[BOOK] Diaz - Transportation Laws Notes and Cases - 2018 (1)

TRANSPORTATION LAWS NOTES AND CASES JUDGE NOLI C. DIAZ Presiding Judge, Regional Trial Court Branch 39, Manila; Former Presiding Judge, Metropolitan Trial Court Branch 80, Muntinlupa City; Former Third Assistant City Fiscal of Manila; Professorial Lecturer, College of Law, Pamantasan ng Lungsod ng Maynila and University of Santo Tomas, Faculty of Civil Law; Member, Philippine Association of Law Professors; Member, Philippine Judges Association; Author: The Law on Sales as Expounded by Jurisprudence and Statutory Construction Fourth Edition 2018 ■ >. I UNIVERSITY OF THE CORDILLERAS ] l.DRARIES CONTENTS CHAPTER I PRELIMINARY CONSIDERATIONS Transportation Laws in the Philippines ...................................................................... 1 Transportation Laws and the Constitution .................................................................. 1 May a 100% Foreign Corporation Own a Public Utility? ........................................... 3 Tawang Multi-Purpose Cooperative v. La Trinidad Water District........... 6 Article 1732 ............................................................................................................................. 9 Common Carrier Defined and Explained .......................................................... 9 Common Carriers Distinguished from Private Carriers .................................... 11 First Philippine Industrial Corporation v. Court of Appeals ...................... 12 Test of a Common Carrier ................................................................................ 16 Article Vlasons Shipping, Inc. v. Court of Appeals and National Steel Corporation ........................................................................................ 16 Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals and Seven BrothersShipping Corporation .................................. 19 Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc ....................................................................................................... 22 1733 ...................................................................................................... 26 Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila Insurance Co., Inc .......................................................................................... 28 Faultor Negligence; Proximate Cause, Defined ..................................................... 29 Sabena Belgian World Airlines v. Hon. Court of Appeals and Ma. Paula San Agustin ............................................................................ 29 Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc .................... 33 CHAPTER II VIGILANCE OVER THE GOODS Article 1734 ..................................................................................................................... 36 Eastern Shipping Lines, Inc. v. The Nisshin Fire and Marine Insurance Co., and Dowa Fire and Marine Insurance Co., Ltd ...................................................................................... 38 Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance Company, Inc ............................................................................................. 41 xv The Philippine American General Insurance Co.. Inc. v. Court of Appeals and Felman Shipping Lines ................................................ 43 Article 1735 ............................... ................................................................................ 45 Sarkies Tours Philippines. Inc. v. Hon. Court of Appeals and Dr. Elino G. Fortales. Marisol A. Fortales and Fatima A. Fortales ............................................................................ 47 Coastwise Lighterage Corporation v. Court of Appeals and Philippine General Insurance Company ........................................... 50 Asian Terminals, Inc. v. Simon Enterprises, Inc ....................................... 52 Article 1736 ................................................................................................................. 54 Arrastre Operator and Stevedore Distinguished ............................................... 55 Benito Macam v. Court of Appeals, China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc ......................................... 56 Billof Lading both as a receipt and a contract .................................................. 58 Samar Mining Company, Inc. v. Nordeutscher Lloyd and C.F. Sharp and Company, Inc ........................................................ 58 Nedlloyd Lijnen B.V. Rotterdam and the East Asiatic Co., Ltd. v. Glow Laks Enterprises, Ltd ........................................................... 62 Article 1737 ........................................................................................................... 66 Article 1738 ........................................................................................................... 66 Two Requisites Are Necessary to Avoid Liability of Common Carriers Under This Article ................................................................................. 67 Amparo Servando, Clara Uy Bico v. Philippine Steam Navigation Co ............................................................................... 67 Concurring Opinion ....................................................................................... 69 Article 1739 ........................................................................................................... 70 Article 1740 ........................................................................................................... 70 Maersk Line v. Court of Appeals and Effen V. Castillo ......................... 71 Article 1741 ........................................................................................................... 73 Tabacalera Insurance Co., et al. v. North Front Shipping Services, Inc. and Court of Appeals .............................................................. 74 Article 1742 ........................................................................................................... 77 Article 1743 ........................................................................................................... 78 Intervention of municipal officials, not of a character that would render impossible the fulfillment by the carrier of its obligations .......... 79 Mauro Ganzon v. Court of Appeals and Gelacio Tumambing ............... 79 Dissenting Opinion ..................................................... .... ............................. 81 Article 1744 ........................................................................................................... 82 Article 1745 .... ..................................................................................................... 83 xvi Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila Insurance Co., Inc ................................................................................ 83 Pedro de Guzman v. Court of Appeals and Ernesto Cendana ............. 86 Grave and irresistible force must be proved in cases of hijacking ............... 90 Estrellita M. Bascos v. Court of Appeals and Rodolfo A. Cipriano.... 90 Prescillano Necesito, etc. v. Natividad Paras ...................................... 92 Vector Shipping Corporation and Francisco Soriano v. Adelfo B. Macasa, et al ........................................................................................ 95 Article 1746 .................................................................................................................. 98 Article 1747 .................................................................................................................. 98 Article 1748 .................................................................................................................. 99 Article 1749 .................................................................................................................. 99 Article 1750 .................................................................................................................. 99 Everett Steamship Corp. v. CA and Hernandez Trading Co., Inc ................................................................................ 101 Summa Insurance Corporation v. Court of Appeals and Metro Port Service, Inc........................................................................ I04 Article 1751 ................................................................................................................ 107 Article 1752 ................................................................................................................ 107 Article 1753 ............................................................................................................... 108 Eastern Shipping Lines, Inc. v. Intermediate Appellate Court and Development Insurance and Surety Corp .......................................... 108 Article 1754 ......................................................................................................... 110 CHAPTER HI SAFETY OF PASSENGERS Article 1755 ............................................................................................................... 113 Aboitiz Shipping Corporation v. Hon. Court of Appeals, Lucila Viana, Sps. Antonio and Gorgonia Viana, and Pioneer Stevedoring Corporation.................................................................... 115 Rosito Z. Bacarro, William Sevilla, and Felario Montefalcon v. Geruridio B. Castano and The Court of Appeals ............................... 118 Trans-Asia Shipping Lines, Inc. v. Court of Appeals and A tty. Renato T. Arroyo ..................................................................... 122 Nature of the Contract of Air Carriage ........................................................ 123 Categories of International Transportation ......................................................... 124 Carlos Singson v. Court of Appeals and Cathay Pacific Airways, Inc ...................................................................................... 125 “Force Majeure,” common carriers are not the insurer of all risks .............. 129 Japan Airlines v. Court of Appeals, Enrique Agana, et al ................... 129 Compared To: Philippine Airlines v. Court of Appeals ...................... 132 Japan Airlines v. Jesus Simangan .............................................................. 133 Article 1756 .............................................................................................................. 136 xvii Circumstances Indicative of Negligence on the Part of the Driver/ Employee ................................................................................................... Precautions Required of a Driver to Avoid Accidents ......................................... Alberta and Cresencio Yobido v. Court of Appeals and Leny Tumboy, etal ..................................................................................... Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia and Leticia Garcia and Julio Recontique ........................................... Bachelor Express, Inc. and Cresencio Rivera v. The Honorable Court of Appeals, et al ....................................................................... 137 \ 33 139 142 145 Duty of a common carrier to overcome the presumption of negligence .............................................................................................. 147 Franklin Gacal and Corazon M. Gacal v.Philippine Airlines ............ 147 Herminio Mariano, Jr. v. Idelfonso C. Callejas and Edgar De Boija ........................................................................... 150 Article 1757 ............................................................................................................... 153 Article 1758 ............................................................................................................... 153 Sulpicio Lines, Inc. v. The Honorable Court of Appeals (Twelfth Division) and Jacinta L. Pamalaran ................................. 154 Article 1759................................................................................................................ 156 Article 1760................................................................................................................ 156 1975 Bar Question ........................................................................................... 156 Sulpicio Lines Inc. v. Napoleon Sesante, now Substituted by Maribel Atilano, Kristine Marie, Christian lone Kenneth Kerm and Karisna Kate,all sumamed Sesante ................................ 157 Article 1761................................................................................................................ 161 Article 1762................................................................................................................ 161 Travel & Tours Adviser, Incorporated v. Alberto Cruz, Sr., Edgar Hernandez and Virginia Mufioz ........................................................ Article 1763 .................................................................................... Jose Pilapil v. Court of Appeals and Alatco Transportation Co., Inc ........................................................................................... Fortune Express, Inc. v. Court of Appeals, Paulie v. Caorong and minor children.......................................................................... 163 167 168 171 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS Article 1764 ........................................................................................................... 175 Sources of obligation under which the carrier-employer and his driver-employee are liable to passenger or pedestrian in cases of injury ................... 1' XVlll Damages, Computation of Indemnity, Life Expectancy of Victim as basis in fixing amount recoverable, and Earning Capacity ......................................................................................... 182 Villa Rey Transit, Inc. v. The Court of Appeals, Trinidad A. Quintos, Prima C. Quintos and Julita A. Quintos ........................ 182 Fortune Express, Inc. v. Court of Appeals ............................................ 185 Damages, computization of indemnity ........................................................ 186 Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc ............... 186 Dangwa Transportation Co., Inc., and Theodore M. Lardizabal v. Court of Appeals, Inocencia Cudiamat, et al ........................... 190 Factors to be considered in the award of damages to accident victim ........................................................................................ 192 Philippine Airlines, Inc. v. Court of Appeals and Leovigildo A. Pantejo......................................................................... 193 Singapore Airlines Limited v. Andion Fernandez ................................ 197 Philippine Airlines, Inc. v. Vicente Lopez, Jr. ............................................. 200 Cathay Pacific Airways, Ltd. v. Spouses Amulfo and Evelyn Fuentebella ............................................................................ 201 Spouses Jesus Fernando and Elizabeth S. Fernando v. Northwest Airlines, Inc ...................................................................... 204 Philtranco Service Enterprises, Inc. and Rogaciano Manilhig v. Court of Appeals and Heirs of the late Ramon Acuesta ............... 211 Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia and Leticia Garcia, and Julio Recontique ........................................... 215 Trans-Asia Shipping Lines, Inc. v. Court of Appeals and Atty. Renato T. Arroyo ....................................................................... 218 Cathay Pacific Airways v. Juanita Reyes, Wilffedo Reyes, Micheal Roy Reyes, Sixta Lapuz, and Sampaguita Travel Corporation ............................................................................. 220 When are attorney’s fees recoverable? ............................................................... 223 Philippine Airlines Incorporated v. Court of Appeals and Sps. Manuel S. Buncio and Aurora R. Buncio............................. 224 Righteousness of Attorney’s Fees ....................................................................... 228 Asian Terminals, Inc. v. Allied Guarantee Insurance Co., Inc .............. 228 Carlos Singson v. Court of Appeals and Cathay Pacific Airways, Inc ....................................................................................... 230 Philippine National Railways v. The Honorable Court of Appeals and Rosario Tupang ........................................................................... 233 Moral damages, exemplary damages; where the award of moral and exemplary damages is eliminated, so must the award for attorney’s fees be deleted .............. 236 Collin A. Morris and Thomas P. Whittier v. Court of Appeals (Tenth Division) and Scandinavian Airlines System .......................... 236 Sulpicio Lines, Inc. v. Domingo E. Curso, et al., (First Division Decision) .................................................................... 239 xix Georgia Vda. de Paman, et al. v. Hon. Alberto V. Seneris, Western Mindanao Lumber Company, and Teodoro Delos Santos .............................................................................. 242 Pepe Catacutan and Aureliana Catacutan v. Heirs of Norman Kadusale, Heirs of Lito Amancio and Gil B. Izon ............................ 245 Baliwag Transit, Inc. v. Hon. Court of Appeals and Sps. Sotero Cailipan and Zenaida Lopez and George L. Cailipan ....................... 248 Article 1765 ....................................................................................................................... 251 Article 1766 ....................................................................................................................... 251 The Warsaw Convention has the force and effect of law in this country... 252 Edna Diago Lhuillier v.British Airways ........................................................... 252 Philippine Airlines, Inc. v. Hon. Adriano Savillo, Presiding Judge of RTC Branch 30, Iloilo City and Simplicio Grino ......................... 254 CHAPTER V CARRIAGE OF GOODS BY SEA ACT (COMMONWEALTH ACT NO. 65) TITLE I. Section 1 ................................................................................................................ Section 2 ................................................................................................................ Section 3 ................................................................................................................ Section 4 ................................................................................................................ Section 5 ................................................................................................................ Section 6 ................................................................................................................ Section 7 ................................................................................................................ Section 8 ................................................................................................................ TITLE II. Section 9 ......................................................................................................... Section 10 ....................................................................................................... Section 11 ....................................................................................................... Section 12 ....................................................................................................... Section 13 ....................................................................................................... Section 14 ....................................................................................................... Section 15 ....................................................................................................... Section 16 ....................................................................................................... Cases on Carriage of Goods by Sea Act: 267 268 268 268 268 268 269 269 DOLE Philippines, Inc. v. Maritime Company of the Philippines ......... Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance, Inc.) ............................................. Universal Shipping Lines, Inc. v. Intermediate Appellate Court and Alliance Assurance Co., Ltd .......................................................... Benjamin Cua (Cua Uian Tek) v. Wallen Philippines Shipping, Inc. and Advance Shipping Corporation ..................................................... xx 259 260 260 263 266 266 267 267 269 272 276 277 Filipino Merchants Insurance Co;, Inc. v. Hon. Jose Alejandro and Frota Oceanica Brasiliera; Filipino Merchants Insurance Co., Inc. v. Hon. Alfredo Benipayo and Australia-West Pacific Line .......................................................................... 281 Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. Court of Appeals, South Sea Surety and Insurance Co., Inc. and Charter Insurance Corporation ........ 284 Mayer Steel Pipe Corporation Case compared to Filipino Merchants’ case ........................................................................ 286 Wallem Philippines Shipping, Inc. v. S.R. Farms, Inc ................. 288 New World International Development (Phils.), Inc. v. NYK Fil-Japan Shipping Corporation, et al ......................... 291 New World International Development (Phils.), Inc. v. Seaboard-Eastern Insurance Co., Inc ......................................... 291 Insurance Company of North America v. Asian Terminals, Inc ... 294 Domingo Ang v. Compania Maritima, Maritime Company of the Philippines and C.L. Diokno ...................... 297 Mitsui O.S.K. Lines Ltd. v. Court of Appeals and Lavine Loungewear Mfg. Corp ............................................................. 298 International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co., Inc ............................................ 301 Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc ............................................ 301 Philippine Charter Insurance Corporation v. Neptune Orient Lines/Overseas Agency Services, Inc ....................................... 307 CHAPTER VI PUBLIC SERVICE Commonwealth Act No. 146 (Sections 13 to 16)......................................... 314 Section 13 ......................................................................................................... 314 Batangas Transportation Co. v. Cayetano Orlanes ....................... 315 Section 14 ......................................................................................................... 318 Section 15 ......................................................................................................... 318 Section 16 ......................................................................................................... 319 Certificate of Public Convenience, Defined ............................................. 323 Philippine Airlines v. Civil Aeronautics Board and Grand International Airways ................................................................ 325 First applicant to operate service be given preference if financially competent ........................................................................ 328 Tomas Litimco v. La Mallorca .......................................................... 328 Fortunato F. Halili v. Ruperto Cruz ............................................. 330 Additional Service by Old Operators Raymundo Transportation Co ..................................................................... 333 xxi Intestate Estate of Teofilo M. Tiongson v. The Public Service Commission and Mario Z. Lanuza ........................................................... 334 Municipality of Echague v. Hon. Leopoldo M. Abellera and Avelina Ballad ......................................................................................... 337 EXECUTIVE ORDER NO. 202 CREATING THE LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD Section 1. Creation of the Land Transportation Franchising and Regulatory Board ....................................................................................................... Section 2. Composition of the Board ................................................................................... 344 Section 3. Executive Director and Support Staff of the Board ............................................. 344 Section 4. Supervision and Control Over the Board ................................................................... Section 5. Powers and Functions of the Land Transportation Franchising ........................... Section 6. Decision of the Board; Appeals therefrom and/or Review thereof .................................................................................................................. Section 7. Creation of Regional Franchising and Regulatory Offices .................................. 347 Section 8. Appeals ..................................................................................................................... Section 9. Appropriations ........................................................................................................... Section 10. Effectivity ................................................................................................................ 343 344 344 346 347 347 347 RULES OF PRACTICE AND PROCEDURE BEFORE THE LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD OF THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS PART I - GENERAL PROVISIONS Rule I TITLE AND CONSTRUCTION Section 1. Title .............................................................................................................. Section 2. Scope ............................................................................................................ Section 3. Construction ................................................................................................. Section 4. Definitions .................................................................................................... 348 348 348 348 Rule 2 - PARTIES Section 1. Applicant and Oppositor ........................................................................ 349 Section 2. Complainant, Petitioner and Respondent ............................................... 349 Section 3. Appearance by Solicitor General .................................................................. 349 Section 4. Appearance by Consumers or Users ............................................................. 349 Rule 3 - PLEADINGS Section 1. Pleading allowed........................................................................................... Section 2. Verification and Supporting Documents ....................................................... Section 3. Application ................................................................................................... Section 4. Complaint ..................................................................................................... Section 5. Petition ......................................................................................................... Section 6. Answer ......................................................................................................... Section 7. Amendment ........................................................................................... 351 XXII 350 350 350 350 351 351 Rule 4 - MOTIONS 351 352 Section 1. Scope and Contents Section 2. Form .......... ................................................. Section 3. Notice ........ .................................................................. Section 4. Proof of Service ................................................. Section 5. Ex-Parte Motions ............... Rule 5 - FILING, SERVICE OF PLEADING AND PUBLICATION Section 1. Filing.............................. Section 2. Acceptance for filing .......... .... ...................................... .... . ” Section 3. Service upon parties ............................. Section 4. Service upon Parties represented by Attorneys ..................... Section 5. Service of orders .................................. Section 6. Extension of time ................................. Rule 6 - PRE-HEARING CONFERENCE Section 1. Purpose................................................................................. Section 2. Scope.................................................................................... Section 3. Judgment on the pleadings and summary judgment at pre-hearing ................................................................ Section 4. Records of pre-hearing proceedings ..................................... 352 352 352 352 353 353 353 353 353 353 353 354 354 354 355 Rule 7 - APPLICATION Section 1. How commenced ............................. Section 2. Contents .......................................... Rule 8 - NOTICE OF HEARING Section 1. Issuance of the Notice of Hearing. Section 2. Publication and serving ................... 355 355 355 356 Rule 9 - OPPOSITION Section 1. Contents .......................................... PART II - PROCEDURE IN COMPLAINTS 356 RULE 10 - COMPLAINTS Section 1. How commenced ............................. Section 2. Filing ............................................... Section 3. Prosecution ............... ..................... Section 4. Sufficiency of complaints ................ Section 5. Separate allegations ........................ Rule 11 - SUMMONS Section 1. Duty of the Legal Division ............. Section 2. Contents ......................................... 356 356 356 357 357 357 357 Rule 12-ANSWER Section 1. Contents .................. 357 XXlll PART II! - SUMMARY PROCEEDINGS Rule 13 - ORDER TO SHOW CAUSE Section 1. When applicable ........................................................... ............. i*\ Section 2. Contents ............................................. ... ............... ...... ...... ..... 351 Section 3. Non-Appearance ........................................... ............................ 25s Section 4. Explanation without appearance ................................... ............. 55* PART IV - EVIDENCE Rule 14 - RECEPTION OF EVIDENCE Section 1. Composition of the Board ............................................ ...... ...... 359 Section 2. Hearing before the Board ............................................. ............. 359 Section 3. Uncontested proceedings ........................................ ............ ~ .... 359 Section 4. Consolidation ............................................................... .— ------ 359 Section 5. Appearance.......................................................................... ...... 360 Section 6. Notice of appearance ..............................................................— 360 Section 7. Order on procedure.................................................................— 360 Section 10. Deposition ......................................................................... ...... 360 Section 11. Regular Hearing ......................................................... .. .......... 361 Section 12. Transcript and records ............................................................... 361 PART V - DECISIONS AND ORDERS Rule 15 - DECISIONS AND ORDERS Section 1. How rendered .........................................................................— Section 2. Form and contents ........................................................................... Section 3. Provisional relief ............................................................................. Section 4. Decision .......................................................................................... Section 5. Execution order, ruling, decision, or resolution ............................... Section 6. Compilation and publication of decisions ....................................... 361 361 361 362 362 362 PART VI - REOPENING, RECONSIDERATION, AND APPEAL Rule 16 MOTIONS FOR REOPENING OR RECONSIDERATIONS Section 1. Motion for re-opening ................................................................ Section 2. Motion for reconsideration of decisions ..................................... Section 3. Service and hearing .................................................................... Section 4. Opposition .................................................................................. 363 363 363 363 Rule 17-APPEAL Section 1. Appeal .................................................................................... 363 Section 2. Procedure on appealed cases .................................................. 364 Section 3. Effect of Appeal ..................................................................... 365 Section 4. Appeal from the order of the Secretary................................... 365 PART VII - RECONSTITUTION OF RECORDS Rule 18 RECONSTITUTION Section 1. Petition ......................................................................... ......... 365 Section 2. Contents ................................................................................. 366 xxiv Section 3. Notice of publications ............................................................. ........ 366 Section 4. Applicability of certain rules .................................................................... 366 Section 5. Order ........................................................................................................ 366 PART VIII - MISCELLANEOUS PROVISIONS Rule 19 - APPLICABILITY OF THE RULES OF COURT Section 1. Rules of Court .................................................................................. 366 Rule 20 - APPLICABILITY OF THIS RULE TO THE REGIONAL FRANCHISING AND REGULATORY OFFICES Section 1. Applicability ............................................................................................ 366 Rule 21 - REPEALING CLAUSE Section 1. Repeal ...................................................................................................... 367 Rule 22 - EFFECTIVITY Section 1. Effectivity ........................................................................................ 367 KABIT SYSTEM (SECTION 20, COMMONWEALTH ACT NO. 146) Lita Enterprises v. Second Civil Cases Division, Intermediate Appellate Court, Nicasio M. Ocampo and Francisca P. Garcia ............................................................................ 370 Abelardo Lim and Esmadito Gunnaban v. Court of Appeals and Donato H. Gonzales .................................................................... 373 MYC Agro-Industrial Corporation v. Purificacion Camerino, et al. and the Court of Appeals .......................................................... 376 Y Transit Co., Inc. v. The National Labor Relations Commission and Yujuico Transit Employees Union ...................................................... 379 Angel Jereos v. Hon. Court of Appeals and Soledad Rodriguez, et al ............................................................................................................ 382 B. .................................................................................................... A. Finance Corporation v. Hon. Court of Appeals ........................................................ 383 RECENT CASES ON REGISTERED OWNER RULE PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc ...................................................................................................... Metro Manila Transit Corporation v. Reynaldo Cuevas and Junnel Cuevas, represented by Reynaldo Cuevas ................................................. R Transport Corporation v. Luisito G. Yu .......................................................... Mariano C. Mendoza and Elvira Lim v. Sps. Leonora J. Gomez and Gabriel V. Gomez ............................................................................... Nostradamus Villanueva v. Priscilla R. Domingo and Leandro Luis R. Domingo ....................................................................................... Greenstar Express, Inc. and Fruto L. Sayson Jr. v. Universal Robina Corporation and Nissin Universal Robina Corporation ............................. Boundary System, defined ................................................................................. xxv 387 389 393 395 399 402 406 CHAPTER VII VESSELS Admiralty and Maritime Jurisdiction of a Court .......................................................... 409 Article 573 ................................................................................................................................... 4JQ Article 574 .................................................................................................................................... 4JQ Article 575 ................................................................................................................................... 4JQ Article 576 ............................................................................................................................ 41 j Article 577 .................................................................................................................................. 411 Article 578 .................................................................................................................................. 411 Article 579 ................................................................................................................................... 412 Article 580 .................................................................................................................................... 413 Article 581 .................................................................................................................................... 414 Article 582 ................................................................................................................................... 414 Article 583 ................................................................................................................................... 414 Article 584 .................................................................................................................................... 415 Article 585 ................................................................................................................................... 415 Commissioner of Customs v. The Court of Appeals, Arsenio M. Gonong, Presiding Judge, RTC, Branch 8, et al....................................................................................... 417 PRESIDENTIAL DECREE NO. 474 PROVIDING FOR THE REORGANIZATION OF MARITIME FUNCTIONS IN THE PHILIPPINES, CREATING THE MARITIME INDUSTRY AUTHORITY, AND FOR OTHER PURPOSES A. Section 1. Title ......................................................................................................... 422 Section 2. Declaration of Policies and Objectives .................................................... 422 Section 3. Definition of Terms ................................................................................. 423 MARITIME INDUSTRY AUTHORITY Section 4. Maritime Industry Authority, Creation and Organization ........................ 424 Section 5. Maritime Industry Development Program ............................................... 424 B. MARITIME INDUSTRY BOARD Section 6. Powers and Functions of the Board ......................................................... 425 Section 7. Composition and Organization ................................................................ 426 C. D. MANAGEMENT Section 8. Management Head .................................................................................. 427 Section 9. The Maritime Administrator and Deputy Administrators ........................ 427 Section 10. Authority to Administer Oath ....................................................................... 428 Section 11. General Powers and Functions of the Administrator .................................... 428 Section 12. Specific Powers and Functions of the Administrator .................................... 429 Section 13. Maritime Industry Manpower Needs ............................................................ 431 Section 14. Penalties ....................................................................................................... 431 MISCELLANEOUS PROVISIONS Section 15. Auditor ......................................................................................................... 432 xxvi Section 1 6 . Reorganization^ Chances Section 17. Retention nf r • S....................................... of the Ph, inn ^ Functions and Powers Ot the Philippine Coast Guard Section 1 8 . Coordination With Other Agencies' ......... Section 19. Transitory Provision ...............1 Section 20. Appropriations 432 432 432 433 433 433 434 RULES J?F PRACTICE AND PROCEDURE OF THE MARITIME INDUSTRY AUTHORITY MEMORANDUM CIRCULAR NO. 74-A PARTI Rule 1. Coverage .................. Rule 2. Definition of Terms ........... Rule 3. Construction ............................ Rule 4. Venue ......................... Rule 5. Filing of the Application .......................... Rule 6. Pre-Trial ................................................. Rule 7. Compromise.................................. ........ Rule 8. Summary Procedure ............................... Rule 9. Petition for Rate Increase ........................ Rule 10. Opposition ............................................ Rule 11. Renewals or Extension or Amendments Rule 12. Prohibition ............................................ Rule 13. Provisional Relief ................................. Rule 14. Contempt .............................................. Rule 15. Decisions .............................................. Rule 16. Appeals ................................................. PART II Rule 1. Coverage ................. Rule 2. Definition of Terms. Rule 3. Construction ........... Rule 4. Venue ................................. '/' I n ........... Rule 5. Commencement of a Complaint ase ......... Rule 6. Prosecution ......................... Rule 7. Effect of the Failure ofPart.es to Appear During Hearing ............................................ Rule 8. Postponements ................................ Rule 9. Compromises ........................................ Rule 11. Pre-Trial ................................... Rule 12. Order of Trial ........................................ Rule 13. Consolidation......................................... Rule 14. Summary Procedure ................................ Rule 15. Contempt................... Rule 16. Provisional Relief...... xxvn 435 435 435 436 436 437 437 438 441 442 442 442 443 443 441 444 444 445 445 445 446 446 444 447 447 450 450 450 450 450 451 Rule 17. Decision ................................................................................ 452 Rule 18. Finality.................................................................................. 452 Signing Authority ........................................................................ 452 Accountability of Hearing/Legal Officers .................................... 452 Repealing Clause ......................................................................... 453 Effectivity .................................................................................... 453 MARINA MEMORANDUM CIRCULAR NO. 90 IMPLEMENTING GUIDELINES FOR VESSEL REGISTRATION AND DOCUMENTATION I. Objective .............................................................................................. 453 II. Coverage .................................................................................................. 454 III. Definition of Terms ............................................................................ 454 IV. General Provisions.............................................................................. 455 V. Specific Guidelines ................................................................................. 455 A. B. C. D. Register of Vessels .......................................................................... Requirements for Registration of Vessels ....................................... Transfer of Rights and Encumbrances ............................................ Deletion of Vessels ......................................................................... 455 456 457 457 VI. Validity................................................................................................... VII. Penalty/Sanctions .................................................................................. VIII. Saving Clause ...................................................................................... IX. Repealing Clause ................................................................................. X. Effectivity ............................................................................................ 457 457 458 458 458 CHAPTER VIII PERSONS WHO TAKE PART IN MARITIME COMMERCE SHIPOWNERS AND SHIP AGENTS Article 586 ....................................................................................................... 459 Article 587 ....................................................................................................... 459 The Limited Liability Rule ...................................................................... 459 Chua Yek Hong v. Intermediate Appellate Court, Mariano Guno and Dominador Olit ............................................................. 459 Rationale on the Real and Hypothecary Liability of Shipowner; Exceptions ................................................................ 461 Effect of the New Civil Code Provisions on Common Carrier on the Real and Hypothecary Nature of Liability Under Maritime Law ................................................................... 462 Liability of shipowner extends to value of vessel and insurance proceeds thereon .......................................................................... 463 Pedro Vasquez, Soledad Ortega, Cleto Bagaipo, Agustina Virtudez, Romeo Vasquez and Maximina Cainay v. The Court of Appeals and Filipinas Pioneer Lines Inc .............................. 463 xxviii Negros Navigation Co., Inc. v. The Court of Appeals, Ramon Miranda, Sps. Ricardo and Virginia De La Victoria..................... 465 Aboitiz Shipping Corporation v. New India Assurance Company, Ltd .............................................................................. 468 Aboitiz Shipping Corporation v. Court of Appeals, Malayan Insurance Company, Inc. Compagnie Maritime Des Chargeurs REunis, et al ....................................................................... 468 Phil-Nippon Kyoei, Corporation v. Rosalia T. Gudelosao, on her behalf of minor children Christy Mae T. Gudelosao, et al ............ 474 Augustin P. Dela Torre v. The Honorable Court of Appeals, Crisostomo G. Concepcion, et al ......................................................... 480 .Article 588 .................................................................................................................... Article 589 .................................................................................................................... Article 590 ..................................................................................................................... Article 591 .................................................................................................................... Article 592 .................................................................................................................... Article 593 .................................................................................................................... Article 594 ..................................................................................................................... Article 595 .................................................................................................................... Article 596 ..................................................................................................................... Article 597 ..................................................................................................................... Article 598 .................................................................................................................... Article 599 ..................................................................................................................... Article 600 ..................................................................................................................... Article 601 .................................................................................................................... Article 602 .................................................................................................................... Article 603 ..................................................................................................................... Article 604 ..................................................................................................................... Article 605 ..................................................................................................................... Article 606 ..................................................................................................................... Article 607 ..................................................................................................................... Article 608 ..................................................................................................................... 483 484 484 484 484 485 485 485 485 485 486 486 486 486 486 486 487 487 487 487 487 CAPTAINS AND MASTERS OF THE VESSEL Article 609 ..................................................................................................................... Article 610 ..................................................................................................................... Article 611 ................................................................................................................... Article 612 ..................................................................................................................... Alejandro Arada v. Court of Appeals and San Miguel Corporation.... Article 613 ..................................................................................................................... Article 614 ..................................................................................................................... Article 615 ..................................................................................................................... Article 616 ..................................................................................................................... Article 617 ..................................................................................................................... Article 618 ..................................................................................................................... Article 619 ..................................................................................................................... Article 620 ..................................................................................................................... xxix 487 489 490 491 494 496 496 497 497 497 497 498 498 Article 621 ....................................................................................................................... ^ Article 622 ....................................................................................................................... w Article 623 ............................................................................................................................... 4^ Article 624 .............................................................................................................................. 4^ Article 625 ............................................................................................................................ 5QQ OFFICERS AND CREW OF THE VESSELS Article 626 .............................................................................................................................. 500 Article 627 ...................................................................................................................... 501 Lorenzo Shipping Corp. v. National Power Corporation ..................................... 502 Article 628 .............................................................................................................................. Article 629 .............................................................................................................................. Article 630 .............................................................................................................................. Article 631 ............................................................................................................................. Article 632 .............................................................................................................................. Article 633 ............................................................................................................................. Article 634 .............................................................................................................................. Article 635 ............................................................................................................................. Article 636 ......................................................................................................................... Article 637 ......................................................................................................................... Article 638 ......................................................................................................................... Article 639 ......................................................................................................................... Article 640 .......................................................................................................................... Article 641 .......................................................................................................................... Article 642 .......................................................................................................................... Article 643 ......................................................................................................................... Article 644 .......................................................................................................................... Article 645 .......................................................................................................................... Article 646 .......................................................................................................................... Article 647 .......................................................................................................................... Article 648 ......................................................................................................................... 505 505 506 506 506 508 508 509 510 510 511 512 512 512 513 513 514 514 515 515 515 SUPER CARGOES Article 649 .......................................................................................................................... 515 Article 650 .......................................................................................................................... 516 Article 651 .......................................................................................................................... 516 CHAPTER IX SPECIAL CONTRACTS OF MARITIME COMMERCE CHARTER PARTIES Forms and Effects of Charter Parties Article 652 ................................................................................................................. 517 Important Terms and Phrases in Charter-Party ................................................. 518 Definition of Charter-Party ............................................................................. 518 XXX Kinds of Charter-Party ................................................................................ 518 Transshipment ............................................................................................. 521 Demurrage ................................................................................................... 521 Laytime ...................................................................................................... 522 WWDSHINC or Weather, Working Days, Sundays, and Holidays Included ............................................................................... 522 F.I.O.S.T...................................................................................................... 522 Primage ....................................................................................................... 523 Caltex (Philippines.),Inc. v. Sulpicio Lines ................................................. 523 Litonjua Shipping Company, Inc. v. National Seamen Board and Gregorio P.Candongo .................................................................. 527 Federal Phoenix Assurance Co., LTD v. Fortune Sea Carrier, Inc ......................................................................................... 529 Article 653 ..................................................................................................................... 532 Charter-Party may be oral .................................................................................... 532 Market Developers, Inc. (MADE) v. Hon. Intermediate Appellate Court and Gaudioso Uy ...................................................................... 532 Article 654 ...................................................................................................................... 535 Article 655 ..................................................................................................................... 535 Article 656 ..................................................................................................................... 535 Article 657 ..................................................................................................................... 535 Article 658 ..................................................................................................................... 536 Article 659 ..................................................................................................................... 536 Article 660 ...................................................................................................................... 537 Article 661 ..................................................................................................................... 537 Article 662 ...................................................................................................................... 537 Article 663 ..................................................................................................................... 537 Article 664 ...................................................................................................................... 537 Article 665 ..................................................................................................................... 537 Article 666 ..................................................................................................................... 538 Article 667 ...................................................................................................................... 538 Article 668 ..................................................................................................................... 538 RIGHTS AND OBLIGATIONS OF OWNERS Article 669 ...................................................................................................................... 538 Article 670 ...................................................................................................................... 539 Article 671 ..................................................................................................................... 539 Article 672 ...................................................................................................................... 540 Article 673 ..................................................................................................................... 540 Article 674 ...................................................................................................................... 540 Article 675 ...................................................................................................................... 540 Article 676 ...................................................................................................................... 541 Article 677 ...................................................................................................................... 541 Article 678 ...................................................................................................................... 541 xxxi OBLIGATIONS OF CHARTERERS Article 679 ............................................................................................................................ 541 Article 680 ...................................................................................................................... 542 Article 681 ..................................................................................................................... 542 Article 682 ............................................................................................................................. 542 Article 683 ............................................................................................................................ 542 Article 684 ............................................................................................................................. 543 Article 685 ............................................................................................................................ 543 Article 686 ............................................................................................................................. 543 Article 687 ............................................................................................................................. 543 Article 688 ............................................................................................................................. 543 Article 689 ............................................................................................................................. 544 Article 690 ............................................................................................................................. 545 Article 691 ............................................................................................................................ 545 Article 692 ............................................................................................................................. 546 BILLS OF LADING Article 706 ............................................................................................................................. 548 Negros Navigation v. Bacquing .......................................................................... 548 Article 707 ............................................................................................................................. 550 Article 708 ............................................................................................................................ 551 Article 709 ............................................................................................................................. 551 Article 710 ............................................................................................................................. 551 Article 711 ............................................................................................................................. 551 Article 712 ............................................................................................................................. 551 Article 713 ............................................................................................................................. 551 Article 714 ............................................................................................................................. 552 Article 715 ............................................................................................................................. 552 Article 716 ............................................................................................................................. 552 Article 717 ............................................................................................................................. 552 Article 718 ............................................................................................................................. 553 Bill of Lading Explained ............................................................................................. 553 On Board Bill of Lading and Received for Shipment Bill of Lading.................. . ........................................................................... 554 Clean Bill of Lading ....................................................................... ..................... 554 Bill of Lading, a Contract of Adhesion........................................................................ 555 Nature of a Bill of Lading ........................................................................................... 557 Keng Hua Paper Products Co., Inc. v. Court of Appeals; Regional Trial Court of Manila, Branch 21, and Sea Land Service, Inc ................................................................................... 557 MOF Company, Inc. v. Shin Yang Brokerage Corporation ......................... 560 Loans on Bottomry and Respondentia ......................................................................... 563 Article 719 ............................................................................................................................. 563 Loans on Bottomry Explained ................................................................................... 563 xxxii 1 Distinction between Loan on Bottomry and Respondentia from Simple Loan ............................................................ Article 720 ....................................................................................... Article 721 ...................................................................................... Article 722 ...................................................................................... Article 723 ...................................................................................... Article 724 ....................................................................................... Article 725 ...................................................................................... Article 726 ...................................................................................... Article 727 ...................................................................................... Article 728 ...................................................................................... Article 729 ...................................................................................... Article 730 ...................................................................................... Article 731 ....................................................................................... Article 732 ...................................................................................... Article 733 ...................................................................................... Article 734 ....................................................................................... Article 735 ...................................................................................... Article 736 ....................................................................................... 564 564 565 566 566 566 566 566 567 567 567 567 568 568 568 568 569 569 CHAPTER X RISKS, DAMAGES, AND ACCIDENTS OF MARITIME COMMERCE AVERAGES Article 806 ................................................................................................. Article 807 ................................................................................................ Article 808 ................................................................................................. Article 809 ................................................................................................. Article 810 ................................................................................................. Article 811 ................................................................................................. Article 812 ................................................................................................. Classification of Averages ................................................................. A. Magsaysay, Inc. v. Anastacia Agan ...................................... Requisites of General Average .......................................................... Article 813 ................................................................................................. Article 814 ................................................................................................. Philippine Home Assurance Corporation v. Court of Appeals and Eastern Shipping Lines, Inc ....................................... Article 815 ................................................................................................. Article 816 ................................................................................................. Article 817 ................................................................................................. Article 818 ................................................................................................. xxxm 570 570 570 570 571 572 573 573 573 575 576 577 577 580 580 580 580 ARRIVALS UNDER STRESS Article 819 ............................................................................................................................. 