accident. This Court
[16]

has had occasion to state:

While it may be true that the tire that blew-up was still good because the grooves of
the tire were still visible, this fact alone does not make the explosion of the tire a
93

fortuitous event. No evidence was presented to show that the accident was due to
Page

adverse road conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of the
accident. [17]

It is interesting to note that petitioners proved through the bus conductor, Salce, that
the bus was running at 60-50 kilometers per hour only or within the prescribed lawful
speed limit.However, they failed to rebut the testimony of Leny Tumboy that the bus was
running so fast that she cautioned the driver to slow down. These contradictory facts
must, therefore, be resolved in favor of liability in view of the presumption of negligence
of the carrier in the law. Coupled with this is the established condition of the road rough,
winding and wet due to the rain. It was incumbent upon the defense to establish that it
took precautionary measures considering partially dangerous condition of the road. As
stated above, proof that the tire was new and of good quality is not sufficient proof that it
was not negligent. Petitioners should have shown that it undertook extraordinary
diligence in the care of its carrier, such as conducting daily routinary check-ups of the
vehicles parts. As the late Justice J.B.L. Reyes said:

It may be impracticable, as appellee argues, to require of carriers to test the strength of

each and every part of its vehicles before each trip; but we are of the opinion that a
due regard for the carriers obligations toward the traveling public demands adequate
periodical tests to determine the condition and strength of those vehicle portions the
failure of which may endanger the safety of the passengers. [18]

Having failed to discharge its duty to overthrow the presumption of negligence with
clear and convincing evidence, petitioners are hereby held liable for damages. Article
1764 in relation to Article 2206 of the Civil Code prescribes the amount of at least
[19] [20]

three thousand pesos as damages for the death of a passenger. Under prevailing
jurisprudence, the award of damages under Article 2206 has been increased to fifty
thousand pesos (P50,000.00). [21]

Moral damages are generally not recoverable in culpa contractual except when bad
faith had been proven. However, the same damages may be recovered when breach of
contract of carriage results in the death of a passenger, as in this case. Exemplary
[22]

damages, awarded by way of example or correction for the public good when moral
damages are awarded, may likewise be recovered in contractual obligations if the
[23]

defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.

Because petitioners failed to exercise the extraordinary diligence required of a
[24]

common carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted
recklessly. As such, private respondents shall be entitled to exemplary damages.
[25]

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject

to the modification that petitioners shall, in addition to the monetary awards therein, be
94

liable for the award of exemplary damages in the amount of P20,000.00. Costs against
petitioners.
Page

SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

95Page
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 147079 December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts Decision1 of August 10, 2000
reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil
Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).

On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000
Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the
consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were placed in 124 cartons and the
Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3 aluminum
container, while the Trinordial tablets were packed in two pallets, each of which contained 30
cartons.3

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk
Note No. 4995 pursuant to Marine Open Policy No. 138. 4

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA), 5 it
was discharged "without exception"6 and delivered to the warehouse of the Philippine Skylanders,
Inc. (PSI) located also at the NAIA for safekeeping.7

In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco
engaged the services of Sanchez Brokerage which had been its licensed broker since 1984. 8 As its
customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees
for the cargo and thereafter delivers it to Wyeth-Suaco.9
96

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid
Page

PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,10 was
issued. On the receipt, another representative of Sanchez Brokerage, M. Sison, 11 acknowledged that
he received the cargoes consisting of three pieces in good condition.12

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes 13 which
were thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles
hired by Sanchez Brokerage.15

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso
and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and
cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo
City for quality control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992,
indicated that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1
pallet containing Trinordiol.18

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the
cargoes by affixing his signature on the delivery receipt. 19 Upon inspection, however, he, together
with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol
tablets were in bad order.20 He thus placed a note above his signature on the delivery receipt stating
that 44 cartons of oral contraceptives were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good order.

Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report 21 dated July 31,
1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic).22

The Elite Surveyors later issued Certificate No. CS-0731-1538/92 23 attached to which was an
"Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the brokers
trucks at the NAIA, they were inspected and found to be in "apparent good condition." 24 Also noted
was that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets. 25

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report 26 confirming that 38 x
700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister
packs of Nordiol tablets were heavily damaged with water and emitted foul smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of Femenal

and 3 cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy
water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily attracted
flies."28

Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the payment
ofP191,384.25 representing the value of its loss arising from the damaged tablets.

As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its
claim under Marine Risk Note Number 4995.
97

Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.

Page
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the
sealed containers were opened outside the PSI warehouse, it was discovered that some of the loose
cartons were wet,32 prompting its (Sanchez Brokerages) representative Morales to inform the Import-
Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the
latter advised to still deliver them to Hizon Laboratories where an adjuster would assess the
damage.33

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of
Makati City against the Sanchez Brokerage.

The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.35

On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez
Brokerage engaged not only in the business of customs brokerage but also in the transportation and
delivery of the cargo of its clients, hence, a common carrier within the context of Article 1732 of the
New Civil Code.36

Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good
order and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate
court held that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving
that it exercised extraordinary negligence not only in instances when negligence is directly proven
but also in those cases when the cause of the damage is not known or unknown. 37

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The
Decision of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of
the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181,
431.49, with interest thereupon at the rate of 6% per annum, from the date of the
Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00
as and by way of attorneys fees; and

3. The counterclaims of the Appellee are DISMISSED.38

Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to
this Court on petition for certiorari filed on March 6, 2001.

In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the context of
98

Article 1732 of the New Civil Code.

Page
Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner
should have taken was to file a petition for review on certiorari since the sole office of a writ of
certiorari is the correction of errors of jurisdiction including the commission of grave abuse of
discretion amounting to lack or excess of jurisdiction and does not include correction of the appellate
courts evaluation of the evidence and factual findings thereon.

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.39

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this
Court by filing a petition for review, which would be but a continuation of the appellate process over
the original case.40

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001.
Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate
courts decision had become final and executory. The filing by petitioner of a petition for certiorari on
March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.

In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not
merely reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.

Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial
court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.

Where the issue or question involves or affects the wisdom or legal soundness of the decision not
the jurisdiction of the court to render said decision the same is beyond the province of a petition
for certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in
order to review the judgment of lower courts as to its intrinsic correctness, either upon the law or the
facts of the case.42

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier,
as defined under Article 1732 of the Civil Code, to wit:

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

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified
that the services the firm offers include the delivery of goods to the warehouse of the consignee or
99

importer.
Page

ATTY. FLORES:
 Q: What are the functions of these license brokers, license customs broker?

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from
customs and finally deliver the goods to the warehouse of the importer. 43

Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity. 44 The contention, therefore, of
petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit.
It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.46

The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals:47

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 characteristics of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."48

In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in
NAIA in good order and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc.,
some of the cargoes were found to be in bad order, as noted in the Delivery Receipt 50 issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors 51 and the Destruction Report of
Hizon Laboratories, Inc.52

In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they
were damaged due to the fault or negligence of the shipper for failing to properly pack them and to
the inherent characteristics of the goods53; and that it should not be faulted for following the
instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed
to the latter that some of the cartons, on examination outside the PSI warehouse, were found to be
wet.54

While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if
the loss or damage is due to the character of the goods or defects in the packing or in the
containers, the rule is that if the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the same without protest or
100

exception notwithstanding such condition, he is not relieved of liability for the resulting damage. 56
Page
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were
true, then it should naturally have received the cargo under protest or with reservations duly noted
on the receipt issued by PSI. But it made no such protest or reservation. 57

Moreover, as observed by the appellate court, if indeed petitioners employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone back
to PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.58 Or, petitioner would have presented, as
witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo to
prove that, indeed, part of the cargoes was already damaged when the container was allegedly
opened outside the warehouse.59

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead,
it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI warehouse
but such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon
Laboratories, Inc.

While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992,
he failed to specifically declare what time he received the call. As to whether the call was made at
the PSI warehouse when the shipment was stripped from the airport containers, or when the
cargoes were already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time it received the
cargoes, a part of it was wet, damaged or in bad condition. 60

The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives
were damaged by rainwater while in transit to Antipolo City is more likely then. Sanchez himself
testified that in the past, there was a similar instance when the shipment of Wyeth-Suaco was also
found to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at
the NAIA were damaged and claimed by the Wyeth-Suaco without any question?

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco
did not claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:
101

A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62
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Since petitioner received all the cargoes in good order and condition at the time they were turned
over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof
was found to be in bad order, it was incumbent on petitioner to prove that it exercised extraordinary
diligence in the carriage of the goods. It did not, however. Hence, its presumed negligence under
Article 1735 of the Civil Code remains unrebutted.

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.

Corona, J., on leave.

102
Page
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner,

vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Antonio B. Abinoja for petitioner.

Quijano, Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:

The private respondent instituted in the Court of First Instance of Manila 1 an action against the
petitioner for damages based on culpa contractual. The antecedent facts, as found by the respondent
Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul
305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT
"Batman" (Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that
agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the
scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When about half of the
scrap iron was already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of
Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted
the shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and
fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The
<re||an1w>

gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment
(t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump
the scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28,
1972, p. 31). The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22).
Later on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken
custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972,
p. 10.)
103

On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion
of which states:
Page
 WHEREFORE, the decision appealed from is hereby reversed and set aside and a
new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum
of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon. 3

In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:

THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE
CONTRACT OF TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM
COMMENCING FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY AND CONTROL
HAVE NO BASIS IN FACT AND IN LAW.