581 Article 820 ............................................................................................................................. 581 Article 821 ............................................................................................................................ 582 Article 822 ............................................................................................................................ 582 Article 823 ............................................................................................................................ 582 Article 824 ............................................................................................................................ 582 Article 825 ............................................................................................................................ 583 COLLISIONS Article 826 .................................................................................................................... 585 Article 827 .................................................................................................................... 586 Article 828 .................................................................................................................... 586 SulpicioLines, Inc. v. Court of Appeals .................................................. Article 829 .................................................................................................................... Article 830 .................................................................................................................... Article 831 .................................................................................................................... Article 832 .................................................................................................................... Article 833 .................................................................................................................... Article 834 .................................................................................................................... 586 587 588 588 588 588 588 Is the master bound by the acts of the Pilot? Is the master responsiblefor the negligence of the pilot? ................................................... 589 Who has the burden of proof that the pilot was negligent?................................. 590 Article 835 ............................................................................................................................ 591 AugustoLopez v. Juan Duruelo and Alino Sison ................................................ 591 Article 836 ............................................................................................................................ 592 Article 837 ............................................................................................................................ 592 Luzon Stevedoring Corporation v. Court of Appeals ......................................... 592 Article 838 ............................................................................................................................ 597 Article 839 ............................................................................................................................ 597 SHIPWRECKS Article 840 .................................................................................................................... 597 Article 841 .................................................................................................................... 597 Article 842 .................................................................................................................... 598 Article 843 ............................................................................................................................ 598 Article 844 ............................................................................................................................ 598 Article 845 ............................................................................................................................ 599 Section I PROOF AND LIQUIDATION OF AVERAGES Article 846 . 599 XXXIV Article 8-J' ........ ............................................. Article 8-iS .................................... Article 8-to ........................................................... Article 850 ...................................................... 600 600 600 600 Section 11 LIQUIDATION OF GROSS AVERAGES Article S51...................................................... Article 852 .............................................. ......................................................... Article 853 .................................... Article S54.............................................. .Article 855 ............................................ Article 856 .............................. .................................................................. ’ ' .Article S57............................................. Article 858 .............................................. Article S59....................................................................... Article 860 ........................................................................................................ .Article 861 ....................................................................................................... .Article 862 ....................................................................................................... Article 863 ....................................................................................................... .Article 864 ....................................................................................................... .Article 865 ....................................................................................................... .Article 866 ............................................................................................... ....... .Article 867 ................................................................................................ .... Article 868 ....................................................................................................... 601 601 60) 602 603 603 604 604 604 605 605 605 605 605 605 606 606 606 Section III LIQUIDATION OF ORDINARY AVERAGES Article 869 ........................................................................................................ CHAPTER XI 606 THE SALVAGE LAW (Act No. 2616) Section 1.................................................................................................. Section 2.................................................................................................. Section 3.................................................................................................. Section 4.................................................................................................. Section 5.................................................................................................. Section 6 ................................................................................................. Section 7.................................................................................................. Section 8 ................................................................................................. Section 9.................................................................................................. Section 10................................................................................................ .. Section 11................................................................................................ xxxv 607 607 607 607 608 608 608 608 609 609 609 Section 12 ....................................................................................................... Section 13 ....................................................................................................... Section 14 ....................................................................................................... General Principles Governing Salvage .................................................... Subjects of Salvage ................................................................................. When is the Ship and her cargo a fit object of Salvage? ................... 612 Concept of Salvage Reward..................................................................... Distinction Between Salvage and Towage ............................................... Honorio M. Barrios v. Carlos A. Gothong and Co ................... 617 609 609 610 610 611 614 616 Letter of Instruction No. 134, September 24, 1973 .................................. 618 APPENDICES APPENDIX A — EXECUTIVE ORDER NO. 125 REORGANIZING THE MINISTRY OF TRANSPORTATION AND COMMUNICATIONS, DEFINING ITS POWERS AND FUNCTION AND OTHER PURPOSES Section 1. Title ......................................................................................... 621 Section 2. Reorganization ........................................................................ 621 Section 3. Declaration of Policy................................. ............................. 621 Section 4. Mandate .................................................................................. 621 Section 5. Powers and Functions ............................................................. 622 Section 6. Authority and Responsibility................................................... 625 Section 7. Office of the Secretary ............................................................ 625 Section 8. Undersecretaries ...................................................................... 625 Section 9. Assistant Secretaries and Service Chiefs ................................. 626 Section 10. Structural Organization ......................................................... 627 Section 11. Department Regional Offices ................................................ 627 Section 12. Maritime Industry Authority ................................................. 528 Section 13. Abolition/Transfer/Consolidation .......................................... 529 Section 14. Attached Agencies and Corporations .................................... 539 Section 15. Transitory Provisions ............................................................ 631 Section 16. New Structure and Pattern ..................................................... 534 Section 17. Prohibition Against Changes ................................................. 635 Section 18. Implementing Authority of Minister ..................................... 635 Section 19. Notice or Consent Requirements .................................................. 635 Section 20. Funding ........................................................................................ 635 Section 21. Change of Nomenclature .............................................................. 635 Section 22. Separability ................................................................................ 636 Section 23. Repealing Clause.......................................................................... 636 Section 24. Effectivity .................................................................................... 636 xxxvi APPENDIX B — PRESIDENTIAL DECREE NO. 1462 AMENDING CERTAIN SECTIONS OK REPUBLIC ACT SEVEN HUNDRED AND SEVENTY-SIX Chapter II - GENERAL PROVISIONS Section 1......................................................................................................................... 637 Chapter III - CIVIL AERONAUTICS BOARD Section 2......................................................................................................................... Section 3......................................................................................................................... Section 4......................................................................................................................... Section 5......................................................................................................................... Section 6 ........................................................................................................................ Chapter IV — CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY Section 7......................................................................................................................... Section 8 ........................................................................................................................ 638 639 639 639 640 640 641 Chapter VII — VIOLATION AND PENALTIES Section 10....................................................................................................................... 641 Section 11....................................................................................................................... 642 Section 12....................................................................................................................... 642 APPENDIX C — REPUBLIC ACT NO. 4136 AN ACT TO COMPILE THE LAWS RELATIVE TO LAND TRANSPORTATION AND TRAFFIC RULES, TO CREATE A LAND TRANSPORTATION COMMISSION AND FOR OTHER PURPOSES Chapter I - Preliminary Provisions Article I - Title and Scope of Act Section 1. Title of Act ............................................................................................ 643 Section 2. Scope of Act .......................................................................................... 643 Article II - Definitions Section 3. Words and Phrases Defined ................................................................... 643 Article III - Administration of Act Section 4. Creation of the Commission .................................................................. 646 Chapter II — Registration of Motor Vehicles Article I — Duty to Register, Reports, Applications, Regulations Section 5. Compulsory Registration of Motor Vehicles ......................................... 649 Section 6. Application and Payments for Registrations .......................................... 651 Section 7. Registration Classification ..................................................................... 651 xxxvn Article II — Registration Fees Section 8. Schedule of Registration Fees .............................................................. Section 9. Permissible Weights and Dimensions of Vehicles in Highways Traffic ..................................................................................... Section 10. Special Permits, Fees for .................................................................... Section 11. Additional Fees .................................................................................. Section 12. Fee for Original Registration for Part of Year .................................... Section 13. Payment of taxes upon registration..................................................... 552 554 555 655 656 656 Article III — Registration Certificates, Records, Number Plates Section 14. Issuance of Certificates of Registration .............................................. Section 15. Use and Authority of Certificate of Registration ................................ Section 16. Suspension of Registration Certificate ............................................... Section 17. Number Plates, Preparation and Issuances of ..................................... Section 18. Use of Number Plates ......................................................................... 656 657 657 658 659 Chapter III — Operation of Motor Vehicles Article I — License to Drive Motor Vehicles Section 19. Duty to Have License ......................................................................... Section 20. (Repealed by BP Big. 398, May 18, 1983) ......................................... Section 21. Operation of Motor Vehicles by Tourists ........................................... Section 22. Application for Driver’s License, Fees, Examination ......................... Section 23. Issuances of Driver’s License, Fees and Validity ............................... Section 24. Use of Driver’s License and Identification Card ................................ Section 25. Driver’s Records ................................................................................ Section 26. Renewal or Replacement of Lost License .......................................... Section 27. Authority to suspend, revoke and reinstate driver’s license............................................................................................. Section 28. Driver’s Bond ..................................................................................... Section 29. Confiscation of Driver’s License ........................................................ Section 30. Student-Driver’s Permit ..................................................................... 659 659 659 660 661 662 662 662 663 664 665 665 Article II — Illegal Use of Licenses, Number Plates, etc. Section 31. Imitation and False Representations ................................................... 666 Article III — Passengers and Freight Section 32. Exceeding Registered Capacity, Issuance of Conductor’s License, Validity and Fee .................................................... 666 Section 33. Passenger or Freight Capacity Marked on Vehicle ............................. 667 Article IV — Accessories of Motor Vehicles Section 34. Tires of Motor Vehicles ..................................................................... 667 Chapter IV — Traffic Rules Article I — Speed Limit and Keeping to the Right Section 35. Restrictions as to speed ...................................................................... 670 Section 36. Speed Limits Uniform Throughout the Philippines ............................................................................................. 671 xxxviii Section o7. Driving on Right Side of Highway .............................................. Section 38. Classification of Highways.......................................................... 671 672 Article II — Overtaking and Passing a Vehicle, and Turning at Intersections Section 39. Overtaking a Vehicle ................................................................... Section 40. Driver to Give Way to Overtaking Vehicle ................................. Section 41. Restrictions on Overtaking and Passing ...................................... Article 111 — Right of Way and Signals Section 42. Right of Way ............................................................................... Section 43. Exception to the right of Way Rule ............................................. Section 44. Signals on Starting, Stopping or Turning .................................... Article IV — Turning and Parking Section 45. Turning at Intersections ............................................................... Section 46. Parking Prohibited in Specified Places ........................................ Section 47. Parked Vehicle ............................................................................ Article V — Miscellaneous Traffic Rules Section 48. Reckless Driving ......................................................................... Section 49. Right of Way for Police and Other Emergency Vehicles.. Section 50. Tampering With Vehicles............................................................ Section 51. Hitching to a Vehicle................................................................... Section 52. Driving or Parking on Sidewalk .................................................. Section 53. Driving While Under the Influence of Liquor or Narcotic Drug ................................................................................... Section 54. Obstruction of Traffic .................................................................. Section 55. Duty of Driver in Case of Accident ............................................. Chapter V — Penal and Other Provisions Article 1 — Penalties Section 56. Penalty for Violation ................................................................... Section 57. Punishment for Other Offenses ................................................... Section 58. Duty of Clerks of Court ............................................................... 672 672 673 674 674 675 675 675 676 676 676 677 677 677 677 677 677 Article 11 — Collection of Fees, Taxes and Fines, Liens, Allotment of Funds Section 59. Collection of Fees; National and Local Taxes; Toll Fees Section 60. The Lien Upon Motor Vehicles ................................................... Section 61. Disposal of Monies Collected...................................................... 678 680 680 Article HI — Final Provisions 681 681 682 Section 62 ...................................................................................................... Section 63. Repeal of Laws and Ordinances .................................................. Section 64. Appropriation .............................................................................. Section 65. Separability ................................................................................. Section 66. Elfectivity ................................................................................... XXXIX 682 683 683 683 683 APPENDIX D — THE WARSAW CONVENTION ON AIR TRANSPORT ...................................................................................................... 684 CHAPTER I — SCOPE-DEFINITIONS Article 1 ............................................................................................................... 685 Article 2 ............................................................................................................... 686 CHAPTER II — TRANSPORTATION DOCUMENTS Section I — Passenger Ticket Article 3 ............................................................................................................... 686 Section II — Baggage Check Article 4 ............................................................................................................... 687 Section III — Air Waybill Article 5 ............................................................................................................... Article 6 ............................................................................................................... Article 7 ............................................................................................................... Article 8 ............................................................................................................... Article 9 .............................................................................................................. Article 10 ............................................................................................................. Article 11 ............................................................................................................. Article 12 ............................................................................................................. Article 13 ............................................................................................................. Article 14 ............................................................................................................. Article 15 ............................................................................................................. Article 16 ............................................................................................................. CHAPTER III — LIABILITY OF THE CARRIER Article 17 ............................................................................................................. Article 18 ............................................................................................................. Article 19 ............................................................................................................. Article 20 ............................................................................................................. Article 21 ............................................................................................................. Article 22 ............................................................................................................ Article 23 ............................................................................................................ Article 24 ............................................................................................................. Article 25 ............................................................................................................. Article 26 ............................................................................................................. Article 27 ............................................................................................................. Article 28 ............................................................................................................. Article 29 ............................................................................................................. Article 30 ............................................................................................................. 688 688 688 689 690 690 690 690 691 691 692 692 692 692 693 693 693 693 694 694 694 695 695 695 696 696 CHAPTER IV — PROVISIONS RELATING TO COMBINED TRANSPORTATION Article 31 ............................................................................................................. 696 CHAPTER V — GENERAL AND FINAL PROVISIONS Article 32 ............................................................................................................. 697 xl Article 33 ........................................................................................................................ Article 34 ........................................................................................................................ Article 35 ....................................................................................................................... Article 36 ........................................................................................................................ Article 37 ........................................................................................................................ Article 38 ........................................................................................................................ Article 39 ........................................................................................................................ Article 40 ....................................................................................................................... Article ................................................................................................................... 69* APPENDIX E — BAR EXAMINATION QUESTIONS ON TRANSPORTATION LAWS ................................................................................. xli 700 697 697 697 697 698 698 698 699 CHAPTER I PRELIMINARY CONSIDERATIONS TRANSPORTATION LAWS IN THE PHILIPPINES Transportation laws in the Philippines whether by land, sea, or air, are generally governed by the New Civil Code (Arts. 1732-1766) thus, it declared: “In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws.” In the absence, therefore, of any provision of the New Civil Code on the rights and obligations of common carriers, the Code of Commerce and other special laws such as the Carriage of Goods By Sea Act, Salvage Law, and other special laws insofar as pertinent may be applied. (See National Development Company v. The Court of Appeals and Development Insurance and Surety Corporation, No. L-49409, August 19, 1998; Maritime Company of the Philippines v. The Court of Appeals and Development Insurance and Surety Corporation, No. L-49467, August 19, 1988; Eastern Shipping Lines, Inc. v. IAC, No. L-69044, March 29, 1987; Maritime Company of the Philippines v. Court of Appeals and Rizal Surety and Insurance Co., G.R. No. 47004, March 8, 1989) TRANSPORTATION LAWS AND THE CONSTITUTION It is time honored that the Constitution is the Supreme Law of the land. It is the law of all laws. If there is conflict between a statute and the [Constitution, the statute shall yield to the [C]onstitution. (Diaz, Statutory Construction, p. 249, 2000 Ed.) 1 TRANSPORTATION LAWS The 1987 Philippine Constitution provides, some restrictions or limitations in the issuance of franchise to public utilities, which includes transportation industries. Article XII of the National Economy and Patrimony provides, thus: “Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. xxx xxx xxx Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or -controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Sec. 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public utility or business affected with public interest. Sec. 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the government. 2 CHAPTER I PRELIMINARY CONSIDERATIONS Sec. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.” Likewise, Article XVI on the general provisions states that: “Sec. 11.(1) The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens. The Congress shall regulate or prohibit monopolies in commercial mass media when the public interest so requires. No combinations in restraint of trade or unfair competition therein shall be allowed. (2) The advertising industry is impressed with public interest, and shall be regulated by law for the protection of consumers and the promotion of the general welfare. Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is owned by such citizens shall be allowed to engage in the advertising industry. The participation of foreign investors in the governing body of entities in such industry shall be limited to their proportionate share in the capital thereof, and all the executive and managing officers of such entities must be citizens of the Philippines.” MAY A 100% FOREIGN CORPORATION OWN A PUBLIC UTILITY? Apparently, this question was answered in the case of the People of the Philippines v. William M. Quasha, L-6055, June 12, 1953 and the landmark decision in Tatad, et al. v. Sec. Garcia and EDSA LRT Corporation Ltd., G.R. No. 114222, April 16, 1995. The Supreme Court, when confronted with the issue of whether respondent EDSA LRT Corporation, Ltd., a foreign corporation can own EDSA LRT III, a public utility, said: “The phrasing of the question is erroneous, it is loaded. What private respondent owns are the rail 3 TRANSPORTATION LAWS tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not, by themselves, constitute a public utility. What constitute a public utility is not their ownership but their use to serve the public.” (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557-558 [1923]) The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. Section 11 of Article XII of the Constitution provides: “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years x x x . ” In law, there is a clear distinction between the “operation” of a public utility and the ownership of the facilities and equipment used to serve the public. Ownership is defined, as a relation in law, by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another. (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]) The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system, as a public utility, includes the transportation of passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at prescheduled times, (cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz 282, 180 4 CHAPTER I PRELIMINARY CONSIDERATIONS P. 159, 7 A.L.R. 1149 [1919]; United States Fire Ins. Co. v. Northern PR. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]) The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves. Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment or facilities. In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it. Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility. (Providence and W.R. Co. v. United States, 46 F. 2d 149,152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, III. 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]) Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities. (Crystal Car Line v. State Tax Commission, 174 P. 2d 984, 987 [1946]) 5 TRANSPORTATION LAWS Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose. (People v. Quasha, 93 Phil 333 [1953]; Francisco Tatad, John Osmeha and Rodolfo Biazon v. Hon. Jesus Garcia, Jr. and EDS A LRT Corporation Ltd., G.R. No. 114222, April 6, 1995) The President, the Congress, and the Court cannot create directly franchises that are exclusive in character. What the President, Congress, and the Court cannot legally do directly, they cannot not do indirectly. Tawang Multi-Purpose Cooperative v. La Trinidad Water District GR. No. 166471, March 22, 2011 FACTS: Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with the Cooperative Development Authority, and organized to provide domestic water services in Barangay Tawang, La Trinidad, Benguet. La Trinidad Water District (LTWD) is a local water utility created under P.D. No. 198, as amended. It is authorized to supply water for domestic, industrial, and commercial purposes within the municipality of La Trinidad, Benguet. On October 9, 2000, TMPC Filed with the National Water Resources Board (NWRB) an application for a Certificate of Public Convenience (CPC) to operate and maintain waterworks system in Barangay Tawang. LTWD opposed TMPC’s application. LTWD claimed that under Section 47 of P.D. No. 198, as amended, its franchise is exclusive. Section 47 states that: Sec. 47. Exclusive Franchise. - No franchise shall be granted to any other person or agency domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. 6 CHAPTER I PRELIMINARY CONSIDERATIONS In its Resolution No. 04-0702, dated July 23, 2002, the NWRB approved TMPC’s application for a CPC. In its August 15, 2002 Decision, the NWRB held that LTWD’s franchise cannot be exclusive since exclusive franchises are unconstitutional and found that TMPC is legally and financially qualified to operate and maintain a waterworks system. LTWD filed a motion for reconsideration. In its November 18, 2002 Resolution, the NWRB denied the motion. LTWD appealed to the Regional Trial Court (RTC). In its October 1, 2004 Judgment, the RTC set aside the NWRB’s July 23, 2002 Resolution and August 15, 2002 Decision, and canceled TMPC’s CPC. The RTC held that Section 47 is valid. ISSUE: Whether or not the RTC erred in holding that Section 47 of P.D. No. 198, as amended, is valid. HELD: The President, the Congress, and the Court cannot create directly franchises for the operation of a public utility that is exclusive in character. The 1935, 1973, and 1987 Constitutions expressly and clearly prohibit the creation of franchises that are exclusive in character. Section 8, Article XIII of the 1935 Constitution states that: “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period that fifty years.” (Emphasis supplied) Section 5, Article XIV of the 1973 Constitution and Section 11, Article XII of the 1987 Constitution similarly provides the same prohibition. Plain words do not require explanations. The 1935, 1973, and 1987 Constitutions are clear — franchises for the operation of a public utility cannot be exclusive in character. The 1935, 1973, and 1987 Constitutions expressly and clearly states that “nor shall franchise xxx be exclusive in character, ” There is no exception. When the law is clear, there is nothing for the courts to do but to apply it. The duty of the Court is to apply the law the way it is worded. 7 TRANSPORTATION LAWS Indeed, the President, the Congress, and the Court cannot create directly franchises that are exclusive in character. What the President, the Congress, and the Court cannot legally do directly, they cannot do indirectly. Thus, the President, the Congress, and the Court cannot create indirectly franchises that are exclusive in character by allowing the Board of Directors (BOD) of a water district and the Local Water Utilities Administration (LWUA) to create franchises that are exclusive in character. In P.D. No. 198, as amended, former President Ferdinand E. Marcos (President Marcos) created indirectly franchises that are exclusive in character by allowing the BOD of LTWD and the LWUA to create directly franchises that are exclusive in character. Section 47 of P.D. No. 198, as amended, allows the BOD and the LWUA to create directly franchises that are exclusive in character. In case if conflict between the Constitution and a statute, the Constitution always prevails because the Constitution is the basic law to which all other laws must conform to. The duty of the Court is to uphold the Constitution and to declare void all laws that do not conform to it. Section 47 gives the BOD and LWUA the authority to make an exception to the absolute prohibition in the Constitution. In short, the BOD and the LWUA are given the discretion to create franchises that are exclusive in character. The BOD and the LWUA are not even legislative bodies. The BOD is not a regulatory body but simply a management board of a water district. Indeed, neither the BOD nor the LWUA can be granted the power to create any exception to the absolute prohibition in the Constitution, a power that Congress itself cannot exercise. Nonetheless, while the prohibition in Section 47 of P.D. No. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio being irreconcilable with Section 5, Article XIV of the 1973 Constitution, which was ratified on January 17, 1973, the Constitution in force when P.D. No. 198 was issued on May 25, 1973. Since Section 47 of P.D. No. 198, which vests and “exclusive franchise” upon public utilities, is clearly repugnant to Section 5, Article XIV of the 1973 Constitution, it is unconstitutional 8 CHAPTER I PRELIMINARY CONSIDERATIONS and may not, therefore, be relied upon by petitioner in support of its opposition against respondent’s application for CPC and the subsequent grant thereof by the NWRB. ARTICLES 1732 AND 1733 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. Common Carrier Defined and Explained. The Civil Code defines “common carriers ” in the following terms: “Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation offering their services to the public.” The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a sideline”). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic, or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the “general public,” i.e.9 the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. Article 1732 deliberately refrained from making such distinctions. So understood, the concept of “common carriers” under Article 1732 may be seen to coincide neatly with the notion of “Public Service,” under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, “public service ” includes: 9 TRANSPORTATION LAWS “x x x every person that now or hereafter may own, operate manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional, or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services, x x x” (Emphasis supplied.) A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well-being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. (De Guzman v. Court of Appeals, No. L-47822, December 12, 1988; Bascos v. Court of Appeals, G.R. No. 101089, April 7, 1993; Loadstar Shipping Co., Inc. v. Court of Appeals, G.R. No. 131627, September 28, 1999; Calvo 10 CHAPTER I PRELIMINARY CONSIDERATIONS v. UCPB General Insurance Company; Inc., 379 SCRA 510, March 19, 2002; Asia Lighterage Shipping, Inc. v. Court of Appeals, 409 SCRA 340, August 19, 2003) The above statutory provision and jurisprudential discussion laid down the following elements of a common carrier: 1. 2. Any persons, corporations, firms or associations; Such persons, corporations, firms or associations must be engaged in the business of carrying or transporting passengers or goods or both; 3. The means of carriage or transporting passengers, goods or both is by land, water or air; 4. The carrying or transporting of passengers or goods or both is for a fee or compensation; and 5. The services are offered to the public without distinction. COMMON CARRIERS CARRIERS DISTINGUISHED FROM PRIVATE By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. Such person or association of persons are regarded as carriers and are classified as private or special carriers and common or public carriers. (Crisostomo v. Court of Appeals, 409 SCRA 528, August 28, 2003) The nature of the contractual relation between carrier and passenger is determinative of the degree of care required in the performance of the latter’s obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances. Private carrier is not bound under the law to observe extraordinary diligence in the performance of its obligation. 11 TRANSPORTATION LAWS The standard of care required of private carriers is that of a good father of a family under Article 1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. (Crisostomo v. CA, supra) 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 well be just a private carrier. The concept of a common carrier does not 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. (Philippine-American General Insurance Company v. PKS Shipping Company, 401 SCRA 222, April 9, 2003) Test for determining whether a party is a common carrier of goods. First Philippine Industrial Corporation v. Court of Appeals G.R. No. 125948, December 29,1998 FACTS: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992. Sometime in January 1995, petitioner applied for a mayor’s permit with the Office of the Mayor of Batangas City. However, before the mayor’s permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for 12 CHAPTER I PRELIMINARY CONSIDERATIONS products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993. On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint for tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of “contractors and independent contractors” under Sections 141(e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined under Section 131 (h), the term “contractors” excludes transportation contractors; and (3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid. Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133(j) of the Local Government Code as said exemption applies only to “transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water.” Respondents assert that pipelines are not included in the term “common carrier” which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term “common carrier” under the said Code pertains to the mode or manner by which a product is delivered to its destination. ISSUE: Whether or not petitioner is a common carrier so that in the affirmative, he is not liable to pay the carriers tax under the Local Government Code of 1991. HELD: There is merit in the petition. A “common carrier” may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. 13 TRANSPORTATION LAWS Article 1732 of the Civil Code defines a “common carrier ” as “any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.” The test for determining whether a party is a common carrier of goods is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods or person generally as a business and not as a casual occupation; 2. He must undertake to carry goods of the kind to which his business is confined; 3. He must undertake to carry by the method by which his business is conducted and over his established roads; and 4. The transportation must be for hire. Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e., petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman v. Court of Appeals, the Court ruled that: “The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as ancillary activity (in local idiom, as a sideline). Article 1732 xxx 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 14 CHAPTER I PRELIMINARY CONSIDERATIONS offers services or solicits business only from a narrow segment of the general population. We think Article 1732 deliberately refrained from making such distinctions. ” So understood, the concept of “common carrier” under Article 1733 may be seen to coincide neatly with the notion of “public service,” under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, “public service” includes: “Every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. ” (Underscoring supplied.) Also, respondent’s argument that the term "common carrier” as used in Section 133(j) of the Local Government Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous. As correctly pointed out by petitioner, the definition of “common carriers” in the Civil Code makes no distinction as to the means of transporting as long as it is by land, water, or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipeline operators are considered common carriers. 15 TRANSPORTATION LAWS Under the Petroleum Act of the Philippines (R.A. No. 387), petitioner is considered a “common carrier.” Thus, Article 86 thereof provides that: “Art. 86. Pipeline concessionaire as common carrier. — A pipeline shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources.” Test of a Common Carrier Vlasons Shipping, Inc. v. Court of Appeals and National Steel Corporation G.R. No. L-112350, December 12,1997 FACTS: On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire whereby NSC hired VSI’s vessel, the MV ‘VLASONS I’ to make one (1) voyage to load steel products at Ilagan City and discharge them at North Harbor, Manila. The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,1974. The following day, August 13,1974, when the vessel’s three (3) hatches containing the shipment were opened by plaintiff’s agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was completed only on August 24,1974 after incurring a delay of eleven (11) days due to the heavy rain, which interrupted the unloading operations. On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of 16 CHAPTER I PRELIMINARY CONSIDERATIONS P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976, which was docketed as Civil Case No. 23317, CFI, Rizal. ISSUE: Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist(s) a presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a private carrier. HELD: At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier. The resolution of this preliminary question determines the law, standard of diligence and burden of proof applicable to the present case. Article 1732 of the Civil Code defines a common carrier as “persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.” It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a fee. A carrier, which does not qualify under the above test, is deemed a private carrier. Generally, “private carriage is undertaken by special agreement and the carrier does not hold himself out to carry goods for the general public. The most typical, although not the only form of private carriage, is the charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages.” In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional Trial Court, it carried passengers or goods only for those it chose under a “special contract of charter party.” As correctly concluded by the Court of Appeals, the MV Vlasons I “was not a common but a private carrier.” Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of private carriage or charter party. 17 TRANSPORTATION LAWS In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused by VSI’s willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties’ agreement. This view finds further support in the Code of Commerce, which pertinently provides: “Art 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly stipulated. ” Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event .force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper. The burden of proof of these accidents is on the carrier. “Art 362. The carrier, however, shall be liable for damages arising from the causes mentioned in the preceding article if proofs against him show that they occurred on account of his negligence or his omission to take the precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of lading, making him believe that the goods were of a class or quality different from what they really were. ” Because the MV Vlasons I was a private carrier, the shipowner’s obligations are governed by the foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that: “In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carrier’s custody does not put the burden of proof on the carrier.” 18 CHAPTER I PRELIMINARY CONSIDERATIONS SfQ. 3-BBACK -Transpo Laws: Nows ana oases am eo. mto or vmt o*w In a contract of private carrier, the parties may freely stipulate their duties and obligations which perforce be binding on them. Unlike in a contract involving common carrier, private carriage does not involve the general public. Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals and Seven Brothers Shipping Corporation G.R. No. 102316, June 30,1997 FACTS: It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into a charter party with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former’s lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila. The said vessel M/V Seven Ambassador sank on January 25,1984 resulting in the loss of the plaintiff’s insured logs. There is no dispute between the parties that the proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the “snapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due to fortuitous event.” Likewise undisputed is the status of private respondent Seven Brothers as a private carrier when it contracted to transport the cargo of petitioner Valenzuela. Even the latter admits this in its petition. The trial court deemed the charter party stipulation void for being contrary to public policy, citing Article 1745 of the Civil Code. Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of Commerce and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code, petitioner further contends that said stipulation “gives no duty or obligation to the private respondent to observe the diligence of a good father of a family in the custody and transportation of the cargo.” ISSUE: Whether or not respondent Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in the 19 TRANSPORTATION LAWS charter party executed between the petitioner and the private respondent exempting the latter from liability for the loss of petitioner’s logs arising from the negligence of its (Seven Brothers) captain. HELD: The Court is not persuaded. As adverted earlier, it is undisputed that private respondent had acted as a private carrier in transporting petitioner’s lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers, which were cited by petitioner, may not be applied unless expressly stipulated by the parties in their charter party. In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not even a contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and obligations, which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common carriers. The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this Court in Home Insurance Co. v. American Steamship Agencies, Inc. In that case, the trial court similarly nullified a stipulation identical to that involved in the present case for being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for damages resulting from the partial loss of the cargo. This Court reversed the trial 20 CHAPTER I PRELIMINARY CONSIDERATIONS court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine: “The provisions of our Civil Code on common carriers were taken from Anglo-American Law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid. Such doctrine we find reasonable. The Civil Code provisions on common carriers should be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in this case of a ship totally chartered for the use of a single party. " Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of transportation with common carriers without a hand or a voice in the preparation thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on common carriers extends its protective mantle against one-sided stipulations inserted in tickets, invoices or other documents over which the riding public has no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage can stipulate the carrier’s obligations and liabilities over the shipment, which, in turn, determines the price or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside the protection of the law on common carriers. When the charterer decides to exercise this option, he takes a normal business risk. The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the Philippines deserves scant consideration. The Court there categorically held that said rule was “reasonable” and proceeded to apply it in the resolution 21 TRANSPORTATION LAWS of that case. Petitioner miserably failed to show such circumstances or arguments, which would necessitate a departure from a well-settled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which provides that “(j) judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines.” In fine, the respondent appellate court aptly stated, “(in the case of) a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid.” Article 6 of the Civil Code provides that “rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by law.” As a general rule, patrimonial rights may be waived as opposed to rights to personality and family rights, which may not be made the subject of waiver. Being patently and undoubtedly patrimonial, petitioner’s right conferred under said articles may be waived. This, the petitioner did by acceding to the contractual stipulation that it is solely responsible for any damage to the cargo, thereby exempting the private carrier from any responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy considerations for the general public or third persons are not affected thereby. A customs broker, whose principal business is the preparation of the correct customs declaration and the proper shipping documents, is still considered a common carrier if it also undertakes to deliver the goods for its customers. Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc. and Benjamin P. Manalastas, doing business under the name of BMT Trucking Services G.R. No. 194121, July 11, 2016 FACTS: On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at the Port of Manila for Sony 22 CHAPTER I PRELIMINARY CONSIDERATIONS Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of TMBI to facilitate, withdraw, and deliver the shipment from the port to its warehouse in Binan, Laguna. TMBI, who did not own any delivery trucks, subcontracted the services of Benjamin Manalastas’ company, BMT Trucking Services (BMT), to transport the shipment from the port to the Binan warehouse. In the early morning of October 9, 2000, the four trucks left BMT’s garage for Laguna. However, only three trucks arrived at Sony’s Binan warehouse. At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. Both the driver and the shipment were missing. Later that evening, BMT’s Operations Manager Melchor Manalastas informed Victor Torres, TMBI’s General Manager, of the development. They went to Muntinlupa together to inspect the truck and to report the matter to the police. Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura for “hijacking.” The complaint resulted in a recommendation by the NBI to the Manila City Prosecutor’s Office to prosecute Lapesura for qualified theft. TMBI notified Sony of the loss through a letter. It also sent BMT a letter demanding payment for the lost shipment. BMT refused to pay, insisting that the goods were “hijacked.” In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After evaluating the merits of the claim, Mitsui paid Sony P7,293,386.32 corresponding to the value of the lost goods. After being subrogated to Sony’s rights, Mitsui sent a demand letter for payment of the lost goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui filed a complaint against TMBI on November 6,2001. TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI alleged that BMT’s driver, Lapesura, was responsible for the theft/hijacking of the lost cargo and claimed BMT’s negligence as the proximate cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for the loss, it should be reimbursed by BMT. On August 5, 2008, the Regional Trial Court (RTC) found that TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui P7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount claimed, and the costs of the suit. The 23 TRANSPORTATION LAWS RTC held that TMBI and Manalastas were common carriers and had acted negligently. Both TMBI and BMT appealed the RTC’s verdict. The Court of Appeals (CA) affirmed the lower court’s decision. TMBI denied that it was a common carrier required to exercise extraordinary diligence because it does not own a single truck to transport its shipment and it does not offer transport services to the public for compensation. It emphasized that Sony knew TMBI did not have its own vehicles and would subcontract the delivery to a third- party. Further, TMBI insists that the service it offered was limited to the processing of paperwork attendant to the entry of Sony’s goods. It denies that delivery of the shipment was a part of its obligation. It maintains that it exercised the diligence of a good father of a family, and should be absolved of liability because the truck was “hijacked,” and it was a fortuitous event. BMT claimed that it had exercise extraordinary diligence over the lost shipment, and argued as well that the loss resulted from a fortuitous event. ISSUE: (1) Whether or not a brokerage may be considered as a common carrier; (2) Whether or not hijacking is a fortuitous event. HELD: Common carriers are persons, corporations, firms, or associations, engaged in the business of transporting passengers, or goods, or both, by land, water, or air, for compensation, offering their services to the public. By nature of their business, and for reasons of public policy, they are bound to observe extraordinary diligence in the vigilance over the goods, and in the safety of their passengers. In A.F. Sanchez Brokerage, Inc. v. Court of Appeals, the Court held that a custom broker, whose principal business is the preparation of the correct customs declaration and the proper shipping documents, is still considered a common carrier if it also undertakes to deliver the goods for its customers. The law does not distinguish between one, whose principal business activity is the carrying of goods, and one, who undertakes this task only as an ancillary activity. This ruling has been reiterated in Schmitz Transport & Brokerage Corp. v. Transport Venture, Inc.; Loadmasters Customs Services, Inc. v. Glodel Brokerage Corporation; and, Westwind Shipping Corporation v. UCPB General Insurance Co., Inc. 24 CHAPTER I PRELIMINARY CONSIDERATIONS Despite TMBI’s present denials, the Court finds that the delivery of the goods is an integral, albeit ancillary, part of its brokerage services. TMBI admitted that it was contracted to facilitate, process, and clear the shipments from the customs authorities, withdraw them for the pier, then transport and deliver them to Sony’s warehouse in Laguna. That TMBI does not own trucks and has to subcontract the delivery of its client’s goods is immaterial. As long as an entity holds itself to the public for the transport of goods as a business, it is considered a common carrier regardless of whether it owns the vehicle used or has to actually hire one. Lastly, TMBI’s customs brokerage services, including the transport/delivery of the cargo, are available to anyone willing to pay its fees. Given these circumstances, the Court finds it undeniable that TMBI is a common carrier. Consequently, TMBI should be held responsible for the loss, destruction, or deterioration of the goods it transports unless it results from five exemptions under Article 1734 of the Civil Code. For all other cases, such as theft or robbery, a common carrier is presumed to have been at fault or to have acted negligently, unless it can prove that it observed extraordinary diligence. Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force majeure. Nevertheless, a common carrier may absolve itself of liability for resulting loss: (1) if it proves that it exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence. However, a stipulation diminishing or dispensing with the common carrier’s liability for acts committed by thieves or robbers, who do not act with grave or irresistible threat, violence, or force is void under Article 1745 of the Civil Code for being contrary to public policy. Jurisprudence, too, has expanded Article 1734’s five exemptions. De Guzman v. Court of Appeals interpreted Article 1745 to mean that a robbery attended by “grave or irresistible threat, violence or force” is a fortuitous event that absolves the common carrier from liability. In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to facilitate the release of its shipment and 25 TRANSPORTATION LAWS deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its obligation, the delivery of the cargo, to another common carrier, BMT. Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a common carrier’s extraordinary responsibility over the shipper’s goods lasts from the time these goods are unconditionally placed in the possession of, and received by, the carrier for transportation, until they are delivered, actually or constructively, by the carrier, to the consignee. That the cargo disappeared during the transit while under the custody of BMT, TMBI’s subcontractor, did not diminish nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code presumes that it was at fault. Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not a common carrier bound to observe extraordinary diligence. Its failure to successfully establish this premise carries with it the presumption of fault or negligence, thus, rendering it liable to Sony/ Mitsui for breach of contract. Specifically, TMBI’s current theory, that the hijacking was attended by force or intimidation, is untenable. 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. The law itself (Art. 1733) provides what kind of diligence is required of common carriers. This is in view of the nature of the business of common carrier and for reasons of public policy. To overcome the presumption of negligence in the case of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. (Asia Litherage and Shipping, Inc. v. Court of Appeals, 409 SCRA 340, August 19, 2003) 26 J CHAPTER I PRELIMINARY CONSIDERATIONS The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to fol low the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.” (Compania Maritima v. Court of Appeals, 164 SCRA 685) As a rule, the diligence required of every obligor is ordinary diligence, i.e., diligence of a good father of a family. However, the requirement of proper diligence may be controlled by law or stipulation of the parties (Art. 1163, NCC), thus, the extraordinary diligence required of common carriers may be limited by the parties themselves as Articles 1744 and 1748 provide. Non-ownership of the vessel or vehicle use by the carrier does not render ineffective observance of extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by the carrier. “The fact that it did not own the vessel it decided to use to consummate the contract of carriage did not negate its character and duties as a common carrier. As a practical matter, it is very difficult and often impossible for the general public to enforce its rights of action under a contract of carriage if it should be required to know who the actual owner of the vessel is. To permit a common carrier to escape its responsibility for the goods it agreed to transport (by the expedient of alleging non-ownership of the vessel it employed) would radically derogate from the carrier’s duty of extraordinary diligence. It would also open the door to collusion between the carrier and the supposed owner and to the possible shifting of liability from the carrier to one without any financial capability to answer for the resulting damages.” (Cebu Salvage Corp. v. Philippine Home Assurance Corp., 512 SCRA 667, January 25, 2007) 27 TRANSPORTATION LAWS For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila Insurance Co., Inc. G.R. No. 131621, September 28, 1999 FACTS: On November 19, 1984, LOADSTAR received on board its M/V “Cherokee” (hereafter, the vessel) the following goods for shipment: a) 705 bales of lawanit hardwood; b) 27 boxes and crates of tilewood assemblies and others; and c) 49 bundles of moulding R & W (3) Apitong Bolidenized. The goods, amounting to P6,067,178 were insured for the same amount with MIC against various risks including “TOTAL LOSS BY TOTAL LOSS OF THE VESSEL.” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On November 20, 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR, which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim and the latter executed a subrogation receipt therefore. On February 4, 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MIC’s claim from LOADSTAR. In its answer, LOADSTAR denied any liability for the loss of the shipper’s goods and claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured. In any event, 28 CHAPTER 1 PRELIMINARY CONSIDERATIONS PGA1 was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR. The Regional Trial Court of Manila rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto. ISSUE: Whether or not Loadstar observed due and/or ordinary diligence in these premises. 8WCFUc-£ HELD: M/V “Cherokee” was not seaworthy when it embarked on its voyage on November 19, 1984. The vessel was not even sufficiently manned at the time. “For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.” Neither do the Court agrees with LOADSTAR’S argument that the “limited liability” theory should be applied in this case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the area where it sank was determined to be moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind the “limited liability” doctrine to escape responsibility for the loss of the vessel and its cargo. Fault or Negligence; Proximate Cause, Defined Sabena Belgian World Airlines v. Hon. Court of Appeals and Ma. Paula San Agustin G.R. No. 104685, March 14,1996 FACTS: On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant airline originating from Casablanca to 29 J DIVERSITY OF THE CORDILLERAS | TRANSPORTATION LAWS Brussels, Belgium, on her way back to Manila. Plaintiff checked in her luggage, which contained her valuables, namely: jewelries valued at $2,350; clothes, $1,500; shoes/bag, $150; accessories $75; luggage itself, $ 10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She stayed overnight in Brussels and her luggage was left on board Flight SN 284. Plaintiff arrived at Manila International Airport on September 2, 1987 and immediately submitted her Tag No. 71423 to facilitate the release of her luggage, but the luggage was missing. She was advised to accomplish and submit a Property Irregularity Report, which she submitted and filed on the same day. She followed up her claim on September 14, 1987, but the luggage remained to be missing. On September 15, 1987, she filed her formal complaint with the Office of Ferge Massed, defendant’s Local Manager, demanding immediate attention. On September 30, 1987, on the occasion of plaintiff’s following up of her luggage claim, she was furnished copies of defendant’s telexes with an information that the Brussels’s Office of defendant found the luggage and that they have broken the locks for identification. Plaintiff was assured by the defendant that it has notified its Manila Office that the luggage will be shipped to Manila on October 27, 1987. But unfortunately plaintiff was informed that the luggage was lost for the second time. At the time of the filing of the complaint, the luggage with its contents had not been found. Plaintiff demanded from the defendant the money value of the luggage and its contents amounting to $4,265 or its exchange value, but defendant refused to settle the claim. Defendant asserts in its Answer and its evidence tends to show that while it admits that the plaintiff was a passenger on board Flight No. SN 284 with a piece of checked in luggage bearing Tag No. 71423, the loss of the luggage was due to plaintiff’s sole if not contributory negligence; that she did not declare the valuable items in her checked 30 CHAPTER I PRELIMINARY CONSIDERATIONS in luggage at the flight counter when she checked in for her flight from Casablanca to Brussels so that either the representative of the defendant at the counter would have advised her to secure an insurance on the alleged valuable items and required her to pay additional charges, or would have refused acceptance of her baggage as required by the generally accepted practices of international carriers; that Section 9(a), Article IX of General Conditions of carriage requiring passengers to collect their checked baggage at the place of stopover, plaintiff neglected to claim her baggage at the Brussels Airport; that plaintiff should have retrieved her undeclared valuables from her baggage at the Brussels Airport since her flight from Brussels to Manila will still have to visit for confirmation inasmuch as only her flight from Casablanca to Brussels was confirmed; that defendant incorporated in all Sabena Plane Tickets, including Sabena Ticket No. 082422-72502241 issued to plaintiff in Manila on August 21, 1987, a warning that “Items of value should be carried on your person” and that some carriers assume no liability for fragile, valuable or perishable articles and that further information may be obtained from the carrier for guidance; that granting without conceding that defendant is liable, its liability is limited only to US$20.00 per kilo due to plaintiff’s failure to declare a higher value on the contents of her checked in luggage and pay additional charges thereon. The trial court rendered judgment, ordering petitioner Sabena Belgian World Airlines to pay private respondent Ma. Paula San Agustin — actual, moral, and exemplary damages, and attorney’s fees. Said decision was affirmed in toto by the Court of Appeals in its decision of February 27, 1992. ISSUE: Whether or not there was negligence on the part of petitioner airline. HELD: Fault or negligence consists in the omission of that diligence which is demanded by the nature of an obligation and corresponds with the circumstances of the person, of the time, and of the place. When the source of an obligation is derived from a contract, the mere breach or non-fulfillment of the prestation gives rise to the presumption of fault on the part of the obligor. This rule is no different in the case of common carriers in the carriage of goods, which indeed, 31 TRANSPORTATION LAWS are bound to observe not just the due diligence of a good father of a family but that of “extraordinary” care in the vigilance over the goods. The appellate court has aptly observed: “x x x Art. 1733 of the (Civil) Code provides that from the very nature of their business and by reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them. This extraordinary responsibility, according to Art. 1736, lasts from the time the goods are unconditionally placed in the possession of and received by the carrier until they are delivered actually or constructively to the consignee or person who has the right to receive them. Article 1737 states that the common carriers duty to observe extraordinary diligence in the vigilance over the goods transported by them remains in full force and effect when they are temporarily unloaded or stored in transit. And Art. 1735 establishes the presumption that 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 had observed extraordinary diligence as required in Article 1733. “The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the loss, destruction, or deterioration of the goods is 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; ‘(4) The character of the goods or defects in the packing or in the containers; ‘(5) Order or act of competent public authority. Not one of the above excepted causes obtains in this case. ” The above rules remain basically unchanged even when the contract is breached by tort although non-contradictory principles 32 CHAPTER I PRELIMINARY CONSIDERATIONS on quasi-delict may then be assimilated as also forming part of the governing law. Petitioner is not thus entirely off track when it has likewise raised in its defense the tort doctrine of proximate cause. Unfortunately for petitioner, however, the doctrine cannot, in this particular instance, support its case. Proximate causes is that which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not have occurred. Under domestic law and jurisprudence (the Philippines being the country of destination), the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages, which can be reasonably attributed, although unforeseen, to the non-performance of the obligation, including moral and exemplary damages. Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc. G.R. No. 186312, June 29, 2010 FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,2001 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C. Cruz (Ruelito), who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent. On September 11, 2000, as it was still windy, Miguel C. Matute (Matute), a scuba diving instructor, and 25 other Resort guests including petitioner’s son and wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas. Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to side, and the captain step forward to the front, leaving the wheel to one of the crew members. The waves got more unwieldy. After getting hit by two big waves, which came 33 TRANSPORTATION LAWS after the other, M/B Coco Beach III capsized, putting all passengers underwater. The passengers, who had put on their lifejackets, struggled to get out of the boat. Upon seeing the captain, Matute and the other passengers, who reached the surface, asked him what they could do to save the people who were still trapped under the boat. The captain replied, “Iligtas ninyo na lang ang sarili ninyo ” (Just save yourselves). At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi Arabia, with a basic monthly salary for S900. Petitioners, by letter of October 26, 2000, demanded indemnification from respondent for the death of their son in the amount of at least P4,000,000. Replying, respondent denied any responsibility for the incident, which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of PI0,000 to petitioners upon their signing of a waiver. By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for Reconsideration, having been denied, they appealed to the Court of Appeals. By Decision of August 19, 2008, the appellate court denied petitioners’ appeal, holding, among other things, that the trial court correctly ruled that respondent is a private carrier, which is only required to observe ordinary diligence; that respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the proximate cause of the incident was a squall, a fortuitous event. ISSUE: Whether or not the respondent is a common carrier. HELD: The petition is impressed with merit. Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by it having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may 34 CHAPTER F PRELIMINARY CONSIDERATIONS be availed of by anyone who can afford to pay the same. These services are thus available to the public. That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering tour packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of respondent’s ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to have overpaid. As De Guzman instructs, Article 1732 of the Civil Code defining “common carriers” has deliberately refrained from making distinctions on whether the carrying of persons or goods is the carrier’s principal business, whether it is offered on a regular basis, or whether it is offered to the general public. The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities of common carriers. The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for shipping on September 10 and 11, 2000, advising of tropical depressions in Northern Luzon, which would also affect the province of Mindoro. By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under such weather condition. A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other people’s lives at risk. The extraordinary diligence required of common carriers demands that they take care of the goods or lives entrusted to their hands as if they were their own. This respondent failed to do so. 35 CHAPTER II VIGILANCE OVER THE GOODS ARTICLES 1734 to 1754 ARTICLE 1734. Common carriers are responsible for the Loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) calamity; Flood, storm, earthquake, lightning, or other natural disaster or (2) Act of the public enemy in war, whether international or (3) Act or omission of the shipper or owner of the goods; civil; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority. It is important to point out that the above list of causes of loss, destruction or deterioration, which exempts the common carrier for responsibility, therefore, is a closed list. Causes falling outside the foregoing list even if they appear to constitute specie of force majeure, fall within the scope of Article 1735. In other words, if the goods are lost, destroyed, or deteriorated by causes other than those mentioned in Article 1734, the common carrier must present clear and convincing evidence that they are not negligent. The general rule for fortuitous events provide that except in cases provided by law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person 36 CHAPTER II VIGILANCE OVER THE GOODS shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. (Art. 1174, NCC) In order that an obligor may be exempted from a breach of an obligation due to caso fortuito or an Act of God, the following requisites must concur: 1. The cause of the breach of the obligation must be independent of the will of the debtor; 2. 3. The event must be unforeseen or unavoidable; The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and 4. The debtor must be free from any participation in, or aggravation of the injury to the creditor. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning, an earthquake, a tempest, or a public enemy. Hence, fire is not considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused by lightning or by other natural disaster or calamity. It may even be caused by the actual fault or privity of the carrier. (Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance Company, Inc., 404 SCRA 70, June 25, 2003) Note: The principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature. Human intervention is to be excluded from creating or entering into the cause of the mischief. When the effect is found to be in part the result of the participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God. Common carrier presumed at fault or acted negligently in cases other than those mentioned in Article 1734. Fire not considered a natural disaster or calamity. 37 TRANSPORTATION LAWS Eastern Shipping Lines, Inc. v. The Nisshin Fire and Marine Insurance Co., and Dowa Fire and Marine Insurance Co., Ltd. No. L-71478, May 29, 1987 FACTS: Sometime in or prior to June 1977, the M/S Asiatica, a vessel operated by petitioner Eastern Shipping Lines, Inc., took on board 128 cartons of garment fabrics and accessories, in two containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US$46,583, and the two cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US$11,385. En route from Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective respondent Insurers paid the corresponding marine insurance. On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. (NISSHIN, for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against petitioner Carrier for the recovery of the insured value of the cargo lost with then Court of First Instance of Manila, Branch II (Civil Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier. Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting circumstance under Section 4(2)(b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss by fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper. On September 15,1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US$46,583 and US$11,385, respectively, with legal interest, plus attorney’s fees of P5,000 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court’s judgment by decreasing the amount recoverable by DOWA to US$1,000 because of $500 per package limitation of liability under the COGSA. 38 CHAPTER II VIGILANCE OVER THE GOODS ISSUE: Who has the burden of proof to show negligence of the carrier? HELD: Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 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: “(0 Flood, storm, earthquake, lightning or other natural disaster calamity; xxx xxx xxx Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase “natural disaster or calamity.” However, [W]e are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused by lightning or by other natural disaster or calamity. It may even be caused by the actual fault or privity of the carrier. As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law. In this case, the respective insurers, as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proven that the loss was caused by fire. The burden then is upon Petitioner Carrier to prove that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following finding of fact: “The cargoes in question were, according to the witnesses for the defendant, placed in hatches Nos. 2 and 3 of the vessel. 39 TRANSPORTATION LAWS Boatswain Ernesto Pastrana noticed that smoke was coming out from Hatch No. 2 and Hatch No. 3; that when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the Hatch Covers of No. 2 hold for commencement of fire fighting by sea water; that all of these efforts were not enough to control the fire. “Pursuant to Article 1733, common carriers are bound to observe extraordinary diligence in the vigilance over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant’s evidence did not likewise show the amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the Court’s mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of diligence required of it under Article 1733 of the Civil Code.” Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo. And even if fire were to be considered a “natural disaster” within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the “natural disaster” must have been the “proximate and only cause of the loss,” and that the carrier has “exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.” This Petitioner Carrier has also failed to establish satisfactorily. 40 CHAPTER II VIGILANCE OVER THE GOODS Force majeure generally applies to a natural accident, such as that caused by a lightning, earthquake, a tempest or a public enemy. Hence, fire is not considered a natural disaster or calamity. Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance Company, Inc. G.R. No. 146018, June 25, 2003 FACTS: Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping Lines) petitioner for brevity, cargo consisting of one carton of Christmas decor and two sacks of plastic toys to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. Petitioner issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the amount of P6,500. Zosimo Mercado likewise delivered [the] cargo to petitioner consisting of two cartons of plastic toys and Christmas decor[s], one roll of floor mat, and one bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del Sur. Petitioner issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was valued in the amount of PI4,000. Under the Bill of Lading, Zosimo Mercado was both the shipper and consignee of the cargo. On December 12, 1991, Feliciana Legaspi insured the cargo covered by Bill of Lading No. 59 with the UCPB General Insurance Co., Inc., respondent for brevity, for the amount of P100,000 “against all risks” under Open Policy No. 002/91/254 for which she issued, by respondent, Marine Risk No. 18409 on said date. She also insured the cargo covered by Bill of Lading No. 58 with respondent, for the amount of P50,000, under Open Policy No. 002/91/254 on the basis of which respondent issued Marine Risk No. 18410 on said date. When the vessel left port, it had 34 passengers and assorted cargo on board, including the goods of Legaspi. After the vessel had passed by the Mandaue Mactan Bridge, fire ensued in the engine room, and despite earnest efforts of the officers and crew of the vessel, the fire 41 TRANSPORTATION LAWS engulfed and destroyed the entire vessel resulting in the loss of the vessel and the cargoes therein. The Captain filed the required Marine Protest. Shortly thereafter, Feliciana Legaspi filed a claim, with respondent, for the value of the cargo insured, which the respondent approved. On July 14, 1992, respondent, as subrogee of Feliciana Legaspi, filed a complaint anchored torts against petitioner with the Regional Trial Court of Makati City, for the loss of the cargo alleging that the loss of the said cargo was due to the negligence of the petitioner. ISSUE: Whether or not the cause of the loss of the said cargoes was due to force majeure. HELD: Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard. The Court is not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the fuel oil tank, which had a mere two-inch gap from the engine room walling, thus precluding constant inspection and care by the crew. Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by lightning, earthquake, a tempest, or a public enemy. Hence, fire is not considered a natural disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, the Court explained: “...This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused by the actual fault or privity of the carrier.” Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands where a reduction of the rent is allowed when more than one-half of the fruits 42 CHAPTER II VIGILANCE OVER THE GOODS have been lost due to such event, considering that the law adopts a protective policy towards agriculture. As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law. (See also DSR Senator Lines v. Federal Phoenix Assurance Company, Inc., 413 SCRA 14, October 7, 2003) The Philippine American General Insurance Co., Inc. v. Court of Appeals and Felman Shipping Lines G.R. No. 116940, June 11,1997 FACTS: On July 6, 1983, Coca-Cola Bottlers Philippines, Inc. loaded on board “MV Asilda,” a vessel owned and operated by respondent Felman Shipping Lines (FELMAN), 7,500 cases of one- liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN), under Marine Open Policy No. 100367-PAG. “MV Asilda” left the port of Zamboanga in fine weather at 8:00 in the evening of the same day. At around eight forty-five the following morning, July 7, 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire cargo with her, including the subject 7,500 cases of one-liter Coca-Cola softdrink bottles. On July 15, 1983, the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with “MV Asilda.” Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim ofP755,250. 43 TRANSPORTATION LAWS Claiming its right of subrogation, PHILAMGEN sought recourse against respondent FELMAN, which disclaimed any liability for the loss. Consequently, on November 29, 1983 PHILAMGEN sued the shipowner for sum of money and damages. In its complaint PHILAMGEN alleged that the sinking and total loss of “MV Asilda” and its cargo were due to the vessel’s unseaworthiness, as he was put to sea in an unstable condition. It further alleged that the vessel was improperly manned and that its offices were grossly negligent in failing to take appropriate measures to proceed to a nearby port or beach after the vessel started to list. On February 28, 1992, the trial court rendered judgment in favor of FELMAN. It ruled that “MV Asilda” was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowner’s surveyor attesting to its seaworthiness. Thus, the loss of the vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Article 587 of the Code of Commerce should apply. ISSUE: Whether or not “MV Asilda” was seaworthy when it left the port of Zamboanga. HELD: “MV Asilda” was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of one-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty carbon dioxide cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck. The ship captain stated that around 4:00 in the morning of July 7, 1983, he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time, he noticed that the weather had deteriorated with strong southeast winds inducing big waves. After 30 minutes, he observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift 44 CHAPTER II VIGILANCE OVER THE GOODS the cargo from starboard to portside until the vessel was balanced. At about 7:00 in the morning, the master of the vessel stopped the engine because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to the starboard. The shifting of cargo took about an hour after which he rang the engine room to resume full speed. At around 8:45, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargos on deck were thrown overboard and seawater entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly, thereafter, “MV Asilda” capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessel’s collision with a partially submerged log. The Court subscribes to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking of “MV Asilda” was its being top-heavy. Contrary to the ship captain’s allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after “MV Asilda” sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ship’s hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel’s deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that “MV Asilda” was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo on deck resulted in the decrease of the vessel’s metacentric height thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition. ISSUE: Whether or not the limited liability under Article 587 of the Code of Commerce should apply. HELD: On the second issue, Article 587 of the Code of Commerce is not applicable to the case at bar. Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the 45 TRANSPORTATION LAWS vessel. This liability, however, can be limited through abandonment of the vessel, its equipment and freightage as provided in Article 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of shipowner’s liability, does not apply to cases where the injury or average was occasioned by the shipowner’s own fault. It must be stressed at this point that Article 587 speak only of situations where the fault or negligence is committed solely by the captain where the shipowner is likewise to be blamed, Article 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. It was already established at the outset that the sinking of “MV Asilda” was due to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally negligent. It cannot, therefore, escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of Article 587 of the Code of Commerce. Under Article 1733 of the Civil Code, “common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case, x x x” In the event of loss of goods, common carriers are presumed to have acted negligently; FELMAN, the shipowner, was not able to rebut this presumption. ART. 1735. In all cases other than those mentioned in Nos. 1,2, 3,4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. As previously discussed, the list of causes of loss, destruction and deterioration, which exempt the common carrier from liability, is 46 CHAPTER 11 VIGILANCE OVER THE GOODS a closed list. Hence, in all other cases, there is a presumption in law, which is disputable in character that common carriers are at fault or have acted negligently if the goods are lost, destroyed or deteriorated. It is incumbent, therefore, upon the common carrier to prove that they observed extraordinary diligence in cases of loss, destruction or deterioration of goods in all other cases other than those mentioned in Article 1734. In other words, the burden of proof lies on the common carriers. The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in exercising the required vigilance. (Edgar Cokaliong Shipping Lines, Inc. v. UCPB General Insurance Company, Inc., 404 SCRA 706) Sarkies Tours Philippines, Inc. v. Hon. Court of Appeals and Dr. Elino G. Fortales, Marisol A. Fortales and Fatima A. Fortales G.R. No. 108897, October 2,1997 FACTS: On August 31, 1984, Fatima boarded petitioner’s De Luxe Bus No. 5 in Manila on her way to Legaspi City. Her brother, Raul, helped her load three pieces of luggage containing all of her optometry review books, materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her mother Marisol’s U.S. immigration (green) card, among other important documents and personal belongings. Her belongings were kept in the baggage compartment of the bus, but during a stopover at Daet, it was discovered that only one bag remained in the open compartment. The others, including Fatima’s things, were missing and might have dropped along the way. Some of the passengers suggested retracing the route of the bus to try to recover the lost items, but the driver ignored them and proceeded to Legaspi City. Fatima immediately reported the loss to her mother who, in turn, went to petitioner’s office in Legaspi City and later at its head office in Manila. Petitioner, however, merely offered her PI,000 for each piece of luggage lost, which she turned down. After returning to Bicol, 47 TRANSPORTATION LAWS disappointed but not defeated, mother and daughter asked assistance from the radio stations and even from Philtranco bus drivers who plied the same route on August 31st. The effort paid off when one of Fatima’s bags was recovered. Marisol further reported the incident to the National Bureau of Investigation’s field office in Legaspi City and to the local police. After more than nine months of fruitless waiting, respondents decided to file the case below to recover the value of the remaining lost items, as well as moral and exemplary damages, attorney’s fees, and expenses of litigation. They claimed that the loss was due to petitioner’s failure to observe extraordinary diligence in the care of Fatima’s luggage and that petitioner dealt with them in bad faith from the start. Petitioner, on the other hand, disowned any liability for the loss on the ground that Fatima allegedly did not declare any excess baggage upon boarding its bus. ISSUE: Whether or not petitioner is liable for the lost pieces of baggage and damages. HELD: Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was declared at the start of the trip. The documentary and testimonial evidence presented at the trial, however, established that Fatima indeed boarded petitioner’s De Luxe Bus No. 5 in the evening of August 31,1984, and she brought three pieces of luggage with her, as testified by her brother Raul, who helped her pack her things and load them on said bus. One of the bags was even recovered by a Philtranco bus driver. In its letter dated October 1,1984, petitioner tacitly admitted its liability by apologizing to respondents and assuring them that efforts were being made to recover the lost items. Petitioner’s receipt of Fatima’s personal luggage having been thus established, it must now be determined if, as a common carrier, it is responsible for their loss. Under the Civil Code, “common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods xxx transported by them,” and this liability “last from the time the goods are unconditionally placed in the possession of, and received 48 CHAPTER II VIGILANCE OVER THE GOODS by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to x x x the person who has a right to receive them,” unless the loss is due to any of the excepted causes under Article 1734 thereof. The cause of the loss in the case at bar was petitioner’s negligence in not ensuring that the doors of the baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage were lost, to the prejudice of the paying passengers. As the Court of Appeals correctly observed: “x x x. Where the common carrier accepted its passenger’s baggage for transportation and even had it placed in the vehicle by its own employee, its failure to collect the freight charge is the common carrier’s own lookout. It is responsible for the consequent loss of the baggage. In the instant case, defendant appellant’s employee even helped Fatima Minerva Fortales and her brother load the luggages/baggages in the bus baggage compartment, without making that they be weighed, declared, receipted or paid for. Neither was this required of the other passengers.” Finally, petitioner questions the award of actual damages to respondents. On this point, [W]e likewise agree with the trial and appellate court’s conclusions. There is no dispute that of the three pieces of luggage of Fatima, only one was recovered. The other two contained optometry books, materials, equipment, as well as vital documents and personal belongings. Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel from the United States just to be able to testify. Expenses were also incurred in reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in awarding P30,000 for the lost items and P30,000 for the transportation expenses, but disagrees with the deletion of the award of moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the part of petitioner having been duly established, should be granted to respondents in the amount ofP20,000 and P5,000 respectively. 49 TRANSPORTATION LAWS Mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes of a prima facie case against the carrier. Coastwise Lighterage Corporation v. Court of Appeals and Philippine General Insurance Company G.R. No. 114167, July 12,1995 FACTS: Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter’s dump barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise. Upon reaching Manila Bay, while approaching Pier 18, one of the barges, “Coastwise 9,” struck an unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in through a hole “two inches wide and twenty-two inches long.” As a consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales, Inc., to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc., filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine General Insurance Company (PhilGen) and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000 representing the value of the damaged cargo of molasses. In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila, seeking to recover the amount of P700,000 which it paid to Pag-asa Sales, Inc., for the latter’s lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims, which the consignee may have against the carrier, which is presumed to have violated the contract of carriage. The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage appeal to the Court of Appeals, the award was affirmed. 50 CHAPTER II VIGILANCE OVER THE GOODS ISSUE: Whether or not petitioner Coastwise Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound? HELD: On the issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros Oriental to Manila and refers to this contract as a “charter agreement.” It then proceeds to cite the case of Home Insurance Company v. American Steamship Agencies, Inc. wherein this Court held: “x x x a common carrier undertaking to carry a special cargo or chartered to a special person only becomes a private carrier.” SlooiK- c-f Petitioner’s reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are as follows: “Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation.” Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment on account of the distinctions between the two. Petitioner admits that the contract it entered into with the consignee was one of affreightment. The Court agrees. Pag-asa Sales, Inc., only leased three of petitioner’s vessels, in order to carry cargo from one point to another, but the possession, command and navigation of the vessels remained with petitioner Coastwise Lighterage. Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of affreightment, was not converted into a private carrier, but remained a common carrier and was still liable as such. 51 i I-~N 1 1 i r~r> A C TRANSPORTATION LAWS The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case against the carrier. It follows then that the presumption of negligence that attaches to common carriers, once the goods it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case. Note: To understand this case better, see the distinction between contract of affreightment and bareboat or demise charter contract on the notes on charter party, infra. Asian Terminals, Inc. v. Simon Enterprises, Inc. G.R. No. 177116, February 27, 2013 FACTS: On November 25, 1995, Contiquincybunge Export Company made another shipment to respondent and allegedly loaded on board the vessel M/V “Tern” at the Port of Darrow, Louisiana, U.S.A. 3,300.000 metric tons of U.S. Soybean Meal in Bulk for delivery to respondent at the Port of Manila. The carrier issued its clean Berth Term Grain Bill of Lading. On January 25, 1996, the carrier docked at the inner Anchorage, South Harbor, Manila. The subject shipment was discharged to the receiving barges of petitioner Asian Terminals, Inc. (ATI) and received by respondent, which, however, reported receiving only 3,100.137 metric tons instead of the manifested 3,300.000 metric tons of shipment. Respondent filed against petitioner ATI and the carrier claim for the shortage of 199.863 metric tons, estimated to be worth US$79,848.86 or P2,100,025, but its claim was denied. Thus, on December 3, 1996, respondent filed with the Regional Trial Court (RTC) of Manila an action for damages against the unknown owner of the vessels M/V “Sea Dream” and M/V “Tern”, its local agent Inter-Asia Marine Transport, Inc. and petitioner ATI alleging that it suffered losses through the fault or negligence of the said defendants. 52 CHAPTER II VIGILANCE OVER THE GOODS Respondent sought to claim damages plus attorney’s fees and costs of suit. In their Answer, the unknown owner of the vessel M/V “Tern” and its local agent Inter-Asia Marine Transport, Inc., prayed for the dismissal of the complaint, alleging among others that because the bill of lading states that the goods are carried on a “shipper’s weight, quantity, and quality unknown” terms and on “all terms, conditions, and exceptions, as per charter party, dated October 15,1995,” the vessel had no way of knowing the actual weight, quantity, and quality of the bulk cargo when loaded at the port of origin and the vessel had to rely on the shipper for such information. On May 10, 2001, the Regional Trial Court (RTC) of Manila rendered a Decision holding petitioner ATI and its co-defendants solidarily liable to respondent for damages arising from the shortage, ordering defendants M/V “Tern” Inter-Asia Marine Transport, Inc., and Asian Terminal Inc., jointly and severally liable to pay plaintiff Simon Enterprises damages, attorney’s fees, and costs of suit. The trial court found that respondent has established that the losses/shortages were incurred prior to its receipt of the goods. As such, the burden shifted to the carrier to prove that it exercised diligence as required by law to prevent the loss, destruction, or deterioration. However, the trial court held that the defendants failed to prove that they did so. Not satisfied, the unknown owner of the vessel M/V “Tern” Inter- Asia Marine Transport, Inc., and petitioner ATI, respectively, filed appeals to the Court of Appeals (CA). The CA affirmed the RTC Decision and held that there is no justification to disturb the factual findings of the trial court, which are entitled to respect on appeal as they were supported by substantial evidence. ISSUE: Whether or not petitioner is liable for the shortage incurred in the shipment of the goods to respondent. HELD: Petitioner ATI is correct in arguing that the respondent failed to prove that the subject shipment suffered actual shortage, as there was no competent evidence to prove that it actually weighed 3,300 metric tons at the port of origin. 53 TRANSPORTATION LAWS Though it is true that common carriers are presumed to have been at fault or to have acted negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is considerably greater than the latter weight, taking into consideration the exceptions provided in Article 1734 of the Civil Code. In this case, respondent failed to prove that the subject shipment suffered shortage, for it was not able to establish that the subject shipment was weighted at the port of origin at Darrow, Louisiana, U.S.A., and that the actual weight of the said shipment was 3,300 metric tons. The Berth Term Grain Bill of Lading states that the subject shipment was carried with the qualification “Shipper’s weight, quantity, and quality unknown,” meaning that it was transported with the carrier having been oblivious of the weight, quantity, and quality of the cargo. ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738. The above provision determines the period of time within which the common carrier should observe extraordinary diligence in transporting the goods. There is no absolute obligation on the part of a carrier to accept a cargo. Where a common carrier accepts a cargo for shipment for valuable consideration, it takes the risk of delivering it in good condition as when it was loaded. And if the fact of improper packing is known to the carrier or its personnel, or apparent upon observation but it accepts the goods notwithstanding such condition, it is not relieved of liability 54 CHAPTER II VIGILANCE OVER THE GOODS for loss or injury resulting therefrom. (PAL v. Court of Appeals, G.R. No. 119706, March 4, 1996) Arrastre Operator and Stevedore Distinguished. There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish word that refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship’s tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the ship’s tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel. A stevedore was only charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian of the shipment. A stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes would not have a far-reaching public ramification as that of a common carrier and a warehouseman; the public is adequately protected by our laws on contract and on quasi-delict. The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients. There is no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring company or one who is charged only with the loading and stowing of cargoes. (Mindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance Co. of New York, McGee & Co. Inc., G.R. No. 162467, May 8, 2009) On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ship’s deposited tackle. Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession. (Summa Ins. Corp. v. Court of Appeals, 323 Phil. 214 [1996]) Handling cargo is mainly the arrastre operator’s 55 TRANSPORTATION LAWS principal work so its drivers/operators or employees should observe the standards and measures necessary to prevent losses and damage to shipments under its custody. In Firemans Fund Insurance Co. v. Metro Port Services, Inc.9 182 SCRA 455, February 2, 1990, the Court explained the relationship and responsibility of an arrastre operator to a consignee of a cargo, to quote: “The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in good condition to the consignee.” (Philippine First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc., etal., G.R. No. 165647, March 26, 2009) The extraordinary responsibility of the common carrier lasts until actual or constructive delivery of the cargoes to the consignee or to the person who has a right to receive them. Benito Macam v. Court of Appeals, China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc. G.R. No. 125524, August 25,1999 FACTS: On April 4, 1989, petitioner Benito Macam, doing business under the name and style Ben-Mac Enterprises, shipped on board the vessel Nen Jiang, owned and operated by respondent China Ocean Shipping Co., through local agent respondent Wallem Philippines Shipping, Inc. (WALLEM), 3,500 boxes of watermelon valued at US$5,950 covered by Bill of Lading No. HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued by National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No. HK 1032/30 also issued by PAKISTAN BANK. The Bills 56 CHAPTER II VIGILANCE OVER THE GOODS of Lading contained the following pertinent provision: “One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order.” The shipment was bound for Hongkong with PAKISTAN BANK as consignee and Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party. On April 6, 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were submitted to petitioner’s depository bank, Consolidated Banking Corporation (SOLIDBANK), which paid petitioner in advance the total value of the shipment of US$20,223.46. Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN BANK, and without the required bill of lading having been surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such that the latter, still in possession of the original bills of lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK already prepaid petitioner the value of the shipment, it demanded payment from respondent WALLEM through five letters but was refused. Petitioner was thus allegedly constrained to return the amount involved to SOLIDBANK, and then demanded payment from respondent WALLEM in writing but to no avail. On September 25, 1991, petitioner sought collection of the value of the shipment of US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional Trial Court of Manila, based on delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee. Respondents contended that the shipment was delivered to GPC without presentation of the bills of lading and bank guarantee per request of petitioner himself because the shipment consisted of perishable goods. ISSUE: Whether or not respondents are liable to petitioner for releasing the goods to GPC without the bills of lading or bank guarantee. HELD: The extraordinary responsibility of the common carriers lasts until actual or constructive delivery of the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK 57 TRANSPORTATION LAWS was indicated in the bills of lading as consignee whereas GPC was the notify party. However, in the export invoices, GPC was clearly named as buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as buyer/importer which, conformably with Article 1736 had, other than the consignee, the right to receive them was proper. Respondents submitted in evidence a telex dated April 5, 1989 as basis for delivering the cargoes to GPC without the bills of lading and bank guarantee. The telex instructed delivery of various shipments to the respective consignees without need of presenting the bill of lading and bank guarantee per the respective shipper’s request since “for prepaid shipt offt charges already fully paid.” Petitioner was named therein as shipper and GPC as consignee with respect to Bill of Lading Nos. HKG 99012 and HKG 99013. Bill of Lading both as a receipt and a contract. Samar Mining Company, Inc. v. Nordeutscher Lloyd and C.F. Sharp and Company, Inc. G.R. No. L-28673, October 23,1984 FA CTS: The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN, a vessel owned by defendant-appellant NORDEUTSCHER LLOYD (represented in the Philippines by its agent, C.R SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. The goods were, however, never delivered to, nor received by, the consignee at the port of destination — Davao. When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal claim for PI,691.93, the equivalent of $424 at the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the filing of 58 J CHAPTER II VIGILANCE OVER THE GOODS the instant suit to enforce payment. Defendants-appellants brought in AMCYL as third-party defendant. The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of PI,691.93 plus attorney’s fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment against third-party defendant AMCYL which had earlier been declared in default. Only the defendants appealed from said decision. Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from ship in Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. ISSUE: Whether or not the stipulation in the bill of lading exempting the carrier from liability for loss of goods not in its actual custody, i.e., after their discharge from the ship is a valid stipulation? HELD: The Court finds merit in appellants’ stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the same are not in its actual custody has been upheld by US in Phoenix Assurance Co., Ltd. v. United States Lines, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading. The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before us, provides: “The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody. XXX XXX XXX The carrier or master, in making arrangements with any person from or in connection with all transshipping or forwarding 59 TRANSPORTATION LAWS of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof x x x (Par. 16).” Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, [W]e sustained their validity. Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that: “x x x The short form Bill of Lading states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading, appellee’s responsibility as a common carrier ceased the moment the goods were unloaded in Manila; and in the matter of transshipment. Appellee acted merely as an agent of the shipper and consignee.” Coming now to the case before us, [the Court] hold[s], that by the authority of the above pronouncements, and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as goods while the same are not in the latter’s actual custody. The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: “Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession, and received by the carrier for transportation until the same are delivered, actually or constructively, by 60 CHAPTER II VIGILANCE OVER THE GOODS the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of Article 1738.” Article 1738 referred to in the foregoing provisions runs, thus: “Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.” There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said Article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. By the same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier. It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading in question. The first is For the Transport of goods from Bremen, Germany to Manila. The second, The Transshipment of the same goods from Manila to Davao, with appellant acting as agent of the consignee. 61 TRANSPORTATION LAWS At the hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that carrier to that of agent of the consignee. Thus, the character of appellant’s possession also changes, from possession in its own name as carrier, into possession in the name of consignee as the latter’s agent. Such being the case, there was in effect, actual delivery of the goods from appellant as earner to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before us. But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods. It is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency. The record fails to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYL, which acted as appellant’s substitute in storing the goods awaiting transshipment. The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question. Nedlloyd Lijnen B.V. Rotterdam and the East Asiatic Co., Ltd. v. Glow Laks Enterprises, Ltd. G.R. No. 156330, November 19, 2014 FACTS: On or about September 14, 1987, respondent loaded on board M/V Scandutch at the Port of Manila a total of 343 cartons of garments, complete and in good order for pre-carriage to the Port of 62 CHAPTER II VIGILANCE OVER THE GOODS Hongkong. The goods covered by Bill of Lading Nos. MHONX-2 and MHONX-3 arrived in good condition in Hongkong and was transferred to M/S Amethyst for final carriage to Colon, Free Zone, Panama. Both vessels, M/S Scandutch and M/S Amethyst, are owned by Nedlloyd represented in the Philippines by its agent, East Asiatic. The goods, which were valued at US$53,640.00, were agreed to be released to the consignee, Pierre Kasem, International, S.A., upon presentation of the original copies of the covering of the bills of lading. Upon arrival of the vessel at the Port of Colon on October 23,1987, petitioners purportedly notified the consignee of the arrival of the shipments, and its custody was turned over to the National Ports Authority in accordance with the laws, customs, regulations, and practice of trade in Panama. By an unfortunate turn of events, however, unauthorized persons managed to forge the covering bills of lading, and on the basis of the falsified documents, the ports authority released the goods. On July 16, 1988, respondent filed a formal claim with Nedlloyd for the recovery of the amount of US$53,640 representing the invoice value of the shipment but to no avail. Claiming that petitioners are liable for the misdelivery of the goods, respondent initiated Civil Case No. 88-45595 before the Regional Trial Court (RTC) of Manila, Branch 52, seeking for the recovery of the amount of US$53,640, including the legal interest from the date of the first demand. In disclaiming liability for the misdelivery of the shipments, petitioners asserted in their Answer that they were never remiss in their obligation as a common carrier and the goods were discharged in good order and condition into the custody of the National Port Authority of Panama in accordance with the Panamanian Law. They averred that they cannot be faulted for the release of the goods to unauthorized persons, their extraordinary responsibility as a common carrier having ceased at the time the possession of the goods were turned over to the possession of the port authorities. On April 29,2004, the RTC rendered a Decision, ordering the dismissal of the complaint but granted petitioners’ counterclaims. In effect, respondent was directed to pay petitioners the amount of PI20,000 as indemnification for the litigation expenses incurred by the latter. In releasing the common carrier from liability for the misdelivery of the goods, the RTC ruled that Panama Law was duly 63 TRANSPORTATION LAWS proven during the trial and pursuant to the said statute, carriers of goods destined to any Panama port of entry have to discharge their loads into the custody of Panama Ports Authority to make effective government collection of port dues, customs duties and taxes. The subsequent withdrawal effected by unauthorized persons on the strength of falsified bills of lading does not constitute misdelivery arising from the fault of the common carrier. On appeal, the Court of Appeals reversed the findings of the RTC and held that foreign laws were not proven in the manner provided by Section 24, Rule 132 of the Revised Rules of Court, and therefore, it cannot be given full faith and credit. For failure to prove the foreign law and custom, it is presumed that foreign laws are the same as our local or domestic or internal law under the doctrine of processual presumption. Under the New Civil Code, the discharge of the goods into the custody of the ports authority therefore does not relieve the common carrier from liability because the extraordinary responsibility of the common carriers lasts until actual or constructive delivery of the cargoes to the consignee or to the person who has the right to receive them. Absent any proof that the notify party or the consignee was informed of the arrival of the goods, the appellate court held that the extraordinary responsibility of common carriers remains. Accordingly, the Court of Appeals directed the petitioners to pay respondent the value of the misdelivered goods in the amount of US$53,640. ISSUE: Whether or not petitioners are liable for the misdelivery of goods under Philippine law. HELD: Under the rules of private international law, a foreign law must be properly pleaded and proved as a fact. In the absence of pleading and proof, the laws of the foreign country or state will be presumed to be the same as our local or domestic law. This is known as processual presumption. While the foreign law was properly pleaded in the case at bar, it was, however, proven not in the manner provided by Section 24, Rule 132 of the Revised Rules of Court. The decision of the RTC, which proceeds from a disregard of specific rules, cannot be recognized. It is explicitly required by Section 24, Rule 132 of the Revised Rules of Court that a copy of the statute must be accompanied by a 64 CHAPTER II VIGILANCE OVER THE GOODS certificate of the officer who has legal custody of the records, and a certificate made by the secretary of the embassy or legation, consul general, consul, vice consular, or by any officer in the foreign service of the Philippines stationed in the foreign country, and authenticated by the seal of his office. The latter requirement is not merely a technicality but is intended to justify the giving of full faith and credit to the genuineness of the document in a foreign country. Certainly, the deposition of Mr. Enrique Cajigas, a maritime law practitioner in the Republic of Panama, before the Philippine Consulate in Panama, is not the certificate contemplated by law. At best, the deposition can be considered as an opinion of an expert witness who possess the required special knowledge on the Panamanian laws but could not be recognized as proof of a foreign law, the deponent not being the custodian of the statute who can guarantee the genuineness of the document from a foreign country. To admit the deposition as proof of a foreign law is, likewise, a disavowal of the rationale of Section 24, Rule 132 of the Revised Rules of Court, which is to ensure authenticity of a foreign law and its existence so as to justify its import and legal consequence on the event or transaction in issue. Article 1736. The extraordinary responsibility of the common carrier lasts ffom 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 the right to receive them, without prejudice to the provisions of Article 1738. Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the common carrier begins ffom the time the goods are delivered to the carrier. This responsibility remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner exercises the right or stoppage in transitu, and terminates only after the lapse of a reasonable time for the 65 TRANSPORTATION LAWS acceptance of the goods by the consignee or such other person entitled to receive them. In this case, there is no dispute that the custody of the goods was never turned over to the consignee or his agent but was lost into the hands of unauthorized persons who secured possession thereof on the strength of falsified documents. The loss or the misdelivery of the goods in the instant case gave rise to the presumption that the common carrier is at fault or negligent. A common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the goods it transported. When the goods shipped are either lost or arrived in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. To overcome the presumption of negligence, the common carrier must establish, by adequate proof, that it exercised extraordinary diligence over the goods. It must do more than merely show that some other party could be responsible for the damage. ART. 1737. The common carrier’s duty to observe extraordinary diligence in the vigilance over the goods remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the right of stoppage in transitu. Remembering the law on sales, the right of stoppage in transitu is one of the rights of an unpaid seller when he has part with the goods and the buyer is or becomes insolvent. (See Arts. 1526[2] and 1530, NCC) The effect of exercising the right of stopping the goods in transit is that the unpaid seller is entitled to the possession of the goods as if he had never parted with it. Thus, the responsibility of the common carrier is reduced to a mere bailee or depository. Hence, it is no longer incumbent upon the common carrier to observe extraordinary diligence but diligence of a good father of a family in holding the goods. ART. 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised on the arrival of the goods and has had CHAPTER II VIGILANCE OVER Tl IE GOODS reasonable opportunity thereafter to remove them or otherwise dispose of them. TWO REQUISITES ARE NECESSARY TO AVOID LIABILITY OF COMMON CARRIERS UNDER THIS ARTICLE, NAMELY: 1. Notice of arrival of the goods to consignee, his agents, or authorized representative; and 2. Reasonable opportunity on the part of the consignee to remove the goods or otherwise dispose of them. This is a continuation of Article 1736 on the period of time within which the common carrier should observe extraordinary diligence in transporting the goods. Notice that even if the goods are stored in the warehouse of the carrier, at the place of destination, the extraordinary responsibility of the common carrier continues and only ceases when the consignee is notified of the arrival of the goods and has had reasonable opportunity to remove the goods or dispose of them. No extraordinary diligence by the carrier could have prevented the loss of the goods after they had been deposited in the Warehouse of the Bureau of Customs. Amparo Servando, Clara Uy Bico v. Philippine Steam Navigation Co. G.R. Nos. 36481-2, October 23,1982 FACTS: On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant’s vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to wit: Clara Uy Bico — 1,528 cavans of rice valued at P40,907; Amparo Servando — 44 cartons of colored paper, toys and general merchandise valued at PI,070.50; as evidenced by the corresponding bills of lading issued by the appellant. 67 TRANSPORTATION LAWS Upon arrival of the vessel at Pulupandan in the morning of November 18, 1963, the cargoes were discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same day, said warehouse was razed by a fire of unknown origin, destroying appellees’ cargoes. Before the fire, however, appellee Uy Bico was able to take delivery of 907 cavans of rice. Appellees’ claims for the value of said goods were rejected by the appellant. On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which reads as follows: “WHEREFORE, judgment is rendered as follows: “1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the aggregate sum of PI,070.50 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs. “2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate sum of PI6,625.00 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs.” Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary diligence from the moment the goods are unconditionally placed in their possession “until the same are delivered, actually or constructively, by the carrier to the consignee or to the person who has a right to receive them, without prejudice to the provisions of Article 1738.” The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouse occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable against the appellant. ISSUE: Whether or not the defendant carrier was liable in the light of the provisions of Article 1736 in relation to Article 1738. 68 CHAPTER II VIGILANCE OVER THE GOODS HELD: There is nothing in the record to show that appellant carrier incurred in delay in the performance of its obligation. It appears that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the warehouse. Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent. Since the warehouse belonged to and was maintained by the government, it would be unfair to impute negligence to the appellant, the latter having no control whatsoever over the same. The lower court in its decision relied on the ruling laid down in Yu Biao Sontua v. Ossorio, where this Court held the defendant liable for damages arising from a fire caused by the negligence of the defendant’s employees while loading cases of gasoline and petroleum products. But unlike in the said case, there is not a shred of proof in the present case that the cause of the fire that broke out in the Custom’s warehouse was in any way attributable to the negligence of the appellant or its employees. Under the circumstances, the appellant is plainly not responsible. CONCURRING OPINION Under Article 1738 of the Civil Code, “the extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in the warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.” From the time the goods in question were deposited in the Bureau of Customs’ warehouse in the morning of their arrival up to 2:00 in the afternoon of the same day, when the warehouse was burned, Amparo C. Servando and Clara Uy Bico, the consignees, have reasonable opportunity to remove the goods. Clara had removed more than one- half of the rice consigned to her. 69 TRANSPORTATION I.AWS Moreover, the shipping company had no more control and responsibility over the goods after they were deposited in the customs warehouse by the arrastre and stevedoring operator. No amount of extraordinary diligence on the part of the carrier could have prevented the loss of the goods by fire, which was of accidental origin. Under those circumstances, it would not be legal and just to hold the carrier liable to the consignees for the loss of the goods. The consignees should bear the loss, which was due to a fortuitous event. ART. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of the public enemy referred to in Article 1734, No. 2. These provisions enumerate the requirements in order that the common carrier may be exempted from any and all responsibilities as a result of the natural disaster such as flood, storm, earthquake, lightning or other natural calamity: 1. The natural disaster must have been the proximate and only cause of the loss; 2. The common carrier must have exercised due diligence to prevent or minimize loss before, during, and after the occurrence of the natural disaster; and 3. The common carrier has not negligently incurred in delay in transporting the goods. ART. 1740. If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free such carrier from responsibility. 70 i CHAPTER II VIGILANCE OVER THE GOODS Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Art. 1169) While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil 836 [1952]), delivery of shipment or cargo should at least be made within a reasonable time. Maersk Line v. Court of Appeals and Efren V. Castillo G.R. No. 94761, May 17,1993 FACTS: On November 12,1976, private respondent ordered from Eli Lily, Inc., of Puerto Rico through its Eli Lily, Inc.’s agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The capsules were placed in six drums of 100,000 capsules each valued at US$1,668.71. Through a Memorandum of Shipment (Exh. “B” AC GR CV No. 10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc., of 71 TRANSPORTATION LAWS Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six drums of 100,000 capsules each, were already shipped on board MV “Anders Maerskline” under Voyage No. 7703 for shipment to the Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc., specified the date of arrival to be April 3, 1977. For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then transported back to Oakland, California. The goods finally arrived in the Philippines on June 10, 1977 or after two months from the date specified in the memorandum. As a consequence, private respondent as consignee refused to take delivery of the goods on account of its failure to arrive on time. Private respondent alleging gross negligence and undue delay in the delivery of the goods filed an action before the court a quo for rescission of contract with damages against petitioner and Eli Lilly, Inc., as defendants. ISSUE: Whether or not petitioner negligently incurred in delay in the delivery of the shipment. HELD: An examination of the subject bill of lading (Exh. “1; ” AC GR CVNo. 10340, Folder of Exhibits, p. 41) shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was no special contract entered into by the parties indicating the date of arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another contract for the purpose, as it would be a mere superfluity. In the case before [the Court], [W]e find that a delay in the delivery of the goods spanning a period of two (2) months and seven (7) days fails way beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But through petitioner’s negligence 72 CHAPTER II VIGILANCE OVER THE GOODS was mishipped to Richmond, Virginia. Petitioner’s insistence that it cannot be held liable for the delay finds no merit. ART. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which, however, shall be equitably reduced. Negligence is conduct that creates undue risk of harm to another. It is the failure to observe that degree of care, precaution and vigilance that the circumstances justly demand, whereby that other person suffers injury. (Smith Bell Dodwell Shipping Agency Corporation v. Borja, 383 SCRA 341, June 10, 2002) “Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a prudent and reasonable man would not do.” Proximate cause is “that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.” (Raynera v. Hiceta, 306 SCRA 102) Proximate cause is determined on the facts of each case upon mixed considerations of logic, common sense, policy, and precedent. (Philippine Bank of Commerce v. Court of Appeals, 269 SCRA 695, [1995]) Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection. (Valenzuela v. Court of Appeals, 253 SCRA 303, citing Prosser and Keaton on Torts) Contributory negligence is the act or omission amounting to want of ordinary care on the part of the complaining party which concurring with defendant’s negligence is proximate cause of injury. (Honaker v. Krutchfield, 247Ky. 495, 57 S.W 2d502 cited in Black s Law Dictionary, Centennial Ed.) 73 TRANSPORTATION LAWS Contributory negligence of the shipper or owner of goods is a mitigating circumstance on the part of the common carrier. That is to say, the damages recoverable from the common carrier should be equitably reduced by the Court. Tabacalera Insurance Co., etal. v. North Front Shipping Services, Inc. and Court of Appeals G.R. No. 119197, May 16,1997 FACTS: On August 2, 1990, 20,234 sacks of com grains valued at P3,500,640 were shipped on board North Front 777, a vessel owned by North Front Shipping Services, Inc. The cargo was consigned to Republic Flour Mills Corporation in Manila under Bill of Lading No. 001 and insured with the herein mentioned insurance companies. The vessel was inspected prior to actual loading by representatives of the shipper and was found fit to carry the merchandise. The cargo was covered with tarpaulins and wooden boards. The hatches were sealed and could only be opened by representatives of Republic Flour Mills Corporation. The vessel left Cagayan de Oro City on August 2,1990 and arrived Manila on August 16, 1990. Republic Flour Mills Corporation was advised of its arrival but it did not immediately commence the unloading operations. There were days when unloading had to be stopped due to variable weather conditions and sometimes for no apparent reason at all. When the cargo was eventually unloaded there was a shortage of 26.333 metric tons. The remaining merchandise was already moldy, rancid, and deteriorating. The unloading operations were completed on September 5, 1990 or 20 days after the arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City. Precision Analytical Services, Inc., was hired to examine the com grains and determine the cause of deterioration. A Certificate of Analysis was issued indicating that the corn grains had 18.56% moisture content and the wetting was due to contact with salt water. The mold growth was only incipient and not sufficient to make the com grains toxic and unfit for consumption. In fact, the mold growth could still be arrested by drying. 74 CHAPTER II VIGILANCE OVER 1111- GOODS Republic Flour Mills Corporation rejected the entire cargo and formally demanded from North Front Shipping Services, Inc., payment for the damages suffered by it. The demands, however, were unheeded. The insurance companies were perforce obliged to pay Republic Flour Mills Corporation P2,189,433.40. By virtue of the payment made by the insurance companies, they were subrogated to the rights of Republic Flour Mills Corporation. Thus, they lodged a complaint for damages against North Front Shipping Services, Inc., claiming that the loss was exclusively attributable to the fault and negligence of the carrier. The Marine Cargo Adjusters hired by the insurance companies conducted a survey and found cracks in the bodega of the barge and heavy concentration of molds on the tarpaulins and wooden boards. They did not notice any seal in the hatches. The tarpaulins were not brand new as there were patches on them, contrary to the claim of North Front Shipping Services, Inc., thus making it possible for water to seep in. They also discovered that the bulkhead of the barge was rusty. North Front Shipping Services, Inc., averred in refutation that it could not be made culpable for the loss and deterioration of the cargo, as it was never negligent. Captain Solomon Villanueva, master of vessel, reiterated that the barge was inspected prior to the actual loading and was found adequate and seaworthy. In addition, they were issued a permit to sail by the Coast Guard. The tarpaulins were doubled and brand new and hatches were properly sealed. They did not encounter big waves hence it was not possible for water to seep in. He further averred that the com grains were farm wet and not properly dried when loaded. The court below dismissed the complaint and ruled that the contract entered into between North Front Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement. As such, only ordinary diligence in the care of goods was required of North Front Shipping Services, Inc. ISSUE: Whether or not North Front Shipping Services, Inc., is a common carrier and in the negative are required only to exercise ordinary diligence. 75 TRANSPORTATION LAWS HELD: North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo and offers it services indiscriminately to the public. It is, without doubt, a common carrier. As such it is required to observe extraordinary diligence in its vigilance over the goods it transports. When goods placed in its care are lost or damaged, the carrier is presumed to have been at fault or to have acted negligently. North Front Shipping Services, Inc., therefore has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo. North Front Shipping Services, Inc., proved that the vessel was inspected prior to actual loading by representatives of the shipper and was found fit to take a load of com grains. They were also issued Permit to Sail by the Coast Guard. The master of the vessel testified that the com grains were farm wet when loaded. However, this testimony was disproved by the clean bill of lading issued by North Front Shipping Services, Inc., which did not contain a notation that the com grains were wet and improperly dried. Having been in the service since 1968, the master of the vessel would have known at the outset that com grains that were farm wet and not properly dried would eventually deteriorate when stored in sealed and hot compartments as in hatches of a ship. Equipped with this knowledge, the master of the vessel and his crew should have undertaken precautionary measures to avoid or lessen the cargo’s possible deterioration, as they were presumed knowledgeable about the nature of such cargo. But none of such measures was taken. In Compania Maritima v. Court of Appeals, the Court mled — “x x x Mere proof of delivery of the goods in good order to a common carrier, and of their arrival at the place of destination in bad order, makes outprima facie case against the common carrier, so that if no explanation is given as to how the loss, deterioration or destruction of the goods occurred, the common carrier must be held responsible. Otherwise stated, it is incumbent upon the common carrier to prove that the loss, deterioration or destruction was due to accident or some other circumstances inconsistent with its liability.” In fine, the Court finds that the carrier failed to observe the required extraordinary diligence in the vigilance over the goods placed in its 76 CHAPTER II VIGILANCE OVER THE GOODS care. The proofs presented by North Front Shipping Services, Inc., were insufficient to rebut the prima facie presumption of private respondent’s negligence, more so if we consider the evidence adduced by petitioners. However, the Court cannot attribute the destruction, loss, or deterioration of the cargo solely to the carrier. The Court finds the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was seasonably notified of the arrival of the barge but did not immediately start the unloading operations. No explanation was proffered by the consignee as to why there was a delay of six days. Had the unloading been commenced immediately, the loss could have been completely avoided or at least minimized. As testified to by the chemist who analyzed the com samples, the mold growth was only at its incipient stage and could still be arrested by drying. The com grains were not yet toxic or unfit for consumption. For its contributory negligence, Republic Mills Corporation should share at least 40% of the loss. ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or lessen the loss. “Defect” is the want or absence of something necessary for completeness or perfection; a lack or absence of something essential to completeness; a deficiency in something essential to the proper use for the purpose for which a thing is to be used. On the other hand, “inferior” means of poor quality, mediocre, or second rate. A thing may be of inferior quality but not necessarily defective. In other words, “defectiveness ” is not synonymous with “inferiority.” The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that such statement will create a prima facie presumption only as to the external condition and not to that not open to inspection. (Philippine Charter Insurance Corp. v. Unknown Owner of Vessel MZV National Honor, 463 SCRA 202, July 8, 2005) 11 TRANSPORTATION LAWS To exempt the common carrier from liability, it must still exercise due diligence to forestall or lessen the loss caused by the character of the goods or faulty7 nature of the packing or of the containers. For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting therefrom. (Calvo v. UCPB General Insurance Company, Inc., 379 SCRA 510, March 19, 2002) Even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding such condition. (Belgian Overseas Chartering and Shipping N. V. v. Philippine First Insurance Company, Inc., 383 SCRA 23) In Iron Bulk Shipping Philippines Company, Ltd. v. Remington Industrial Sales Corporation, 417 SCRA 229, December 8, 2003, it was held that under Article 1742 of the Civil Code, even if the loss, 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 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. ART. 1743. If through the 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. 78 CHAPTER II VIGILANCE OVER THE GOODS The power to issue the order of the public authority is evidentiary in nature. Hence, to exempt the common carrier from any liability it is incumbent upon the common carrier to prove that the public authority had the power to issue that order. Intervention of municipal officials, not of a character that would render impossible the fulfillment by the carrier of its obligations. Mauro Ganzon v. Court of Appeals and Gelacio Tumambing G.R. No. L-48757, May 30, 1988 FACTS: 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.” Pursuant to this agreement, Mauro B. Ganzon sent his lighter “Batman” to Mariveles where it docked in three feet of water. 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, Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000 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. The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment. 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 where the lighter was docked. The rest was brought to the compound of NASSCO. Later on, Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron. On the basis of the above findings, the respondent Court rendered a decision which reversed and set aside the decision of the trial court and a new one entered ordering defendant-appellee Mauro Ganzon to pay 79 TRANSPORTATION LAWS plaintiff-appellant Gelacio E. Tumambing the sum of P5,895 as actual damages, the sum of P5,000 as exemplary damages, and the amount of P2,000 as attorney’s fees. Costs against defendant-appellee Ganzon. ISSUE: Whether or not the dumping of the scrap iron into the sea that was ordered by the local government official a fortuitous event. HELD: The petitioner has failed to show that the loss of the scraps was due to any of the following causes enumerated in Article 1734 of the Civil Code, namely: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) (4) Act or omission of the shipper or owner of the goods; 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. 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. 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 80 CHAPTER II VIGILANCE OVER THE GOODS “order or act of competent public authority,” and this contention was correctly passed upon by the Court of Appeals. Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal [W]e cannot, however, allow. In any case, the intervention of the municipal officials was not 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 fulfillment of the obligation is not considered force majeure. We agree with the private respondents 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 then be delivered in accordance with the contract of carriage. DISSENTING OPINION It is my view that petitioner cannot 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.” (Art. 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 “competentpublic authority,” therefore, the performance of a contractual obligation was rendered 81 TRANSPORTATION LAWS 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 issued 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.” ART. 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided it be: (1) In writing, signed by the shipper or owner; (2) Supported by a valuable consideration other than the service rendered by the common carrier; and (3) Reasonable, just and not contrary to public policy. The degree of diligence less than that of extraordinary diligence referred to in this article is no less than ordinary diligence or the diligence of a good father of a family. Otherwise, it will fall under Article 1745(4), which is considered as unreasonable, unjust and contrary to public policy. The writing material referred to in paragraph (1) is not specified, hence, it can be on paper or other substitute writing material as the law does not distinguished. Under paragraph No. (2), the valuable consideration can be the lesser fare or freightage chargeable to the shipper or owner of the goods. Discounts are likewise valuable consideration. Reference should be made to the provisions of Articles 1745,1746, and 1751 to determine whether the agreement between the common carrier and the shipper or owner of the goods is reasonable, just and not contrary to public policy. 82 CHAPTER II VIGILANCE OVER Tl IE GOODS ART. 1745. Any of the following or similar stipulations shall he considered unreasonable, unjust and contrary to public policy: (1) shipper; That the goods are transported at the risk of the owner or (2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods; (3) That the common carrier need not observe any diligence in the custody of the goods; (4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of ordinary prudence in the vigilance over the movables transported; (5) That the common carrier shall not be responsible for the acts or omissions of his or its employees; (6) That the common carrier’s liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished; (7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage. The law itself provides that the above stipulations are unreasonable, unjust and contrary to public policy. A stipulation that the cargo was being shipped at “owner’s risk” is null and void and contrary to public policy. Loadstar Shipping Co., Inc. v. Court of Appeals and the Manila Insurance Co., Inc. G.R. No. 131621, September 28, 1999 FACTS: On November 19, 1984, LOADSTAR received on board its M/V “Cherokee” (hereafter, the vessel) the following goods for shipment: a) 705 bales of lawanit hardwood; 83 TRANSPORTATION LAWS b) 27 boxes and crates of tilewood assemblies and others; and c) 49 bundles of mouldings R & W (3) Apitong Bolidenized. The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including “Total loss by total loss of the vessel. ” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On November 20, 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Islands. As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR, which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefore. On February 4, 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MIC’s claim from LOADSTAR. In its answer, LOADSTAR denied any liability for the loss of the shipper’s goods and claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR. The Regional Trial Court of Manila rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto. In dismissing LOADSTAR’S appeal, the appellate court observed that between MIC and LOADSTAR, the provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated to the latter’s right as against the carrier, LOADSTAR. 84 I CHAPTER II VIGILANCE OVER THE GOODS LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in this case, is valid. Since the cargo was being shipped at “owner’s risk,” LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Court’s ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc. and National Union Fire Insurance Company of Pittsburg v. Stolt- Nielsen Phils., Inc. ISSUE: Whether the stipulation in the bill of lading that the cargo was being shipped at owner’s risk is valid. HELD: LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of this Court’s pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc. and National Union Fire Insurance v. Stolt- Nielsen Phils., Inc. It was ruled in these two cases that after paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carrier’s liability to an amount fixed in the bill of lading, which the parties may enter into, provided that the same was freely, and fairly agreed upon. (Arts. 1749-1750) On the other hand, the stipulation in the case at bar effectively reduces the common carrier’s liability for the loss or destruction of the goods to a degree less than extraordinary (Arts. 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at “owner’s risk.” Such stipulation is obviously null and void for being contrary to public policy. Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights, which the latter has against the common carrier, LOADSTAR. 85 TRANSPORTATION LAWS Under Article 1745(6), a common carrier is held responsible even for acts of strangers like thieves or robbers except where such thieves or robbers acted “with grave or irresistible threat, violence or force.” Pedro de Guzman v. Court of Appeals and Ernesto Cendana G.R. No. L-47822, December 12,1988 FACTS: Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two six-wheeler trucks, which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates, which were commonly lower than regular commercial rates. Sometime in November 1970, petitioner Pedro de Guzman, a merchant and authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner’s establishment in Urdaneta on or before December 4, 1970. Accordingly, on December 1, 1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself; while 600 cartons were placed on board the other truck which was driven by Manuel Estrada, respondent’s driver and employee. Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since the truck which carried these boxes was hijacked somewhere along the McArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper, and the cargo. On January 6, 1971, petitioner commenced action against private respondent in the Court of First Instance of Pangasinan, demanding payment of P22,150, the claimed value of the lost merchandise, plus CHAPTER II VIGILANCE OVER THE GOODS damages and attorney’s fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods. In his answer, private respondent denied that he was a common carrier and argued that he could not be held responsible for the value of the lost goods, such loss having been due to force majeure. ISSUE: Whether or not the hijacking of respondent’s truck was force majeure so that respondent was not liable for the value of the undelivered cargo. HELD: Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction, or deterioration of the goods, which they carry, “unless the same is due to any of the following causes only: (1) Flood, storm earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; and (5) Order or act of competent public authority.” It is important to point out that the above list of causes of loss, destruction or deterioration, which exempt the common carrier for responsibility therefore, is a closed list. Causes falling outside the foregoing list even if they appear to constitute a species of force majeure, fall within the scope of Article 1735, which provides as follows: “In all cases other than those mentioned in numbers 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.” 87 TRANSPORTATION LAWS Applying the above-quoted Articles 1734 and 1735, [W]e note firstly that the specific cause alleged in the instant cases — the hijacking of the carrier’s truck — does not fall within any of the five categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier’s vehicle must be dealt with under the provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part of private respondent. Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner’s goods. Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with the truck and to engage brigands in a firefight at the risk of his own life and the lives of the driver and his helper. The precise issue that the Court addresses here relates to the specific requirements of the duty of extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery. As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5[,] and 6, Article 1745 provides in relevant part: “Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy: XXX XXX XXX 5. That the common carrier shall not be responsible for the acts or omissions of his or its employees; 6. That the common carrier’s liability for acts committed by thieves, or of robbers who do not act with grave or 88 CHAPTER II VIGILANCE OVER THE GOODS irresistible threat, violence or force, is dispensed with or diminished; and 7. That the common carrier shall not be responsible for the loss, destruction or deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.,, Under Article 1745(6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted “with grave or irresistible threat, violence or force.” [The Court] believe and so held that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a robbery which is attended by “grave or irresistible threat, violence or force.” In the instant case, armed men held up the second truck owned by private respondent, which carried petitioner’s cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled, “People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe. ” There, the accused were charged with willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner’s store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with grave, if not irresistible, threat, violence or force. Three of the five holduppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in band. In these circumstances, [the Court] hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is 89 TRANSPORTATION LAWS necessary to recall that even common carriers are not made absolute insurers against all risk of travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary diligence. Grave and irresistible force must be proved in cases of hijacking. Estrellita M. Bascos v. Court of Appeals and Rodolfo A. Cipriano G.R. No. 101089, April 7,1993 FACTS: Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling contract with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter’s 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal worth PI56,404 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance with the contract, which stated that: “1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-delivery or damages to the cargo during transport at market value, x x x” CIPTRADE demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment for breach of a contract of carriage. The trial court granted the writ of preliminary attachment on February 17, 1987. In her answer, petitioner interposed the following defenses: that there was no contract of carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE was liable to petitioner in the amount of PI 1,000 for loading the 90 CHAPTER II VIGILANCE OVER THE GOODS cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that the petitioner and the police exerted all efforts to locate the hijacked properties; that after preliminary investigation, an information for robbery and camapping were filed against Jose Opriano, et al., and that hijacking, being a force majeure, exculpated petitioner from any liability to CIPTRADE. After trial, the trial court rendered decision against the petitioner. ISSUE: Whether or not the hijacking in this case is a force majeure. HELD: Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the presumption of negligence does not attach and these instances are enumerated in Article 1734. In those cases where the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption. In this case, petitioner alleged that hijacking constituted force majeure, which exculpated her from liability for the loss of the cargo. In De Guzman v. Court of Appeals, the Court held that hijacking, not being included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code, which provides: “Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy: XXX XXX XXX (6) That the common carrier’s liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished.” 91 TRANSPORTATION LAWS To establish grave and irresistible force, petitioner presented her accusatory affidavit, Jesus Bascos’ affidavit, and Juanito Morden’s “Salaysay. ” However, both the trial court and the Court of Appeals have concluded that these affidavits were not enough to overcome the presumption. Petitioner’s affidavit about the hijacking was based on what had been told her by Juanito Morden. It was not a first-hand account. While it had been admitted in court for lack of objection on the part of private respondent, the respondent Court had discretion in assigning weight to such evidence. We are bound by the conclusion of the appellate court. In a petition for review on certiorari, [W]e are not to determine the probative value of evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in court, he himself was a witness as could be gleaned from the contents of the petition. Affidavits are not considered the best evidence if the affiants are available as witnesses. The subsequent filing of the information for camapping and robbery against the accused named in said affidavits did not necessarily mean that the contents of the affidavits were true because they were yet to be determined in the trial of the criminal cases. The presumption of negligence was raised against petitioner. It was petitioner’s burden to overcome it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption conclusive against her. A carrier is liable to its passengers for damages caused by mechanical defects of the conveyance. Prescillano Necesito, etc. v. Natividad Paras G.R. No. L-10605, June 30,1958 FACTS: In the morning of January 28, 1954, Severina Garces and her one-year old son, Prescillano Necesito, carrying vegetables, boarded passenger auto truck or Bus No. 199 of the Philippine Rabbit Bus Lines at Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its regular run from Agno to 92 CHAPTER II VIGILANCE OVER THE GOODS Manila. After passing Mangatarem, Pangasinan, truck No. 199 entered a wooden bridge, but the front wheels swerved to the right; the driver lost control, and after wrecking the bridge’s wooden rails, the truck fell on its right side into a creek where water was breast deep. The mother, Severina Garces, was drowned; the son, Prescillano Necesito, was injured, suffering abrasions and fracture of the left femur. He was brought to the Provincial Hospital at Dagupan, where the fracture was set but with fragments one centimeter out of line. The money, wristwatch and cargo of vegetables were lost. After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad condition of the road; that the accident was caused by the fracture of the right steering knuckle, which was defective in that its center or core was not compact but known or ascertained by the carrier despite the fact that regular 30-day inspections were made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to 10 years; that the knuckle of Bus No. 199 that broke on January 28, 1954, was last inspected on January 5, 1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the accident was exclusively due to fortuitous event, dismissed both actions. Plaintiffs appealed directly to this Court in view of the amount in controversy. ISSUE: Whether the carrier is liable for the manufacturing defect of the steering knuckle, and whether the evidence discloses that in regard thereto, the carrier exercised the diligence required by law. (Art. 1755, New Civil Code) HELD: “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.” It is clear that the carrier is not an insurer of the passenger’s safety. His liability rests upon negligence, his failure to exercise the “utmost” degree of diligence that the law requires, and by Art. 1756, in case of a passenger’s death or injury the carrier bears the burden of satisfying the court that he has duly discharged the duty of prudence 93 TRANSPORTATION LAWS required. In American law, where the carrier is held to the same degree of diligence as under the new Civil Code, the rule on the liability of carriers for defects of equipment is thus expressed: “The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability.” (10 Am. Jur. 205, s. 1324; See also Pennsylvania R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R. Co. v. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed. Note, 29 ALR 788; Ann. Cas. 1916 E 929; The rationale of the carrier’s liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. In the case now before us, the record is to the effect that the only test applied to the steering knuckle in question was a purely visual inspection every 30 days, to see if any cracks developed. It nowhere appears that either the manufacturer or the carrier at any time tested the steering knuckle to ascertain whether its strength was up to standard, or that it had no hidden flaws that would impair that strength. And yet the carrier must have been aware of the critical importance of the knuckle’s resistance; that its failure or breakage would result in loss of balance and steering control of the bus, with disastrous effects upon the passengers. No argument is required to establish that a visual inspection could not directly determine whether the resistance of this critically important part was not impaired. Nor has it been shown that 94 CHAPTER II VIGILANCE OVER THE GOODS the weakening of the knuckle was impossible to detect by any known test; on the contrary, there is testimony that it could be detected. We are satisfied that the periodical visual inspection of the steering knuckle as practiced by the carrier’s agents did not measure up to the required legal standard of “utmost diligence of very cautious persons” — “as far as human care and foresight can provide,” and therefore that the knuckle’s failure can not be considered a fortuitous event that exempts the carrier from responsibility. (Lasam v. Smith, 45 Phil. 657\ Son v. Cebu Autobus Co., 94 Phil. 892) The public must, of necessity, rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become rapid, more complicated, and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its roadworthiness, seaworthiness or airworthiness as the case maybe. Vector Shipping Corporation and Francisco Soriano v. Adelfo B. Macasa, et al. G.R. No. 160219, July 21,2008 FACTS: On December 19, 1987, spouses Comelio (Comelio) and Anacleta Macasa (Anacleta), together with their eight-year old grandson, Ritchie Macasa (Ritchie) boarded the M/V Dona Paz, owned and operated by respondent Sulpicio Lines, Inc. (Sulpicio Lines) at Tacloban, Leyte bound for Manila. On the fateful evening of December 20, 1987, M/V Dona Paz collided with the MT Vector, an oil tanker, owned and operated by petitioners Vector Shipping Corporation (Vector Shipping) and Francisco Soriano (Soriano), which at the time was loaded with 860,000 gallons of gasoline and other petroleum products, in the vicinity of Dumali Point, Tablas Strait, between Marinduque and Oriental Mindoro. Only 26 persons survived: 24 passengers of M/V Dona Paz and two crewmembers of MT Vector. Both vessels were never retrieved. Worse, only a few victims’ bodies, who either drowned 95 TRANSPORTATION LAWS or were burned alive, were recovered. Comelio, Anacleta, and Ritchie were among the victims whose bodies have yet to be recovered up to this day. Respondents Adelfo, Emilia, Timoteo, and Comelio, Jr., all sumamed Macasa, are children of Comelio and Anacleta. On the other hand, Timoteo and his wife, respondent Rosario Macasa, are the parents of Ritchie (the Macasas). On October 2, 1991, the Macasas filed a Complaint for Damages arising out of breach of contract of carriage against the Sulpicio Lines before the Regional Trial Court (RTC). The complaint imputed negligence to Sulpicio Lines because it was remiss in its obligations as a common carrier. Sulpicio Lines traversed the complaint, alleging among others, that (1) M/V Dona Paz was seaworthy in all aspects; (2) it exercised extraordinary diligence in transporting their passengers and goods; (3) it acted in good faith as it gave immediate assistance to the survivors and kin of the victims; (4) the sinking of M/V Dona Paz was without contributory negligence on its part; and (5) the collision was MT Vector’s fault since it was allowed to sail with an expired coastwise license, expired certificate of inspection, and it was manned by unqualified and incompetent crew members per findings of the Board of Marine Inquiry (BMI) in BMI Case No. 653-87, which had exonerated Sulpicio Lines from liability. Thus, Sulpicio Lines filed a Third-Party Complaint against Vector Shipping. Soriano and Caltex Philippines, Inc. (Caltex), the charterer of MT Vector. In its decision, dated May 5, 1995, the RTC awarded P200,000 as civil indemnity for the death of Comelio, Anacleta, and Ritchie; PI00,000 as actual damages; P500,000 as moral damages; PI00,000 as exemplary damages; and P50,000 as attorney’s fees. The case was disposed of in this wise. Accordingly, as a result of this decision, on plaintiffs’ complaint against the third-party (sic) defendant Sulpicio Lines, Inc., third-party defendant Caltex Philippines, Inc. and third-party defendant MT Vector Shipping Corporation and/or Francisco Soriano, are liable against defendant third-party plaintiff Sulpicio Lines, for reimbursement, subrogation, and indemnity on all amounts; defendant Sulpicio Lines was ordered liable against plaintiffs, by way of actual, moral, 96 CHAPTER II VIGILANCE OVER THE GOODS exemplary damages, and attorney’s fee; MT Vector Shipping Lines and/ or Francisco Soriano, third-party defendants, are ordered jointly and severally, liable to pay third-party plaintiff Sulpicio Lines, by way of reimbursement, subrogation, and indemnity, of all the above amounts, ordered against defendant Sulpicio Lines, Inc., to pay in favor plaintiffs, with interest and cost of suit. Aggrieved, Sulpicio Lines, Caltex, Vector Shipping and Soriano appealed to the Court of Appeals (CA), which modified the decision of the Regional Trial Court. In the assailed decision, dated September 24, 2003, the CA held that the third-party defendant-appellant Caltex Philippines is exonerated from liability. The PI00,000 actual damages is deleted, while the indemnity for (sic) is reduced to PI50,000. All other aspects of the appealed judgment are perforce affirmed. ISSUE: Whether or not defendant Vector Shipping, a common carrier, was seaworthy at the time of the mishap. HELD: In Caltex Philippines, Inc. v. Sulpicio Lines, Inc., the Court held that MT Vector fits the definition of a common carrier under Article 1732 of the New Civil Code. The Court ruling in that case is instructive. Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyaged and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public, must of necessity, rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modem development of science and invention, transportation has become more rapid, more complicated, and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the 97 TRANSPORTATION LAWS ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness. All evidence points to the fact that it was MT Vector’s negligent officers and crew, which caused it to ram into M/V Dona Paz. Moreso, MT Vector was found to be carrying expired coastwise license and permits, and was not properly manned. As the records would also disclose, there is a defect in the ignition system of the vessel, and it was not convincingly shown whether the necessitated repairs were in fact undertaken before the said ship had set to sea. In short, MT Vector was unseaworthy at the time of the mishap, that the said vessel was allowed to set sail when it was, to everyone in the group’s knowledge, not fit to do so, translates into rashness and imprudence. Note: Ultimately, the position taken by this Court is that a common carrier’s contract is not to be regarded as a game of chance wherein the passenger stakes his limb and life against the carrier’s property and profits. ART. 1746. An agreement limiting the common carrier’s liability may be annulled by the shipper or owner if the common carrier refused to carry the goods unless the former agree to such stipulation. The contract here limiting the liability of the common carrier is merely voidable and not void in view of the intimidation or undue influence exerted by the common carrier or his agents. (See Art. 1390[2], NCC) ART. 1747. If the common carrier, without just cause, delays the transportation of the goods or changes the stipulated or usual route, the contract limiting the common carrier’s liability cannot be availed of in case of the loss, destruction, or deterioration of the goods. Considering that ordinary delay on the part of the common carrier will not exempt the common carrier from liability for loss, destruction or deterioration of the goods even if due to fortuitous events, in the same manner and with more reason that unjust delays and changing 98 CHAPTER II VIGILANCE OVER THE GOODS the stipulated routes will not likewise exempt the common carrier from availing the contract limiting his liability for loss, destruction, or deterioration. “The oft-repeated rule regarding a carrier’s liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver property within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge, and the party is disabled from performing it without any default in himself, and has no remedy over, then the law will excuse him, but where the party by his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts.” (Saludo, Jr v. Court of Appeals, 207 SCRA 498 [1992]) ART. 1748. An agreement limiting the common carrier’s liability for delay on account of strikes or riots is valid. The above article does not distinguish whether the strike is legal or illegal. However, it is assumed that it applies to both kinds of strikes since there is no universal acceptance that riots are legal. ART. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. 99 TRANSPORTATION LAWS A stipulation in the bill of lading limiting to a certain sum the common carrier’s liability for loss or destruction of a cargo — unless the shipper or owner declares a greater value — is sanctioned by law. There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the circumstances; and (2) it has been fairly and ffeely agreed upon by the parties. The rationale for this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods. It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce and special laws. Thus, the Carriage of Goods By Sea Act, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of lading. The provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by agreement of the parties. (Belgian Overseas Chartering and Shipping N. V. v. Philippine First Insurance Company, Inc,, 383 SCRA 23, June 5, 2002) The right of the carrier to limit its liability has been recognized not only in our jurisdiction but also in American jurisprudence: “A stipulation in a contract of carriage that the carrier will not be liable beyond a specified amount unless the shipper declares the goods to have a greater value is generally deemed to be valid and will operate to limit the carrier’s liability, even if the loss or damage results from the carrier’s negligence. Pursuant to such provision, where the shipper is silent as to the value of his goods, the carrier’s liability for loss or damage thereto is limited to the amount specified in the contract of carriage and where the shipper states the value of his goods; the carrier’s liability for loss or damage thereto is limited to that amount. Under a stipulation such as this, it is the duty of the shipper to disclose, rather than the carrier’s to demand the true value of the goods and silence on the part of the shipper will be sufficient to limit recovery in case 100 CHAPTER II VIGILANCE OVER THE GOODS of loss to the amount stated in the contract of carriage.” (14 Am. Jur. 2d p. 88) A stipulation in the Bill of Lading limiting the common carrier’s liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law. Everett Steamship Corp. v. CA and Hernandez Trading Co., Inc. G.R. No. 122494, October 8,1998 FACTS: Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/ No. 14, from its supplier Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in Inazaw, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board “ADELFA EVERETT,” a vessel owned by petitioner’s principal, Everett Orient Lines. The said crates were covered by Bill of Lading No. NG053MN. Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to ¥1,552,500, the amount shown in Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only ¥100,000, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner. ; Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126. On July 16, 1993, the trial court rendered judgment in favor of private respondent, ordering petitioner to pay: (a) ¥1,552,500; (b) ¥20,000 or its peso equivalent representing the actual value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and as contingent attorney’s fees; and (d) to pay the cost of the suit. 101 TRANSPORTATION LAWS On appeal, the Court of Appeals deleted the award of attorney’s fees but affirmed the trial court’s findings with the additional observation that private respondent can not be bound by the terms and conditions of the bill of lading because it was not privy to the contract of carriage. ISSUE: Whether or not the carrier’s limited package liability as stipulated in the bill of lading does not apply in this case. HELD: A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which provides: “ART. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly agreed upon.” Such limited liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-Land Services, Inc. v. Intermediate Appellate Court, [W]e ruled: “It seems clear that even if said Section 4(5), of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Article 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justness and fairness of the law itself, and this private respondent does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option 102 CM AH HR II VIGll.ANCH OVF.R TlUi GOODS of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading.” Pursuant to the aforequoted provisions of law, it is required that the stipulation limiting the common earner’s liability for loss must be “reasonable and just under the circumstances, and has been freely and fairly agreed upon.” The bill of lading subject of the present controversy specifically provides, among others: “18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper’s net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any consequential loss. “The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency (¥100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.” The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to One Hundred Thousand Yen (¥100,000.00). However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. The trial court’s ratiocination that private respondent could not have “fairly and freely” agreed to the limited liability clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading invalid. 103 TRANSPORTATION LAWS We Riled in PAL, Inc. v. Court of Appeals that the “jurisprudence on the matter reveals the consistent holding of the court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect thereof.” Also, in Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., this Court, speaking through the learned Justice Florenz D. Regalado, held: “x x x Ong Yiu v. Court of Appeals, et al., instructs us that contracts of adhesion wherein one party imposes a ready — made form of contract on the other x x x are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres he gives his consent. ‘In the present case, not even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as the case may be.’” (See also Edgar Cokaliong Shipping Lines v. UCPB General Insurance Company, Inc., 404 SCRA 706, June 25, 2003) Summa Insurance Corporation v. Court of Appeals and Metro Port Service, Inc. G.R. No. 84680, February 5,1996 FACTS: On November 22, 1981, the S/S “Galleon Sapphire,” a vessel owned by the National Galleon Shipping Corporation (NGSC), arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as “notify party.” The shipment, including a bundle of PC8U blades, was covered by marine insurance under Certificate No. 82/012- FEZ issued by petitioner and Bill of Lading No. SF/MLA 1014. The shipment was discharged from the vessel to the custody of private respondent, formerly known as E. Razon, Inc., the exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship’s checker and a representative of private respondent. 104 i CHAPTER II VIGILANCE OVER THE GOODS On February 24, 1982, the forwarder, Sterling International Brokerage Corporation withdrew the shipment from the pier and loaded it on the barge “Semirara 8104.” The barge arrived at its port of destination, Semirara Island, on March 9, 1982. When Semirara inspected the shipment at its warehouse, it discovered that the bundle of PC8U blades was missing. On March 15, 1982, private respondent issued a short landed certificate stating that the bundle of PC8U blades was already missing when it received the shipment from the NGSC vessel. Semirara then filed with petitioner, private respondent and NGSC its claim for P280,969.68, the alleged value of the lost bundle. On September 29, 1982, petitioner paid Semirara the invoice value of the lost shipment. Semirara thereafter executed a release of claim and subrogation receipt. Consequently, petitioner filed its claims with NGSC and private respondent but it was unsuccessful. Petitioner then filed a complaint (Civil Case No. 82-13988) with the Regional Trial Court, Branch XXIV, Manila, against NGSC and private respondent for collection of a sum of money, damages and attorney’s fees. On August 2, 1984, the trial court rendered a decision absolving NGSC from any liability but finding private respondent liable to petitioner. Ordering the defendant Metro Port Service, Inc., to pay the plaintiff Summa Insurance Corp., the sum of P280,969.68 and attorney’s fees ofP20,000. In resolving the issue as to who had custody of the shipment when it was lost, the trial court relied more on the good-order cargo receipts issued by NGSC than on the short-landed certificate issued by private respondent. The trial court held: “As between the aforementioned two documentary exhibits, the Court is more inclined to give credence to the cargo receipts. Said cargo receipts were signed by a checker of defendant NGSC and a representative of Metro Port. It is safe to presume that the cargo receipts accurately describe the quantity and condition of the shipment when it was discharged from the vessel. Metro 105 TRANSPORTATION LAWS Port's representative would not have signed the cargo receipts if only four (4) packages were discharged from the vessel and given to the possession and custody of the arrastre operator. Having been signed by its representative, the Metro Port is bound by the contents of the cargo receipts. On the other hand, the Metro Port’s shortlanded certificate could not be given much weight considering that, as correctly argued by counsel for defendant NGSC, it was issued by Metro Port alone and was not countersigned by the representatives of the shipping company and the consignee. Besides, the certificate was prepared by Atty. Servillano V. Dolina, Second Deputy General Manager of Metro Port, and there is no proof on record that he was present at the time the subject shipment was unloaded from the vessel and received by the arrastre operator. Moreover, the shortlanded certificate bears the date of March 15, 1982, more than three months after the discharge of the cargo from the carrying vessel.” On appeal, the Court of Appeals modified the decision of the trial court and reduced private respondent’s liability to P3,500 and attorney’s fees of P6,000. ISSUES: (1) Whether or not the private respondent is legally liable for the loss of the shipment in question. (2) If so, what is the extent of its liability? HELD: Petitioner was subrogated to the rights of the consignee. The relationship therefore between the consignee and the arrastre operator must be examined. This relationship is much akin to that existing between the consignee or owner of shipped goods and the common carrier, or that between a depositor and a warehouseman. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession. 106 CHAPTER II VIGILANCE OVER THE GOODS In this case, it has been established that the shipment was lost while in the custody of private respondent. We find private respondent liable for the loss. This is an issue of fact determined by the trial court and respondent Court, which is not reviewable in a petition under Rule 45 of the Rules of Court. In the performance of its job, an arrastre operator is bound by the management contract it had executed with the Bureau of Customs. However, a management contract, which is a sort of a stipulation pour autrui within the meaning of Article 1311 of the Code, is also binding on a consignee because it is incorporated in the gate pass and delivery receipt, which must be presented by the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the consignee, is likewise bound by the management contract. Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in- interest) tacitly accepts the provisions of the management contract, including those, which are intended to limit the liability of one of the contracting parties, the arrastre operator. However, a consignee who does not avail of the services of the arrastre operator is not bound by the management contract. Such an exception to the rule does not obtain here as the consignee did in fact accept delivery of the cargo from the arrastre operator. ART. 1751. The fact that the common carrier has no competitor along the line or route or a part thereof, to which the contract refers shall be taken into a consideration on the question of whether or not a stipulation limiting the common carrier’s liability is reasonable, just and in consonance with public policy. The above provision is logical inasmuch as lack of competition may lead to undue influence. ART. 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of their loss, destruction or deterioration. 107 TRANSPORTATION LAWS The presumption of negligence against the common carrier is not relaxed even if there is an agreement between the shipper and the common carrier limiting the common carrier’s liability in the vigilance over the goods. In other words, the stipulation of the parties limiting the common carrier’s liability in vigilance over the goods is not an exception enunciated in Article 1735. ART. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration. There is no question that even if the goods never reach its destination, the law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration but not if the goods were never transported. Law of the place of destination governs liability in case of loss, destruction or deterioration of the goods transported. Eastern Shipping Lines, Inc. v. Intermediate Appellate Court and Development Insurance and Surety Corp. G.R. No. L-69044, May 29,1987 FACTS: Sometime in or prior to June 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039 consigned to Philippine Blooming Mills Co., Inc., and seven cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation. En route from Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto the rights of the latter as the insured. 108 CHAl’TliR II mi GOODS VKIIUANCU OVI:R On May 11, 1978, respondent Development Insurance and Surety Corporation (Development Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit against Petitioner Carrier for the recovery of the amounts it had paid to the insured before the then Court of First Instance of Manila, Branch XXX (Civil Case No. 116087) Petitioner Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event; hence, it is not liable under the law. On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039 and P92,361.75, respectively, with legal interest, plus P35,000 as attorney’s fees and costs. Petitioner carrier took an appeal to the then Court of Appeals that, on August 14, 1984, affirmed the decision of the lower Court. ISSUE: Which law should govern, the Civil Code provisions on common carrier or the Carriage of Goods by Sea Act? HELD: The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration. As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. However, in all matters not regulated by said code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. QUESTION: En route to Manila the vessel Dona Nati figured in a collision at Ise, Japan, with a Japanese vessel SS Yasushima Maru as a result of which goods were lost or damaged. The collision was found to have been caused by the negligence or fault of both captains of the colliding vessels. Which laws now govern the loss or destruction of goods due to collision of vessels outside Philippine waters? ANSWER: Article 1753 of the Civil Code will apply, and it is immaterial that the collision actually occurred in foreign waters, such as lse Bay, Japan. 109 TRANSPORTATION LAWS ART. 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger’s baggage, which is not in his personal custody or in that of his employees. As to other baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable. Articles 1998, 2000, to 2003 of the New Civil Code provides as follows: ART. 1998. The deposit effects made by travelers in hotels and inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositories, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. ART. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as by strangers; but not that which may proceed from any force majeure. The fact that travelers are constrained to rely on the vigilance of the keeper of the hotel or inn shall be considered in determining the degree of care required of him. ART. 2001. The act of a thief or robber, who has entered the hotel, is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. ART. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants, or visitors, or if the loss arises from the character of the things brought into the hotel. ART. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotelkeeper and the guest whereby the responsibility of the former 110 J CHAPTER H VIGILANCE OVER THE GOODS as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. QUESTION: Is notification required before the common carrier becomes liable for lost belongings that remained in the custody of the passenger? The petitioner contends that its liability for the loss of Sesante’s personal belongings should conform with Article 1754, in relation to Articles 1998, 2000 to 2003 of the Civil Code. ANSWER: No. The rule that the common carrier is always responsible for the passenger’s baggage during the voyage needs to be emphasized. Article 1754 of the Civil Code does not exempt the common carrier from liability in case of loss, but only highlights the degree of care required of it depending on who has the custody of the belongings. Hence, the law requires the common carrier to observe the same diligence as the hotelkeepers in case the baggage remains with the passenger; otherwise, extraordinary diligence must be exercised. Furthermore, the liability of the common carrier attaches even if the loss or damage to the belongings resulted from the acts of the carrier’s employees, the only exception being where such loss or damages is due to force majeure. In YHT Realty Corporation v. Court of Appeals, the Court declared that actual delivery of the goods to the innkeepers or their employees as unnecessary before liability could attach to the hotelkeepers in the event of loss of personal belongings of their guests considering that the personal effects were inside the hotel or inn because the hotelkeeper shall remain accountable. Accordingly, actual notification was not necessary to render the petitioner as the common carrier liable for the lost personal belongings of Sesante. By allowing him to board the vessel with his belongings without any protest, the petitioner became sufficiently notified of such belongings. So long as the belongings were brought inside the premises of the vessel, the petitioner was thereby effectively notified and consequently duty-bound to observe the required diligence in ensuring the safety of the belongings during the voyage. Applying Article 2000 of the Civil Code, the petitioner assumed the liability for 111 TRANSPORTATION LAWS loss of the belongings caused by the negligence of its officers or crew. In view of the finding of the Court that the negligence of the officer and crew of the petitioner was the immediate and proximate cause of the sinking of the M/V Princess of the Orient, its liability for Sesante’s lost personal belongings was beyond question. (Sulpicio Lines v. Napoleon Sesante, G.R. No. 172682, July 27, 2016) 112 i CHAPTER III SAFETY OF PASSENGERS ARTICLES 1755 to 1763 ARTICLE 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. The hazards of modem transportation demand extraordinary diligence. A common carrier is vested with public interest. Under the New Civil Code, instead of being required to exercise mere ordinary diligence, a common carrier is exhorted to carry the passengers safely as far as human care and foresight can provide “using the utmost diligence of very cautious persons.” (Art. 1755) Once a passenger in the course of travel is injured, or does not reach his destination safely, the carrier and driver are presumed to be at fault. (Bacarro v. Castano, 118 SCRA 187) When the bus is not in motion, there is no necessity for a person who wants to ride the same to signal his intention to board. A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the duty of the driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a passenger while he was attempting to board the same. The premature acceleration of the bus in this case was a breach of such duty. It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus, to stop their conveyances within a reasonable length of time in order to afford passengers an opportunity to board and enter, and they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their conveyances while they are doing so. 113 TRANSPORTATION LAWS It is not negligence per se, or as a matter of law, for one to attempt to board a train or streetcar, which is moving slowly. An ordinarily prudent person would have made the attempt to board the moving conveyance under the same or similar circumstances. The fact that passengers board and alight from a slowly moving vehicle is a matter of common experience and both the driver and conductor in this case could not have been unaware of such an ordinary practice. The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled to all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty which the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom (Dangwa Transportation Co., Inc. v. Court of Appeals, 202 SCRA 574): “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 reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the station platform is considered still a passenger. So also, where a passenger has alighted at his destination and is proceeding by the usual way to leave the company’s 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 continued to be a passenger entitled as such to the protection of the railroad company and its agents. (La Mallorca v. Court of Appeals, et al., 17 SCRA 739; See also Light Rail Transit Authority v. Natividad, 397 SCRA, February 6, 2003) Railroad companies owe to the public a duty of exercising a reasonable degree of care to avoid injury to persons and property at CHAPTER III SAFETY OF PASSENGERS railroads crossings, which duties pertain both to the operation of trains and to the maintenance of the crossings. Moreover, every corporation constructing or operating a railway shall make and construct at all points where such railway crosses any public road, good, sufficient and safe crossings, and erect at such points, at sufficient elevation from such road as to admit a free passage of vehicles of every kind, a sign with large and distinct letters placed thereon, to give notice of the proximity of the railway, and warn persons of the necessity of looking out for trains. The failure of the PNR to put a cross bar, or signal light, flagman or switchman, or semaphore is evidence of negligence and disregard of the safety of the public, even if there is no law or ordinance requiring it because public safety of the public demands that said device or equipment be installed. (PNR v. Court of Appeals, G.R. No. 157658, October 15, 2007) Carrier-passenger relationship continues until the passenger has been landed at the port of destination and has left the vessel-owner’s premises. Aboitiz Shipping Corporation v. Hon. Court of Appeals, Lucila Viana, Sps. Antonio and Gorgonia Viana, and Pioneer Stevedoring Corporation G.R. No. 84458, November 6,1989 FACTS: The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by defendant, at the port of San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket (No. 117392) in the sum of P23.10. On May 12,1975, said vessel arrived at Pier 4, North Harbor, Manila, and the passengers therein disembarked, a gangplank having been provided connecting the side of the vessel to the pier. Instead of using said gangplank, Anacleto Viana disembarked on the third deck, which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of Agreement dated July 26, 1975 between the third party defendant Pioneer Stevedoring Corporation and defendant Aboitiz Shipping Corporation. 115 TRANSPORTATION LAWS The crane owned by the third-party defendant and operated by its crane operator Alejo Figueroa was placed alongside the vessel and one (1) hour after the passengers of said vessel had disembarked, it started operation by unloading the cargoes from said vessel. While the crane was being operated, Anacleto Viana, who had already disembarked from said vessel obviously remembering that some of his cargoes were still loaded in the vessel, went back to the vessel, and it was while he was pointing to the crew of the said vessel to the place where his cargoes were loaded that the crane hit him, pinning him between the side of the vessel and the crane. He was thereafter brought to the hospital where he later expired three days thereafter, on May 15, 1975. ISSUE: Whether or not the victim’s presence in the vessel after one hour from his disembarkation was no longer reasonable and he consequently ceased to be a passenger. HELD: The rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of destination and has left the vessel owner’s dock or premises. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier’s conveyance or had a reasonable opportunity to leave the carrier’s premises. All persons who remain on the premises for a reasonable time after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and includes a reasonable time to look after his baggage and prepare for his departure. The carrier-passenger relationship is not terminated merely by the fact that the person transported has been carried to his destination if, for example, such person remains in the carrier’s premises to claim his baggage. It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was enunciated, to wit: “In the present case, the father returned to the bus to get one of his baggage which was not unloaded when they alighted from the bus. Racquel, the child that she was, must have followed the father. However, although the father was still on the running 116 i CHAPTER III SAFETY OF PASSENGERS board of the bus waiting 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 cautious 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, x x x 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.” The presence of passengers at the carriers’ premises is reasonable. It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact of the passenger’s reasonable presence within the carrier’s premises. That reasonableness of time should be made to depend on the attending circumstances of the case, such as the kind of common carrier, the nature of its business, the customs of the place, and so forth, and therefore precludes a consideration of the time element per se without taking into account such other factors. It is thus of no moment whether in the cited case of La Mallorca there was no appreciable interregnum for the passenger therein to leave the carrier’s premises whereas in the case at bar, an interval of one hour had elapsed before the victim met the accident. The primary factor to be considered is the existence of a reasonable cause as will justify the presence of the victim on or near the petitioner’s vessel. It is submitted that there exists such a justifiable cause. It is of common knowledge that, by the very nature of petitioner’s business as a shipper, the passengers of vessels are allotted a longer period of time to disembark from the ship than other common carriers such as a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load, such vessels are capable of accommodating a bigger volume of both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will need at least an hour, as is the usual practice, to disembark from the vessel and 117 TRANSPORTATION LAWS claim his baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time. Verily, petitioner cannot categorically claim, through the bare expedient of comparing the period of time entailed in getting the passenger’s cargoes, that the ruling in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the doctrine enunciated therein to the instant petition, [W]e cannot in reason doubt that the victim, Anacleto Viana, was still a passenger at the time of the incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he had every right to do, from petitioner’s vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely to their destination but also to afford them a reasonable time to claim their baggage. It is not definitely shown that one hour prior to the incident, the victim had already disembarked from the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as to the minimum time of one hour allowed for the passengers to disembark, it may be presumed that the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioner’s premises was not without cause. The victim had to claim his baggage, which was possibly only one hour after the vessel, arrived since it was admittedly a standard procedure in the case of petitioner’s vessels that the unloading operations shall start only after that time. Consequently, under the foregoing circumstances, the victim, Anacleto Viana, is still deemed a passenger of said carrier at the time of his tragic death. Common carriers required to exercise extraordinary diligence in contract of carriage of passengers; Reasons. Rosito Z. Bacarro, William Sevilla, and Felario Montefalcon v. Geruridio B. Castano and The Court of Appeals G.R. No. L-34597, November 5,1982 FACTS: From appellee’s version just set out, it appears that after he boarded the jeep in question at Oroquieta, it was driven by 118 CHAPTER III SAFETY OF PASSENGERS defendant Montefalcon at around forty (40) kilometers per hour bound for Jimenez; that while approaching Sumasap Bridge at the said speed, a cargo truck coming from behind blew its horn to signal its intention to overtake the jeep; that the latter, without changing its speed, gave way by swerving to the right, such that both vehicles ran side by side for a distance of around twenty (20) meters, and that thereafter as the jeep was left behind, its driver was unable to return it to its former lane and instead it obliquely or diagonally ran down an inclined terrain towards the right until it fell into a ditch pinning down and crushing appellee’s right leg in the process. Throwing the blame for this accident on the driver of the cargo truck, appellants, in turn, state the facts to be as follows: ‘In the afternoon of April 1, 1960, plaintiff Gerundio Castano boarded the said jeepney at Oroquieta bound for Jimenez, Misamis Occidental. While said jeepney was negotiating the upgrade approach of the Sumasap Bridge at Jimenez, Misamis Occidental and at a distance of about 44 meters therefrom, a cargo truck, owned and operated by a certain Te Tiong alias Chinggim, then driven by Nicostrato Digal, a person not duly licensed to drive motor vehicles, overtook the jeepney so closely that in the process of overtaking sideswiped the jeepney, hitting the reserve tire placed at the left side of the jeepney with the hinge or bolt of the siding of the cargo truck, causing the jeepney to swerve from its course and after running 14 meters from the road, it finally fell into the canal. The right side of the jeep fell on the right leg of the plaintiff-appellee, crushing said leg against the ditch resulting in the injury to plaintiff-appellee consisting of a broken right thigh.’ And take the following stand: ‘The main defense of defendantsappellants is anchored on the fact that the jeepney was sideswiped by the overtaking cargo truck.’ “It must be admitted, out of candor, that there is evidence of the sideswiping relied upon by appellants, x x x” This appeal by certiorari to review the decision of respondent Court of Appeals asserts that the latter decided questions of substance 119 TRANSPORTATION LAWS which are contrary to law and the approved decisions of this Court. Petitioners alleged that respondent Court of Appeals erred: (1) in finding contributory negligence on the part of jeepney driver appellant Montefalcon for having raced with the overtaking cargo truck to the bridge instead of slackening its speed, when the person solely responsible for the sideswiping is the unlicensed driver of the overtaking cargo truck; (2) in finding the jeepney driver not to have exercised extraordinary diligence, human care, foresight and utmost diligence of very cautious persons, when the diligence required pursuant to Article 1763 of the New Civil Code is only that of a good father of a family since the injuries were caused by the negligence of a stranger; and (3) in not considering that appellants were freed from any liability since the accident was due to fortuitous event — the sideswiping of the jeepney by the overtaking cargo truck. HELD: The Court is not persuaded. The fact is, petitioner-driver Montefalcon did not slacken his speed but instead continued to run the jeep at about 40 kilometers per hour even at the time the overtaking cargo truck was running side by side for about 20 meters and at which time he even shouted to the driver of the truck. Thus, had Montefalcon slackened the speed of the jeep at the time the truck was overtaking it, instead of running side by side with the cargo truck, there would have been no contact and accident. He should have foreseen that at the speed he was running, the vehicles were getting nearer the bridge and as the road was getting narrower the truck would be too close to the jeep and would eventually sideswiped it. Otherwise stated, he should have slackened his jeep when he swerved it to the right to give way to the truck because the two vehicles could not cross the bridge at the same time. The second assigned error is centered on the alleged failure on the part of the jeepney driver to exercise extraordinary diligence, human care, foresight and utmost diligence of a very cautious person, when the diligence required pursuant to Article 1763 of the Civil Code is only that of a good father of a family. Petitioners contend that the proximate cause of the accident was the negligence of the driver of the truck. However, the fact is, there was a contract of carriage between the 120 1 CHAPTER III SAFETY OF PASSENGERS private respondent and the herein petitioners in which case the Court of Appeals correctly applied Articles 1733, 1755, and 1766 of the Civil Code which required the exercise of extraordinary diligence on the part of petitioner Montefalcon. Article 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. Article 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. Article 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. Indeed, the hazards of modem transportation demand extraordinary diligence. A common carrier is vested with public interest. Under the new Civil Code, instead of being required to exercise mere ordinary diligence, a common carrier is exhorted to carry the passengers safely as far as human care and foresight can provide “using the utmost diligence of very cautious persons.” (Art. 1755) Once a passenger in the course of travel is injured, or does not reach his destination safely, the carrier and driver are presumed to be at fault. The third assigned error of the petitioners would find fault upon respondent court in not freeing petitioners from any liability, since the accident was due to a fortuitous event. But, we repeat that the alleged fortuitous event in this case — the sideswiping of the jeepney by the cargo truck, was something which could have been avoided considering the narrowness of the Sumasap Bridge which was not wide enough to admit two vehicles. As found by the Court of Appeals, Montefalcon contributed to the occurrence of the mishap. 121 TRANSPORTATION LAWS The failure of the common carrier to maintain in seaworthy condition its vessel involved in the contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. Trans-Asia Shipping Lines, Inc. v. Court of Appeals and Atty. Renato T. Arroyo G.R. No. 118126, March 4,1996 FACTS: Plaintiff, herein private respondent Atty. Renato Arroyo, public attorney, bought a ticket from defendant, herein petitioner, a corporation engaged in inter-island shipping, for the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991. At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand vessel. At that instance, plaintiff noticed that some repair works [sic] were being undertaken on the engine of the vessel. The vessel departed at around 11:00 in the evening with only one (1) engine running. After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor thereat. After half an hour of stillness, some passengers demanded that they should be allowed to return to Cebu City for they were no longer willing to continue their voyage to Cagayan de Oro City. The captain acceded [sic] to their request and thus the vessel headed back to Cebu City. At Cebu City, plaintiff together with the other passengers who requested to be brought back to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro City. Plaintiff, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of defendant. On account of this failure of defendant to transport him to the place of destination on November 12, 1991, plaintiff filed before the trial court a complaint for damages against defendant. ISSUE: Whether or not there was negligence on the part of the petitioner. 122 CHAPTER 111 SAFETY OF PASSENGERS HELD: Undoubtedly, there was. between the petitioner and the private respondent, a contract of common carriage. The laws of primary application then are the provisions on common carriers under Section 4, Chapter 3, Title VIII, Book IV of the Civil Code, while for all other matters not regulated thereby, the Code of Commerce and special laws. Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary diligence in ensuring the safety of the private respondent. That means that the petitioner was, pursuant to Article 1755 of the said Code, bound to carry the private respondent safely as far as human care and foresight could provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder head of one of the vessel’s engines. But even before it could finish these repairs, it allowed the vessel to leave the port of origin with only one functioning engine, instead of two. Moreover, even the lone functioning engine was not in perfect condition as sometime after it had run its course, it conked out. This caused the vessel to stop and remain adrift at sea, thus in order to prevent the ship from capsizing, it had to drop anchor. Plainly, the vessel was unseaworthy; it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. Nature of the Contract of Air Carriage A contract of air carriage is a peculiar one. Imbued with public interest, common carriers are required by law to carry passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard for all the circumstances. A contract to transport passengers is quite different in kind and degree from any other contractual relation. And this, because its business is mainly with the traveling public. It invites people to avail of the comforts and advantages it offers. The contract of carriage, therefore, generates a relation attended with a public duty. Failure of the 123 TRANSPORTATION LAWS carrier to observe this high degree of care and extraordinary diligence renders it liable for any damage that may be sustained by its passengers. (Singson v. Court of Appeals, 282 SCRA 149) Categories of International Transportation There are then two categories of international transportation, viz., (1) that where the place of departure and the place of destination are situated within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or a transshipment; and (2) that where the place of departure and the place of destination are within the territory of a single High Contracting Party if there is an agreed stopping place within a territory subject to the sovereignty, mandate, or authority of another power, even though the power is not a party to the convention. The High Contracting Parties referred to in the Convention are the signatories thereto and those which subsequently adhered to it. In the case of the Philippines, the Convention was concurred in by the Senate, through Resolution No. 19, on May 16,1950. The Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950 and was deposited with the Polish Government on November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951. Then, on September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring the Philippines’ formal adherence thereto, “to the end that the same and every article and clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof.” (Mapa v. Court of Appeals, 275 SCRA 286, G.R. No. 122308, July 8, 1998) QUESTION: Does the Philippine recognition of Warsaw Convention preclude the operation of the Civil Code and other pertinent laws in the determination of extent of liability of common carriers in cases of breach of contract of carriage, particularly for willful conduct of their employees? ANSWER: Although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine government, said convention does not operate as an 124 CHAPTER III SAFETY OF PASSENGERS exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. However, it must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, especially if willful misconduct on the part of the carrier’s employees is found or established. (Cathay Pacific Airways, Ltd. v. Court of Appeals and Tomas L. Alcantara, G.R. No. 60501, March 5, 1993) Round trip plane ticket was itself a complete written contract between the carrier and the passenger. Carlos Singson v. Court of Appeals and Cathay Pacific Airways, Inc. G.R. No. 119995, November 18,1997 FACTS: The instant case is an illustration of the exacting standard demanded by the law of common carriers. On May 24, 1988, Carlos Singson and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd. (CATHAY), at its Metro Manila ticket outlet two open-dated, identically routed, round trip plane tickets for the purpose of spending their vacation in the United States. Each ticket consisted of six flight coupons corresponding to this itinerary: flight coupon No. 1 — Manila to Hongkong; flight coupon No. 2 — Hongkong to San Francisco; flight coupon No. 3 — San Francisco to Los Angeles; flight coupon No. 4 — Los Angeles back to San Francisco; flight coupon No. 5 — San Francisco to Hongkong; and finally, flight coupon No. 6 — Hongkong to Manila. The procedure was that at the start of each leg of the trip a flight coupon corresponding to the particular sector of the travel would be removed from the ticket booklet so that at the end of the trip no more coupons would be left in the ticket booklet. On June 6,1988, CARLOS SINGSON and Crescentino Tiongson left Manila on board CATHAY’s flight No. 902. They arrived safely in Los Angeles and after staying there for about three weeks they decided 125 TRANSPORTATION LAWS to return to the Philippines. On June 30, 1988, they arranged for their return flight at CATHAY’s Los Angeles Office and chose July 1, 1988, a Friday, for their departure. While Tiongson easily got a booking for the flight, SINGSON was not as lucky. It was discovered that his ticket booklet did not have flight coupon No. 5 corresponding to the San Francisco-Hongkong leg of the trip. Instead, what was in his ticket was flight coupon No. 3 — San Francisco to Los Angeles — which was supposed to have been used and removed from the ticket booklet. It was not until July 6, 1988 that CATHAY was finally able to arrange for his return flight to Manila. On August 26, 1988, SINGSON commenced an action for damages against CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. He claimed that he insisted on CATHAY’s confirmation of his return flight reservation because of very important and urgent business engagements in the Philippines. But CATHAY allegedly shrugged off his protestations and arrogantly directed him to go to San Francisco himself and do some investigations on the matter or purchase a new ticket subject to refund if it turned out that the missing coupon was still unused or subsisting. He remonstrated that it was the airline’s agent/representative who must have committed the mistake of tearing off the wrong flight coupon; that he did not have enough money to buy new tickets; and, CATHAY could conclude the investigation in a matter of minutes because of its facilities. CATHAY, allegedly in scornful insolence, simply dismissed him like an impertinent “brown pest.” Thus, he and his cousin Tiongson, who deferred his own flight to accompany him, were forced to leave for San Francisco on the night of July 1, 1988 to verify the missing ticket. CATHAY denied these allegations and averred that since petitioner was holding an “open-dated” ticket, which meant that he was not booked on a specific flight on a particular date, there was no contract of carriage yet existing such that CATHAY’S refusal to immediately book him could not be construed as breach of contract of carriage. Moreover, the coupon had been missing for almost a month; hence, CATHAY must first verify its status, i.e., whether the ticket was still valid and outstanding, before it could issue a replacement ticket to petitioner. For that purpose, it set a request by telex on the same day, July 1, 1988, to its Hongkong 126 CHAPTER III SAFETY OF PASSENGERS Headquarters where such information could be retrieved. However, due to the time difference between Los Angeles and Hongkong, no response from the Hongkong office was immediately received. Besides, since July 2 and 3, 1988 were a Saturday and a Sunday, respectively, and July 4, 1988 was an official holiday being U.S. Independence Day, the telex response of CATHAY Hongkong was not read until 5 July 1988. Lastly, CATHAY denied having required SINGSON to make a trip back to San Francisco; on the other hand, it was the latter who informed CATHAY that he was making a side trip to San Francisco. Hence, CATHAY advised him that the response of Hongkong would be copied in San Francisco so that he could conveniently verify thereat should he wish to. The trial court rendered a decision in favor of petitioner herein holding that CATHAY was guilty of gross negligence amounting to malice and bad faith for which it was adjudged to pay petitioner P20,000 for actual damages with interest at the legal rate of 12% per annum from August 26, 1988 when the complaint was filed until fully paid, P500,000 for moral damages, P400,000 for exemplary damages, PI00,000 for attorney’s fees, and, to pay the costs. On appeal by CATHAY, the Court of Appeals reversed the trial court’s finding that there was gross negligence amounting to bad faith or fraud and, accordingly, modified its judgment by deleting the awards for moral and exemplary damages, and the attorney’s fees as well. ISSUE: Whether or not a breach of contract was committed by CATHAY when it failed to confirm the booking of petitioner for its July 1, 1988 flight. HELD: The Court finds merit in the petition. CATHAY undoubtedly committed a breach of contract when it refused to confirm petitioner’s flight reservation back to the Philippines on account of his missing flight coupon. Its contention that there was no contract of carriage that was breached because petitioner’s ticket was open-dated is untenable. To begin with, the round trip ticket issued by the carrier to the passenger was in itself a complete written contract by and between the carrier and the passenger. It had all the elements of a complete written contract, to wit: (a) the consent of the contracting parties manifested 127 TRANSPORTATION LA^'S by the fact that the passenger agreed to be transported by the carrier to and from Los Angeles via San Francisco and Hongkong back to Philippines, and the carrier's acceptance to bring him to his destination and then back home; (b) cause or consideration, which was the fare paid by the passenger as stated in his ticket: and (c) object, which was the transportation of the passenger from the place of departure to the place of destination and back, which are also stated in his ticket. In fact, the contract of carriage in the instant case was already partially executed as the carrier complied with its obligation to transport the passenger to his destination, i.e., Los Angeles. Only the performance of the other half of the contract — which was to transport the passenger back to the Philippines — was left to be done. Clearly, therefore, petitioner was not a mere “chance passenger with no superior right to be boarded on a specific flight,” as erroneously claimed by CATHAY and sustained by the appellate court. Interestingly, it appears that CATHAY was responsible for the loss of the ticket. One of the two things may be surmised from the circumstances of this case: first, US Air (CATHAY’ agent) had mistakenly detached the San Francisco-Hongkong flight coupon thinking that it was the San Francisco-Lost Angeles portion; or second, petitioner’s booklet of tickets did not from issuance include a San Francisco-Hongkong flight coupon. In either case, the loss of the coupon was attributable to the negligence of CATHAY’s agents and was the proximate cause of the non-confirmation of petitioner’s return flight on July 1, 1988. It virtually prevented petitioner from demanding the fulfillment of the carrier’s obligations under the contract. Had CATHAY’s agents been diligent in double checking the coupons they were supposed to detach from the passengers’ tickets, there would have been no reason for CATHAY not to confirm petitioner’s booking as exemplified in the case of his cousin and flight companion Tiongson whose ticket booklet was found to be in order. Hence, to hold that no contractual breach was committed by CATHAY and totally absolve it from any liability would in effect put a premium on the negligence of its agents, contrary to the policy of the law requiring common carriers to exercise extraordinary diligence. 128 CHAPTER 111 SAFETY OF PASSENGERS “Force majeure, ” common carriers are not the insurer of all risks. Japan Airlines v. Court of Appeals, Enrique Agana, et al G.R. No. 118664, August 7,1998 FACTS: On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco, California bound for Manila. Likewise, on the same day, private respondents Enrique Agana, Maria Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL 061. As an incentive for traveling on the said airline, both flights were to make an overnight stopover at Narita, Japan, at the airlines’ expense, thereafter proceeding to Manila the following day. Upon arrival at Narita, Japan on June 14,1991, private respondents were billed at Hotel Nikko Narita for the night. The next day, private respondents, on the final leg of their journey, went to the airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ash fall blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline traffic. Hence, private respondents’ trip to Manila was cancelled indefinitely. To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses for their unexpected overnight stay. On June 16,1991, much to the dismay of the private respondents, their long anticipated flight to Manila was again cancelled due to NALA’s indefinite closure. At this point, JAL informed the private respondents that it would no longer defray their hotel and accommodation expense during their stay in Narita. Since NAIA was only reopened to airline traffic on June 22,1991, private respondents were forced to pay for their accommodations and meal expenses from their personal funds from June 16 to 21, 1991. Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on board JL flight No. 741. Obviously, still reeling from the experience, private respondents, on July 25,1991, commenced an action for damages against JAL before 129 TRANSPORTATION LAWS the Regional Trial Court of Quezon City, Branch 104. To support their claim, private respondents asserted that JAL failed to live up to its duty to provide care and comfort to its stranded passengers when it refused to pay for their hotel and accommodation expenses from June 16 to 21, 1991 at Narita, Japan. In other words, they insisted that JAL was obligated to shoulder their expenses as long as they were still stranded in Narita. On the other hand, JAL denied this allegation and averred that airline passengers have no vested right to these amenities in case a flight is cancelled due to “force majeure. ” On June 18,1992, the trial court rendered its judgment in favor of private respondents holding JAL liable for damages. ISSUE: Whether or not JAL, as a common carrier has the obligation to shoulder the hotel and meal expenses of its stranded passengers until they have reached their final destination, even if the delay were caused by “force majeure. ” HELD: To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to Manila on schedule. Likewise, private respondents concede that such event can be considered as “force majeure " since their delayed arrival in Manila was not imputable to JAL. However, private respondents contend that while JAL cannot be held responsible for the delayed arrival in Manila, it was nevertheless liable for their living expenses during their unexpected stay in Narita since airlines have the obligation to ensure the comfort and convenience of its passengers. While the Court sympathizes with the private respondents’ plight, the Court is unable to accept this contention. The Court is not unmindful of the fact that in a plethora of cases, the Court has consistently ruled that a contract to transport passengers is quite different in kind and degree from any other contractual relation. It is safe to conclude that it is a relationship imbued with public interest. Failure on the part of the common carrier to live up to the exacting standards of care and diligence renders it liable for any damages that may be sustained by its passengers. However, this is not to say that common carriers are absolutely responsible for all injuries or damages even if the same were caused by a fortuitous event. To rule otherwise 130 CHAPTER III SAFETY OF PASSENGERS would render the defense of "force majeure, " as an exception from any liability and ineffective. Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force majeure, ” the general rule is that he cannot be held liable for damages for non-performance. Corollarily, when JAL was prevented from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal expenses the stranded passengers incurred, cannot be charged to JAL. Yet, it is undeniable that JAL assumed the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991. Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for the private respondents. To be sure, they underwent distress and anxiety during their unanticipated stay in Narita, but their predicament was not due to the fault or negligence of JAL but the closure of NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for the amenities of its stranded passengers by reason of a fortuitous event is too much of a burden to assume. Furthermore, it has been held that airline passengers must take such risks incident to the mode of travel. In this regard, adverse weather conditions or extreme climatic changes are some of the perils involved in air travel, the consequences of which the passenger must assume or expect. After all, common carriers are not the insurer of all risks. The Court is not prepared, however, to completely absolve petitioner JAL from any liability. It must be noted that private respondents bought tickets from the United States with Manila as their final destination. While JAL was no longer required to defray private respondents’ living expenses during their stay in Narita on account of the fortuitous event, JAL had the duty to make the necessary arrangements to transport private respondents on the first available connecting flight to Manila. Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers when it declassified private respondents from “transit passengers” to “new passengers” as a result of which private respondents were obliged to make the necessary arrangements themselves for the next flight to 131 TRANSPORTATION LAWS Manila. Private respondents were placed on the waiting list from June 20 to 24. To assure themselves of a seat on an available flight, they were compelled to stay in the airport the whole day of June 22, 1991 and it was only at 8:00 p.m. of the aforesaid date that they were advised that they could be accommodated in said flight, which flew at about 9:00 a. m. the next day. The Court is not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to 21,1991 caused considerable disruption in passenger booking and reservation. In fact, it would be unreasonable to expect, considering NAIA’s closure, that JAL flight operations would be normal on the days affected. Nevertheless, this does not excuse JAL from its obligation to make the necessary arrangements to transport private respondents on its first available flight to Manila. After all, it had a contract to transport private respondents from the United States to Manila as their final destination. Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of any loss suffered by him. The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded. COMPARED TO: Philippine Airlines v. Court of Appeals 226 SCRA423 (1993) The reliance of the Court of Appeals \nPAL v. CA (226 SCRA423) is misplaced. The factual background of the PAL case is different from the instant petition. In that case, there was indeed a fortuitous event resulting in the diversion of the PAL flight. However, the unforeseen diversion was worsened when “private respondents (passenger) was left at the airport and could not even hitch a ride in a Ford Fiera loaded with PAL personnel,” not to mention the apparent apathy of the PAL station manager as to the predicament of the stranded passengers. In light of these circumstances, the Court held if the fortuitous event was accompanied by neglect and malfeasance by the carrier’s employees, an 132 CHAPTER III SAFETY OF PASSENGERS action for damages against the carrier is permissible. Unfortunately, for private respondents, none of these conditions are present in the instant petition. The power to admit or not an alien into the country is a sovereign act, which cannot be interfered with by an airline. Japan Airlines v. Jesus Simangan G.R. No. 170141, April 22,2008 FACTS: In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner Japan Airlines (JAL) for US$1,485, and was issued the corresponding boarding pass. He was scheduled to a particular flight bound for Los Angeles, California, U.S.A. via Narita, Japan. On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport (NAIA). He was allowed to check-in at JAL’s counter. His plane ticket, boarding pass, travel authority, and personal articles were subjected to rigid immigration and security routines. After passing through said immigration and security procedures, respondent was allowed by JAL to enter its airplane. While inside the airplane, JAL’s airline crew suspected respondent of carrying a falsified travel document and imputed that he would only use the trip to the United States as a pretext to stay and work in Japan. The stewardess asked respondent to show his travel documents. Shortly after, the stewardess, along with a Japanese and a Filipino, haughtily ordered him to stand up and leave the plane. Respondent protested, explaining that he was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL to closely monitor his movements when the aircraft stops over in Narita. His pleas were ignored. He was then constrained to go out of the plane. In a nutshell, respondent was bumped off the flight. Respondent went to JAL’s ground office and waited there for three hours. Meanwhile, the plane took off and he was left behind. Afterwards, he was informed that his travel documents were, indeed, in order. Respondent was refunded the cost of his plane ticket less the sum 133 A ftWTni TRANSPORTATION LAWS of US$500, which was deducted by JAL. Subsequently, respondent’s U.S. visa was cancelled. Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93 for damages and attorney’s fee. On September 21, 2000, the RTC rendered a decision in favor of respondent (plaintiff), ordering the defendant to pay the plaintiff the amount of PI,000,000 as moral damages, the amount of P500,000 as exemplary damages, and the amount of P250,000 as attorney’s fees, plus the cost of suit. In a decision dated May 31, 2005, the Court of Appeals (CA) affirmed the decision of the RTC with modification in that it lowered the amount of moral and exemplary damages and deleted the award of attorney’s fees. ISSUE: Whether or not Japan Airlines is guilty of breach of contract. HELD: That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding pass is uncontroverted. His plane ticket, boarding pass, travel authority and personal articles were subjected to rigid immigration and security procedure. After passing through said immigration and security procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita, Japan. Concisely, there was a contract of carriage between JAL and respondent. Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was not allowed by JAL to fly. JAL, thus, failed to comply with its obligation under the contract of carriage. JAL justifies its action by arguing that there was “a need to verify the authenticity of respondent’s travel document.” It alleged that no one from its airport staff had encountered a parole visa before. It further contended that respondent agreed to fly the next day so that it could first verify his travel documents; hence, there was novation. It maintained 134 CHAPTER III SAFETY OF PASSENGERS that it was not guilty of breach of contract of carriage as respondent was not able to travel to the United States due to his own voluntary desistance. The Court cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first check the authenticity of his travel documents with the U.S. Embassy. As admitted by JAL, “the flight could not wait for Mr. Simangan because it was ready to depart.” Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to be left behind. The latter was unceremoniously bumped off despite his protestations and valid travel documents, and notwithstanding his contract of carriage with JAL. Damaged had already been done when respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL’s default. Considering that respondent was forced to get out of the plane and left behind against his will, he could not have freely consented to be rebooked the next day. In short, he did not agree to the alleged novation. Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express. It cannot be supposed, without clear proof, that respondent had willingly done away with his right to fly on July 29, 1992. Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL personnel imputed that respondent would only use the trip to the United States as a pretext to stay and work in Japan. Apart from the fact that respondent’s plane ticket, boarding pass, travel authority, and person articles already passed the rigid immigration and security routines, JAL as a common carrier, ought to know the kind of valid travel documents respondent carried. As provided in Article 1755 of the New Civil Code, “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.” Thus, the Court finds untenable JAL’s defense of “verification of respondent’s documents” in its breach of contract of carriage. It bears repeating that the power to admit or not an alien into the country is a sovereign act, which cannot be interfered with even by JAL. 135 TRANSPORTATION LAWS In addition for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such contract and its nonperformance by the carrier through the latter’s failure to carry the passenger safely to his destination. Respondent has complied with these twin requisites. 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. Under the law, common carriers are, from the nature of their business and for reasons of public policy, 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. More particularly, 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. Thus, where a passenger dies or is injured, the common carrier is presumed to have been at fault or to have acted negligently. This gives rise to an action for breach of contract of carriage and its non-performance by the carrier, that is, the failure of the carrier to carry the passenger safely to his destination, which, in the instant case, necessarily includes its failure to safeguard its passenger with extraordinary diligence while such relation subsists. The presumption is, therefore, established by law that in case of a passenger’s death or injury, the operator of the vessel was at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it to rebut the same. This is in consonance with the avowed policy of the State to afford full protection to the passengers of common carriers, which can be carried out only by imposing a stringent statutory obligation upon the latter. Concomitantly, the Supreme Court has likewise adopted a rigid posture in the application of the law by exacting the highest degree of care and diligence from common carriers, bearing utmost in mind the welfare of the passengers who often become hapless victims of indifferent and profit-oriented carriers. (Aboitiz Shipping Corporation v. Court of Appeals, 179 SCRA 95) 136 CHAPTER III SAFETY OF PASSENGERS It has been repeatedly held that 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 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. This is an exception to the general rule that negligence must be proved, and it is therefore incumbent upon the common carrier to prove that it has exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. (Sy v. Malate Taxicab and Garage, Inc., 102 Phil. 482; Singapore Airlines Limited v. Fernandez, 417 SCRA 474, December 10, 2003) CIRCUMSTANCES INDICATIVE OF NEGLIGENCE ON THE PART OF THE DRIVER/EMPLOYEE. 1. The fact that Pestano was able to use a bus with a faulty speedometer shows that Metro Cebu was remiss in the supervision of its employees and in the proper care of its vehicles. It had thus failed to conduct its business with the diligence required by law. (Pestano v. Sumayang, G.R. No. 139875, December 4, 2000, 2. Under Article 2185 of the Civil Code, unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap he was violating a traffic regulation. As found by the appellate court, petitioners failed to present satisfactory evidence to overcome this legal presumption. (Mallari, Sr. v. Court of Appeals, 324 SCRA 147) 3. It has been said that drivers of vehicles “who bump the rear of another vehicle” are presumed to be “the cause of the accident, unless contradicted by other evidence.” The rationale behind the presumption is that the driver of the rear vehicle has full control of the situation as he is in a position to observe the vehicle in front of him. 346 SCRA 870) 137 I TRANSPORTATION LAWS Consequently, no other person was to blame but the victim himself since he was the one who bumped his motorcycle into the rear of the Isuzu truck. He had the last clear chance of avoiding the accident. (Raynera v. Hiceta, 306 SCRA 102) PRECAUTIONS REQUIRED OF A DRIVER TO AVOID ACCIDENTS. The rule is settled that a driver abandoning his proper lane for the purpose of overtaking another vehicle in an ordinary situation has the duty to see to it that the road is clear and not to proceed if he cannot do so in safety. When a motor vehicle is approaching or rounding a curve, there is special necessity for keeping to the right side of the road and the driver does not have the right to drive on the left hand side relying upon having time to turn to the right if a car approaching from the opposite direction comes into view. This act of overtaking was in clear violation of Section 41, pars, (a) and (b), of R.A. No. 4136 as amended, otherwise known as The Land Transportation and Traffic Code which provides: Sec. 41. Restrictions on overtaking and passing. — (a) The driver of a vehicle shall not drive to the left side of the center line of a highway in overtaking or passing another vehicle proceeding in the same direction, unless such left side is clearly visible and is free of oncoming traffic for a sufficient distance ahead to permit such overtaking or passing to be made in safety. (b) The driver of a vehicle shall not overtake or pass another vehicle proceeding in the same direction when approaching the crest of a grade, nor upon a curve in the highway, where the driver’s view along the highway is obstructed within a distance of five hundred feet ahead except on a highway having two or more lanes for movement of traffic in one direction where the driver of a vehicle may overtake or pass another vehicle: Provided, That on a highway, within a business or residential district, having two or more lanes for movement of traffic in one direction, the driver of a vehicle 138 CHAPTER III SAFETY OF PASSENGERS may overtake or pass another vehicle on the right. (Mallari, Sr v. Court of Appeals, 324 SCRA 147) As a professional driver operating a public transport bus, he should have anticipated that overtaking at a junction was a perilous maneuver and should thus have exercised extreme caution. (Pestano v. Sumayang, 346 SCRA 870) 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. Alberta and Cresencio Yobido v. Court of Appeals and Leny Tumboy, et al G.R. No. 113003, October 17,1997 FACTS: 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 bound for Davao City. Along Pico 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 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 attorney’s 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. ISSUE: 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. HELD: 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 passengers and is not bound 139 TRANSPORTATION LAWS absolutely and at all events to carry them safely and without injury. However, when a passenger is injured or dies while traveling, the law 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 passenger was due to a fortuitous event. Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by the passenger. 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 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. CHAPTER III SAFETY OF PASSENGERS 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. Moreover, a common carrier may not be absolved from liability in case offorce 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 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 fortuitous event. No evidence was presented to show that the accident was due to 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.” 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 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 P50,000. 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 damages, awarded by way of example or correction for the public good when moral damages 141 TRANSPORTATION LAWS are awarded, may likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. Because petitioners failed to exercise the extraordinary diligence required of a 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. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia and Leticia Garcia and Julio Recontique G.R. No. 116110, May 15,1996 FACTS: The record show that on July 31, 1980, Leticia Garcia, and her five-year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036 bound for Cabanatuan City driven by Jaime Santiago. They took the seat behind the driver. At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus passengers saw a cargo truck parked at the shoulder of the national highway. Its left rear portion jutted to the outer lane, as the shoulder of the road was too narrow to accommodate the whole truck. A kerosene lamp appeared at the edge of the road obviously to serve as a warning device. The truck driver, Julio Recontique, and his helper, Arturo Escala, were then replacing a flat tire. The truck is owned by respondent A & J Trading. Bus driver Santiago was driving at an inordinately fast speed and failed to notice the truck and the kerosene lamp at the edge of the road. Santiago’s passengers urged him to slow down but he paid them no heed. Santiago even carried animated conversations with his co-employees while driving. When the danger of collision became imminent, the bus passengers shouted, “Babangga tayo!” Santiago stepped on the brake, but it was too late. His bus rammed into the stalled cargo truck. It caused the instant death of Santiago and Escala, and injury to several others. Leticia and Allan Garcia were among the injured passengers. 142 CHAPTER III SAFETY OF PASSENGERS Leticia suffered a fracture in her pelvis and right leg. They rushed her to the provincial hospital in Cabanatuan City where she was given emergency treatment. After three days, she was transferred to the National Orthopedic Hospital where she was confined for more than a month. She underwent an operation for partial hip prosthesis. Allan, on the other hand, broke a leg. He was also given emergency treatment at the provincial hospital. Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J Trading and Julio Recontique for damages in the Regional Trial Court of Bulacan. Leticia sued as an injured passenger of Baliwag and as mother of Allan. At the time of the complaint, Allan was a minor, hence, the suit initiated by his parents in his favor. Baliwag, A & J Trading and Recontique disclaimed responsibility for the mishap. Baliwag alleged that the accident was caused solely by the fault and negligence of A & J Trading and its driver, Recontique. Baliwag charged that Recontique failed to place an early warning device at the comer of the disabled cargo truck to warn oncoming vehicles. On the other hand, A & J Trading and Recontique alleged that the accident was the result of the negligence and reckless driving of Santiago, bus driver of Baliwag. After hearing, the trial court found all the defendants liable. On appeal, the Court of Appeals modified the trial court’s Decision by absolving A & J Trading from liability and by reducing the award of attorney’s fees to PI0,000 and loss of earnings to P300,000, respectively. ISSUE: Whether or not the Court of Appeals erred in absolving A & J Trading from liability and holding Baliwag solely liable for the injuries suffered by Leticia and Allan Garcia in the accident. HELD: As a common carrier, Baliwag breached its contract of carriage when it failed to deliver its passengers, Leticia and Allan Garcia to their destination safe and sound. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard for all the circumstances. In a contract of carriage, it is presumed 143 TRANSPORTATION LAWS that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption may only be overcome by evidence that the carrier exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. The records are bereft of any proof to show that Baliwag exercised extraordinary diligence. On the contrary, the evidence demonstrates its driver’s recklessness. Leticia Garcia testified that the bus was running at a very high speed despite the drizzle and the darkness of the highway. The passengers pleaded for its driver to slow down, but their plea was ignored. Leticia also revealed that the driver smelled of liquor. She could smell him as she was seated right behind the driver. Another passenger, Felix Cruz testified that immediately before the collision, the bus driver was conversing with a co-employee. All these prove the bus driver’s wanton disregard for the physical safety of his passengers, which makes Baliwag as a common carrier liable for damages under Article 1759 of the Civil Code: “Art. 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability of the common carriers do not cease upon proof that they exercised all the diligence of a goodfather of a family in the selection or supervision of their employees. ” Baliwag cannot evade its liability by insisting that the accident was caused solely by the negligence of A & J Trading and Julio Recontique. It harps on their alleged none use of an early warning device as testified to by Col. Demetrio dela Cruz, the station commander of Gapan, Nueva Ecija who investigated the incident, and Francisco Romano, the bus conductor. The records do not bear out Baliwag’s contention. Col. Dela Cruz and Romano testified that they did not see any early warning device at the scene of the accident. They were referring to the triangular reflectorized plates in red and yellow issued by the Land Transportation 144 CHAPTER III SAFETY OF PASSENGERS Office. However, the evidence shows that Recontique and Escala placed a kerosene lamp or torch at the edge of the road, near the rear portion of the truck to serve as an early warning device. This substantially complies with Section 34(9g) of the Land Transportation and Traffic Code. To be absolved from liability in case of force majeure, it is not enough that the accident was caused by force majeure; common carrier must still prove that it was not negligent in causing the injuries resulting from such accident. Bachelor Express, Inc. and Cresencio Rivera v. The Honorable Court of Appeals, et al G.R. No. 85691, July 31,1990 FACTS: On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc., and driven by Cresencio Rivera was the situs of a stampede, which resulted in the death of passengers Omominio Beter and Narcisa Rautraut. The evidence shows that the bus came from Davao City on its way to Cagayan de Oro City passing Butuan City; that while at Tabon-Tabon, Butuan City, the bus picked up a passenger; that about 15 minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the passengers; that when the bus stopped, passengers Omominio Beter and Narcisa Rautraut were found lying down the road, the former already dead as a result of head injuries and the latter also suffering from severe injuries which caused her death later. The passenger-assailant alighted from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of Omomino Beter and Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia Beter are the parents of Omominio while Teofilo Rautraut and Zoetera Rautraut are the parents of Narcisa) filed a complaint for “sum of money” against Bachelor Express, Inc., its alleged owner Samson Yasay, and the driver Rivera. In their answer, the petitioners denied liability for the death of Omominio Beter and Narcisa Rautraut. They alleged that “x x x the 145 TRANSPORTATION LAWS driver was able to transport his passengers safely to their respective places of destination except Omominio Beter and Narcisa Rautraut who jumped off the bus without the knowledge and consent, much less, the fault of the driver and conductor and the defendants in this case; the defendant corporation had exercised due diligence in the choice of its employees to avoid as much as possible accidents; the incident on August 1, 1980 was not a traffic accident or vehicular accident; it was an incident or event very much beyond the control of the defendants; defendants were not parties to the incident complained of as it was an act of a third-party who is not in any way connected with the defendants and of which the latter have no control and supervision.” After due trial, the trial court issued an order dated August 8,1985 dismissing the complaint. Upon appeal however, the trial court’s decision was reversed and set aside. The Court of Appeals finds the petitioners solidarity liable for damages in the total amount of PI 20,000. ISSUES: 1) Whether or not the accident was caused by force majeure. 2) Whether or not the petitioner common carrier observed extraordinary diligence to safeguard the lives of its passengers. HELD: The running amuck of the passenger was the proximate cause of the incident as it triggered off a commotion and panic among the passengers such that the passengers started running to the sole exit shoving each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal injuries. The sudden act of the passenger who stabbed another passenger in the bus is within the context offorce majeure. However, in order that a common carrier may be absolved from liability in case offorce majeure, it is not enough that the accident was caused by force majeure. The common carrier must still prove that it was not negligent in causing the injuries resulting from such accident. Considering the factual findings of the Court of Appeals — the bus driver did not immediately stop the bus at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door when it was opened or gave way while the bus was still 146 1 CHAPTER III SAFETY OF PASSENGERS running; the conductor panicked and blew his whistle after people had already fallen off the bus and the bus was not properly equipped with doors in accordance with law — it is clear that the petitioners have failed to overcome the presumption of fault and negligence found in the law governing common carriers. The petitioners’ argument that the petitioners “are not insurers of their passengers” deserves no merit in view of the failure of the petitioners to prove that the deaths of the two passengers were exclusively due to force majeure and not to the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destinations as warranted by law. Duty of a common carrier to overcome the presumption of negligence. Franklin Gacal and Corazon M. Gacal v. Philippine Airlines G.R. No. 55300, March 15,1990 FACTS: Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers boarding defendant’s BAC 111 at Davao Airport for a flight to Manila, not knowing that on the same flight, Macalinog, Taurac Pendatum known as Commander Zapata, Nasser Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City and members of the Moro National Liberation Front (MNLF), were their co-passengers, three armed with grenades, two with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10) minutes after takeoff at about 2:30 in the afternoon, the hijackers brandishing their respective firearms announced the hijacking of the aircraft and directed its pilot to fly to Libya. With the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the same explanation, they relented and directed the aircraft to land at Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at 3:00 in the afternoon of May 21, 1976 at Zamboanga Airport. When 147 A TRANSPORTATION LAWS the plane began to taxi at the runway, it was met by two armored cars of the military with machine guns pointed at the plane, and it stopped there. The rebels through its commander demanded that a DC-aircraft take them to Libya with the President of the defendant company as hostage and that they be given $375,000 and six armalites, otherwise they will blow up the plane if their demands will not be met by the government and Philippine Air Lines. Meanwhile, the passengers were not served any food nor water and it was only on May 23, a Sunday, at about 1:00 in the afternoon that they were served slice of a sandwich and 1/10 cup of PAL water. After that, relatives of the hijackers were allowed to board the plane but immediately after they alighted therefrom, an armored car bumped the stairs. That commenced the battle between the military and the hijackers which led ultimately to the liberation of the surviving crew and the passengers, with the final score of 10 passengers and three hijackers dead on the spot and three hijackers captured. “City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the course of her jumping out of the plane when it was peppered with bullets by the army and after two hand grenades exploded inside the plane. She was hospitalized at General Santos Doctors Hospital, General Santos City, for two days, spending P245.60 for hospital and medical expenses. Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which she was hospitalized and operated on at the San Pedro Hospital, Davao City, and thereafter, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma de Guzman died because of that battle. Hence, the action of damages instituted by the plaintiffs. The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in the premises were attributed to force majeure. ISSUE: Whether or not hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident. 148 CHAPTER III SAFETY OF PASSENGERS HELD: The source of a common carrier’s legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the utmost diligence of a very cautious person. (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]\ Juntilla v. Fontanar, 136 SCR A 624 [1985]) It is the duty of a common carrier to overcome the presumption of negligence (Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed the required extraordinary diligence of a veiy cautious person as far as human care and foresight can provide or that the accident was caused by a fortuitous event. (Estrada v. Consolacion, 71 SCRA 523 [1976]) Thus, as ruled by this Court, no person shall be responsible for those “events which could not be foreseen or which though foreseen were inevitable.” (Art. 1174, Civil Code) The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]), which is of the same sense as ' force majeure. ” (Words and Phrases, Permanent Edition, Vol. 17, p. 362) In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan E Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]) Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be 149 TRANSPORTATION LAWS one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. (Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]) Applying the above guidelines to the case at bar, the failure to transport petitioner safely from Davao to Manila was due to the skyjacking incident staged by six passengers of the same plane, all members of the Moro National Liberation Front (MNLF) without any connection with private respondent, hence, independent of the will of either the PAL or of its passengers. Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a normal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former. It is clear that neither the law nor the nature of the business of a transportation company makes it an insurer of the passenger’s safety, but that its liability for personal injuries sustained by its passenger rests upon its negligence, its failure to exercise the degree of diligence that the law requires. Herminio Mariano, Jr. v. Idelfonso C. Callejas and Edgar De Borja G.R. No. 166640, July 31,2009 FACTS: At around 6:30 p.m. on November 12 1991, along Aguinaldo Highway, San Agustin, Dasmarinas, Cavite, the Celyrose Express bus carrying Dr. Mariano, as its passenger, collided with an Isuzu truck with trailer bearing plate numbers PJH 906 and TRH 531. The passenger bus was bound to Tagaytay while the trailer truck came from the opposite direction bound for Manila. The trailer truck bumped the passenger bus on its left middle portion. Due to the impact, the passenger bus fell on its right side on the right shoulder of the highway and caused the death of Dr. Mariano and physical injuries to four other passengers. Petitioner filed a complaint for breach of contract of carriage and damages against the respondents for their failure to transport his 150 CHAPTER III SAFETY OF PASSENGERS wife and mother of his three minor children safely to her destination. Respondents denied liability’ for the death of Dr. Mariano. They claimed that the proximate cause of the accident was the recklessness of the driver of the trailer truck, which bumped their bus while allegedly at a halt on the shoulder of the road in its rightful lane. Thus, respondent Callejas filed a third-party complaint against Liong Chio Chang, doing business under the name and style of La Perla Sugar Supply, the owner of the trailer truck, for indemnity in the event that he would be held liable for damages to petitioner. In the case at bar, the trial court, in its Decision dated September 13, 1999, found respondents Idelfonso Callejas and Edgar De Boija, together with Liong Chio Chang, jointly and severally liable to pay petitioner damages. Respondents Callejas and De Boija appealed to the Court of Appeals (CA), contending that the trial court erred in holding them guilty of breach of contract of carriage. On May 21, 2004, the Court of Appeals reversed the decision of the trial court. ISSUE: Whether or not the common carrier has observed extraordinary diligence in the discharge of its duty. HELD: In accord with the provisions of Articles 1733, 1755, and 1756, Celyrose Express, a common carrier, through its driver respondent De Boija, and its registered owner, respondent Callejas, has the express obligation “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,” and to observe extraordinary diligence in the discharge of its duty. The death of the wife of the petitioner in the course of transporting her to her destination gave rise to the presumption of negligence of the carrier. To overcome the presumption, respondents have to show that they observed extraordinary diligence in the discharge of their duty, or that the accident was caused by a fortuitous event. This Court interpreted the above quoted provisions in Pilapil v. Court of Appeals. The Court elucidated: “While the law requires the 151 TRANSPORTATION LAWS highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute safety of its passengers.” Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and precaution in the carriage of passengers by common carriers to only such as human care and foresight can provide. What constitutes compliance with said duty is adjudged with due regard to all the circumstances. Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the common carrier when its passenger is injured, merely relieves the latter, from the time being, from introducing evidence to fasten the negligence on the former, because the presumption stands in the place of evidence. Being a mere presumption, however, the same is rebuttable by proof that the common carrier had exercised extraordinary diligence as required by law in the performance of its contractual obligation, or that the injury suffered by the passenger was solely due to a fortuitous event. Thus, it is clear that neither the law nor the nature of the business of a transportation company makes it an insurer of the passenger’s safety, but that its liability for personal injuries sustained by its passenger rests its negligence, its failure to exercise the degree of diligence that the law requires. First, the Court adverts to the sketch prepared by P03 Magno S. De Villa, who investigated the accident. The sketch shows the passenger bus facing the direction of Tagaytay City and lying on its right side on the shoulder of the road about five meters away from the point of impact. On the other hand, the trailer truck was on the opposite direction, about 500 meters away from the point of impact. P03 De Villa stated that he interviewed De Boija, respondent driver of the passenger bus, who said that he was about to unload some passengers when his bus was bumped by the driver of the trailer truck that lost its brakes. P03 De Villa checked out the trailer truck and found that its brakes really failed. In fine, the evidence shows that before the collision, the passenger bus was cruising on its rightful lane along Aguinaldo Highway when the 152 CHAPTER III SAFETY OF PASSENGERS trailer truck, coming from the opposite direction, on full speed, suddenly swerved and encroached on its lane, and bumped the passenger bus on its left middle portion. Respondent driver De Borja had every right to expect that the trailer truck coming from the opposite direction would stay on its proper lane. He was not expected to know that the trailer truck had lost its brakes. The swerving of the trailer truck was abrupt and it was running on a fast speed as it was found 500 meters away from the point of collision. Secondly, any doubt as to the culpability of the driver of the trailer truck ought to vanish when he pleaded guilty to the charge of reckless imprudence resulting to multiple slight physical injuries and damage to property in Criminal Case No. 2223-92, involving the same incident. ART. 1757. The responsibility of a common carrier for the safety of passengers as required in Articles 1733 and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise. While it is true that a passenger’s ticket is a complete contract between the common carrier and the passenger, the fact that it contains provision at the back thereof in fine letters that common carrier will only exercise ordinary diligence is contrary to law. ART. 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier’s liability for negligence is valid, but not for willful acts or gross negligence. The reduction of fare does not justify any limitation of the common carrier’s liability. Thus, in one case where a non-paying passenger was injured during the trip, the carrier was still held liable since the non-paying passenger is accompanied by his father who is a paying passenger. In fact non-payment of fare will not exempt the common carrier from liability due to injuries to passengers as a result of the common carrier’s negligence. 153 TRANSPORTATION LAWS Liability of common carriers for death or injuries to a non-passenger. Sulpicio Lines, Inc. v. The Honorable Court of Appeals (Twelfth Division) and Jacinta L. Pamalaran G.R. No. 106279, July 14,1995 FACTS: A contract of carriage was entered into between petitioner and ALC for the transport of the latter’s timber from Pugad, Lianga, Surigao del Sur. On March 17, 1976, petitioner sent its tugboat “MT Edmund” and barge “Solid VI” to Lianga to pick-up ALC’s timber. However, no loading could be made because of the heavy downpour. The next morning, several stevedores of CBL, who were hired by ALC, boarded the “Solid VI” and opened its storeroom. The stevedores were warned of the gas and heat generated by the copra stored in the holds of the ship. Not heeding the warning, a stevedore entered the storeroom and fell conscious. Two other stevedores followed, one of whom was Leoncio L. Pamalaran. He also lost consciousness and eventually died of gas poisoning. Thus, Civil Case No. 2864 for damages was filed with the Regional Trial Court (RTC) of Bohol, Branch 2, Tagbilaran by Pamalaran’s heirs against petitioner CBL, ALC and its manager, Ernie Santiago. The trial court ruled in favor of plaintiffs, ordering the defendants CBL Timber Corporation, AGO Lumber Company, Sulpicio Lines, Inc. and Ernie Santiago to pay plaintiffs jointly and severally, actual and compensatory damages, moral damages, attorney’s fees and cost of suit. On appeal, the Court of Appeals, in its Decision dated April 8, 1992, affirmed the lower court’s decision. Not satisfied with the appellate court’s decision, petitioner filed a petition. ISSUE: Whether or not the victim is not a passenger thereby relieving the common carrier from liability for his death. HELD: The Supreme Court agrees with the Court of Appeals that although Pamalaran was never a passenger of petitioner, still the 154 CHAPTER III SAFETY OF PASSENGERS latter is liable as a common carrier for his death. The Court of Appeals relied on Canas v. Dabatos, 8 Court of Appeals Report 918 (1965). In said case, 13 persons were on board the vessel of defendant not as passengers but as “cargadores” of the shipper’s goods. They were with the consent and knowledge of the owner of the vessel. Despite the absence of a passenger-carrier relationship between them, the appellate court, just the same, held the patron thereof liable as a common carrier. The appellate court ruled. There is no debate as to the fact that not one of the 13 passengers has paid an amount of money as fare for their conveyance from Hingotanan to Cebu. The undisputed fact, however, is that all of them were in the boat with the knowledge and consent of the patron. The eleven passengers, other than Encarnacion and Diosdado, were in the boat because they helped in loading cargoes in the boat, and “serve as cargadores of the cargoes ” presumably, in unloading them at the place of destination. For those services, they were permitted to be in the boat and to proceed to their destination in Cebu. The services rendered were the valuable consideration in exchange for the transportation fare. “In onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other...” (p. 925; Emphasis supplied) ALC had a contract of carriage with petitioner. The presence of the stevedores sent by ALC on board the barge of petitioner was called for by the contract of carriage. For how else would its lumber be transported unless it is placed on board? And by whom? Of course, the stevedores. Definitely, petitioner could not expect the shipper itself to load the lumber without the aid of the stevedores. Furthermore, petitioner knew of the presence and role of the stevedores in its barge and, thus, consented to their presence. Hence, petitioner was responsible for their safety while on board the barge. Petitioner next claims that its employees even warned the stevedores and tried to prevent their entry into the storeroom. Such argument, again, is demolished by the findings of the Court of Appeals, thus, “... However, appellant failed to prove that its employees were actually trained or given specific instructions to see to it that the barge is fit and safe not only in transporting goods but also for people who 155 TRANSPORTATION LAWS would be loading the cargo into the bodega of the barge. It is not enough that appellant s employees have warned the laborers not to enter the barge after the hatch was opened. Appellant’s employees should have been sufficiently instructed to see to it that the hatch of the barge is not opened by any unauthorized person and that the hatch is not easily opened by anyone. At the very least, precautionary measures should have been observed by appellant’s employees to see to it that no one could enter the bodega of the barge until after they have made sure that it is safe for anyone to enter the same. Failing to exercise due diligence in the supervision of its employees, the lower court was correct in holding appellant liable for damages. ” ART. 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. The liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. ART. 1760. The common carrier’s responsibility prescribed in the preceding article cannot be eliminated or limited by stipulation, by the posting of notices, by statements on the tickets or otherwise. This is a harsh provision against the common carrier. But the law is the law no matter how harsh it may be. Dura Lex Sed Lex. Thus, a security guard of the common carrier who happens to come across an old enemy and shot him while boarding the truck of the common carrier, the latter is still liable although the act of the security guard is in violation of the orders of the common carrier. 1975 Bar Question A taxicab passenger was deliberately killed by the driver. Is the operator of the taxicab liable? 156 CHAPTER III SAFETY OF PASSENGERS Answer: Yes, the taxicab operator is civilly liable on the basis of breach of the contract of carriage. Article 1759 of the Civil Code states that common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This liability does not cease upon proof that the common carrier exercised all the diligence of a good father of a family in the selection and supervision of their employees. In other words, the liability of the employer is not based on delict or quasi-delict. The liability of the common carrier is primary and cannot be eliminated or limited by stipulation. (Art. 1760; Maranan v. Perez, 20 SCRA 412) Sulpicio Lines Inc. v. Napoleon Sesante, now Substituted by Maribel Atilano, Kristine Marie, Christian lone Kenneth Kerrn and Karisna Kate, all surnamed Sesante G.R. No. 172782, July 27, 2016 FACTS: On September 19, 1998, around 12:55 p.m., the M/V Princess of the Orient, a passenger vessel owned and operated by the petitioner, sank near Fortune Island in Batangas. Of the 388-recorded passengers, 150 were lost. Napoleon Sesante, then a member of the Philippine National Police (PNP) and a lawyer, was one of the passengers who survived the sinking. He sued the petitioner for breach of contract and damages. Sesante alleged in his complaint that the MTV Princess of the Orient left the Port of Manila while Metro Manila was experiencing stormy weather; that at around 11:00 p.m., he had noticed the vessel listing starboard, so he had gone to the uppermost deck where he witnessed the strong winds and big waves pounding the vessel; that at the same time, he had seen how the passengers had been panicking, crying for help and frantically scrambling for lifejackets in the absence of the vessel’s officers and crew; that sensing danger, he had called a certain Ceballos through his cellphone to request him to inform the proper authorities of the situation; that thereafter, big waves had rocked the vessel, tossing him to the floor where he was pinned by a long steel 157 TRANSPORTATION LAWS bar; that he had freed himself only after another wave had hit the vessel; that he had managed to stay afloat after the vessel had sunk, and had been carried by the waves to the coastline of Cavite and Batangas until he had been rescued; that he had suffered tremendous hunger, thirst, pain, fear, shock, serious anxiety, and mental anguish; that he had sustained injuries, and had lost money, jewelry, important documents, police uniforms, and the .45 caliber pistol issued to him by the PNP; and that because it had committed bad faith in allowing the vessel to sail despite the storm signal, the petitioner should pay him actual and moral damages of P500,000 and PI,000,000, respectively. In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the Orient due to its having been cleared to sail from the Port of Manila by the proper authorities; that the sinking had been due to force majeure; that it had not been negligent; that its officers and crew had also not been negligent. In October 2001, the Regional Trial Court (RTC) rendered its judgment in favor of the respondent, ordering defendant to pay plaintiff temperate damages in the amount of P400,000, and moral damages in the amount of One Million Pesos. The RTC observed that the plaintiff, being negligent, was liable to Sesante pursuant to Articles 1739 and 1759 of the Civil Code; that the petitioner had not established its due diligence in the selection and supervision of the vessel crew; that the ship officers had failed to inspect the stowage of cargoes despite being aware of the storm signal; that the officers and crew of the vessel had not immediately sent a distress signal to the Philippine Coast Guard; that the ship captain had not called for then “abandon ship” protocol; and that based on the report of the Board of Marine Inquiry (BMI), the erroneous maneuvering of the vessel by the captain during the extreme weather condition had been the immediate and proximate cause of the sinking. The Court of Appeals (CA) lowered the temperate damages to PI20,000, which approximate the cost of the Sesante’s lost personal belongings, and held that despite the seaworthiness of the vessel, the petitioner remained civilly liable because its officers and crew had been negligent in performing their duties. 158 CHAPTER III SAFETY OF PASSENGERS ISSUE: (1) Whether or not the petitioner is liable for breach of contract of carriage. (2) Whether or not the cause of the loss or injury is due to a fortuitous event thus exempting the petitioner from liability. HELD: Article 1759 of the Civil Code does not establish a presumption of negligence because it explicitly makes the common carrier liable in the event of death or injury to passengers due to the negligence or fault of the common carrier’s employees. It reads: “Art. 1759. Common carriers are liable for the death or injuries to passengers through the negligence or willful acts of the former’s employees, although such employees may have acted beyond the scope of their authority or in violation of the orders of the common carriers. ” This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees. The liability of common carriers under Article 1759 is demanded by the duty of extraordinary diligence required of common carriers in safely carrying their passengers. The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on the seaworthiness of MW Princess of the Orient. Yet, the findings of the BMI directly contradicted the petitioner’s attribution. The BMI found that the “erroneous maneuvers” during the ill-fated voyage by the captain of the petitioner’s vessel had caused the sinking. After the vessel cleared Limbones Point, while navigating towards the direction of the Fortune Island, the captain already noticed the listing of the vessel by three degrees to the portside of the vessel, but, according to the BMI, he did not exercise prudence as required by the situation in which his vessel was suffering the battering on the starboard side by big waves of seven to eight meters high and strong southwesterly winds of 25 knots. The BMI pointed out that he should have considerably reduced the speed of the vessel based on his experience about the vessel, a close-type ship of seven decks, and of a wide and high superstructure, being vulnerable if exposed to strong winds and high waves. He ought to have also known that maintaining a high speed under such circumstances would have shifted the solid and liquid cargo of the vessel to port, worsening the tilted position of the vessel. It was only after a few minutes thereafter that he finally ordered the speed to go down to 14 knots, and to put ballast water to the 159 TRANSPORTATION LAWS starboard-heeling tank to arrest the continuous listing at the port side. By then, his moves became an exercise in futility because, according to the BMI, the vessel was already listing to her port side between 15 to 20 degrees, which was almost the maximum angle of the vessel’s loll. It then became inevitable for the vessel to lose her stability. The BMI concluded that the captain had executed several starboard maneuvers despite the critical situation of the vessel, and that the maneuvers had greatly added to the tilting of the vessel. The Chief Mate, when interviewed under oath, had attested that he was not able to make stability calculation of the ship vis-a-vis her cargo. He did not even know the metacentric height (GM) of the ship whether it be positive or negative. As cargo officer of the ship, he failed to prepare a detailed report of the ship’s cargo stowage plan. He likewise failed to conduct the soundings (measurement) of the ballast tank before the ship departed from port. He readily presumed that the ship was full of ballast since the ship was fully ballasted when she left Cebu for Manila on September 16, 1998, and had never discharged its contents since that time. Being the officer-in-charge for emergency situation like this, he failed to execute and supervise the actual abandon ship procedure. There was no announcement at the public address system of abandon ship, no orderly distribution of life jackets, and no orderly launching of life raffs. The witnesses have confirmed this finding on their sworn statements. There was miscalculation in judgment on the part of the Captain when he erroneously navigated the ship at her last crucial moment. To aggravate his case, the Captain, having full command and responsibility of the M/V Princess of the Orient, had failed to ensure the proper execution of the actual abandoning of the ship. The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, Third Engineer, and Fourth Engineer), being in charge of their respective abandon ship post, failed to supervise the crew and passengers in the proper execution of abandon ship procedure. The Radio Officer (spark) failed to send the SOS message in the internationally accepted communication network (VHF Channel 16). Instead, he used the Single Side Bank (SSB) radio in informing the company about the emergency situation. The aforestated negligent acts of the officers and crews of M/V Princess of the Orient could not be ignored in view of the extraordinary duty of the common carrier to ensure the safety of the passengers. 160 CHAPTER III SAFETY OF PASSENGERS ART. 1761. The passenger must observe the diligence of a good father of a family to avoid injury to himself. This is not a redundant provision but a constant reminder to every passenger to take all necessary precautions to avoid injury to himself and to others. For after all, common carrier is not an insurer against all risk of travel. ART. 