II

THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS
EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY
THE LOCAL GOVERNMENT OFFICIAL WITHOUT HIS PARTICIPATION.

III

THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE
TO A FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES
AS A CONSEQUENCE THEREOF. 4

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his employees,
actually received the scraps is freely admitted. Significantly, there is not the slightest allegation or
showing of any condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the contrary, soon
after the scraps were delivered to, and received by the petitioner-common carrier, loading was
commenced.

By the said act of delivery, the scraps were unconditionally placed in the possession and control of
the common carrier, and upon their receipt by the carrier for transportation, the contract of carriage
was deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them. 5 The fact that part of the shipment had
not been loaded on board the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.

The petitioner has failed to show that the loss of the scraps was due to any of the following causes
104

enumerated in Article 1734 of the Civil Code, namely:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Page
(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.

Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of
this presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed extraordinary diligence
in the vigilance over the goods in his custody, according to all the circumstances of the case, or that the
loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of the petitioner to prove that he exercised such extraordinary diligence.

It is in the second and third assignments of error where the petitioner maintains that he is exempt
from any liability because the loss of the scraps was due mainly to the intervention of the municipal
officials of Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code. 7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that
the loss of the scraps was due to an "order or act of competent public authority," and this contention
was correctly passed upon by the Court of Appeals which ruled that:

... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power
to issue the disputed order, or that it was lawful, or that it was issued under legal
process of authority. The appellee failed to establish this. Indeed, no authority or
power of the acting mayor to issue such an order was given in evidence. Neither has
it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles.
What we have in the record is the stipulation of the parties that the cargo of scrap
iron was accilmillated by the appellant through separate purchases here and there
from private individuals (Record on Appeal, pp. 38-39). The fact remains that the
order given by the acting mayor to dump the scrap iron into the sea was part of the
pressure applied by Mayor Jose Advincula to shakedown the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we
cannot, however, allow. In any case, the intervention of the municipal officials was not In any case, of
a character that would render impossible the fulfillment by the carrier of its obligation. The petitioner
was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover, there is
absence of sufficient proof that the issuance of the same order was attended with such force or
intimidation as to completely overpower the will of the petitioner's employees. The mere difficulty in
the fullfilment of the obligation is not considered force majeure. We agree with the private
respondent that the scraps could have been properly unloaded at the shore or at the NASSCO
compound, so that after the dispute with the local officials concerned was settled, the scraps could
105

then be delivered in accordance with the contract of carriage.

There is no incompatibility between the Civil Code provisions on common carriers and Articles
Page

361 8 and 362 9 of the Code of Commerce which were the basis for this Court's ruling in Government of
the Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For Art. 1735
of the Civil Code, conversely stated, means that the shipper will suffer the losses and deterioration arising
from the causes enumerated in Art. 1734; and in these instances, the burden of proving that damages
were caused by the fault or negligence of the carrier rests upon him. However, the carrier must first
establish that the loss or deterioration was occasioned by one of the excepted causes or was due to an
unforeseen event or to force majeure. Be that as it may, insofar as Art. 362 appears to require of the
carrier only ordinary diligence, the same is .deemed to have been modified by Art. 1733 of the Civil Code.

Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by
us. Besides, these were not sufficiently controverted by the petitioner.

WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

Yap, C.J., Paras and Padilla, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and destruction of the
scrap iron. The loss of said cargo was due to an excepted cause an 'order or act of competent public
authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act' of
said official and even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three
policemen, who ordered the dumping of the scrap iron into the sea right where the lighter was
docked in three feet of water. Again, could the captain of the lighter and his crew have defied said
order?

Through the "order" or "act" of "competent public authority," therefore, the performance of a
contractual obligation was rendered impossible. The scrap iron that was dumped into the sea was
"destroyed" while the rest of the cargo was "seized." The seizure is evidenced by the receipt issues
106

by Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.
Page
 Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and destruction of the
scrap iron. The loss of said cargo was due to an excepted cause an 'order or act of competent public
authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act' of
said official and even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three
policemen, who ordered the dumping of the scrap iron into the sea right where the lighter was
docked in three feet of water. Again, could the captain of the lighter and his crew have defied said
order?

Through the "order" or "act" of "competent public authority," therefore, the performance of a
contractual obligation was rendered impossible. The scrap iron that was dumped into the sea was
"destroyed" while the rest of the cargo was "seized." The seizure is evidenced by the receipt issues
by Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.

Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.

Footnotes
107
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