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages shall be equitably reduced. This is a counterpart provision of Article 1741 in vigilance over the goods or the mitigated liability of the common carrier. If there is contributory negligence on the part of the passenger, he is not entitled to moral and exemplary damages. The underlying precept of the above provision on contributory negligence is that a plaintiff who is partly responsible for his own injury should not be entitled to recover damages in full but must bear the consequences of his own negligence. The defendant must thus be held liable only for the damages actually caused by his negligence. (Estacion v. Bernardo 483 SCRA 222; See Lambert v. Heirs of Ray Castillon, February 2005, 452 SCRA 285 and Syki v. Begasa, October 23, 2003, 414 SCRA 237) Is the doctrine of proximate cause applicable in actions involving breach of contract? The doctrine of proximate cause is applicable only in actions for quasi-delict, not in actions involving breach of contract. The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In such a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus created. (Calalas v. Court of Appeals, 332 SCRA 356) 161 TRANSPORTATION LAWS In FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation, 386 SCRA 312, August 6, 2002, it was held that the doctrine of res ipsa loquitur is not applicable in cases of breach of contract of carriage: Res ipsa Loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing which caused the injury complained of is shown to be under the latter’s management and the accident is such that in the ordinary course of things, cannot be expected to happen if those who have its management or control use proper care. It affords reasonable evidence, in the absence of explanation by the defendant that the accident arose from want of care. It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of going forward with the proof. Resort to the doctrine, however, may be allowed only when: (a) the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third persons are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the scope of the defendant’s duty to the plaintiff. Thus, it is not applicable when an unexplained accident may be attributable to one of several causes, for some of which the defendant could not be responsible. Res ipsa Loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from the nature of the relation of the parties. Nevertheless, the requirement that responsible causes other than those due to defendant’s conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to cases of pure (noncontractual) tort since obviously the presumption of negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of 162 CHAPTER III SAFETY OF PASSENGERS the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him. Similarly, the principle of last clear chance is inapplicable in cases of breach of contract of carriage, as it only applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence. The common law notion of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common law of last clear chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil Code. (Anuran v. Buho, 17 SCRA 224\ Phil. Rabbit Bus Lines, Inc. v. I AC, 189 SCRA 158; Tiu v. Arriesgado, 437 SCRA 426, September 1, 2004) However, the defense of contributory negligence does not apply in criminal cases committed through reckless imprudence, since one cannot allege the negligence of another to evade the effects of his own negligence. (Genobiagon v. Court of Appeals, 178 SCRA 422; Manzanares v. People, 504 SCRA 354, October 16, 2006) Mitigation of Defendant’s Liability in Case of Contributory Negligence of the Plaintiff. Travel & Tours Adviser, Incorporated v. Alberto Cruz, Sr., Edgar Hernandez and Virginia Mufioz G.R. No. 199282, March 14, 2016 FACTS: Respondent Edgar Hernandez was driving an Isuzu Jitney (jeepney) that he owns with Plate No. DSG-944 along Angeles- 163 TRANSPORTATION LAWS Magalang Road, Barangay San Francisco, Magalang, Pampanga, on January 9, 1998, around 7:50 p.m. Meanwhile, a Daewoo passenger bus (RCJ Bus Lines) with Plate No. NXM 116, owned by petitioner Travel and Tours Advisers, Inc., and driven by Edgar Calaycay traveled in the same direction as that of respondent Edgar Hernandez vehicle. Thereafter, the bus bumped the left rear portion of the jeepney causing it to ram into an acacia tree, which resulted in the death of Alberto Cruz, Jr. and the serious physical injuries of Virginia Munoz. Thus, respondents Edgar Hernandez, Virginia Munoz, and Alberto Cruz, Sr. father of the deceased Alberto Cruz, Jr., filed a complaint for damages before the Regional Trial Court claiming that the collision was due to the reckless, negligent, and imprudent manner by which Edgar Calaycay was driving the bus, in complete disregard to existing traffic laws, rules and regulations. They also alleged that the bus veered away from its usual route. For its defense, the petitioner claimed that at the time of the incident, Edgar Hernandez violated his franchise by traveling along an unauthorized line/route. After trial on the merits, the Regional Trial Court, on January 20, 2008, rendered judgment in favor of the respondents, ordering the petitioner to jointly and solidarity pay the following: (1) To plaintiff Alberto Cruz, Sr. and his family - a) the sum of P50,000 as actual and compensatory damages, b) the sum of P250,000 for loss of earning capacity of the decedent Alberto Cruz, Jr., and c) P50,000 as moral damages. (2) To plaintiff Virginia Munoz - a) the sum of P16,744 as actual and compensatory damages, and b) the sum of P50,000 as moral damages. (3) To plaintiff Edgar Hernandez - a) the sum of P50,000 as moral and compensatory damages, b) the sum of P50,000 as attorney’s fees, c) the sum of P4,470 as cost of litigation. On appeal, the Court of Appeals modified the award of damages in favor of the plaintiff as follows: (1) To plaintiff Alberto Cruz, Sr., it reduces the amount of actual damages to P25,000, but added the sum of P50,000 for the death of Alberto Cruz, Jr.; (2) To plaintiff Virginia Mufioz, it reduces the amount of moral damages to P30,000; and (3) To plaintiff Edgar Hernandez, it reduces the amount of actual and 164 CHAPTER III SAFETY OF PASSENGERS compensatory damages to P40.200. The rest of the award of damages remains. ISSUE: 1) Whether or not the bus is liable because it veered away from its usual route at the time of the mishap, and 2) Whether or not this is a case of pari delicto considering that the passenger jeepney was traveling beyond its route. HELD: The Regional Trial Court (RTC) and the Court of Appeals (CA) are one in finding that both vehicles were not in their authorized routes at the time of the incident. The conductor of petitioner’s bus admitted on cross-examination that the driver of the bus veered off from its usual route to avoid heavy traffic. The Court of Appeals, thus, observed: First, as pointed out in the assailed Decision, both vehicles were not in their authorized routes at the time of the mishaps. Francisco Tejada, the conductor of defendant-appellant’s bus, admitted on cross- examination that the driver of the bus passed through Magalang Road instead of Sta. Ines, which was the usual route, to avoid heavy traffic. Regardless of the reason, however, the irrefutable fact remains that defendant-appellant’s bus likewise veered from its usual route. Petitioner now claims that the bus was not out of line when the vehicular accident happened, because the PUB (Public Utility Bus) franchise that the petitioner holds, is for provincial operation from Manila-Ilocos Norte/Cagayan-Manila, thus, the bus is allowed to traverse any point between Manila-Ilocos Norte/Cagayan-Manila. Such assertion is correct. “Veering away from the usual route” is different from being “out of line.” A public utility vehicle can and may veer away from its usual route as long as it does not go beyond its allowed route in its franchise, in this case, Manila-Ilocos Norte/Cagayan-Manila. Therefore, the bus cannot be considered to have violated the contents of its franchise. On the other hand, it is indisputable that the jeepney was traversing a road out of its allowed route. Necessarily, this case is not that of “In pari delicto” because only one party has violated a traffic regulation. As such, it would seem that Article 2185 of the New Civil Code is applicable where it provides that: “Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap he was violating any traffic regulation.” The provision, however, is merely a presumption. 165 TRANSPORTATION LAWS From the factual findings of both the Regional Trial Court and the Court of Appeals based on the evidence presented, the proximate cause of the collision is the negligence of the driver of petitioner’s bus. The jeepney was bumped at the left rear portion. Thus, the Court’s past ruling that drivers of vehicles, who bumped the rear of another vehicle, are presumed to be the cause of the accident, unless contradicted by other evidence, can be applied. The rationale behind the presumption is that the driver of the rear vehicle has full control of the situation as he is in a position to observe the vehicle in front of him. Rate of speed, in connection with other circumstances, is one of the principal considerations in determining whether a motorist has been reckless in driving a vehicle, and evidence of the extent of the damage caused may show the force of the impact from which the rate of speed of the vehicle may be modestly inferred. From the evidence presented in this case, it cannot be denied that the bus was running very fast. As held by the Supreme Court, the very fact of speeding is indicative of imprudent behavior, as a motorist must exercise ordinary care and drive at a reasonable rate of speed commensurate with the conditions encountered, which will enable him to keep the vehicle under control and avoid injury to others using the highway. From the above findings, it is apparent that the proximate cause of accident is the petitioner’s bus and that the petitioner was not able to present evidence that would show otherwise. Be that as it may, this doesn’t erase the fact that at the time of the vehicular accident, the jeepney was in violation of its allowed route as found by the RTC and the CA, hence, the owner and the driver of the jeepney likewise are guilty of negligence as defined under Article 2179 of the Civil Code, which reads as follows: “When the plaintiff’s negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury, being the defendant s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. ” The petitioner and its driver, therefore, are not solely liable for the damages caused to the victims. The petitioner must, thus, be held liable only for the damages actually caused by his negligence. It is, therefore, proper to mitigate the liability of the petitioner and its driver. 166 CHAPTER III SAFETY OF PASSENGERS The determination of the mitigation of the defendant’s liability varies depending on the circumstances of each case. The Court had sustained a mitigation of 50% in Rakes v. AG & P; in Phoenix Construction, Inc. v. Intermediate Appellate Court, and LBC Air Cargo, Inc. v. Court of Appeals; and 40% in Bank of the Philippines Islands v. Court of Appeals, and Philippine Bank of Commerce v. Court of Appeals. In the present case, it has been established that the proximate cause of the death of Alberto Cruz, Jr., is the negligence of petitioner’s bus driver, with the contributory negligence of respondent Edgar Hernandez, the driver and owner of the jeepney, hence, the heirs of Alberto Cruz, Jr., shall recover damages of only 50% of the award from petitioner and its driver. Necessarily, 50% shall be borne by respondent Edgar Hernandez. This is pursuant to Rakes v. AG &P, and after considering the circumstances of this case. The petition for review is denied and the decision of the Court of Appeals is modified, insofar as the award of damages, as follows: The petitioner and Edgar Calaycay are ordered to jointly and severally pay the following: (1) To respondent Alberto Cruz, Sr. and family - a) PI2,500 as actual damages, b) P25,000 as civil indemnity for the death of Alberto Cruz, Jr., c) P25,000 as moral damages. (2) To respondent Virginia Munoz - a) P8,372 as actual damages, b) PI5,000 as moral damages. (3) To respondent Edgar Hernandez - a) P20,100 as actual damages, and (4) The sum of P2,235 as cost of litigation. Respondent Edgar Hernandez is also ordered to pay the following: (1) To respondent Alberto Cruz, Sr. and family - a) PI2,500 as actual damages, b) P25,000 as civil indemnity for the death of Alberto Cruz, Jr., and c) P25,000.00 as moral damages. (2) To respondent Virginia Munoz - a) P8,372 as actual damages, and b) PI5,000 as moral damages. (3) The sum of P2,235 as cost of litigation. ART. 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carrier’s employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission. 167 TRANSPORTATION LAWS QUESTION: What are the instances when a common carrier becomes liable for the death of or injury to a passenger or passengers? ANSWER: The statutory provisions render a common carrier liable for death of or injury to passengers (a) through the negligence or willful acts of its employees (Art. 1759) or (b) on account of willful acts or negligence of other passengers or of strangers if the common carrier’s employees through the exercise of due diligence could have prevented or stopped the act or omission (Art. 1763). (Light Rail Transit Authority v. Natividad, 391 SCRA 75, February 6, 2003) It appears that due to the extraordinary diligence required by the common carrier for the safety of passengers, their agents will also act as security guards for the passengers. A tort committed by a stranger, which causes injury to a passenger, does not accord the passenger a cause of action against the carrier. Jose Pilapil v. Court of Appeals and Alatco Transportation Co., Inc. G.R. No. 52159, December 22, 1989 FACTS: Petitioner-plaintiff Jose Pilapil, a paying passenger, boarded respondent-defendant’s bus bearing No. 409 at San Nicolas, Iriga City and Naga City, upon reaching the vicinity of the cemetery of the Municipality of Baao, Camarines Sur, on the way to Naga City, an unidentified man, a bystander along said national highway, hurled a stone at the left side of the bus, which hit petitioner above his left eye. Private respondent’s personnel lost no time in bringing the petitioner to the provincial hospital in Naga City where he was confined and treated. Considering that the sight of his left eye was impaired, petitioner was taken to Dr. Malabanan of Iriga City where he was treated for another week. Since there was no improvement in his left eye’s vision, petitioner went to V. Luna Hospital, Quezon City where he was treated by Dr. Capulong. Despite the treatment accorded to him by Dr. Capulong, petitioner lost partially his left eye’s vision and sustained a permanent scar above the left eye. Thereupon, petitioner instituted before the Court of First Instance of Camarines Sur, Branch I an action for recovery of damages sustained 168 CHAPTER III SAFETY OF PASSENGERS as a result of the stone-throwing incident. After trial, the court a quo rendered judgment ordering respondent transportation company to pay to petitioner damages in the total sum of PI 6,300. From the judgment, private respondent appealed to the Court of Appeals. On October 19, 1979, the Court of Appeals, in a Special Division of Five, rendered judgment reversing and setting aside the judgment of the court a quo. ISSUE: Whether or not the stoning of the bus by a stranger resulting in injury to petitioner-passenger is one such risk from which the common carrier may not exempt itself from liability. HELD: While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute safety of its passengers. In consideration of the right granted to it by the public to engage in the business of transporting passengers and goods, a common carrier does not give its consent to become an insurer of any and all risks to passengers and goods. It merely undertakes to perform certain duties to the public as the law imposes, and hold itself liable for any breach thereof. Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and precaution in the carriage of passengers by common carriers to only such as human care and foresight can provide. What constitutes compliance with said duty is adjudged with due regard to all the circumstances. Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the common carrier when its passenger is injured, merely relieves the latter, for the time being, from introducing evidence to fasten the negligence on the former, because the presumption stands in the place of evidence. Being a mere presumption, however, the same is rebuttable by proof that the common carrier had exercised extraordinary diligence as required by law in the performance of its contractual obligation, or that the injury suffered by the passenger was solely due to a fortuitous event. 169 TRANSPORTATION LAWS Thus, it is clear that neither the law nor the nature of the business of a transportation company makes it an insurer of the passenger’s safety, but that its liability for personal injuries sustained by its passenger rests upon its negligence, its failure to exercise the degree of diligence that the law requires. As stated earlier, the presumption of fault or negligence against the carrier is only a disputable presumption. It gives in where contrary facts are established proving either that the carrier had exercised the degree of diligence required by law or the injury suffered by the passenger was due to a fortuitous event. Where, as in the instant case, the injury sustained by the petitioner was in no way due to any defect in the means of transport or in the method of transporting or to the negligent or willful acts of private respondent’s employees, with the injury arising wholly from causes created by strangers over which the carrier had no control or even knowledge or could not have prevented, the presumption is rebutted and the carrier is not and ought not to be held liable. To rule otherwise would make the common carrier the insurer of the absolute safety of its passengers, which is not the intention of the lawmakers. While, as a general rule, common carriers are bound to exercise extraordinary diligence in the safe transport of their passengers, it would seem that this is not the standard by which its liability is to be determined when intervening acts of strangers directly cause the injury, while the contract of carriage exists. Article 1763 governs: “Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willftil acts or negligence of other passengers or of strangers, if the common carrier’s employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.” Clearly under the above provisions, a tort committed by a stranger which causes injury to a passenger does not accord the latter a cause of action against the carrier. The negligence for which a common carrier is held responsible is the negligent omission by the carrier’s employees to prevent the tort from being committed when the same could have been foreseen and prevented by them. Further, under the same provision, it is to be noted that when the violation of the contract is due to the willful 170 CHAPTER III SAFETY OF PASSENGERS acts of strangers, as in the instant case, the degree of care essential to be exercised by the common carrier for the protection of its passenger is only that of a good father of a family. A common carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting their baggage. Fortune Express, Inc. v. Court of Appeals, Paulie v. Caorong and minor children G.R. No. 119756, March 18,1999 FACTS: On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in Kauswagan, Lanao del Norte, resulting in the death of several passengers of the jeepney, including two Maranaos. Crisanto Generalao, a volunteer field agent of the Constabulary Regional Security Unit No. X, conducted an investigation of the accident. He found that the owner of the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain Maranaos were planning to take revenge on the petitioner by burning some of its buses. Generalao rendered a report on his findings to Sgt. Reynaldo Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro. Upon the instruction of Sgt. Bastasa, he went to see Diosdado Bravo, operations manager of petitioner, at its main office in Cagayan de Oro City. Bravo assured him that the necessary precautions to insure the safety of lives and property would be taken. At about 6:45 P.M. on November 22,1989, three armed Maranaos, who pretended to be passengers, seized a bus of petitioner at Linamon, Lanao del Norte while on its way to Iligan City. Among the passengers of the bus was Atty. Caorong. The leader of the Maranaos, identified as one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to stop the bus on the side of the highway. Mananggolo then shot Cabatuan on the arm, which caused him to slump on the steering wheel. Then one of the companions of Mananggolo started pouring gasoline inside the bus, as the other held the passengers at bay with a handgun. Mananggolo then ordered the passengers to get off the bus. The passengers, including Atty. Caorong, stepped out of the bus and went behind the bushes in a field some distance from the highway. 171 TRANSPORTATION LAWS However, Atty. Caorong returned to the bus to retrieve something from the overhead rack. At that time, one of the armed men was pouring gasoline on the head of the driver. Cabatuan, who had meantime regained consciousness, heard Atty. Caorong pleading with the armed men to spare the driver as he was innocent of any wrongdoing and was only trying to make a living. The armed men were, however, adamant as they repeated their warning that they were going to bum the bus along with its driver. During this exchange between Atty. Caorong and the assailants, Cabatuan climbed out of the left window of the bus and crawled to the canal on the opposite side of the highway. He heard shots from inside the bus. Larry dela Cruz, one of the passengers, saw that Atty. Caorong was hit. Then the bus was set on fire. Some of the passengers were able to pull Atty. Caorong out of the burning bus and rushed him to the Mercy Community Hospital in Iligan City, but he died while undergoing operation. The private respondents brought this suit for breach of contract of carriage in the Regional Trial Court, Branch VI, Iligan City. In its decision, dated December 28, 1990, the trial court dismissed the complaint, holding the defendant common carrier not negligent. On appeal, however, the Court of Appeals reversed the decision of the trial court and awarded damages to the plaintiff amounting to P3,449,649.20 plus attorney’s fees. ISSUES: 1) Whether or not petitioner breached the contract of carriage by failure to exercise the required degree of diligence. 2) Whether or not the act of the Maranao outlaws was so grave, irresistible, violent and forceful, as to be regarded as caso fortuito. HELD: Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a passenger on account of the willful acts of other passengers, if the employees of the common carrier could have prevented the act through the exercise of the diligence of a good father of a family. In the present case, it is clear that because of the negligence of petitioner’s employees, the seizure of the bus by Mananggolo and his men was made possible. Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning to take revenge on the petitioner 172 CHAPTER III SAFETY OF PASSENGERS by burning some of its buses and the assurance of petitioner’s operation manager, Diosdado Bravo, that the necessary precautions would be taken, petitioner did nothing to protect the safety of its passengers. Had petitioner and its employees been vigilant they would not have failed to see that the malefactors had a large quantity of gasoline with them. Under the circumstances, simple precautionary measures to protect the safety of passengers, such as frisking passengers and inspecting their baggage, preferably with non-intrusive gadgets such as metal detectors, before allowing them on board could have been employed without violating the passenger’s constitutional rights. As this Court intimated in Gacal v. Philippine Air Lines, Inc., a common carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting their baggage. From the foregoing, it is evident that petitioner’s employees failed to prevent the attack on one of petitioner’s buses because they did not exercise the diligence of a good father of a family. Hence, petitioner should be held liable for the death of Atty. Caorong. The petitioner contends that the seizure of its bus by the armed assailants was a fortuitous event for which it could not be held liable. Article 1174 of the Civil Code defines a fortuitous event as an occurrence which could not be foreseen or which though foreseen, is inevitable. In Yobido v. Court of Appeals, [the Court] held that to be considered as force majeure, it is necessary that: (1) the cause of the breach of the obligation must be independent of the human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurrence must be such as to render it impossible for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The absence of any of the requisites mentioned above would prevent the obligor from being excused from liability. Thus, in Vasquez v. Court of Appeals, it was held that the common carrier was liable for its failure to take the necessary precautions against an approaching typhoon, of which it was warned, resulting in the loss of the lives of several passengers. The event was foreseeable, and, thus, the second requisite mentioned above was not fulfilled. This ruling 173 TRANSPORTATION LAWS applies by analogy to the present case. Despite the report of PC agent Generalo that the Maranaos were going to attack its buses, petitioner took no steps to safeguard the lives and properties of its passengers. The seizure of the bus of the petitioner was foreseeable and, therefore, was not a fortuitous event, which would exempt petitioner from liability. 174 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS ARTICLES 1764 and 1766 ARTICLE 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Sources of obligation under which the carrier-employer and his driver-employee are liable to passenger or pedestrian in cases of injury. Under the Civil Code, obligations arise from law, contracts, quasicontracts, acts or omissions punished by law, and quasi-delicts. (Art. 1157, NCC) From these sources of obligations, three kinds of culpa or fault or negligence are derived: 1. culpa contractual or contractual negligence due to breach of contract of carriage; 2. culpa aquiliana, tort or quasidelict; and 3. culpa criminal or criminal negligence which results in criminal liability. Illustration: Suppose a passenger of a public utility bus was injured due to the driver’s recklessness, what case or cases can the passenger file against the common carrier and the driver? The injured passenger can file a civil case for breach of contract of carriage against the common carrier and not against the driver because the contract of carriage is between the common carrier and the passenger. The driver was acting merely as an agent of the common 175 TRANSPORTATION LAWS carrier. In this case of breach of contract of carriage, the liability of the common carrier is direct and primary. What quantum of evidence is required? Preponderance of evidence. All that the passenger has to prove is his contract of carriage between him and the common carrier, the public utility bus; and that he did not reach his destination unhurt. Suppose the common carrier was able to prove due diligence in the selection and supervision of his driver, will the common carrier still be liable? Yes, because the defense of due diligence in the selection and supervision of employee, though may mitigate liability, is not a complete defense in culpa contractual or breach of contract of carriage. In fact, the burden of proof lies in the common carrier that it exercises extraordinary diligence to avoid injury to passengers. The injured passenger can also file a criminal case against the driver for reckless imprudence resulting in physical injuries. However, the quantum of evidence in this case is proof beyond reasonable doubt and the prosecution has the burden of proving the guilt of the driver beyond reasonable doubt. Suppose the driver was pronounced guilty of the crime of reckless imprudence resulting in physical injuries, who will be liable to pay the civil damages of the injured passenger. In this criminal negligence case, the liability of the driver-employee is direct and primary (Art. 100, RPC) while the liability of the common carrier as employer is subsidiary. (Art 103, RPC) Suppose, the driver employee is insolvent, can the injured passenger go after the common carrier as employer? Yes. As stated earlier, the civil liability of the common carrier as employer is subsidiary. Hence, if the driver cannot comply directly with his civil liability, the common carrier as employer is subsidiarily liable. In this case of criminal negligence, where can the injured passenger recover subsidiary liability against the common carrier as employer in case the driver employee is insolvent? In the present criminal suit or in another civil suit? The old view is that and it is even the practice of some lawyers today to file a separate civil case against the common carrier as employer to recover the subsidiary liability. The injured passenger has only two documentary evidence to present: (1) judgment of the court 176 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS convicting the driver-employee of reckless imprudence resulting in physical injuries; and (2) the sheriff’s return showing that the judgment is unsatisfied due to the insolvency of the driver. The better view is that, the subsidiary liability of the common carrier as employer can be obtained in the same criminal case against the driver-employee during execution proceedings after proper motion and due notice and hearing against the common carrier as employer. And all the injured passenger has to show is that the driver employee is insolvent per sheriff’s return of judgment in execution. (Vda. de Paman v. Seneris, 115 SCRA 709) Now, if that is the case, was the common carrier as employer denied of due process as he was deprived of his day in court. The answer is no, the rationale being that the common carrier as employer should have given his driver a good defense counsel, because in defending the interest of the driver, the employer would also be defending his own interest. May the injured passenger file also a case of culpa aquiliana or quasi-delict against the common carrier even if there is a pre-existing contractual relationship between them. It seems that the injured passenger may opt also to file a quasi-delict case if the act that breaks the contract resulted in tort. (Air France v. Carrascoso, September 28, 1966) However, in cases of culpa aquiliana or quasi-delict, the injured passenger has the burden of proving the negligence of the common carrier and his driver, and the defense of due diligence in the selection and supervision of employee is a complete defense of the common carrier as employer to avoid civil liability. A contractual obligation can be breached by tort and when the same act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. (LRTA v. Natividad, 397 SCRA 75, 177 TRANSPORTATION LAWS February 6, 2003; Mindanao Terminal and Brokerage Services, Inc. v. Phoenix Assurance Co. of New York/McGee & Co., Inc., G.R. No. 162467, May 8, 2009) In quasi-delict, the negligence or fault should be clearly established because it is the basis of the action, whereas in breach of contract, the action can be prosecuted merely by proving the existence of the contract and the fact that the obligor, in this case the common carrier failed to transport his passenger safely to his destination. (Calalas v. Court of Appeals, 332 SCRA 356) In all these cases (culpa contractual, culpa criminal and culpa aquiliana), when the common carrier was held to pay damages for the injured passenger, he may ask reimbursement from his driver in a proper case. The amount of damages for death caused by a crime or quasi-delict shall be at least P3,000, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of Article 291, the recipient who is not an heir called to the decedent’s inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. (Art. 2206) The indemnity for death caused by a quasi-delict used to be pegged at P3,000, based on Article 2206 of the Civil Code. However, 178 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS the amount has been gradually increased through the years because of the declining value of our currency. At present, prevailing jurisprudence fixes the amount at P50,000. (Pestaho v. Sumayang, 346 SCRA 870) In the absence of stipulation, attorney’s fees and expense of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen’s compensation and employer’s liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable. (Art. 2208) 179 TRANSPORTATION LAWS In contracts, quasi-contracts, and quasi-delicts, the court may equitably mitigate the damages under circumstances other than the case referred to in the preceding article, as in the following instances: (1) That the plaintiff himself has contravened the terms of the contract; (2) That the plaintiff has derived some benefit as a result of the contract; (3) In cases where exemplary damages are to be awarded, that the defendant acted upon the advice of counsel; (4) (5) That the loss would have resulted in any event; That since the filing of the action, the defendant has done his best to lessen the plaintiff’s loss or injury. (Art. 2215) Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant’s wrongful act or omission. (Art. 2217) Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in Article 309; (10) Acts and actions referred to in Articles 21,26,27,28,29,30, 32, 34, and 35. 180 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of this article, in the order named. (Art. 2219) As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Art. 2219 of the Civil Code. As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Art. 2220. (Calalas v. Court of Appeals, 332 SCRA 356) The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, and serious anxiety as the result of the actuations of the other party. Invariably such action must be shown to have been willfully done in bad faith or with ill motive. (Ace Haulers Corporation v. Court of Appeals, 338 SCRA 572) “Bad faith does not simply connote bad judgment or negligence, it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill-will that partakes of the nature of fraud.” Where in breaching the contract of carriage the common carrier is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation, which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages.” (Tan v. Northwest Airlines, 327 SCRA 263) Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. (Art. 2229) In criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime was committed with one 181 i TRANSPORTATION LAWS or more aggravating circumstances. Such damages are separate and distinct from fines and shall be paid to the offended party. (Art. 2230) In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. (Art. 2231) In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. (Art. 2232). (Singapore Airlines v. Fernandez, 417 SCRA 484) Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated. (Art. 2233) Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. It is an established rule that nominal damages cannot co-exist with compensatory damages. (LRTA v. Natividad, 397 SCRA 75, February 6, 2003) Damages, Computation of Indemnity, Life Expectancy of Victim as basis in fixing amount recoverable, and Earning Capacity. Villa Rey Transit, Inc. v. The Court of Appeals, Trinidad A. Quintos, Prima A. Quintos and Julita A. Quintos G.R. No. L-25499, February 18,1970 FACTS: At about 1:30 in the morning ofMarch 17,1960, anlsuzu First Class passenger bus owned and operated by the defendant, bearing Plate No. TPU-14871-Bulacan and driven by Laureano Casim, left Lingayen, Pangasinan, for Manila. Among its paying passengers was the deceased, Policronio Quintos, Jr., who sat on the first seat, second row, right side of the bus. At about 4:55 a.m. when the vehicle was nearing the northern approach of the Sadsaran Bridge on the national highway in Barrio Sto. Domingo, Municipality of Minalin, Pampanga, it frontally hit the rear side of a bull cart filled with hay. As a result the end of a bamboo pole placed on top of the hay load and tied to the cart to hold it in place, hit the right side of the windshield of the bus. The 182 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS protruding end of the bamboo pole, about eight feet long from the rear of the bull cart, penetrated through the glass windshield and landed on the face of Policronio Quintos, Jr., who, because of the impact, fell from his seat and was sprawled on the floor. The pole landed on his left eye and the bone of the left side of his face was fractured. He suffered other multiple wounds and was rendered unconscious due, among other causes, to severe cerebral concussion. Policronio Quintos, Jr., died at 3:15 p.m. on the same day, March 17, 1960, due to traumatic shock due to cerebral injuries. The private respondents, Trinidad, Prima and Julita, all sumamed Quintos, are the sisters and only surviving heirs of Policronio Quintos, Jr., who died single, leaving no descendants or ascendants. Said respondents herein brought this action against herein petitioner. Villa Rey Transit, Inc., as owner and operator of said passenger bus, bearing Plate No. TPU-14871-Bulacan, for breach of the contract of carriage between said petitioner and the deceased Policronio Quintos, Jr., to recover the aggregate sum of P63,750 as damages, including attorney’s fees. Said petitioner — defendant in the Court of First Instance — contended that the mishap was due to a fortuitous event, but this pretense was rejected by the trial court and the Court of Appeals, both of which found that the accident and the death of Policronio had been due to the negligence of the bus driver, for whom petitioner was liable under its contract of carriage with the deceased. ISSUE: The only issue raised in this appeal is the amount of damages recoverable by private respondents herein. The determination of such amount depends, mainly upon two factors, namely: (1) the number of years on the basis of which the damages shall be computed; and (2) the rate at which the losses sustained by said respondents should be fixed. HELD: The first factor was based by the trial court — the view of which was concurred in by the Court of Appeals — upon the life expectancy of Policronio Quintos, Jr., which was placed at 33-1/3 years — he being over 29 years of age (or around 30 years for purposes of computation) at the time of his demise — by applying the formula (2/3 x [80 - 30] = life expectancy) adopted in the American Expectancy 183 TRANSPORTATION LAWS Table of Mortality or the actuarial of Combined Experience Table of Mortality. Upon the other hand, petitioner maintains that the lower courts had erred in adopting said formula and in not acting in accordance with Alcantara v. Surro in which the damages were computed on a four year basis, despite the fact that the victim therein was 39 years old, at the time of his death, and had a life expectancy of 28.90 years. The case cited is not, however, controlling in the one at bar. In the Alcantara case, none of the parties had questioned the propriety of the four-year basis adopted by the trial court in making its award of damages. Thus, life expectancy is not only relevant but also, an important element in fixing the amount recoverable by private respondents herein. Although it is not the sole element determinative of said amount, no cogent reason has been given to warrant its disregard and the adoption, in the case at bar, of a purely arbitrary standard, such as a four-year rule. In short, the Court of Appeals has not erred in basing the computation of petitioner’s liability upon the life expectancy of Policronio Quintos, Jr. At this juncture, it should be noted, also, that the Court is mainly concerned with the determination of the losses or damages sustained by the private respondents, as dependents and intestate heirs of the deceased, and that said damages consist, not of the full amount of his earnings, but of the support they received or would have received from him had he not died in consequence of the negligence of petitioner’s agent. In fixing the amount of that support, we must reckon with the “necessary expenses of his own living,” which should be deducted from his earnings. Thus, it has been consistently held that earning capacity, as an element of damages to one’s estate for his death by wrongful act is necessarily his net earning capacity or his capacity to acquire money, “less the necessary expense for his own living.” Stated otherwise, the amount recoverable is not loss of the entire earning, but rather the loss of that portion of the earnings, which the beneficiary would have received. In other words, only net earnings, not gross earning, are to be considered that is, the total of the earnings less expenses necessary in the creation of such earnings or income and less living and other incidental expenses. 184 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS All things considered, the Court is of the opinion that it is fair and reasonable to fix the deductible living and other expenses of the deceased at the sum of P 1,184 a year, or about PI00 a month, and that, consequently, the loss sustained by his sisters may be roughly estimated at PI ,000 a year or P33,333.33 for the 33-1/3 years of his life expectancy. To this sum of P33,333.33, the following should be added: (a) P 12,000, pursuant to Articles 104 and 107 of the Revised Penal Code, in relation to Article 2206 of our Civil Code, as construed and applied by this Court; (b) PI,727.95, actually spent by private respondents for medical and burial expenses; and (c) attorney’s fee, which was fixed by the trial court, at P500, but which, in view of the appeal taken by petitioner herein, first to the Court of Appeals and later to this Supreme Court, should be increased to P2,500. In other words, the amount adjudged in the decision appealed from should be reduced to the aggregate sum of P49,561.28, with interest thereon, at the legal rate, from December 29, 1961, date of the promulgation of the decision of the trial court. Thus modified, said decision and that of the Court of Appeals are hereby affirmed, in all other respects, with costs against petitioner, Villa Rey Transit, Inc. Fortune Express, Inc. v. Court of Appeals G.R. No. 119756, March 18,1999 Compensation for Loss of Earning Capacity. Article 1764 of the Civil Code, in relation to Article 2206 thereof, provided that in addition to the indemnity for death arising from the breach of contract of carriage by a common carrier, the “defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter.” The formula established in decided cases for computing net earning capacity is as follows: [Gross Necessary] Net Earning Capacity = Life x [Annual - Living] Expectancy [Income Expenses] 185 TRANSPORTATION LAWS Life expectancy is equivalent to 2/3 multiplied by the difference of 80 and the age of the deceased. Since Atty. Caorong was 37 years old at the time of his death, he had a life expectancy of 28, 2/3 more years. His projected gross annual income, computed based on his monthly salary of PI 1,385 as a lawyer in the Department of Agrarian Reform at the time of his death, was P148,005. Allowing for necessary living expenses of 50% of his projected gross annual income, his total earning capacity amounts to P2,121,404.90. Hence, the petitioner is liable to the private respondents in the said amount as compensation for loss of earning capacity. Damages, computation of indemnity. Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc. G.R. No. 186312, June 29, 2010 FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C. Cruz (Ruelito), who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent. On September 11, 2000, as it was still windy, Miguel C. Matute (Matute), a scuba diving instructor, and 25 other Resort guests including petitioner’s son and wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas. Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to side, and the captain step forward to the front, leaving the wheel to one of the crew members. The waves got more unwieldy. After getting hit by two big waves, which came after the other, M/B Coco Beach III capsized, putting all passengers 186 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS underwater. The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute and the other passengers, who reached the surface, asked him what they could do to save the people who were still trapped under the boat. The captain replied. “Iligtas ninyo na lang ang sarili ninyo ” (Just save yourselves). At the time of Ruelito's death, he was 28 years old and employed as a contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd., in Saudi Arabia, with a basic monthly salary for $900. Petitioners, by letter of October 26, 2000, demanded Indemnification from respondent for the death of their son in the amount of at least P4,000.000. Replying, respondent denied any responsibility for the incident, which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of PI 0,000 to petitioners upon their signing of a waiver. By Decision of February 16, 2005, Branch 267 of the Pasig RTC dismissed petitioners’ Complaint and respondent’s Counterclaim. Petitioner’s Motion for Reconsideration, having been denied, they appealed to the Court of Appeals. By Decision of August 19, 2008, the appellate court denied petitioners’ appeal, holding, among other things, that the trial court correctly ruled that respondent is a private carrier, which is only required to observe ordinary diligence; that respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the proximate cause of the incident was a squall, a fortuitous event. ISSUE: Assuming that respondent is a common carrier, how much is he liable for the death of the victim. HELD: Article 1764 vis-a-vis Article 2206 of the Civil Code holds the common carrier in breach of its contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death; (2) indemnity for loss of earning capacity; and (3) moral damages. Petitioners are entitled to indemnity for the death of Ruelito, which is fixed at P50,000. 187 TRANSPORTATION LAWS As for damages representing unearned income, the formula for its compensation is: Net Earning Capacity = life expectancy x (gross annual income-reasonable and necessary living expenses) Life expectancy is determined in accordance with the formula: 2/3 x [80 - age of deceased at the time of the death] The first factor, i.e, life expectancy, is compared by applying the formula 2/3 x [80 - age at death] adopted in the American Expectancy Table of Mortality or the Actuarial of Combine Experience Table of Mortality. The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or income and less living and other incidental expenses. The loss is not equivalent to the entire earnings of the deceased, but only such portion, as he would have used to support his dependents or heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to be used by the deceased for his own needs. In computing the third factor — necessary living expense, Smith Bell Dodwell Shipping Agency Corp. v. Borja teaches that when, as in this case, there is no showing that the living expenses constituted the smaller percentage of the gross income, the living expenses are fixed at half of the gross income. Applying the above guidelines, the Court determines Ruelito’s life expectancy as follows: Life expectancy = 2/3 x [80 - age of deceased at the time of death] 2/3 x [80-28] 2/3 x [52] Life expectancy = 35 Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 which, when converted to Philippine peso 188 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS applying the annual average exchange rate of 1 $ = P44 in 2000 amounts to P39,600. Ruelito’s net earning capacity is thus computed as follows: Net Earning Capacity = life expectancy x (gross annual incomereasonable and necessary living expenses) = 35 x (P475,200.00 - P237,600.00) = 35 x (P237,600.00) Net Earning Capacity = P8,316,000.00 Respecting the award of moral damages, since respondent common carrier’s breach of contract of carriage resulted in the death of petitioners’ son, following Article 1765 vis-a-vis Article 2206 of the Civil Code, petitioners are entitled to moral damages. Since respondent failed to prove that it exercised the extraordinary diligence required of common carriers, it is presumed to have acted recklessly, thus, warranting the award too of exemplary damages, which are granted in contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Under the circumstances, it is reasonable to award petitioners the amount of PI00,000 as moral damages, and PI00,000 as exemplary damages. Pursuant to Article 2208 of the Civil Code, attorney’s fees may also be awarded where exemplary damages are awarded. The Court finds that 10% of the total amount adjudged against respondent is reasonable for the purpose. Wherefore, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is rendered in favor of petitioners, ordering respondent to pay petitioners the following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito’s loss of earning capacity; (3) PI00,000 as moral damages; (4) PI00,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent as attorney’s fees; and (6) the costs of suit. The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from the finality of this decision until full payment. 189 TRANSPORTATION LAWS The amount recoverable by the heirs of a victim of a tort is not the loss of the entire earnings, but the loss of that portion of the earnings, which the beneficiary would have received. Dangwa Transportation Co., Inc. and Theodore M. Lardizabal v. Court of Appeals, Inocencia Cudiamat, et al G.R. No. 95582, October 7,1991 FACTS: On May 13, 1985, private respondents filed a complaint for damages against petitioners for the death of Pedrito Cudiamat as a result of a vehicular accident, which occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet. Among others, it was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a passenger bus belonging to petitioner corporation in a reckless and imprudent manner and without due regard to traffic rules and regulations and safety to persons and property, it ran over its passenger, Pedrito Cudiamat. However, instead of bringing Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and without regard to the welfare of the victim, first brought his other passengers and cargo to their respective destinations before bringing said victim to the Lepanto Hospital where he expired. On the other hand, petitioners alleged that they had observed and continued to observe the extraordinary diligence required in the operation of the transportation company and the supervision of the employees, even as they add that they are not absolute insurers of the safety of the public at large. Further, it was alleged that it was the victim’s own carelessness and negligence, which gave rise to the subject incident, hence, they prayed for the dismissal of the complaint plus an award of damages in their favor by way of a counterclaim. On July 29,1988, the trial court rendered a decision, effectively in favor of petitioners, with this decretal portion: IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat was negligent, which negligence was the proximate cause of his death. Nonetheless, defendants in equity, are hereby ordered to pay the heirs of Pedrito Cudiamat the sum of PI 0,000 190 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS which approximates the amount defendants initially offered said heirs for the amicable settlement of the case. No costs. Not satisfied therewith, private respondents appealed to the Court of Appeals, which, in a decision in CA-G.R. CVNo. 19504 promulgated on August 14, 1990, set aside the decision of the lower court, and ordered petitioners to pay private respondents: “1. The sum of Thirty Thousand Pesos (P30,000.00) by way of indemnity for death of the victim Pedrito Cudiamat; 2. The sum of Twenty Thousand Pesos (P20,000.00) by way of moral damages; 3. The sum of Two Hundred Eighty-Eight Thousand Pesos (P288,000.00) as actual and compensatory damages; 4. The costs of this suit.” ISSUE: Whether or not respondent court erred in reversing the decision of the trial court and in finding petitioners negligent and liable for the damages claimed. HELD: The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled to all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty, which the carrier of passengers owes to its patrons, extends to persons boarding the cars as well as to those alighting therefrom. Moreover, the circumstances under which the driver and the conductor failed to bring the gravely injured victim immediately to the hospital for medical treatment is a patent and incontrovertible proof of their negligence. It defies understanding and can even be stigmatized as callous indifference. The evidence shows that after the accident, the bus could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted to first proceed to Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the serious condition of the victim. The vacuous reason given by petitioners that it was the wife of the deceased who caused the delay was tersely and correctly confuted by respondent court: 191 TRANSPORTATION LAWS “x x x The pretension of the appellees that the delay was due to the fact that they had to wait for about twenty minutes for Inocencia Cudiamat to get dressed deserves scant consideration. It is rather scandalous and deplorable for a wife whose husband is at the verge of dying to have the luxury of dressing herself up for about twenty minutes before attending to help her distressed and helpless husband.” With respect to the award of damages, an oversight was, however, committed by respondent Court of Appeals in computing the actual damages based on the gross income of the victim. The rule is that the amount recoverable by the heirs of a victim of a tort is not the loss of the entire earnings, but rather the loss of that portion of the earnings, which the beneficiary would have received. In other words, only net earnings, not gross earnings, are to be considered, that is, the total of the earnings less expenses necessary in the creation of such earnings or income and minus living and other incidental expenses. The Court is of the opinion that the deductible living and other expense of the deceased may fairly and reasonably be fixed at P500 a month or P6,000 a year. In adjudicating the actual or compensatory damages, respondent court found that the deceased was 48 years old, in good health with a remaining productive life expectancy of 12 years, and then earning P24,000 a year. Using the gross annual income as the basis, and multiplying the same by 12 years, it accordingly awarded P288,000. Applying the aforestated rule on computation based on the net earnings, said award must be, as it hereby is, rectified and reduced to P216,000. However, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000. (See also Smith Podwell Shipping Agency Corporation v. Borja, 383 SCRA 341, June 30, 2002) Factors to be considered in the award of damages to accident victim The determination of the indemnity to be awarded to the heirs of a deceased person has therefore no fixed basis. Much is left to the discretion of the court considering the moral and material damages involved, and so it has been said that “there can be no exact or uniform 192 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS rule for measuring the value of a human life and the measure of damages cannot be arrived at by precise mathematical calculation, but the amount recoverable depends on the particular facts and circumstances of each case. The life expectancy of the deceased or of the beneficiary, whichever is shorter, is an important factor.” (25 CJ.S. 124) Other factors that are usually considered are: (1) pecuniary loss to plaintiff or beneficiary (25 CJ.S. 1243-1250); (2) loss of support (25 C.J.S. 1250- 1251); (3) loss of service (25 C.J.S 1251-1254); (4) loss of society (25 CJ.S. 1254-1255); (5) mental suffering of beneficiaries (25 C.J.S. 1258-1259); and (6) medical and funeral expenses (25 C.J.S., 1254- 1260). (Alcantara v. Surro, 93 Phil. 472) The contract of air carriage generates a relation attended with a public duty and neglect or malfeasance of carrier’s employees naturally could give ground for an action for damages. Philippine Airlines, Inc. v. Court of Appeals and Leovigildo A. Pantejo G.R. No. 120262, July 17,1997 FACTS: On October 23, 1988, private respondent Pantejo, then City Fiscal of Surigao City, boarded a PAL plane in Manila and disembarked in Cebu City where he was supposed to take his connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to Surigao City was cancelled. To accommodate the needs of its stranded passengers, PAL initially gave out cash assistance of PI00 and, the next day, P200, for their expected stay of two days in Cebu. Respondent Pantejo requested instead that he be billeted in a hotel at PAL’s expense because he did not have cash with him at that time, but PAL refused. Thus, respondent Pantejo was forced to seek and accept the generosity of a co-passenger, an engineer named Andoni Dumlao, and he shared a room with the latter at Sky View Hotel with the promise to pay his share of the expenses upon reaching Surigao. On October 25, 1988, when the flight for Surigao was resumed, respondent Pantejo came to know that the hotel expenses of his copassengers, one Superintendent Ernesto Gonzales and a certain Mrs. 193 TRANSPORTATION I.AWS Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed by PAL. At this point, respondent Pantejo informed Oscar Jereza, PAL’s Manager for Departure Services at Mactan Airport and who was in charge of cancelled flights, that he was going to sue the airline for discriminating him. It was only then that Jereza offered to pay respondent Pantejo P300 which, due to the ordeal and anguish he had undergone, the latter declined. On March 18, 1991, the Regional Trial Court of Surigao City, Branch 30, rendered judgment in the action for damages filed by respondent Pantejo against herein petitioner, Philippine Airlines, Inc., ordering the latter to pay Pantejo P300 for actual damages, PI50,000 as moral damages, PI 00,000 as exemplary damages, PI5,000 as attorney’s fees, and 6% interest from the time of the filing of the complaint until said amounts shall have been fully paid, plus costs of suit. On appeal, respondent court affirmed the decision of the court a quo, but with the exclusion of the award of attorney’s fees and litigation expenses. ISSUE: Whether or not petitioner airlines acted in bad faith when it failed and refused to provide hotel accommodations for respondent Pantejo or to reimburse him for hotel expenses incurred by reason of the cancellation of its connecting flight to Surigao City due to force majeure. HELD: To begin with, it must be emphasized that a contract to transport passengers is quite different in kind and degree from any other contractual relation, and this is because of the relation, which an air carrier sustains with the public. Its business is mainly with the traveling public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier’s employees naturally could give ground for an action for damages. Petitioner theorizes that the hotel accommodations or cash assistance given in case a flight is cancelled is in the nature of an amenity and is merely a privilege that may be extended at its own discretion, but never a right that may be demanded by its passengers. Thus, when respondent Pantejo was offered cash assistance and he refused it, petitioner cannot be held liable for whatever befell respondent Pantejo 194 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS on that day, because it was merely exercising its discretion when it opted to just give cash assistance to its passengers. Assuming arguendo that the airline passengers have no vested right to these amenities in case a flight is cancelled due to force majeure, what makes petitioner liable for damages in this particular case and under the facts obtaining herein is its blatant refusal to accord the so- called amenities equally to all its stranded passengers who were bound for Surigao City. No compelling or justifying reason was advanced for such discriminatory and prejudicial conduct. More importantly, it has been sufficiently established that it is petitioner’s standard company policy, whenever a flight has been cancelled, to extend to its hapless passengers cash assistance or to provide them accommodations in hotels with which it has existing tie-ups. In fact, petitioner’s Mactan Airport Manager for departure services, Oscar Jereza, admitted that PAL has an existing arrangement with hotels to accommodate stranded passengers, and that the hotel bills of Ernesto Gonzales were reimbursed obviously pursuant to that policy. Further, Ernesto Gonzales, the aforementioned co-passenger of respondent on that fateful flight, testified that based on his previous experience, hotel accommodations were extended by PAL to its stranded passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza. Thus, we view as impressed with dubiety PAL’s present attempt to represent such emergency assistance as being merely ex gratia and not ex debito. Respondent Court of Appeals thus correctly concluded that the refund of hotel expenses was surreptitiously and discriminatorily made by herein petitioner since the same was not made known to everyone, except through word of mouth to a handful of passengers. This is a sad commentary on the quality of service and professionalism of an airline company, which is the country’s flag carrier at that. It is likewise claimed that the moral and exemplary damages awarded to respondent Pantejo are excessive and unwarranted on the ground that respondent is not totally blameless because of his refusal to accept the PI00 cash assistance which was inceptively offered to him. 195 TRANSPORTATION LAWS The discriminatory act of petitioner against respondent ineludibly makes the former liable for moral damages under Article 21 in relation to Article 2219(10) of the Civil Code. As held in Alitalia Airways v. Court of Appeals, et al., such inattention to and lack of care by petitioner airline for the interest of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to the award of moral damages. Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant’s culpable action and must, perforce, be proportional to the suffering inflicted. However, substantial damages do not translate into excessive damages. Except for attorney’s fees and costs of suit, it will be noted that the Court of Appeals affirmed point by point the factual findings of the lower court upon which the award of damages had been based. We, therefore, see no reason to modify the award of damages made by the trial court. Under the peculiar circumstances of this case, the Court is convinced that the awards for actual, moral and exemplary damages granted in the judgment of respondent court, for the reasons meticulously analyzed and thoroughly explained in its decision, are just and equitable. It is high time that the traveling public is afforded protection and that the duties of common carriers, long detailed in our previous laws and jurisprudence and thereafter collated and specifically catalogued in our Civil Code in 1950, be enforced through appropriate sanctions. The Court agrees, however, with the contention that the interest of 6% imposed by respondent court should be computed from the date of rendition of judgment and not from the filing of the complaint. The rule has been laid down in Eastern Shipping Lines, Inc. v. Court of Appeals, et al. This is because at the time of the filing of the complaint, the amount of damages to which plaintiff may be entitled remains unliquidated and not known, until it is definitely ascertained, assessed and determined by the court, and only after the presentation of proof thereon. 196 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS When a passenger contracts for a specific flight, he has a purpose in making that choice which must be respected. This choice, once exercised, must not be impaired by a breach on the part of the airline without the latter incurring any liability. Singapore Airlines Limited v. Andion Fernandez G.R. No. 142305, December 10,2003 FACTS: Respondent Andion Fernandez is an acclaimed soprano here in the Philippines and abroad. At the time of the incident, she was availing an educational grant from the Federal Republic of Germany, pursuing a Masters Degree in Music, majoring in Voice. She was invited to sing before the King and Queen of Malaysia on February 3 and 4, 1991. For this singing engagement, an airline passage ticket was purchased from petitioner Singapore Airlines, which would transport her to Manila from Frankfurt, Germany on January 28, 1991. From Manila, she would proceed to Malaysia on the next day. The petitioner issued the respondent a Singapore Airlines ticket for Flight No. SAQ 27, leaving Frankfurt, Germany on January 27, 1991 bound for Singapore with onward connections from Singapore to Manila. Flight No. SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January 27, 1991, arriving at Singapore at 8:50 in the morning of January 28, 1991. The connecting flight from Singapore to Manila, Flight No. SQ 72, was leaving Singapore at 11:00 in the morning of January 28, 1991, arriving in Manila at 2:20 in the afternoon of the same day. On January 27,1991, Flight No. SQ 27 left Frankfurt but arrived in Singapore two hours late or at about 11:00 in the morning of January 29, 1991. By then, the aircraft bound for Manila had left as scheduled, leaving the respondent and about 25 other passengers stranded in the Changi Airport in Singapore. Upon disembarkation at Singapore, the respondent approached the transit counter, who referred her to the nightstop counter, and told the lady employee thereat that it was important for her to reach Manila on that day, January 28, 1991. The lady employee told her that there were no more flights to Manila for that day, and that respondent had no choice but to stay in Singapore. Upon respondent’s persistence, she was told that she can actually fly to Hongkong going to Manila but since her ticket was non-transferable, she would have to pay for the ticket. The 197 TRANSPORTATION LAWS respondent could not accept the offer because she had no money to pay for it. Her pleas for the respondent to make arrangements to transport her to Manila were unheeded. The respondent was able to contact a family friend, who picked her up from the airport for her overnight stay in Singapore. The next day, after being brought back to the airport, the respondent proceeded to petitioner’s counter, which says: “Immediate Attention to Passengers with Immediate Booking.” There were four or five passengers in line. The respondent approached petitioner’s male employee at the counter to make arrangements for immediate booking only to be told: “Can’t you see I am doing something.” She explained her predicament but the male employee uncaringly retorted: “It’s your problem, not ours.” The respondent never made it to Manila and was forced to take a direct flight from Singapore to Malaysia on January 29, 1991, through the efforts of her mother and travel agency in Manila. Her mother also had to travel to Malaysia bringing with her respondent’s wardrobe and personal things needed for the performance that caused them to incur an expense of about P50,000. As a result of this incident, the respondent’s performance before the Royal Family of Malaysia was below par. Because of the rude and unkind treatment she received from the petitioner’s personnel in Singapore, the respondent was engulfed with fear, anxiety, humiliation, and embarrassment causing her to suffer mental fatigue. A case was filed against the petitioner for damages. On June 15, 1993, the Regional Trial Court (RTC) rendered a decision and ordered the defendant to pay the plaintiff P50,000. as compensatory and actual damages, P250,000 as moral damages considering plaintiff’s professional standing in the field of culture home and abroad, P100,000 as exemplary damages, and P75,000 as attorney's fees. The petitioner appealed the decision to the Court of Appeals (CA). On June 10, 1998, the CA promulgated the assailed decision finding no reversible error in the appealed decision of the trial court. Forthwith, the petitioner filed the instant petition for review. The petitioner assails the award of damages contending that it exercised the extraordinary diligence required by law under the given circumstances. 198 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS ISSUE: Whether or not the delay in transporting the respondent to Singapore was justified. HELD: When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriages arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the earner opens itself to a suit for breach of contract of carriage. The contract of air carriage is a peculiar one. Imbued with public interest, the law requires a common carriers 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 an action for breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that is necessary to prove is the existence of the contract and the fact of its non-performance by the carrier. In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore; 2) Singapore-Manila. In her contract of carriage with the petitioner, the respondent certainly expected that she would fly to Manila on Flight No. SQ 72 on January 28,1991. Since the petitioner did not transport the respondent as covenanted by it on said terms, the petitioner clearly breached its contract of carriage with the respondent. The respondent had every right to sue the petitioner for this breach. When a passenger contracts for a specific flight, he has a purpose in making that choice which must be respected. This choice, once exercised, must not be impaired by a breach on the part of the airline without the latter incurring any liability. For petitioner’s failure to bring the respondent to her destination, as scheduled, the Court finds the petitioner clearly liable for the breach of its contract of carriage with the respondent. Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary damages may be awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. The award of exemplary damages is, therefore, warranted in this case. 199 TRANSPORTATION LAW'S There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts. However, it must be commensurate to the loss or injury suffered. Philippine Airlines, Inc. v. Vicente Lopez, Jr. G.R. No. 156654, November 20, 2008 FACTS: In a Complaint dated February 11, 1992 filed with the Regional Trial Court (RTC) of Manila, Branch 24, Lopez claimed that PAL had unjustifiably downgraded his seat from business to economy class in his return flight from Bangkok to Manila last November 30, 1991, and that in view thereof, PAL should be directed to pay him moral damages of at least PI 00,000, exemplary damages of at least P20,000, attorney’s fees in the sum of P30,000, as well as the costs of suit. To support his claim, Lopez averred that he purchased a ManilaHongkong-Bangkok-Manila PAL business class ticket and that his return flight to Manila was confirmed by PAL’s booking personnel in Bangkok on November 26, 1991. He also mentioned that he was surprised to learn during his check-in for the said return flight that his status as business class passenger was changed to economy class, and that PAL was not able to offer any valid explanation for the sudden change when he protested the change. Lopez added that although aggrieved, he nevertheless took the said flight as an economy class passenger because he had important appointments in Manila. In its Decision dated April 19, 1995, the trial court held PAL liable for damages and orders defendant to pay plaintiff, as prayed for in the complaint, the following amounts: PI00,000 for moral damages; P20,000 for exemplary damages, P30,000 for attorney’s fees, and also to pay for the cost of suit. All amounts awarded to bear legal interest from date of this decision. On appeal, the Court of Appeals affirmed in toto the trial court’s decision. PAL moved for consideration, which was denied. Hence, this petition. ISSUE: Whether or not the award of moral damages is excessive. 200 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS HELD: Citing Articles 1733 and 2220 of the Civil Code and the case of Ortigas, Jr v. Lufthansa German Airlines, the trial court held that the inattention and lack of care on the part of the common carrier, in this case PAL, resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud, making it liable for damages. The trial court likewise awarded attorney’s fees in favor of Lopez after noting that Lopez was forced to litigate in order to assert his rights. PAL’s procedural lapses notwithstanding, the Court had nevertheless carefully reviewed the records of this case and found no compelling reason to depart from the uniform factual findings of the trial court and the Court of Appeals that: (1) it was the negligence of PAL which caused the downgrading of the seat of Lopez; and (2) the aforesaid negligence of PAL amounted to fraud or bad faith, considering our ruling in Ortigas. Moreover, the Court cannot agree with PAL that the amount of moral damages awarded by the trial court, as affirmed by the Court of Appeals, was excessive. In Mercury Drug Corporation v. Baking, the Court stated that “there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts. However, it must be commensurate to the loss or injury suffered.” Taking into account the attending circumstances here, the amount of PI00,000 awarded as moral damage is appropriate. An action based on breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or negligent; all he has to prove is the existence of the contract and the fact of its non-performance by the carrier. Cathay Pacific Airways, Ltd. v. Spouses Arnulfo and Evelyn Fuentebella G.R. No. 188283, July 20, 2016 FACTS: In 1993, the Speaker of the House authorized Congressman Arnulfo Fuentebella (respondent Fuentebella), Alberto Lopez (Cong. Lopez) and Leonardo Fugoso (Cong. Fugoso) to travel on of- 201 TRANSPORTATION LAWS ficial business to Sydney, Australia, to confer with their counterparts in the Australian Parliament from October 25 to November 6, 1993. On October 22, 1993, respondents bought Business Class tickets for Manila to Sydney via Hong Kong and back. They changed their minds, however, and decided to upgrade to First Class. From this point, the parties presented divergent versions of facts. The overarching disagreement was on whether respondents should have been given First Class seat accommodations for all the segments of their itinerary. According to respondents, their travel arrangements, including the request for the upgrade of their seats from Business Class to First Class, were made through Cong. Lopez. The congressman corroborated this allegation and testified that upon assurance that their group would be able to travel on First Class upon cash payment of the fair difference, he sent a member of his staff that same afternoon to pay. Petitioner, on their part, admits that First Class tickets were issued to respondents, but clarifies that the tickets were open-dated (waitlisted). On October 25, 1993, respondents queued in front of the First Class counter in the airport. They were issued boarding passes for Business Class seats on board CX 902 bound for Hong Kong from Manila and Economy Class seats on board CX 101 bound for Sydney from Hong Kong. They only discovered that they had not been given First Class seats when they were denied entry into the First Class lounge. Respondent Fuentebella went back to the check-in-counter to demand that they be given First Class seats or at the very least, access to the First Class Lounge. He recalled that he was treated by the ground staff in a discourteous, arrogant, and rude manner. He was allegedly told that the plane would leave with or without them. Respondents were able to travel First Class for their trip from Sydney to Hong Kong on October 30, 1993. However, on the last segment of the itinerary from Hong Kong to Manila on November 2,1993, they were issued boarding passes for Business Class. Upon arrival in the Philippines, respondents demanded a formal apology and payment of damages from petitioner. In resolving the case, the trial court first identified the ticket as a contract of adhesion whose terms, as such, should be construed against petitioner. It found that respondents had entered into the contract because of the assurance that they would be given First Class seats. 202 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS The trial court ordered petitioner to pay P5 million as moral damages, PI million as exemplary damages, and P500,000 as attorney’s fees. In setting the award for moral damages, the Regional Trial Court (RTC) considered the prestigious position held by respondent Fuentebella, as well as the bad faith exhibited by petitioner. According to the trial court, the contract was flagrantly violated in four instances: First, when respondents were denied entry to the First Class lounge; Second, at the check-in-counter when the airport services officer failed to adequately address their concern; Third, at the Hong Kong airport when they were ignored; and Fourth, when respondents became the butt of jokes upon their arrival in Sydney. Court of Appeals (CA) affirmed the lower court’s decision and held that there was a breach of contract when petitioner assigned Business Class and Economy Class seats to First Class ticket holders. ISSUE: Whether of not there is a breach of contract of carriage. HELD: In Air France v. Gillego, this Court ruled that in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent; all that he has to prove is the existence of the contract and the fact of its non-performance by the carrier. In this case, both the trial and appellate courts found that respondents were entitled to First Class accommodations under the contract of carriage, and that petitioner failed to perform its obligation. According to the petitioner, a reservation is deemed confirmed when there is a seat available on the plane. When asked how a passenger was informed of the confirmation, they replied that computer records were consulted upon inquiry. By its issuance of First Class tickets on the same day of the flight in place of Business Class tickets that indicated the preferred and confirmed flight, petitioner led respondents to believe that their request for an upgrade had been approved. However, the award of P5 million as moral damages is excessive, considering that the highest amount ever awarded by this Court for moral damages in cases involving airlines is P500,000. In Air France v. Gillego, “the mere fact that respondent was a Congressman should not result in an automatic increase in the moral and exemplary damages.” 203 TRANSPORTATION LAWS The Court finds that upon the facts established, the amount of P500,000 as moral damages is reasonable to obviate the moral suffering that respondents have undergone. With regard to exemplary damages, jurisprudence shows that P50,000 is sufficient to deter similar acts of bad faith attributable to airline representatives. Passengers do not contract merely for transportation. They have a right to be treated by the carrier’s employees with kindness, respect, courtesy, and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities, and abuses from such employees. Spouses Jesus Fernando and Elizabeth S. Fernando v. Northwest Airlines, Inc. G.R. No. 212038, February 8, 2017 Northwest Airlines, Inc. v. Spouses Jesus Fernando and Elizabeth S. Fernando G.R. No. 212043 FACTS: Sometime on December 20, 2001, Jesus Fernando arrived at the LA Airport via Northwest Airlines Flight No. NW02, to join his family for the Christmas holidays. When Jesus Fernando presented his documents at the immigration counter, he was asked by the Immigration Officer to have his return ticket verified and validated since the date reflected thereon is August 2001. So he approached a Northwest personnel Linda Puntawongdaycha, but the latter merely glanced at his ticket without checking its status with the computer and peremptorily said that the ticket has been used and could not be considered as valid. He then explained to the personnel that he was about to use the said ticket on August 20 or 21, 2001 on his way back to Manila from LA but he could not book any seat because of some ticket restrictions, so he, instead purchased new business class ticket on the said date. Hence, the ticket remains unused and perfectly valid. To avoid further arguments, Jesus Fernando gave the personnel the number of his Elite Platinum World Perks Card for the latter to access the ticket control record with the airline’s computer and for her to see that the ticket is still valid. But Linda Puntawongdaycha refused to check 204 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS the validity of the ticket in the computer, but instead, looked at Jesus Fernando with contempt, then informed the Immigration Officer that the ticket is not valid because it had been used. The Immigration Officer brought Jesus Fernando to the interrogation room of the Immigration and Naturalization Services (INS) where he was asked humiliating questions for more than two hours. When he was finally cleared by the Immigration Officer, he was granted only a 12-day stay in the United States (US), instead of the usual six months. When Jesus Fernando was finally able to get out of the airport, to the relief of his family, Elizabeth Fernando proceeded to a Northwest Ticket counter to verify the status of the ticket. The personnel manning the counter courteously assisted her and confirmed that the ticket remained unused and perfectly valid. To avoid any further problems that may be encountered on the validity of the ticket, a new ticket was issued to Jesus Fernando. Since Jesus Fernando was granted only a 12-day stay in the US, his scheduled plans with his family, as well as his business commitments were disrupted. The Femandos were scheduled to attend the Musical Instrument Trade Show in LA on January 17,2002, and the Sports Equipment Trade Show in Las Vegas on January 21 to 23, 2002, which were both previously scheduled. Hence, Jesus Fernando had to spend additional expenses for plane fares and other related expenses, and missed the chance to be with his family for the whole duration of the Christmas holidays. On January 29, 2002, the Femandos were on their way back to the Philippines. They have confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan, and NW 029 for Manila. They checked in with their luggage at the LA Airport, and were given their respective boarding passes for business class seats and claim stubs for six pieces of luggage. With boarding passes, tickets, and other proper travel documents, they were allowed entry to the departure area. When it was announced that the plane was ready for boarding, the Femandos joined long queue of business class passengers along with their business associates from Japan and the Philippines, who attended the aforesaid trade shows. When the Femandos reached the gate area where boarding passes need to be presented, Northwest supervisor, Linda Tang, stopped them and demanded for the presentation of their paper tickets (coupon type). They failed to present the same since, 205 TRANSPORTATION LAWS according to them; Northwest issued electronic tickets (attached to the boarding passes), which they showed to the supervisor. In the presence of the other passengers, Linda Tang pulled them out of the queue. Elizabeth Fernando explained that the matter could be sorted out by simply verifying their electronic tickets in her computer, and all she had to do was click and punch in their Elite Platinum World Perks Card number. But Linda Tang told them that if they wanted to board the plane, they should produce their credit cards and pay for their new tickets, otherwise, they would be off-loaded from the plane. Exasperated and pressed for time, the Femandos rushed to the Northwest Airline Ticket counter to clarify the matter. They were assisted by Northwest personnel Jeanne Meyer, who retrieved their control number from her computer and was able to ascertain that the Femandos’ electric tickets were valid and they were confirmed passengers on both NW Flight No. 001 for Narita Japan and NW 029 for Manila on that day. To ensure that the Femandos would no longer encounter any problem with Linda Tang, Jeanne Meyer printed coupon tickets for them, who were then advised to msh back to the boarding gates since the plane was about to depart. But when the Femandos reached the boarding gate, the plane had already departed. They were able to depart instead the day after, or on January 30, 2002, and arrived in the Philippines on January 31, 2002. On April 30, 2002, a complaint for damages was instituted by the Femandos against Northwest Airlines before the Regional Trial Court (RTC), Branch 97, Quezon City. In September 2008, the RTC rendered judgment in favor of the plaintiffs and ordering the defendants to pay moral damages in the amount of P200,000; actual or compensatory damages in the amount of US $2,000, or its corresponding Peso equivalent at the time the airline ticket was purchased; attorney’s fees in the amount of P50,000; and the cost of suit. ISSUE: (1) Whether or not there was breach of contract of carriage; (2) Whether or not it was done in a wanton, malevolent, or reckless manner amounting to bad faith, and; (3) Whether or not it is liable to pay more than that awarded by the RTC. HELD: The Court finds merit in the petition of the Spouses Jesus and Elizabeth Fernando. Undoubtedly, a contract of carriage existed 206 CIIAm-R IV )AMA(il!S I OR ItUI'ACII ()!• CONTRACT OI< COMMON CARRIERS between Northwest and (lie Fernandos. They voluntarily and freely gave (heir consent to an agreement whose object was the transportation of the Fernandos from LA to Manila, and whose cause or consideration was the fare paid by the Fernandos to Northwest. In Alitalia Airways v. CA, et al> the Court held that when an airline issues a ticket to a passenger confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. When Northwest confirmed the reservations of the Fernandos, it bound itself to transport the Fernandos on their flight on January 29, 2002. Northwest admitted on cross-examination that based on the documents submitted by the Fernandos, they were confirmed passengers on the January 29, 2002 flight. In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier. As the aggrieved party, the Fernandos only had to prove the existence of the contract and the fact of its non-performance by Northwest, as carrier, in order to be awarded compensatory and actual damages. Therefore, having proven the existence of a contract of carriage between Northwest and the Fernandos, and the fact of non-performance by Northwest of its obligation as a common carrier, it is clear that Northwest breached its contract of carriage with the Fernandos. Thus, Northwest opened itself to claims for compensatory, actual, moral, and exemplary damages, attorney’s fees, and costs of suit. The Court, thus, sustained the findings of the CA and the RTC that Northwest committed a breach of contract “in failing to provide the spouses with the proper assistance to avoid inconveniences,” and that the actuations of Northwest in both subject incidents “fall short of the utmost diligence of a very cautious person expected of it.” Both ruled that considering that the Fernandos are not just ordinary passengers but, in fact, frequent flyers of Northwest, the latter should have been more courteous and accommodating to their needs so that the delay and inconveniences they suffered could have been avoided. Northwest was 207 TRANSPORTATION LAWS remiss in its duty to provide the proper and adequate assistance to them. Nonetheless, the Court is not in accord with the common findings of the CA and the RTC when both ruled out bad faith on the part of Northwest. While the Court agrees that the discrepancy between the date of actual travel and the date appearing on the tickets of the Femandos called for some verification, however, the Northwest personnel failed to exercise the utmost diligence in assisting the Femandos. The actuations of Northwest personnel in both subject incidents are constitutive of bad faith. On the first incident, Jesus Fernando even gave the Northwest personnel the number of his Elite Platinum World Perks Card for the latter to access the ticket control record with the airline’s computer for her to see that the ticket is still valid. But Linda Puntawongdaycha refused to check the validity of the ticket in the computer. As a result, the Immigration Officer brought Jesus Fernando to the interrogation room of the INS, where he was interrogated for more than two hours. When he was finally cleared by the Immigration Officer, he was granted only a 12-day stay in the US, instead of the usual six months. As in fact, the RTC awarded actual or compensatory damages because of the testimony of Jesus Fernando that he had to go back to Manila and then return again to LA, USA two days after requiring him to purchase another round trip ticket from Northwest in the amount of $2,000, which was not disputed by Northwest. In ignoring Jesus Femando’s pleas to check the validity of the tickets in the computer, the Northwest personnel exhibited an indifferent attitude without due regard for the inconvenience and anxiety Jesus Fernando might have experienced. Passengers do not contract merely for transportation. They have a right to be treated by the carrier’s employees with kindness, respect, courtesy, and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities, and abuses from such employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages against the carrier. In requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of the highest possible degree of diligence from common carriers and in creating a presumption of negligence against them, the law seeks to compel them 208 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS to control their employees, to tame their reckless instincts, and to force them to take adequate care of human beings and their property. Notably, after the incident, the Femandos proceeded to a Northwest Ticket counter to verify the status of the ticket and they were assured that the ticket remained unused and perfectly valid. And to avoid any future problems that may be encountered on the validity of the ticket, a new ticket was issued to Jesus Fernando. The failure to promptly verify the validity of the ticket connotes bad faith on the part of Northwest. Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. It means breach of a known duty through some motive, interest or ill will that partakes of the nature of fraud. A finding of bad faith entitles the offended party to moral damages. As to the second incident, there was likewise fraud or bad faith on the part of Northwest when it did not allow the Femandos to board their flight for Manila on January 29,2002, in spite of confirmed tickets. The Court needs to stress that they have confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan, and NW 029 for Manila. They checked in with their luggage at LA Airport and were given their respective boarding passes for business class seats and claim stubs for six pieces of luggage. With boarding passes and electronic tickets, apparently, they were allowed entry to the departure area, and they eventually joined the long queue of business class passengers along with their business associates. However, in the presence of the other passengers, Northwest personnel Linda Tang pulled the Femandos out of the queue and asked for paper tickets (coupon type). Elizabeth Fernando explained to Linda Tang that the matter could be sorted out by simply verifying their electronic tickets in her computer and all she had to do was click and punch in their Elite Platinum World Perks Card number. Again, the Northwest personnel refused to do so; she, instead, told them to pay for new tickets so they could board the plane. Hence, the Femandos rushed to the Northwest Airline Ticket counter to clarify the matter. They were assisted by Northwest personnel Jeanne Meyer, who retrieved their control number from her computer, and was able to ascertain that the Femandos electronic tickets were valid, and they were confirmed passengers on both NW Flight No. 001 for Narita, Japan and NW 029 for Manila on that day. 209 TRANSPORTATION LAWS In Ortigas, Jr. v Lufthansa German Airlines, this Court declared that “in contracts of common carnage, in attention and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud, which entitles the passengers to the award of moral damages in accordance with Article 2220 of the Civil Code.” In Pan American World Airways, Inc. v. Intermediate Appellate Court, where a would-be passenger had the necessary ticket, baggage claim and clearance from immigration, all clearly and unmistakably showing that she was, in fact, included in the passenger manifest of said flight, and yet was denied accommodation in said flight, this Court did not hesitate to affirm the lower court’s finding awarding her damages on the ground that the breach of contract of carriage amounted to bad faith. For the indignity and inconvenience of being refused a confirmed seat on the last minute, said passenger is entitled to an award of moral damages. Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. Clearly, in this case, the Femandos are entitled to an award of moral damages. The purpose of awarding moral damages is to enable the injured party to obtain means, diversion, or amusement that will serve to alleviate the moral suffering he has undergone by reason of defendant’s culpable action. The Court notes that even if both the CA and the RTC ruled out bad faith on the part of Northwest, the award of “some moral damages” was recognized. Both courts believed that considering that the Femandos are good clients of Northwest for almost 10 years being Elite Platinum World Perks Card holders, and are known in their business circle, they should have been given by Northwest the corresponding special treatment. They own hotels and a chain of apartelles in the country, and a parking garage building in Indiana, USA. From this perspective, the Court adopts the said view. The Court, thus, increase the award of moral damages to the Femandos the amount of P3,000,000. Exemplary damages, which are awarded by way of example or correction for the public good, may be recovered in contractual obligations, if defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. They are designed by our civil law to permit the courts to reshape behavior that is socially deleterious in its 210 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS consequence by creating negative incentives or deterrents against such behavior. Hence, given the facts and circumstances of this case, the Court holds Northwest liable for the payment of exemplary damages in the amount of P2,000,000. As to the payment of attorney’s fees, the Court sustains the award thereof on the ground that the Femandos were ultimately compelled to litigate and incurred expenses to protect their rights and interests, and because the Femandos are entitled to an award for exemplary damages. Pursuant to Article 2208 of the Civil Code, attorney’s fees may be awarded when exemplary damages are awarded, or a party is compelled to litigate or incur expenses to protect his interest, or where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim. Records show that the Femandos demanded payment for damages from Northwest even before the filing of this case in court. Clearly, the Femandos were forced to obtain the services of counsel to enforce a just claim, for which they should be awarded attorney’s fees. The Court deems it just and equitable to grant an award of attorney’s fees equivalent to 10% of the damages awarded. Philtranco Service Enterprises, Inc. and Rogaciano Manilhig v. Court of Appeals and Heirs of the late Ramon Acuesta G.R. No. 120553, June 17,1997 FACTS: In the early morning of March 24, 1990, about 6:00, the victim Ramon A. Acuesta was riding in his easy rider bicycle, along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga Park. On the Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco for brevity) Bus No. 4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was being pushed by some persons in order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St., and the said Philtranco Bus No. 4025 was heading in the general direction of the said Gomez St. Some of the persons who were pushing the bus were on its back, while the others were on the sides. As the bus was pushed, its engine started thereby the bus continued on its running motion and it occurred at the time when Ramon A. Acuesta who was 211 TRANSPORTATION LAWS still riding on his bicycle was directly in front of the said bus. As the engine of the Philtranco bus started abruptly and suddenly, its running motion was also enhanced by the said functioning engine, thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter, was run over by the said bus. The bus did not stop although it had already bumped and run over the victim; instead, it proceeded running towards the direction of the Rosales Bridge and which is located at one side of the Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was riding on his bicycle. P/Sgt. Yabao who was then jogging [through] the Gomez Street and was heading towards the victim Ramon A. Acuesta as the latter was riding on his bicycle, saw when the Philtranco abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver defendant Manilhig herein and signaled to him to stop, but the latter did not listen. So the police officer jumped into the bus and introducing himself to the driver defendant as policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus near the Nijaga Park and Sgt. Yabao thereafter, told the driver to proceed to the Police Headquarter, which was only 100 meters away from Nijaga Park because he was apprehensive that the said driver might be harmed by the relatives of the victim who might come to the scene of the accident. Then Sgt. Yabao cordoned the scene where the vehicular accident occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an investigation and make a sketch of the crime scene. Sgt. Yabao was only 20 meters away when he saw the bus of defendant Philtranco bump and run over the victim. From the place where the victim was actually bumped by the bus, the said vehicle still had run to a distance of about 15 meters away. For their part, the petitioners filed an Answer wherein they alleged that petitioner Philtranco exercised the diligence of a good father of a family in the selection and supervision of its employees, including petitioner Manilhig, who had an excellent record as a driver and had undergone months of rigid training before he was hired. Petitioner Manilhig had always been a prudent professional driver, religiously observing traffic rules and regulations. In driving Philtranco’s buses, he exercised the diligence of a very cautious person. 212 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS The petitioner further claimed that it was the negligence of the victim in overtaking two tricycles, without taking precautions such as seeing first that the road was clear, which caused the death of the victim. The latter did not even give any signal of his intention to overtake. However, the petitioners were not able to present their evidence, as they were deemed to have waived that right by the failure of their counsel to appear at the scheduled hearings on March 30 and 31, 1992. The trial court then issued an Order declaring the case submitted for decision. Motions for the reconsideration of the said Order were both denied. On January 22, 1992, the trial court handed down a decision ordering the petitioners to jointly and severally pay the private respondents the following amounts: 1) 2) P55,615.72 as actual damages; P200,000 as death indemnity for the death of the victim Ramon A. Acuesta; 3) PI million as moral damages; 4) P500,000 by way of exemplary damages; 5) P50,000 as attorney’s fees; and 6) The costs of suit. Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals, which affirmed the decision of the trial court. ISSUE: Whether or not the award of damages is excessive. HELD: The trial court erroneously fixed the “death indemnity” at P200,000. The private respondents defended the award in their opposition to the Motion for Reconsideration by saying that “In the case of Philippine Airlines, Inc. v. Court of Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is computed on the basis of the life expectancy of the deceased.” In that case, the “death indemnity” was computed by multiplying the victim’s gross annual income by his life expectancy, less his yearly living expenses. Clearly then, the “death indemnity” referred to was the additional indemnity for the loss of earning capacity mentioned in Article 2206(1) of the 213 TRANSPORTATION LAWS Civil Code, and not the basic indemnity for death mentioned in the first paragraph thereof. The Court concurs with petitioners’ view that the trial court intended the award of P200,000 as “death indemnity” not as compensation for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the same must be struck out for lack of basis. There is no evidence on the victim’s earning capacity and life expectancy. Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by current jurisprudence at P50,000. The award of PI million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is excessive and unreasonable. Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant’s culpable action and must, perforce, be proportional to the suffering inflicted. In light of the circumstances in this case, an award of P50,000 for moral damages is in order. The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may be awarded if the party at fault acted with gross negligence. The Court of Appeals found that there was gross negligence on the part of petitioner Manilhig. Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good in addition to the moral, temperate, liquidated, or compensatory damages. Considering its purpose, it must be fair and reasonable in every case and should not be awarded to unjustly enrich a prevailing party. In the instant case, an award of P50,000 for the purpose would be adequate, fair, and reasonable. Finally, the award of P50,000 for attorney’s fees must be reduced. The general rule is that attorney’s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. Stated otherwise, the grant of attorney’s fees as part of 214 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS damages is the exception rather than the rule, as counsel’s fees are not awarded every time a party prevails in a suit. Such attorney’s fees can be awarded in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable. To prove actual damages, the best evidence available to the injured party must be presented. Baliwag Transit, Inc. v. Court of Appeals, Spouses Antonio Garcia and Leticia Garcia, and Julio Recontique G.R. No. 116110, May 15, 1996 FACTS: The records show that on July 31, 1980, Leticia Garcia, and her five-year old son, Allan Garcia, boarded Baliwag Transit Bus No. 2036 bound for Cabanatuan City driven by Jaime Santiago. They took the seat behind the driver. At about 7:30 in the evening, in Malimba, Gapan, Nueva Ecija, the bus passengers saw a cargo truck parked at the shoulder of the national highway. Its left rear portion jutted to the outer lane, as the shoulder of the road was too narrow to accommodate the whole truck. A kerosene lamp appeared at the edge of the road obviously to serve as a warning device. The truck driver, Julio Recontique, and his helper, Arturo Escala, were then replacing a flat tire. The truck is owned by respondent A & J Trading. Bus driver Santiago was driving at an inordinately fast speed and failed to notice the truck and the kerosene lamp at the edge of the road. Santiago’s passengers urged him to slow down but he paid them no heed. Santiago even carried animated conversations with his co-employees while driving. When the danger of collision became imminent, the bus passengers shouted, “Babangga tayo!” Santiago stepped on the brake, but it was too late. His bus rammed into the stalled cargo truck. It caused the instant death of Santiago and Escala, and injury to several others. Leticia and Allan Garcia were among the injured passengers. Leticia suffered a fracture in her pelvis and right leg. They rushed her to the provincial hospital in Cabanatuan City where she was given emergency treatment. After three days, she was transferred to the National Orthopedic Hospital where she was confined for more than a month. She underwent an operation for partial hip prosthesis. Allan, on 215 TRANSPORTATION LAWS the other hand, broke a leg. He was also given emergency treatment at the provincial hospital. Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J Trading and Julio Recontique for damages in the Regional Trial Court of Bulacan. Leticia sued as an injured passenger of Baliwag and as mother of Allan. At the time of the complaint, Allan was a minor, hence, the suit initiated by his parents in his favor. Baliwag, A & J Trading and Recontique disclaimed responsibility for the mishap. Baliwag alleged that the accident was caused solely by the fault and negligence of A & J Trading and its driver, Recontique. Baliwag charged that Recontique failed to place an early warning device at the comer of the disabled cargo truck to warn oncoming vehicles. On the other hand, A & J Trading and Recontique alleged that the accident was the result of the negligence and reckless driving of Santiago, bus driver of Baliwag. After hearing, the trial court found all the defendants liable. On Appeal, the Court of Appeals modified the Trial Court’s Decision by absolving A & J Trading from liability and by reducing the award of attorney’s fees to PI0,000, and loss of earnings to P300,000, respectively. ISSUE: Whether or not the amount of damages awarded by the Court of Appeals to the Garcia Spouses is correct. HELD: First, the propriety of the amount awarded as hospitalization and medical fees. The award of P25,000 is not supported by the evidence on record. The Garcias presented receipts marked as Exhibits “B-l” to “B-42” but their total amounted only to P5,017.74. To be sure, Leticia testified as to the extra amount spent for her medical needs but without more reliable evidence, her lone testimony cannot justify the award of P25,000 to prove actual damages, the best evidence available to the injured party must be presented. The court cannot rely on uncorroborated testimony whose truth is suspect, but must depend upon competent proof that damages have been actually suffered. Thus, the Court reduced the actual damages for medical and hospitalization expenses to P5,017.74. Second, the Court finds as reasonable the award of P300,000 representing Leticia’s lost earnings. Before the accident, Leticia was 216 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS engaged in embroidery, earning P5,()00 per month. Her injuries forced her to stop working. Considering the nature and extent of her injuries and the length of time it would take her to recover, we find it proper that Baliwag should compensate her lost income for five years. Third, the award of moral damages is in accord with law. In a breach of contract of carriage, moral damages are recoverable if the carrier, through its agent, acted fraudulently or in bad faith. The evidence shows the gross negligence of the driver of Baliwag bus, which amounted to bad faith. Without doubt, Leticia and Allan experienced physical suffering, mental anguish and serious anxiety by reason of the accident. Leticia underwent an operation to replace her broken hipbone with metal plate. She was confined at the National Orthopedic Hospital for 45 days. The young Allan was also confined in the hospital for his foot injury. Contrary to the contention of Baliwag, the decision of the trial court as affirmed by the Court of Appeals awarded moral damages to Antonio and Leticia Garcia not in their capacity as parents of Allan. Leticia was given moral damages as an injured party. Allan was also granted moral damages as an injured party but because of his minority, the award in his favor has to be given to his father who represented him in the suit. Finally, the Court finds the award of attorney’s fees justified. The complaint for damages was instituted by the Garcia spouses on December 15, 1982, following the unjustified refusal of Baliwag to settle their claim. The Decision was promulgated by the trial court only on January 29,1991 or about nine years later. Numerous pleadings were filed before the trial court, the appellate court and to this Court. Given the complexity of the case and the amount of damages involved, the award of attorney’s fees for PI 0,000 is just and reasonable. QUESTION: May the Court award indemnity for the victims of accident for loss of earning capacity when the latter is not employed or no history of earnings? ANSWER: Yes (Pereha v. Zarate and PNR, G.R. No. 157917, August 29, 2012 and Carianga v. Laguna Tayabas Bus Co. and Manila Railroad Co., 110 Phil. 346 [I960]), under the above case, the fact that Aaron was then without a history of earnings should not be taken 217 TRANSPORTATION LAWS against his parents and in favor of the defendants whose negligence not only cost Aaron his life and his right to work and earn money, but also deprived his parents of their right to his presence and his services as well. Our law itself states that the loss of the earning capacity of the deceased shall be the liability of the guilty party in favor of the heirs of the deceased, and shall in every case be assessed and awarded by the court “unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death.” The Court further explained that the operator of a school bus service is a common carrier in the eyes of the law. He is bound to observe extraordinary diligence in the conduct of his business. He is presumed to be negligent when death occurs to a passenger. His liability may include indemnity for loss of earning capacity even if the deceased passenger may only be unemployed high school student at the time of the accident. The prevailing minimum wage under the Labor Code will be the basis of the computation in arriving for such award. (Perena v. Zarate andPNR, G.R. No. 157917, August 29, 2012) Trans-Asia Shipping Lines, Inc. v. Court of Appeals and Atty. Renato T. Arroyo G.R. No. 118126, March 4,1996 FACTS: Plaintiff, herein private respondent Atty. Renato Arroyo, public attorney, bought a ticket from defendant, herein petitioner, a corporation engaged in inter-island shipping, for the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991. At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand vessel. At that instance, plaintiff noticed that some repair works [sic] were being undertaken on the engine of the vessel. The vessel departed at around 11:00 in the evening with only one engine running. After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor thereat. After half an hour of stillness, some passengers demanded that they should be allowed to return to Cebu City for they were no longer willing to continue their voyage to Cagayan de Oro City. The captain acceded [sic] to their request and thus the vessel headed back to Cebu City. 218 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS At Cebu City, plaintiff together with the other passengers who requested to be brought back to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro City. Plaintiff, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of defendant. On account of this failure of defendant to transport him to the place of destination on November 12, 1991, plaintiff filed before the trial court a complaint for damages against defendant. ISSUE: Whether or not the petitioner is liable for moral and exemplary damages. HELD: Moral damages include moral suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, or similar injury. They may be recovered in the cases enumerated in Article 2219 of the Civil Code. Likewise, if they are the proximate result of, as in this case, the petitioner’s breach of the contract of carriage. Anent a breach of a contract of common carriage, moral damages may be awarded if the common carrier, like the petitioner, acted fraudulently or in bad faith. Exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. In contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. It cannot, however, be considered as a matter of right; the court having to decide whether or not they should be adjudicated. Before the court may consider an award for exemplary damages, the plaintiff must first show that he is entitled to moral, temperate or compensatory; but it is not necessary that he prove the monetary value thereof. The Court likewise fully agrees with the Court of Appeals that the petitioner is liable for moral and exemplary damages. In allowing its unseaworthy MW Asia Thailand to leave the port of origin and undertake the contracted voyage, with full awareness that it was exposed to perils of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence and obviously acted with bad faith and in a wanton and reckless manner. On this score, however, the petitioner 219 TRANSPORTATION LAWS asserts that the safety of the vessel and passengers was never at stake because the sea was “calm” in the vicinity where it stopped as faithfully recorded in the vessel’s logbook. Hence, the petitioner concludes, the private respondent was merely “over-acting” to the situation obtaining then. The Court holds that the petitioner’s defense cannot exculpate it nor mitigate its liability. On the contrary, such a claim demonstrates beyond cavil the petitioner’s lack of genuine concern for the safety of its passengers. It was, perhaps, only providential that the sea happened to be calm. Even so, the petitioner should not expect its passengers to act in the manner it desired. The passengers were not stoics; becoming alarmed, anxious, or frightened at the stoppage of a vessel at sea in an unfamiliar zone at nighttime is not the sole prerogative of the fainthearted. More so, in the light of the many tragedies at sea resulting in the loss of lives of hopeless passengers and damage to property simply because common carriers failed in their duty to exercise extraordinary diligence in the performance of their obligations. Nominal damages are recovered where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. Cathay Pacific Airways v. Juanita Reyes, Wilfredo Reyes, Michael Roy Reyes, Sixta Lapuz, and Sampaguita Travel Corporation G.R. No. 185891, June 26, 2013 FACTS: Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with Sampaguita Travel for his family’s trip to Adelaide, Australia scheduled from April 12, 1997 to May 4, 1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was issued four Cathay Pacific roundtrip airplane tickets for Manila-Hongkong-Adelaide-Hongkong-Manila. On April 12, 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes (Michael) and mother-in-law Sixta Lapuz (Sixta) flew to Adelaide, Australia without a hitch. One week 220 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS before they were scheduled to fly back home, Wilfredo reconfirmed his family’s return flight with the Cathay Pacific office in Adelaide. They were advised that the reservation was “still okay as scheduled.” On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the airport on time. When the airport check-in counter opened, Wilfredo was informed by a staff from Cathay Pacific that the Reyeses did not have confirmed reservations, and only Sixta’s flight booking was confirmed. Nevertheless, they were allowed to board the flight to Hongkong due to adamant pleas from Wilfredo. When they arrived in Hongkong, they were again informed of the same problem. Unfortunately this time, the Reyeses were not allowed to board because the flight to Manila was fully booked. Only Sixta was allowed to proceed to Manila from Hongkong. On the following day, the Reyeses were finally allowed to board the next flight bound for Manila. After a series of exchanges and with no resolution in sight, respondents filed a Complaint for damages against Cathay Pacific and Sampaguita Travel, and prayed for the following relief: a) PI,000,000 as moral damages; b) P300,000 as actual damages; c) PI00,000 as exemplary damages; and d) PI00,000 as attorney’s fees. After trial on the merits, the Regional Trial Court (RTC) rendered a decision in favor of the defendants and against the herein plaintiff. Accordingly, plaintiffs’ complaint was ordered DISMISSED for lack of merit. Respondents appealed to the Court of Appeals (CA). On October 22, 2008, the CA ordered Cathay Pacific to pay P25,000 each to respondents as nominal damages. Cathay Pacific assails the award of nominal damages in favor of respondents on the ground that its action of canceling the flight bookings was justifiable. Cathay Pacific reveals that upon investigation, the respondents had no confirmed bookings for their return flights. Hence, it was not obligated to transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith in accommodating the respondents despite holding unconfirmed bookings. ISSUE: Whether or not the award of nominal damages is proper. HELD: For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, 221 TRANSPORTATION LAWS premised upon competent proof and the best evidence obtainable by the injured party. To justify an award of actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims, which are duly supported by receipts. The CA echoes the findings of the trial court that respondent failed to show proof of actual damages. Wilfredo initially testified that he personally incurred losses amounting to P300,000, which represents the amount of the contract that he was supposedly scheduled to sign had his return trip not been cancelled. During the cross-examination, however, it appears that the supposed contract signing was a mere formality and that an agreement had already been hatched beforehand. Hence, we cannot fathom how said contract did not materialize because of Wilfredo’s absence, and how Wilfredo incurred such losses when he himself admitted that he entered into said contract on behalf of Parsons Engineering Consulting Firm, where he worked as construction manager. Thus, if indeed there were losses, these were losses suffered by the company and not by Wilfredo. Moreover, he did not present any documentary evidence such as the actual contract or affidavits from any of the parties to said contract to substantiate his claim of losses. With respect to the remaining passengers, they likewise failed to present proof of the actual losses they suffered. Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. What the law considers as bad faith, which may furnish the ground for an award of moral damages, would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit. In the same vein, to warrant the award of exemplary damages, defendant must have acted in wanton, fraudulent, reckless oppressive, or malevolent manner. The Court of Appeals is correct in stating that “what may be attributed to x x x Cathay Pacific is negligence concerning the lapses in their process of confirming passenger bookings and reservations, done through travel agencies. But this negligence is not so gross so as to amount to bad faith. Cathay Pacific was not motivated by malice or bad faith in not allowing respondents to board on their return flight to 222 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS | I j Manila. It is evident and was in fact proven by Cathay Pacific that its refusal to honor the return flight bookings of respondents was due to the cancellation of one booking and the two other bookings were not reflected on its computerized booking system. Likewise, Sampaguita Travel cannot be held liable for moral | damages. True, Sampaguita Travel was negligent in the conduct of its booking and ticketing which resulted in the cancellation of flights. But I its actions were not proven to have been tainted with malice or bad faith, Under these circumstances, respondents are not entitled to moral and exemplary damages. With respect to attorney’s fees, the Court upholds the appellate court’s finding on lack of factual and legal justification to award attorney’s fees. The Court, however, sustains the award of nominal damages in the amount of P25,000 to only three of the four respondents who were aggrieved by the last-minute cancellation of their flights. Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind or where there has been a breach of contract, and no substantial injury or actual damages whatsoever have been or can be shown. Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, not for indemnifying the plaintiff for any loss suffered. Considering that the three respondents were denied boarding their return flight from Hongkong to Manila, and that they had to wait in the airport overnight for their return flight, they are deemed to have technically suffered injury. Nonetheless, they failed to present proof of actual damages. Consequently, they should be compensated in the form of nominal damages. When are attorney’s fees recoverable? Under Article 2208 of the Civil Code, these are recoverable only in the concept of actual damages, not as moral damages or judicial costs. Hence, to merit such an award, it is settled that the amount thereof must j be proven. Moreover, such must be specifically prayed for — as was ! not done in this case — and may not be deemed incorporated within 223 i. TRANSPORTATION LAWS a general prayer for such other relief and remedy as this court may deem just and equitable. Finally, it must be noted that aside from the following, the body of the respondent Court’s decision was devoid of any statement regarding attorney’s fees. In breach of contract of air carriage, moral damages may be recovered where (1) the mishap results in the death of a passenger; (2) where the carrier is guilty of fraud or bad faith; or (3) where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith. Philippine Airlines Incorporated v. Court of Appeals and Sps. Manuel S. Buncio and Aurora R. Buncio, assisted by their father, Manuel S. Buncio, et al G.R. No. 123238, September 22,2008 FACTS: Sometime before May 2, 1980, private respondents- spouses Manuel S. Buncio and Aurora R. Buncio purchased from petitioner Philippine Airlines, Incorporated, two plane tickets for their two minor children, Deanna R. Buncio (Deanna), then nine years of age, and Nikolai R. Buncio (Nikolai), then eight years old. Since Deanna and Nikolai will travel as unaccompanied minors, petitioner required private respondents to accomplish, sign, and submit to it an indemnity bond. Private respondents complied with this requirement. For the purchase of the said two plane tickets, petitioner agreed to transport Deanna and Nikolai on May 2, 1980 from Manila to San Francisco, California, United States of America (USA), through one of its planes, Flight 106. Petitioner also agreed that upon the arrival of Deanna and Nikolai in San Francisco Airplane on May 3, 1980, it would again transport the two on that same day through a connecting flight from San Francisco, California, USA to Los Angeles, California, USA via another airline, United Airways 996. Deanna and Nikolai then will be met by their grandmother, Mrs. Josefa Regalado (Mrs. Regalado), at the Los Angeles Airport on their scheduled arrival on May 3, 1980. On 2 May 1980, Deanna and Nikolai boarded Flight 106 in Manila. On May 3,1980, Deanna and Nikolai arrived at the San Francisco Airport. However, the staff of United Airways 996 refused to take 224 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS aboard Deanna and Nikolai for their connecting flight to Los Angeles because petitioner’s personnel in San Francisco could not produce the indemnity bond accomplished and submitted by private respondents. The said indemnity bond was lost by petitioner’s personnel during the previous stop-over of Flight 106 in Honolulu, Hawaii. Deanna and Nikolai were then left stranded at the San Francisco Airport. Subsequently, Mr. Edwin Strigl (Strigl), then the Lead Traffic Agent of petitioner in San Francisco, California, USA, took Deanna and Nikolai to his residence in San Francisco where they stayed overnight. Meanwhile, Mrs. Regalado and several relatives waited for the arrival of Deanna and Nikolai at the Los Angeles Airport. When United Airways 996 landed at the Los Angeles Airport and its passengers disembarked, Mrs. Regalado sought Deanna and Nikolai but she failed to find them. Mrs. Regalado asked a stewardess of the United Airways 996 if Deanna and Nikolai were on board but the stewardess told her that they had no minor passengers. Mrs. Regalado called private respondents and inform them that Deanna and Nikolai did not arrived at the Los Angeles Airport. Private respondents inquired about the location of Deanna and Nikolai from petitioner’s personnel, but the latter replied that they were still verifying their whereabouts. On the morning of May 4,1980, Strigl took Deanna and Nikolai to San Francisco Airport where the two boarded a Western Airlines plane bound for Los Angeles. Later that day, Deanna and Nikolai arrived at Los Angeles where they were met by Mrs. Regalado. Petitioner’s personnel had previously informed Mrs. Regalado of the late arrival of Deanna and Nikolai on May 4, 1980. On November 20, 1981, private respondents filed a complaint for damages against petitioner before the Regional Trial Court (RTC). After trial, RTC rendered a Decision on April 2, 1990 holding petitioner liable for damages for breach of contract of carriage. It ruled that petitioner should pay moral damages for its inattention and lack of care for the welfare of Deanna and Nikolai, which, in effect, amounted to bad faith and for the agony brought by the incident to private respondents and Mrs. Regalado. It also held that petitioner should pay exemplary damages by way of example or correction for the public 225 TRANSPORTATION LAWS good under Articles 2229 and 2232 of the Civil Code, plus attorney’s fees and costs of suit. In sum, the RTC ordered petitioner: (1) to pay Deanna and Nikolai P50,000 each as moral damages, and P25,000 each for exemplary damages; (2) to pay private respondent Aurora R. Buncio, as mother of Deanna and Nikolai, P75,000 as moral damages; (3) to pay Mrs. Regalado, as grandmother of Deanna and Nikolai, P30,000 as moral damages; and (4) to pay an amount of P38,250 as attorney’s fees, and the costs of suit. Petitioner appealed to the Court of Appeals. On December 20, 1995, the appellate court affirmed in toto the RTC Decision. ISSUE: Whether or not the grant of attorney’s fees cited only in the dispositive portion of the trial court is justified. HELD: When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger has every right to expect that he be transported on that flight and on that date, and it becomes the airline’s obligation to carry him and his luggage safely to the agreed destination without delay. If the passenger is not so transported or if in the process of transporting, he dies or is injured, the carrier may be held liable for a breach of contract of carrier. Private respondents and petitioner entered into a contract of air carriage when the former purchased two plane tickets from the latter. Under this contract, petitioner obliged itself (1) to transport Deanna and Nikolai, as unaccompanied minors, on May 2, 1980 from Manila to San Francisco through one of its planes, Flight 106; and (2) upon the arrival of Deanna and Nikolai in San Francisco Airport on May 3, 1980, to transport them on that same day from San Francisco to Los Angeles via a connecting flight on United Airways 996. As it was, petitioner failed to transport Deanna and Nikolai from San Francisco to Los Angeles on the day of their arrival at San Francisco. The staff of United Airways 996 refused to take aboard Deanna and Nikolai for their connecting flight to Los Angeles because petitioner’s personnel in San Francisco could not produce the indemnity bond accomplished and submitted by private respondents. Thus, Deanna and Nikolai were 226 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS stranded in San Francisco and were forced to stay there overnight. It was only on the following day that Deanna and Nikolai were able to leave San Francisco and arrive at Los Angeles via another airline, Western Airlines. Clearly then, petitioner breached its contract of carriage with private respondents. In breach of contract of air carriage, moral damages may be recovered where (1) mishap results in the death of a passenger; or (2) where the carrier is guilty of fraud and bad faith; or (3) where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith. Gross negligence implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of case. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. As earlier found, petitioner breached its contract of carriage with private respondents, and it acted recklessly and malevolently in transporting Deanna and Nikolai as unaccompanied minors and in handling their indemnity bond. The court has also ascertained that private respondents are entitled to moral damages because they have sufficiently established petitioner’s gross negligence, which amounted to bad faith. This being the case, the award of exemplary damages is warranted. Current jurisprudence instructs that in awarding attorney’s fees, the trial court must state the factual, legal, or equitable justification for awarding the same, bearing in mind that the award of attorney’s fees is the exception, not the general rule, and it is not sound public policy to place a penalty on the right to litigate, nor attorney’s fees be awarded every time a party wins a lawsuit. The matter of attorney’s fees cannot be dealt with only in the dispositive portion of the decision. The text of the decision must state the reason behind the award of attorney’s fees. Otherwise, its award is totally unjustified. In the instant case, the award of attorney’s fees was merely cited in the dispositive portion of the RTC decision without the RTC stating any legal or factual basis for said award. Hence, the Court of Appeals erred in sustaining the RTC’s award of attorney’s fees. 227 i;1j 1 !| TRANSPORTATION LAWS RIGHTEOUSNESS OF ATTORNEY’S FEES Asian Terminals, Inc. v. Allied Guarantee Insurance Co., Inc., G.R. No. 182208, October 14,2015 FACTS: Marina Port Services, Inc. (Marina), the predecessor of herein petitioner Asian Terminals, Inc. (petitioner ATP), is an arrastre operator based in the South Harbor, Port Area, Manila. On February 5, 1989, a shipment was made of 72,322 lbs. of kraft linear board (a type of paperboard) loaded and received from the ports of Lake Charles, LA and Mobile, AL, U.S.A., for transport and delivery to San Miguel Corporation (San Miguel) in Manila, Philippines. The vessel used was the M/V Nicole, operated by Transocean Marine, Inc. (Transocean), a foreign corporation, whose Philippine representative is Philippine Transmarine Carrier, Inc. (Philippine Transmarine). The M/V Nicole arrived in Manila on April 8, 1989 and, shortly thereafter, the subject shipment was offloaded from the vessel to the arrastre Marina until April 13, 1989. Thereafter, it was assessed that a total of 158 rolls of the goods were “damaged” during shipping. Further, upon the good’s withdrawal from the arrastre and their delivery, first, to San Miguel’s customs broker, Dynamic Brokerage Co., Inc. (Dynamic), and eventually, to the consignee San Miguel, another 54 rolls were found to have been damaged, for a total of 212 rolls of damaged shipment worth P755,666.84. Herein respondent Allied Guarantee Insurance Co., Inc. (respondent Allied) was the insurer of the shipment. Thus, it paid San Miguel P755,666.84 and was subrogated in the latter’s rights. On March 8,1990, Allied filed a Complaint (and later, an Amended Complaint) for maritime damages against Transocean, Philippine Transmarine, Dynamic, and Marina seeking to be indemnified for the P755,666.84 it lost in paying the consignee San Miguel. The suit alleged that the shipment was loaded from the ports of origin “in good and complete order condition”, and all losses were due to the fault of the named defendants. In addition, the suit sought legal interest, 25% of the indemnity as attorney’s fees and costs of the suit. 228 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS The Marine denied liability alleging that the 158 rolls shipments were already in “bad order condition” when it turned over the same to the consignees representative/broker. The other co-defendants likewise denied their liability. The case underwent trial, and thereafter, the Regional Trial Court (RTC) of Makati City, Branch 148, found all the defendants, including the predecessor of herein petitioner, liable for the losses, ordering the latter to pay the obligation in the amount of P623,935.76, plus interest corresponding to the 158 rolls of kraft linear board that was damaged while in the custody of defendant Transocean, Inc., to be paid by the latter to the plaintiff with legal rate of interest from the time when it was due and until fully paid; the amount of PI31,731.08, plus interest corresponding to the additional 54 rolls of kraft linear board that was damaged, to be paid jointly and severally by defendants Marina Port Services, Inc. and Dynamic Brokerage Co., Inc. to the plaintiff with legal rate of interest from the time when it was due until fully paid, and 25% of the aforesaid principal amounts as attorney’s fees to be paid jointly and severally by all the defendants. On appeal, the Court of Appeals (CA) affirmed the decision of the RTC. From the said decision, ATI filed the instant petition for review. ATI assails, among others, the award of attorney’s fees, stating that no findings of fact, or law were made, to justify the grant of such an award. ISSUE: Whether or not the award of attorney’s fees is justified. HELD: The court consistently held that an award of attorney’s fees under Article 2208 demands factual, legal, and equitable justification to avoid speculations and conjecture surrounding the grant thereof. Due to the special nature of the award of attorney’s fees, a rigid standard is imposed on the courts before these fees could be granted. Hence, it is imperative that they clearly and distinctly set forth in their decisions the basis for the award thereof. It is not enough that they merely state the amount of the grant in the dispositive portion of their decisions. It bears reiteration that the award of attorney’s fees is an exception rather than the general rule, thus, there must be compelling legal reason to bring the case within the exceptions provided under Article 2208 of the Civil Code to justify the award. 229 A TRANSPORTATION LAWS The court must always state the basis for the grant of attorney’s fees before such is justified because the principle that is generally observed is that no premium should be placed on the right to litigate. In the case at bar, other than a mere mention that “plaintiff was constrained to litigate to enforce its valid claim” by the trial court, there is no other compelling reason cited that would make the respondent entitled to attorney’s fees as held in the trial court, as well as the appellate court’s decision. It has been previously held that the mere fact of “having been forced to litigate to protect one’s interest” does not amount to the compelling legal reason that would make a case covered by any of the exceptions provided under Article 2208. Although attorney’s fees may be awarded when a claimant is “compelled to litigate with third persons or incur expenses to protect his interest” by reason of an unjustified act or omission on the part of the party from whom it is sought, but when there is a lack of findings on the amount to be awarded, and since there is no sufficient showing of bad faith in the defendant’s refusal to pay other than an erroneous assertion of the righteousness of its cause, attorney’s fees cannot be awarded against the latter. Hence, such an award in the case at bar is unjustified and must be deleted. Carlos Singson v. Court of Appeals and Cathay Pacific Airways, Inc. G.R. No. 119995, November 18,1997 FACTS: The instant case is an illustration of the exacting standard demanded by the law of common carriers. On 24 May 1988 CARLOS SINGSON and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd. (CATHAY), at its Metro Manila ticket outlet two open-dated, identically routed, round trip plane tickets for the purpose of spending their vacation in the United States. Each ticket consisted of six flight coupons corresponding to this itinerary: flight coupon No. 1 — Manila to Hongkong; flight coupon No. 2 — Hongkong to San Francisco; flight coupon No. 3 — San Francisco to Los Angeles; flight coupon No. 4 — Los Angeles back to San Francisco; flight coupon No. 5 — San Francisco to Hongkong; and finally, flight coupon No. 6 — Hongkong to Manila. The procedure was that at the start of each leg 230 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS of the trip a flight coupon corresponding to the particular sector of the travel would be removed from the ticket booklet so that at the end of the trip no more coupons would be left in the ticket booklet. On June 6, 1988, CARLOS SINGSON and Crescentino Tiongson left Manila on board CATHAY’s flight No. 902. They arrived safely in Los Angeles and after staying there for about three weeks they decided to return to the Philippines. On June 30, 1988, they arranged for their return flight at CATHAY’s Los Angeles Office and chose July 1, 1988, a Friday, for their departure. While Tiongson easily got a booking for the flight, SINGSON was not as lucky. It was discovered that his ticket booklet did not have flight coupon No. 5 corresponding to the San Francisco-Hongkong leg of the trip. Instead, what was in his ticket was flight coupon No. 3 — San Francisco to Los Angeles — which was supposed to have been used and removed from the ticket booklet. It was not until July 6, 1988 that CATHAY was finally able to arrange for his return flight to Manila. On August 26, 1988, SINGSON commenced an action for damages against CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. He claimed that he insisted on CATHAY’s confirmation of his return flight reservation because of very important and urgent business engagements in the Philippines. But CATHAY allegedly shrugged off his protestations and arrogantly directed him to go to San Francisco himself and do some investigations on the matter or purchase a new ticket subject to refund if it turned out that the missing coupon was still unused or subsisting. He remonstrated that it was the airline’s agent/representative who must have committed the mistake of tearing off the wrong flight coupon; that he did not have enough money to buy new tickets; and, CATHAY could conclude the investigation in a matter of minutes because of its facilities. CATHAY, allegedly in scornful insolence, simply dismissed him like an impertinent “brown pest.” Thus, he and his cousin Tiongson, who deferred his own flight to accompany him, were forced to leave for San Francisco on the night of July 1, 1988 to verify the missing ticket. CATHAY denied these allegations and averred that since petitioner was holding an “open-dated” ticket, which meant that he was not booked 231 TRANSPORTATION LAWS on a specific flight on a particular date, there was no contract of carriage yet existing such that CATHAY’S refusal to immediately book him could not be construed as breach of contract of carriage. Moreover, the coupon had been missing for almost a month; hence, CATHAY must first verify its status, i.e., whether the ticket was still valid and outstanding, before it could issue a replacement ticket to petitioner. For that purpose, it set a request by telex on the same day, July 1, 1988, to its Hongkong Headquarters where such information could be retrieved. However, due to the time difference between Los Angeles and Hongkong, no response from the Hongkong office was immediately received. Besides, since July 2 and 3, 1988 were a Saturday and a Sunday, respectively, and July 4, 1988 was an official holiday being U.S. Independence Day, the telex response of CATHAY Hongkong was not read until July 5, 1988. Lastly, CATHAY denied having required SINGSON to make a trip back to San Francisco; on the other hand, it was the latter that informed CATHAY that he was making a side trip to San Francisco. Hence, CATHAY advised him that the response of Hongkong would be copied in San Francisco so that he could conveniently verify thereat should he wish to. The trial court rendered a decision in favor of petitioner herein holding that CATHAY was guilty of gross negligence amounting to malice and bad faith for which it was adjudged to pay petitioner P20,000 for actual damages with interest at the legal rate of 12% per annum from August 26, 1988 when the complaint was filed until fully paid; P500,000 for moral damages; P400,000 for exemplary damages; PI00,000 for attorney’s fees, and, to pay the costs. On appeal by CATHAY, the Court of Appeals reversed the trial court’s finding that there was gross negligence amounting to bad faith or fraud and, accordingly, modified its judgment by deleting the awards for moral and exemplary damages, and the attorney’s fees as well. ISSUE: Whether or not the carrier was liable not only for actual damages but also for moral and exemplary damages, and attorney’s fees for failing to book petitioner on his return flight to the Philippines. HELD: With regard to the second issue, the Court is of the firm view that the appellate court seriously erred in disallowing moral and 232 C HAPTER IV DAMAGES I OR BREACH OF CONTRACT OF COMMON CARRIERS exemplary damages. Although the rule is that moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in the death of a passenger, or where the carrier is guilty of fraud or bad faith, there are situations where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral damages. However, the P500,000 moral damages and P400,000 exemplary damages awarded by the trial court have to be reduced. The well- entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the circumstances of each case. This discretion is limited by the principle that the “amount awarded should not be palpably and scandalously excessive” as to indicate that it was the result of prejudice or corruption on the part of the trial court. Damages are not intended to enrich the complainant at the expense of the defendant. They are awarded only to alleviate the moral suffering that the injured party had undergone by reason of the defendant’s culpable action. There is no hard-and-fast rule in the determination of what would be fair amount of moral damages since each case must be governed by its own peculiar facts. As regards attorney’s fees, they may be awarded when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. It was therefore erroneous for the Court of Appeals to delete the award made by the trial court; consequently, petitioner should be awarded attorney’s fees and the amount of P25,000, instead of PI00,000 earlier awarded, may be considered rational, fair and reasonable. Philippine National Railways v. The Honorable Court of Appeals and Rosario Tupang G.R. No. L-55347, October 4,1985 FACTS: The facts show that on September 10,1972, at about 9:00 in the evening, Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded Train No. 516 of appellant at Libmanan, Camarines Sur, as a paying passenger bound for Manila. Due to some mechanical defect, the 233 TRANSPORTATION LAWS train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before the train could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the train resulting in his death. The train did not stop despite the alarm raised by the other passengers that somebody fell from the train. Instead, the train conductor, Perfecto Abrazado, called the station agent at Candelaria, Quezon, and requested for verification of the information. Police authorities of Lucena City were dispatched to the Iyam-Bridge where they found the lifeless body of Winifredo Tupang. “As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to massive cerebral hemorrhage due to traumatic injury. Tupang was later buried in the public cemetery of Lucena City by the local police authorities. ” Upon complaint filed by the deceased’s widow, Rosario Tupang, the then Court of First Instance of Rizal, after trial, held the petitioner PNR liable for damages for breach of contract of carriage and ordered it “to pay the plaintiff the sum of PI 2,000.00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his earning capacity, and the further sum of PI 0,000.00 as moral damages, and P2,000.00 as attorney’s fees, and costs.” On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the utmost diligence required by law of a common carrier. It further increased the amount adjudicated by the trial court by ordering PNR to pay the plaintiff an additional sum of P5,000.00 as exemplary damages. Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the doctrine of state immunity from suit. It alleged that it is a mere agency of the Philippine Government without distinct or separate personality of its own, and that its funds are governmental in character and, therefore, not subject to garnishment or execution. The motion was denied; the respondent court ruled that the ground advanced could not be raised for the first time on appeal. HELD: The petition is devoid of merit. The PNR was created under R.A. No. 4156, as amended. The PNR has all the powers, the characteristics and attributes of a corporation under the Corporation 234 CHAPTER rV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS Law. There can be no question then that the PNR may sue and be sued and may be subjected to court processes just like any other corporation. As far back as 1941, this Court in the case of Manila Hotel Employees Association v. Manila Hotel Co., laid down the rule that “when the government enters into commercial business, it abandons its sovereign capacity and is to be treated like any other corporation. (Bank of the U.S. v. Planters’ Bank, 9 Waitch 904, 6 L. ed. 244) By engaging in a particular business through the instrumentality of a corporation, the government divests itself/?ro hac vice of its sovereign character, so as to render the corporation subject to the rules of law governing private corporations.” Of similar import is the pronouncement in Frisco v. CIR, that “when the government engages in business, it abdicates part of its sovereign prerogatives and descends to the level of a citizen x x x.” In fine, the petitioner PNR cannot legally set up the doctrine of nonsuability as a bar to the plaintiff’s suit for damages. The appellant court found, the petitioner does not deny, that the train boarded by the deceased Winifredo Tupang was so overcrowded that he and many other passengers had no choice but to sit on the open platforms between the coaches of the train. It is likewise undisputed that the train did not even slow down when it approached the Iyam Bridge which was under repair at that time. Neither did the train stop, despite the alarm raised by other passengers that a person had fallen off the train at Iyam Bridge. The petitioner has the obligation to transport its passengers to their destinations and to observe extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that it was negligent in the performance of its obligation under the contract of carriage. Thus, as correctly ruled by the respondent court, the petitioner failed to overthrow such presumption of negligence with clear and convincing evidence. But while petitioner failed to exercise extraordinary diligence as required by law, it appears that the deceased was chargeable with contributory negligence. Since he opted to sit on the open platform between the coaches of the train, he should have held tightly and tenaciously on the upright metal bar found at the side of said platform to 235 TRANSPORTATION LAWS avoid falling off from the speeding train. Such contributory negligence, while not exempting the PNR from liability, nevertheless justified the deletion of the amount adjudicated as moral damages. By the same token, the award of exemplary damages must be set aside. Exemplary damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There being no evidence of fraud, malice or bad faith on the part of petitioner, the grant of exemplary damages should be discarded. Moral damages, exemplary damages; where the award of moral and exemplary damages is eliminated, so must the award for attorney’s fees be deleted. Collin A. Morris and Thomas P. Whittier v. Court of Appeals (Tenth Division) and Scandinavian Airlines System G.R. No. 127957, February 21,2001 FACTS: Petitioner Morris and co-petitioner Whittier had a series of business meetings with Japanese businessmen in Japan from February 14 to February 22, 1978. They requested their travel agent, Staats Travel Services, Inc. to book them as first class passengers in SAS Manila-Tokyo flight on February 14, 1978. Respondent booked them as first-class passengers on Flight SK 893, Manila-Tokyo flight, on February 14,1978 at 3:50 in the afternoon. On the day of their flight, petitioners went to the Manila International Airport and arrived at 2:35 in the afternoon. Upon arrival at the airport, representatives of the travel agency met petitioners. It took petitioners two or three minutes to clear their bags at the customs section. After that, they proceeded to the SAS check-in counter and presented their tickets, passports, immigration cards, and travel documents to Ms. Erlinda Ponce at the reception desk. After about 15 minutes, petitioners noticed that their travel documents were not being processed at the check-in counter. They were informed that there were no seats on the plane for which reason they could not be accommodated on the flight. When petitioners went to the supervisor’s desk to check the flight manifest, they saw that their names on top of the list of the first class 236 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS section had been crossed out. They pressed the supervisor to allow them in the flight as they had confirmed tickets. Mr. Basa informed them that it could not be done because the flight was closed and it was too late to do anything. They checked in at exactly 3:10 in the afternoon and the flight was scheduled to leave Manila International Airport at 3:50 in the afternoon. Ms. Brlinda Ponce, SAS employee on duty at the check-in counter on February 14, 1978, testified that the economy class of SAS Flight SL 893 was overbooked, however, the first class section was open. She met petitioners, who were booked in the first class section, when they approached the counter to check-in. They were not accommodated on the flight because they checked-in after the flight manifest had been closed, 40 minutes prior to the plane’s departure. Petitioners’ seats were given to economy class passengers who were upgraded to first class. On August 24, 1988, the trial court rendered a judgment against respondent and in favor of petitioners, ordering the defendants to pay moral damages to Morris in the amount of PI00,000 and to Whittier the sum of PI00,000, exemplary damages in the sum of P200,000, attorney’s fees in the amount of P300,000, plus the cost of suit. On appeal, the Court of Appeals (CA), on January 21, 1997, promulgated a decision reversing the decision of the court a quo, and ordering the dismissal of the complaint for damages. ISSUE: Whether or not the act of the airlines in bumping-off the petitioners from their flights were done in bad faith. HELD: The petition has no merit. ,( To begin with, it must be emphasized that a contract to transport passengers is quite different in kind and degree from any other contractual relations, and this is because of the relation, which an air carrier sustains with the public. Its business is mainly with the traveling public. It invites people to avail themselves of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier s employees naturally could give ground for an action for damages. ” 237 TRANSPORTATION LAWS In the instant case, assuming arguendo that breach of contract of carriage may be attributed to respondent, petitioners’ travails were directly traceable to their failure to check-in on time, which led to respondent’s refusal to accommodate them on the flight. “The rule is that moral damages are recoverable in a damage suit predicated upon a breach of contract of carriage only where (a) the mishap results in the death of a passenger, and (b) it is proved that the carrier was guilty of fraud and bad faith even if death does not result.” For having arrived at the airport after the closure of the flight manifest, respondent’s employee could not be faulted for not entertaining petitioners’ tickets and travel documents for processing, as the checking-in of passengers for SAS Flight SK 893 was finished. There was no fraud or bad faith as would justify the court’s award of moral damages. In the instant case, respondent’s denial of petitioners’ boarding on SAS Flight SK 893 was not attended by bad faith or malice. To the contrary, facts revealed that they were not allowed to board the plane due to their failure to check-in on time. Petitioner Morris admitted that they were at the check-in counter at around 3:30, exactly the same time the flight manifest was closed, but still too late to be accommodated on the plane. Respondent’s supervisor, Raul C. Basa, testified that he met petitioners at about 3:20 in the afternoon after receiving a radio call from the ground staff regarding petitioners’ complaint. Clearly, petitioners did not arrive on time for check-in. “Where the award ofmoral and exemplary damages is eliminated, so must the award of attorney’s fees be deleted. ” Note: The case of Malong v. PNR, L-49930, August 5, 1985 (en banc) held that the PNR is not immune from suit and is liable as a common carrier for the negligent acts of its employees. It is expressly liable for moral damages for the death of a passenger under Articles 1764 and 2206 of the Civil Code. QUESTION: May the heirs of the victim in a vehicular accident be awarded monetarily for loss of pension for which the deceased had failed to receive? 238 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS ANSWER: Yes. Under Article 2206 of the Civil Code — “The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter... ” The pension of the decedent being a sure income that was cut short by her death for which the errant driver was responsible, the surviving heir of the former is entitled to the award of PI 0,000 which is just equivalent to the pension the decedent would have received for one year if she did not die. (Gloria Darrocha de Caliston v. The Honorable Court of Appeals and Geronimo Dalmacio, 122 SCRA 958, June 24, 1983) Brothers and sisters of a deceased passenger in a breach of contract of carriage are not entitled to an award of moral damages. Sulpicio Lines, Inc. v. Domingo E. Curso, et al. (First Division Decision) G.R. No. 157009, March 17, 2010 FACTS: On October 23, 1988, Dr. Curso boarded at the port of Manila the M/V Dona Marilyn, and inter-island vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the M/V Dona Marilyn sank in the afternoon of October 24, 1988 while at sea due to the inclement sea and weather conditions brought about by Typhoon Unsang. The body of Dr. Curso was not recovered, along with hundreds of other passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48 years old, and employed as a resident physician at the Naval District Hospital in Naval, Biliran. He had a basic monthly salary of P3,940, and would have retired from government service by December 20, 2004 at the age of 65. On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of Dr. Curso, sued the petitioner in the Regional 239 TRANSPORTATION LAWS Trial Court (RTC) in Naval, Biliran to claim damages based on breach of contract of carriage by sea, averring that the petitioner had acted negligently in transporting Dr. Curso and the other passengers. They stated, among others, that their parents had predeceased Dr. Curso, who died single and without issue, and that, as such, they were Dr. Curso’s surviving heirs and successors in interest entitled to recover moral and other damages. They prayed for judgment, as follows: (a) compensatory damages of PI,924,809; (b) moral damages ofP 100,000; (c) exemplary or corrective damages in the amount deemed proper and just; (d) expenses of litigation of at least P50,000; (e) attorney’s fees of P50,000; and (f) costs of suit. The petitioner denied liability, insisting that the sinking of the vessel was due to force majeure (i.e., Typhoon Unsang), which exempted a common carrier from liability. It averred that the M/V Doha Marilyn was seaworthy in all respects, and was in fact cleared by the Philippine Coast Guard for the voyage, and that after the accident, it conducted intensive search and rescue operations, and extended assistance and aid to the victims and their families. On July 28, 1995, the Regional Trial Court (RTC) dismissed the complaint upon its finding that the sinking vessel was due to force majeure. Respondents appealed to the Court of Appeals (CA). In its decision dated September 16, 2002, the CA reversed the decision of the RTC in this wise: “Wherefore, premises considered, the appealed decision of the RTC of Naval, Biliran, Branch 16, rendered in Civil Case No. B-0851, is hereby SET ASIDE. In lieu thereof, judgment is hereby rendered, finding the defendant-appellate Sulpicio Lines, Inc. to have been negligent in transporting the deceased Cenon E. Curso, who was on board the ill-fated MW Dona Marilyn, resulting in his untimely death. Defendant-appellee is hereby ordered to pay the plaintiff’s heirs of Cenon E. Curso the following: (1) Death indemnity in the amount of P50,000; (2) Loss of Earning Capacity in the amount of P504,241,20; (3) Moral Damages in the amount of PI 00,000; and (4) Costs of suit. ISSUE: Whether or not brothers and sisters of a deceased passenger in a case of breach of contract of carriage are entitled to an award of moral damages. HELD: As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract, unless there is 240 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS fraud or bad faith. As an exception, moral damages may be awarded in case of breach of contract of carriage that results in the death of a passenger in accordance with Article 1764, in relation to Article 2206(3) of the Civil Code, which provides: Article 1764, Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased, on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of Article 291, the recipient who is not an heir called to the decedent’s inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. The foregoing legal provisions set forth the persons entitled to moral damages. The omission from Article 2206(3) of the brothers and sisters of the deceased passenger reveals the legislative intent to exclude them from the recovery of moral damages for mental anguish by reason of the death of the deceased. Inclusio unius est exclusio alterius. The solemn power and duty of the courts to interpret and apply the law do not include the power to correct the law by reading into it what is not written therein. Thus, the CA erred in awarding moral damages to the respondents. The petitioner has correctly relied on the holding in Receiver for North Negros Sugar Company, Inc . v. Ybahez, to the effect that in case of death caused by quasi-delict, the brother of the deceased was not entitled to the award of moral damages based on Article 2206 of the Civil Code. 241 TRANSPORTATION LAWS Article 2219 circumscribes the instances in which moral damages may be awarded. The provision does not include succession in the collateral line as a source of the right to recover moral damages. The usage of the phrase analogous cases in the provision means simply that the situation must be held similar to those expressly enumerated in the law in question following the ejusdem generis rule. Hence, Article 103 of the Civil Code is not concerned with recovery of moral damages. Subsidiary liability of an employer under Article 103, Revised Penal Code, enforceable in the same criminal case where award was made. Gregoria Vda. de Paman, et al. v. Hon. Alberto V. Seneris, Western Mindanao Lumber Company, and Teodoro Delos Santos G.R. No. L-37632, July 30,1982 FACTS: On May 24, 1961, accused-respondent Teodoro Delos Santos was charged by the City Attorney of Zamboanga City of Homicide [Through] Reckless Imprudence in Violation of Sec. 52 of Act 3992, as amended. Upon arraignment on June 26,1972, accused-respondent Teodoro Delos Santos entered a plea of guilty. In view of said plea, the respondent Judge, Alberto Seneris, rendered a Decision sentencing said respondent to suffer an imprisonment of two months and one day of arresto mayor and to indemnify the heirs of the late Victoriano Paman, namely, the petitioner Gregoria Vda. de Paman and her three children, in the amount of PI2,000. On the same day, accused-respondent Teodoro Delos Santos commenced his service of sentence. On August 4, 1972, petitioner Gregoria Vda. de Paman, widow of the victim, filed the first motion for execution of the judgment to enforce the civil liability of the PI2,000 of the accused-respondent. This was followed on August 28, 1972 by the filing of petitioner of an ex parte motion for execution of judgment against the accused. In both instances, Western Mindanao Lumber Company was duly notified. 242 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS On August 31, 1972, respondent Judge issued an order granting the said motion for execution. However, on September 4, 1972, the Sheriff’s Return of Service showed that the accused respondent Teodoro Delos Santos had no property registered in his name. Upon discovery that accused-respondent was insolvent, petitioner filed on September 19, 1972, a “Motion for Execution on Subsidiary Liability of Employer Western Mindanao Lumber Company under Article 103 of the Revised Penal Code.” Petitioner contended therein that the subsidiary liability of the employer, Western Mindanao Lumber company in the event the accused is insolvent, is executory in nature and there is no need for a separate action or a further civil case to be filed in the enforcement of the decision aforementioned. On October 11, 1972, petitioner filed a “Supplemental Motion for Execution for Subsidiary Liability of Employer under Article 103 of the Penal Code.” Petitioner, through counsel, cited therein the case of Fernando v. Francoy 37 SCRA 311. Petitioner concluded that the tenor of the aforesaid decision implies that the subsidiary liability of the employer may be enforced in the same proceeding. On September 8, 1973, respondent Judge issued an order denying the motion for issuance of writ of execution against the employer of Teodoro Delos Santos. He opined that the alleged employer not having been notified that its driver was facing a criminal charge, a separate civil action must be filed. Hence, this petition for mandamus. ISSUE: Whether or not there is a need to file a separate civil action to enforce the subsidiaiy liability of the employer in a criminal case. HELD: No. This case finds parallelism in a case involving the same respondent Judge, i.e., Lucia S. Pajarito v. Hon. Alberto V. Seneris et al., 87 SCRA 275, where the only issue involved is whether the subsidiaiy liability established in Article 103 of the Revised Penal Code may be enforced in the same criminal case where the award was made, or in a separate civil action. As in the aforementioned case, the apparent drawback in the enforcement of the subsidiary liability in the same criminal proceeding 243 TRANSPORTATION LAWS is the lack of due process to the alleged employer. Not being a party to the case, he was not heard as to whether he was indeed the employer. Besides, even if the employer-employee relationship is not disputed, still, in order that an employer may be subsidiarily liable for the employee’s civil liability in the criminal action, it should be shown: (1) that the employer, etc. is engaged in any kind of industry; (2) that the employee committed the offense in the discharge of his duties; and (3) that he is insolvent. Against the foregoing considerations, Section 1, Rule 111 of the Rules of Court provides, however, that “when a criminal action is instituted, the civil action for recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action, unless the offended party expressly waives the civil action or reserves his right to institute it separately.” That means as if two actions are joined in one as twins, each one complete with the same completeness as any of the two normal persons composing the twins. It means that the civil action may be tried and prosecuted, with all the ancillary processes provided by law. Said provision will be rendered meaningless if the subsidiary civil liability is not allowed to be enforced in the same proceeding. To remedy the situation and thereby afford due process to the alleged employer, this Court directed the court a quo in Pajarito v. Seneris (supra) to hear and decide in the same proceeding the subsidiary liability of the alleged owner and operator of the passenger bus. It was explained therein that the proceeding for the enforcement of the subsidiary liability may be considered as part of the proceeding for the execution of the judgment. A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceeding in the suit. There is no question that the court, which rendered the judgment, has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law, which may be involved in the execution. Moreover, it has been invariably held that a judgment of conviction sentencing a defendant employer to pay an indemnity in the absence of any collusion between the defendant and the offended party, is conclusive upon the employer in an action for the enforcement of the 244 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS latter’s subsidiary liability not only with regard to the civil liability, but also with regard to its amount. This being the case, this Court stated in Rotea v. Halili, 109 Phil. 495, that the court has no other function than to render decision based upon the indemnity awarded in the criminal case and has no power to amend or modify it even if in its opinion an error has been committed in the decision. A separate and independent action is, therefore, unnecessary and would only unduly prolong the agony of the heirs of the victim. Subsidiary liability of an employer under Article 103, Revised Penal Code, enforceable in the same criminal case where award was made. Pepe Catacutan and Aureliana Catacutan v. Heirs of Norman Kadusale, Heirs of Lito Amancio and ! w Gil B. Izon G.R. No. 131280, October 18, 2000 | FACTS: Petitioner Aureliana Catacutan is the registered owner and operator of a jeepney driven by the accused Porferio Vendiola, which bumped a tricycle on April 11, 1991 in Banilad, Bacong, Negros Oriental, thereby causing the death of its driver, Norman Kadusale, and its passenger Lito Amancio, and serious physical injuries to another passenger, respondent Gil B. Izon. Respondents thus filed a criminal case against Porferio Vendiola for Reckless Imprudence Resulting In Double Homicide with Physical Injuries and Damage to Property on July 26, 1991 before the Regional Trial Court of Negros Oriental. On December 1, 1995, the trial court rendered judgment, declaring the accused guilty of negligence and imprudence under Article 365 of the Revised Penal Code. He is therefore sentenced to suffer the penalty of prision correctional medium and maximum periods. Accused is ordered to suffer the penalty of 30 days of arresto mayor straight. He is likewise ordered to indemnify the heirs of Norman Kadusale and Lito Amancio in the amount of P50,000 each victim, and to pay actual damages to Norman Kadusale or his heirs in the amount of PI70,543.24; Lito Amancio or his heirs the amount of P38,394.35; and Gild B. Izon the amount of P23,454. 245 < |j TRANSPORTATION LAWS Accused Vendiola did not appeal the judgment of conviction. Instead, he applied for probation. Meanwhile, when the judgment became final and executoiy, respondents moved for the issuance of a writ of execution, and the corresponding writ was issued by the trial court on April 24, 1996. However, per the Sheriff’s Return of Service, dated July 3,1996, the writ was unsatisfied as the accused had “nothing to pay off the damages in the decision.” On August 28, 1996, respondents filed a Motion for Subsidiary Writ of Execution before the trial court, praying that such writ be issued against petitioner Aureliana Catacutan as registered owner and operator of the jeepney driven by the accused when the collision occurred. Petitioner Aureliana Catacutan filed her Opposition thereto; arguing that she was never a party to the case and to proceed against her would be in violation of the due process clause of the Constitution. Petitioner also argued that the subsidiary liability of the employer is not determined in the criminal case against the employee. On October 3,1996, the trial court issued an Order denying the said Motion for lack of merit. According to the trial court, it never acquired jurisdiction over petitioner Aureliana Catacutan since she was never impleaded as party to the case, and respondents’ remedy was to file a separate case for damages. Respondents’ Motion for Reconsideration was also denied on December 3,1996. Undaunted, respondents went on certiorari to the Court of Appeals (CA). On August 12, 1997, the CA rendered the assailed Decision. ISSUE: Whether or not there is a need for a separate case for the determination of employer’s subsidiary liability. HELD: The employer is, in substance and in effect, a party to the criminal case against his employee, considering the subsidiary liability imposed upon him by law. Thus, “It is true that an employer, strictly speaking, is not a party to the criminal case instituted against his employee but in substance and in effect, he is considering the subsidiary liability imposed upon him by law. It is his concern, as well as his employee, to see to it that his interest is protected in the criminal case by taking virtual participation in the defense of his employee. He cannot leave him to his own fate because his failure is also his. And if 246 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS because of his indifference or inaction the employee is convicted and damages are awarded against him, he cannot later be heard to complaint, if brought to court for the enforcement of his subsidiary liability, that he was not given his day in court. It was not without purpose that the court sounded the following stem warning”: “It is high time that the employer exercised the greatest care in selecting his employees, taking real and deep interest in their welfare; intervening in any criminal action brought against them by reason or as a result of the performance of their duties, if only in the way of giving them benefit of counsel; and consequently doing away with the practice of leaving them to their fates. If these be done, the American rule requiring notice on the part of the employer shall have been satisfied (Miranda v. Mai ate Garage and Taxicab, Inc., 99 Phil. 670, 675, citing Martinez v. Barredo, supra).” The statutory basis for an employer’s subsidiary liability is found in Article 103 of the Revised Penal Code. This liability is enforceable in the same criminal proceeding where the award is made. (Rules of Court, Rule 111, Section 1) However, before execution against an employer ensues, there must be a determination in a hearing set for the purpose of (1) the existence of an employer-employee relationship; (2) that the employer is engaged in some kind of industry; (3) that the employee is adjudged guilty of the wrongful act and found to have committed the offense in the discharge of his duties (not necessarily any offense he commits “while” in the discharge of such duties); and (4) that said employee is insolvent. (Yonaha v. CA, 255 SCRA 397, 402 [1996]) Petitioner knew of the criminal case that was filed against accused because it was his truck that was involved in the incident. Further, it was the insurance company, with which his truck was insured, that provided the counsel for the accused, pursuant to the stipulations in their contract. Petitioner did not intervene in the criminal proceedings, despite the knowledge, through counsel, that the prosecution adduced evidence to show employer-employee relationship. With the convict’s application for probation, the trial court’s judgment became final and executory. All told, it is the CA’s view that the lower court did not err when it found that petitioner was not denied due process. He had all his 247 TRANSPORTATION LAWS chances to intervene in the criminal proceedings, and prove that he was not the employer of the accused, but he chooses not to intervene at the appropriate time. Release of claims executed by the injured party discharging the insurance and transportation companies from any and all liability is valid. Baliwag Transit, Inc. v. Hon. Court of Appeals and Sps. Sotero Cailipan and Zenaida Lopez and George L. Cailipan G.R. No. 80447, January 31,1989 FACTS: On April 10,1985, a complaint for damages arising from breach of contract of carriage was filed by private respondents, the Spouses Sotero Cailipan, Jr. and Zenaida Lopez, and their son George, of legal age, against petitioner Baliwag Transit (Baliwag, for brevity). The Complaint alleged that George, who was a paying passenger on a Baliwag bus on December 17, 1984, suffered multiple serious physical injuries when he was thrown off said bus driven in a careless and negligent manner by Leonardo Cruz, the authorized bus driver, along Barangay Patubid, Marilao, Bulacan. As a result, he was confined in the hospital for treatment, incurring medical expenses, which were borne by his parents, the respondent Spouses, in the sum of about P200,000, plus other incidental expenses of about PI 0,000. Baliwag then filed a Third-Party Complaint against Fortune Insurance & Surety Company, Inc., on its third-party liability insurance in the amount of P50,000. In its Answer, Fortune Insurance claimed limited liability, the coverage being subject to a Schedule of Indemnities forming part of the insurance policy. On November 14, 1985 and November 18, 1985, respectively, Fortune Insurance and Baliwag each filed Motions to Dismiss on the ground that George, in consideration of the sum of P8,020.50 had executed a “Release of Claims” dated May 16, 1985. These Motions were denied by the Trial Court in an Order, dated January 13, 1986, as they were filed beyond the time for pleading and after the Answer were already filed. 248 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS In an Order, dated August 29, 1986, the Regional Trial Court of Bulacan, Branch 20, dismissed the complaint and third-party complaint, ruling that since the contract of carriage is between Baliwag and George L. Cailipan, the latter, who is of legal age, had the exclusive right to execute the Release of Claims despite the fact that he is still a student and dependent on his parents for support. Consequently, the execution by George of the Release of Claims discharges Baliwag and Fortune Insurance. Aggrieved, the Spouses appealed to respondent Court of Appeals. On October 22, 1987, the Appellate Court rendered a Decision setting aside the appealed order and holding that the “Release of Claims” cannot operate as a valid ground for the dismissal of the case because it does not have the conformity of all the parties, particularly George’s parents, who have substantial interest in the case as they stand to be prejudiced by the judgment because they spent a sizeable amount for the medical bills of their son; that the Release of Claims was secured by Fortune Insurance for the consideration of P8,020.50 as the full and final settlement of its liability under the insurance policy and not for the purpose of releasing Baliwag from its liability as a carrier in this suit for breach of contract. The Appellate Court also ordered the remand of the case to the lower Court for trial on the merits and for George to return the amount of P8,020.50 to Fortune Insurance. ISSUE: Whether the Release of Claims executed by George, the injured party during the pendency of this case is valid. HELD: Since the suit is one for breach of contract of carriage, the Release of Claims executed by him, as the injured party, discharging Fortune Insurance and Baliwag from any and all liability, is valid. He was then of legal age, a graduating student of Agricultural Engineering, and had the capacity to do acts with legal effect. (Article 37 in relation to Article 402, Civil Code) Thus, he could sue and be sued even without the assistance of his parents. Significantly, the contract of carriage was actually between George, as the paying passenger, and Baliwag, which was bound to carry its passengers safely as far as human care and foresight could provide, and is liable for injuries to them through the negligence or willful acts 249 4P^ TRANSPORTATION LAWS of its employees. (Articles 1755 and 1759, Civil Code) Thus, George had the right to be safely brought to his destination, and Baliwag had the correlative obligation to do so. Since a contract may be violated only by the parties thereto, as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract. (Marimperio Compania Naviera, S.A. v. Court of Appeals, No. L-40234, December 14, 1987, 156 SCRA 368) A real party-in-interest-plaintiff is one who has a legal right while a real party-in-interest-defendant is one who has a correlative legal obligation whose act or omission violates the legal right of the former. (Lee v. Romillo, Jr., G.R. No. 60973, May 28, 1988) In the absence of any contract of carriage between Baliwag and George’s parents, the latter are not real parties-in-interest in an action for breach of that contract. There is no question regarding the genuineness and due execution of the Release of Claims. It is a duly notarized public document. It clearly stipulates that the consideration of P8,020.50 received by George was “to release and forever discharge Fortune Insurance and/ or Baliwag from any and all liabilities now accrued or to accrue on account of any and all claims or causes of action x x x for personal injuries, damage to property, loss of services, medical expenses, losses or damages of any and every kind or nature whatsoever, sustained by him on December 17, 1984 through Reckless Imprudence Resulting to Physical Injuries.” Consequently, the ruling of respondent Appellate Court that the “Release of Claims” was intended only as the full and final settlement of a third-party-liability for bodily injury claim and not for the purpose of releasing Baliwag from its liability, if any, in a breach of contract of carriage, has to be rejected for being contrary to the very terms thereof. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. (Article 1370, Civil Code) The phraseology “any and all claims or causes of action” is broad enough to include all damages that may accrue to the injured party arising from the unfortunate accident. The Release of Claims had the effect of a compromise agreement since it was entered into for the purpose of making a full and final compromise adjustment and settlement of the cause of action involved. 250 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation, or put an end to one already commenced. (Article 2028, Civil Code) The Release of Claims executed by the injured party himself wrote finish to this litigation. ART. 1765. The Public Service Commission may, on its own motion or on petition of any interested party, after due hearing, cancel the certificate of public convenience granted to any common carrier that repeatedly fails to comply with his duty to observe extraordinary diligence as prescribed in this Section. This function of the defunct Public Service Commission insofar as land transportation is now transferred to the Land Transportation Franchising and Regulatory Board (LTFRB). See E.O. No. 220, Section 5(b), infra. ART. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. The new Civil Code particularly Articles 1732 to 1766 is the general law on common carriers. Should the matters involved is not covered by Articles 1732 to 1766 of the Civil Code, the Code of Commerce and special laws will apply. QUESTION: What is the effect of our adherence to the Warsaw Convention (Convention for the Unification of Certain Rules Relating to International Transportation by Air) on our laws on transportation? ANSWER: Within our jurisdiction the Warsaw Convention can be applied, or ignored, depending on the peculiar facts presented by each case. The Convention’s provisions do not regulate or exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees, or for some particular or exceptional type of damage. Neither may the Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set by said Convention. Likewise, 251 TRANSPORTATION LAWS the Convention does not preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, especially if willful misconduct on the part of the carrier’s employees is found or established. (UnitedAirlines v. Uy, 318 SCRA 576, November 19, 1999) The Warsaw Convention has the force and effect of law in this country. Edna Diago Lhuillier v. British Airways G.R. No. 171092, March 15, 2010 Philippine Courts have no jurisdiction over a tortuous conduct committed against a Filipino Citizen and resident airline personnel of a foreign carrier traveling beyond the territorial limit of any foreign country. Under Article 28(1)‘ of the Warsaw Convention, the plaintiff may bring the action for damages before — 1. 2. 3. The court where the carrier is domiciled; The court where the carrier has its principal place of business; The court where the carrier has an establishment by which the contract has been made; or 4. The court of the place of destination. In this case, it is not disputed that respondent is a British corporation domiciled in London, United Kingdom with London as its principal place of business. Hence, under the first and second jurisdictional rules, the petitioner may bring her case before the courts of London in the United Kingdom. In the passenger ticket and baggage check presented by both the petitioner and respondent, it appears that the ticket ‘Article 28(1) provides “An action for damages must be brought at the option of the plaintiff, either before the court of domicile of the carrier or his principal place of business, or where he has a place of business through which the contract has been made, or before the court of the place of destination.” 252 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS was issued in Rome, Italy. Consequently, under the third jurisdiction rule, the petitioner has the option to bring her case before the courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of destination is Rome, Italy, which is properly designated given the routing presented in the said passenger ticket and baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Italy. The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on February 13, 1933. The Convention was concurred in by the Senate, through its Resolution No. 19, on May 16,1950, and was deposited with the Polish government on November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence thereto, “to the end that the same and ever article and clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof.” In Pricilla L. Tan v. Northwest Airlines, Inc., G.R. No. 135802, March 3, 2000 (327 SCRA 263), it was held that: “For willful misconduct to exist, there must be a showing that the acts complained of were impelled by an intention to violate the law, or were in persistent disregard of one’s rights. It must be evidenced by a flagrantly or shamefully wrong or improper conduct.” Contrary to petitioner’s contention, there was nothing in the conduct of respondent, which showed that they were motivated by malice or bad faith in loading her baggages on another plane. Due to weight and balance restrictions, as a safety measure, respondent airline had to transport the baggages on a different flight, but with the same expected date and time of arrival in the Philippines. “Bad faith does not simply connote bad judgment or negligence, it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill-will that partakes of the nature of fraud.” 253 TRANSPORTATION LAWS “Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages.” Warsaw convention does not “exclusively regulate” the relationship between passenger and carrier on an international flight. Philippine Airlines, Inc. v. Hon. Adriano Savillo, Presiding Judge of RTC Branch 30, Iloilo City and Simplicio Grino G.R. No. 149547, July 4, 2008 FACTS: Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf Tournament held in Jakarta, Indonesia. He and several companies decided to purchase their respective passenger tickets from Philippine Airlines, Inc. (PAL) with the following points of passage: MANILA-SINGAPORE-JAKARTA-SINGAPOREMANILA. Private respondent and his companies were made to understand by PAL that its plane would take them from Manila to Singapore, while Singapore Airlines would take them from Singapore to Jakarta. On October 3, 1993, private respondent and his companion took the PAL flight to Singapore and arrived at about 6:00 in the evening. Upon their arrival, they proceeded to the Singapore Airlines office to check-in for their flight to Jakarta scheduled at 8:00 in the same evening. Singapore Airlines rejected the tickets of private respondent and his group because they were not endorsed by PAL. Stranded at the airport in Singapore and left with no recourse, private respondent was in panic and at a loss where to go, and was subjected to humiliation, embarrassment, mental anguish, serious anxiety, fear and distress. Eventually, private respondent and his companions were forced to purchase tickets from Garuda Airlines and board its last flight bound for Jakarta. When they arrived in Jakarta at about 12:00 midnight, the party who was supposed to fetch them from the airport had already left and they had to arrange 254 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS for their transportation to the hotel at a very late hour. After a series of nerve-wracking experiences, private respondent became ill and was unable to participate in the tournament. Both airlines disowned liability and blamed each other for the fiasco. On August 15, 1997, private respondent filed a Complaint for Damages before the Regional Trial Court (RTC) docketed as Civil Case No. 23773, seeking compensation for moral damages in the amount of PI million and attorney’s fees. Instead of filing an answer to private respondent’s Complaint, PAL filed a Motion to Dismiss, dated September 18, 1998, on the ground that the said complaint was barred on the ground of prescription under Section 1 (f) of Rule 16 of the Rules of Court. PAL argued that the Warsaw Convention, particularly Article 29 thereof, governed this case, as it provides that any claim for damages in connection with the international transportation of persons is subject to the prescription period of two years. Since the Complaint was filed on August 15, 1997, more than three years after PAL received the demand letter on January 25, 1994, it was already barred by prescription. The RTC and the C A ruled in favor of the respondent, applying the provision of the Civil Code and other pertinent laws of the Philippines. ISSUE: Whether or not the filing of the complaint was already barred by prescription. HELD: The Warsaw Convention applies to “all international transportation of persons, baggage, or goods performed by any aircraft for hire.” It seeks to accommodate or balance the interests of passengers seeking recovery for personal injuries and the interest of air carriers seeking to limit potential liability. It employs a scheme of strict liability favoring passengers and imposing damage caps to benefit air carrier. The cardinal purpose of the Warsaw Convention is to provide uniformity of rules governing claims arising from international air travel, thus, it precludes a passenger from maintaining an action for personal injury damages under local law when his or her claim does not satisfy the conditions of liability under the Convention. Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also recognizes that the Warsaw Convention does not “exclusively regulate” the relationship between passenger and carrier on an international flight. 255 TRANSPORTATION l AWS This Court finds that the present ease is substantially similar to cases in w hich the damages sought were considered to be outside the coverage of the Warsaw Convention. In f Airlines v. Cv. this Court distinguished between the(l) damage to the passenger's baggage, and (2) humiliation he suffered at the hands of the airline's employees. The first cause of action was covered by the Warsaw Convention, which prescribes two years, while tiie second was covered by the provisions of the Civil Code on torts, which prescribes in four years. In the petition at bar, private respondent’s Complaint alleged that both PAL and Singapore Airlines were guilty of gross negligence, which resulted in his being subjected to “humiliation, embarrassment, mental anguish, serious anxiety, fear, and distress.” The emotional harm suffered by the private respondent, as a result of ha\ing been unreasonably and unjustly prevented from boarding the plane, should be distinguished from the actual damages, which resulted from the same incident. Under the Civil Code provisions on tort, such emotional harm gives rise to compensation where gross negligence or malice is proven. Had the present case merely consisted of claims incidental to the airlines’ delay in transporting their passengers, the private respondent’s Complaint would have been time-barred under Article 29 of the Warsaw Convention. However, the present case involves a special species of injury resulting from the failure of PAL and/or Singapore Airlines to transport private respondent from Singapore to Jakartathe profound distress, fear, anxiety, and humiliation that private respondent experienced when, despite PAL’s earlier assurance that Singapore Airlines confirmed his passage, he was prevented from boarding the plane and he faced the daunting possibility that he would be stranded in Singapore Airport because the PAL office was already closed. These claims are covered by the Civil Code provisions on tort, and not within the purview of the Warsaw Convention. Hence, the applicable prescription period is that provided under Article 1146 of the Civil Code. 256 CHAPTER IV DAMAGES FOR BREACH OF CONTRACT OF COMMON CARRIERS Article 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff (2) Upon a quasi-delict Private respondent’s Complaint was filed with the RTC on August 15, 1997, which was less than four years since PAL received his extrajudicial demand on January 25, 1994. Thus, private respondent’s claims have not yet prescribed and PAL’s Motion to Dismiss must be denied. 257 CHAPTER V CARRIAGE OF GOODS BY SEA ACT (COMMONWEALTH ACT NO. 65) AN ACT TO DECLARE THAT PUBLIC ACT NUMBERED FIVE HUNDRED AND TWENTY-ONE, KNOWN AS “CARRIAGE OF GOODS BY SEA ACT,” ENACTED BY THE SEVENTY-FOURTH CONGRESS OF THE UNITED STATES, BE ACCEPTED, AS IT IS HEREBY ACCEPTED BY THE NATIONAL ASSEMBLY. WHEREAS, the Seventy-fourth Congress of the United States enacted Public Act Numbered Five hundred and twenty-one, entitled: “Carriage of Goods by Sea Act”; WHEREAS, the primordial purpose of the said Acts is to bring about uniformity in ocean bills of lading and to give effect to the Brussels Treaty, signed by the United States with other powers; WHEREAS, the Government of the United States has left it to the Philippine Government to decide whether or not the said Act shall apply to carriage of goods by sea in foreign trade to and from Philippine ports; WHEREAS, the said Act of Congress contains advanced legislation, which is in consonance with modem maritime mles and the practices of the great shipping countries of the world; WHEREAS, shipping companies, shippers and marine insurance companies, and various chambers of commerce, which are directly affected by such legislation, have expressed their desire that said Congressional Act be made applicable and extended to the Philippines, therefore. 258 CHAPTER V CARRIAGE OF GOODS BY SEA ACT Be it enacted by the National Assembly of the Philippines: Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application. Sec. 2. This Act shall take effect upon its approval. Approved, October 22, 1936. An Act Relating to the Carriage of Goods by Sea. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That every bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States, in foreign trade, shall be effect subject to the provisions of the Act. TITLE I Section 1. When used in this Act — (a) The term “carrier” includes the owner or the charterer who enters into a contract of carriage with a shipper. (b) The term “contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same. (c) The term “goods” includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and cargo 259 TRANSPORTATION LAWS which by the contract of carriage is stated as being carried on deck and is so carried. (d) The term “ship” means any vessel used for the carriage of goods by sea. (e) The term “carriage of goods” covers the period from the time when the goods are loaded to the time when they are discharged from the ship. RISKS Section 2. Subject to the provisions of Section 6, under every contract of carriage of goods by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth. RESPONSIBILITIES AND LIABILITIES Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to — (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; (c) Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage, and preservation. Note: Under Section 3(1), Paragraphs (a) to (c), the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public 260 CHAPTER V CARRIAGE OF GOODS BY SEA ACT duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modem development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness. (Caltex [Philippines], Inc. v. Sulpicio Lines, 315 SCRA 709, September 30, 1999) (2) The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. (3) After receiving the goods into his charge, the carrier, or the master or agent of the carrier, shall, on demand of the shipper, issue to the shipper a bill of lading showing among other things — (a) The loading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided such marks are stamped or otherwise shown clearly upon the goods if uncovered, in such a manner as should ordinarily remain legible until the end of the voyage. (b) Either the number of packages or pieces, or the quantity or weight, as the case may be, as furnished in writing by the shipper. (c) The apparent order and condition of the goods: Provided, That no carrier, master, or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received or which he has had no reasonable means of checking. (4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs (3)(a), (b), and (c) of this section: (The rest of the provision is not applicable to the Philippines.) 261 TRANSPORTATION LAWS (5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity, and weight, as furnished by him; and the shipper shall indemnify the carrier against all loss, damages, and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability, under the contract of carriage to any person other than the shipper. (6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice, the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. (7) After the goods are loaded, the bill of lading to be issued by the carrier, master, or agent of the carrier to the shipper shall, 262 CHAPTER V CARRIAGE OF GOODS BY SEA ACT if the shipper so demands, be a “shipped” bill of lading: Provided, That if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same as against the issue of the “shipped” bill of lading, but at the option of the carrier such document of title may be noted at the port of shipment by the carrier, master, or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, and when so noted, the same shall for the purpose of this section be deemed to constitute a “shipped” bill of lading. (8) Any claims, covenant, or agreement in a contract of carriage relieving the carrier of the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall be deemed to be a clause relieving the carrier from liability. RIGHTS AND IMMUNITIES Section 4. (1) Neither the carrier nor the ship shall be liable for loss or damages arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped, and supplied, and to make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried fit and safe for their reception, carriage, and preservation, in accordance with the provisions of paragraph (1) of Section (3). Whenever loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence shall be on the carrier or other persons claiming exemption under this section. (2) Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from — (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship; 263 TRANSPORTATION LAWS (b) carrier; Fire, unless caused by the actual fault or privity of the (c) waters; Perils, dangers, and accidents of the sea or other navigable (d) Act of God; (e) Act of war; (f) Act of public enemies; (g) Arrest or restraint of princes, rulers, or people, or seizure under legal process; (h) Quarantine restrictions; (i) Act or omission of the shipper or owner of the goods, his agent or representative; (j) Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general: Provided, That nothing herein contained shall be construed to relieve a carrier from responsibility for the carrier’s own acts; (k) Riots and civil commotions; (l) Saving or attempting to save life or property at sea; (m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods; (n) Insufficiency of packing; (o) Insufficiency or inadequacy of marks; (p) Latent defects not discoverable by due diligence; and (q) Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier 264 CHAPTER V CARRI AGE OF GOODS BY SE A ACT nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage. (3) The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, or neglect of the shipper, his agents, or his servants. (4) Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this Act or of the contract of carriage, and carrier shall not be liable for any loss or damage resulting therefrom: Provided\ however, That if the deviation is for the purpose of loading or unloading cargo or passengers, it shall, prima facie, be regarded as unreasonable. (5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the carrier. By agreement between the carrier, master or agent of the carrier, and the shipper, another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained. Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by the shipper in the bill of lading. (6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof, the carrier, master or agent of the carrier, has not consented with knowledge of their nature and character, may 265 TRANSPORTATION LAWS at any time before discharge be landed at any place or destroyed or rendered innocuous by the carrier without compensation, and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average if any. SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES AND LIABILITIES Section 5. A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and liabilities under this Act, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. The provisions of this Act shall not be applicable to charter parties; but if bills of lading are issued in the case of a ship under a charter party, they shall comply with the terms of this Act. Nothing in this Act shall be held to prevent the insertion in a bill of lading of any lawful provisions regarding general average. SPECIAL CONDITIONS Section 6. Notwithstanding the provisions of the preceding sections, a carrier, master or agent of the carrier, and a shipper shall, in regard to any particular goods, be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness (so far as the stipulation regarding seaworthiness is not contrary to public policy), or the care or diligence of his servants or agents in regard to the loading, handling, stowage, carriage, custody, care and discharge of the goods carried by sea: Provided, That in this case, no bill of lading has been or shall be issued and that the 266 CHAPTER V CARRIAGE OF GOODS BY SEA ACT terms agreed shall be embodied in a receipt which shall be a nonnegotiable document and shall be marked as such. Any agreement so entered into shall have full legal effect: Provided, That this Section shall not apply to ordinary commercial shipments made in the ordinary course of trade but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed are such as reasonably to justify a special agreement. Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation, or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea. Section 8. The provisions of this Act shall not affect the rights and obligations of the carrier under the provisions of the Shipping Act 1916, or under the provisions of Sections 4281 to 4292, inclusive, of the Revised Statutes of the United States, or of any amendments thereto, or under the provisions of any other enactment for the time being in force relating to the limitation of the liability of the owners of seagoing vessels. TITLE II Section 9. Nothing contained in this Act shall be construed as permitting a common carrier by water or discriminate between competing shippers similarly placed in time and circumstances, either: (a) with respect to their right to demand and receive bills of lading subject to the provisions of this Act; or (b) when issuing such bills of lading either in the surrender of any of the carrier’s rights and immunities or in the increase of any of the carrier’s responsibilities and liabilities pursuant to Section 5, Title I, of this Act; (c) in any other way prohibited by the Shipping Act, 1916, as amended. 267 TRANSPORTATION LAWS Section 10. (Not applicable to the Philippines.) Section 11. Where under the custom of any trade the weight of any bulk cargo inserted in the bill of lading is a weight ascertained or accepted by a third party other than the carrier or the shipper and the fact that the weight as ascertained or accepted is stated in the bill of lading, then notwithstanding anything in this Act, the bill of lading shall not be deemed to be prima facie evidence against the carrier of the receipt of goods of the weight so inserted in the bill of lading, and the accuracy thereof at the time of shipment shall not be deemed to have been guaranteed by the shipper. Section 12. (Not applicable to the Philippines.) Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade. As used in this Act the term “United States” includes, its districts, territories, and possessions: Provided, however, That the Philippine Legislature may by law exclude its application to transportation to or from ports of the Philippine Islands. The term “foreign trade” means the transportation of goods between the ports of the United States or its possessions, and any other port of the United States or its possessions: Provided, however, That, That any bill of lading or similar document of the title which is evidence of a contract for the carriage of goods by sea between such ports, containing an express statement that it shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto by the express provisions of this Act: Provided, further, That every bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea from ports of the United States, in foreign trade, shall contain a statement that it shall have effect subject to the provisions of this Act. Section 14. Upon the certification of the Secretary of Commerce that the foreign commerce of the United States in its competition with that of foreign nations is prejudiced by the provisions, or any of them, of the Title I of this Act, or by the laws of any foreign country or countries relating to the carriage of goods by sea, the President of the United States may, from time to time by proclamation, suspend any or all provisions of Title I of this Act for such periods 268 CHAPTER V CARRIAGE OF GOODS BY SEA ACT of time or indefinitely as may be designated in the proclamation. The President may at any time rescind such suspension of Title I hereof, and any provisions thereof which may have been suspended shall thereby be reinstated and again apply to contracts thereafter made for carriage of goods by sea. Any proclamation of suspension or rescission of any such suspension shall take effect on the date named therein, which date shall be not less than ten days from the issue of the proclamation. Any contract for the carriage of goods by sea, subject to the provisions of this Act, effective during any period when title I hereof, or any part thereof, is suspended, shall be subject to all provisions of law now or hereafter applicable to that part of Title I which may have thus been suspended. Section 15. This Act shall take effect ninety days after the date of its approval; but nothing in this Act shall apply during a period not to exceed one year following its approval to any contract for the carriage of goods by sea, made before the date on which this Act is approved nor to any bill of lading or similar document of title issued, whether before or after such date of approval in pursuance of any such contract as aforesaid. Section 16. This Act may be cited as the “Carriage of Goods by Sea Act ” Approved, April 16,1936. CASES ON CARRIAGE OF GOODS BY SEA ACT Written extrajudicial demand by the creditor does not toll the running of the prescriptive period under the Act. DOLE Philippines, Inc. v. Maritime Company of the Philippines No. L-61352, February 27,1987 FACTS: The cargo subject of the instant case was discharged in Dadiangas unto the custody of the consignee on December 18, 1971. The corresponding claim or the damages sustained by the cargo was 269 TRANSPORTATION LAWS filed by the plaintiff with the defendant vessel on May 4,1972. On June 11, 1973, the plaintiff filed a complaint in the Court of First Instance of Manila, docketed therein as Civil Case No. 91043, embodying three causes of action involving three separate and different shipments. The third cause of action therein involved the cargo now subject of this present litigation. On December 11,1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043 dismissing the first two causes of action in the aforesaid case with prejudice and without pronouncement as to costs because the parties had settled or compromised the claims involved therein. The third cause of action, which covered the cargo subject of this case, now was likewise dismissed but without prejudice as it was not covered by the settlement. The dismissal of that complaint containing the three causes of action was upon a joint motion to dismiss filed by the parties. Because of the dismissal of the complaint in Civil Case No. 91043 with respect to the third cause of action without prejudice, plaintiff instituted this present complaint on January 6,1975. To the complaint in the subsequent action, Maritime filed an answer pleading inter alia the affirmative defense of prescription under the provisions of the Carriage of Goods by Sea Act, and following pretrial moved for a preliminary hearing on said defense. The Trial Court granted the motion, scheduling the preliminary hearing on April 27, 1977. The record before the Court does not show whether or not that hearing was held, but under date of May 6,1977, Maritime filed a formal motion to dismiss invoking once more the ground of prescription. The motion was opposed by DOLE and the Trial Court, after due consideration, resolved the matter in favor of Maritime and dismissed the complaint. DOLE sought a reconsideration, which was denied, and thereafter took the present appeal from the order of dismissal. ISSUE: Whether or not Article 1155 of the Civil Code providing that the prescription of actions is interrupted by the making of an extrajudicial written demand by the creditor is applicable to actions brought under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides that: the carriage and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when 270 CHAPTER V CARRIAGE OF GOODS BY SEA ACT the goods should have been delivered; Provided, that, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.” HELD: DOLE concedes that its action is subject to the one- year period of limitation prescribed in the abovecited provision. The substance of its argument is that since the provisions of the Civil Code are, by express mandate of said Code, suppletory of deficiencies in the Code of Commerce and special laws in matters governed by the latter, and there being a patent deficiency with respect to the tolling of the prescriptive period provided for in the Carriage of Goods by Sea Act, prescription under said Act is subject to the provisions of Article 1155 of the Civil Code on tolling and because DOLE’S claim for loss or damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods by Sea Act. Too much the same effect is the further argument based on Article 1766 of the Civil Code which provides that the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws in all matters not regulated by the Civil Code. These arguments might merit weightier consideration were it not for the fact that the question has already received a definite answer, adverse to the position taken by DOLE, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. v. American President Lines, Inc. There, in a parallel factual situation, where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than two years after the consignee’s receipt of the cargo, this Court rejected the contention that an extrajudicial demand tolled the prescriptive period provided for in the Carriage of Goods by Sea Act. Moreover, no different result would obtain even if the Court were to accept the proposition that a written extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The demand 271 A TRANSPORTATION LAWS in this instance would be the claim for damage filed by DOLE with Maritime on May 4, 1972. The effect of that demand would have been to renew the one-year prescriptive period from the date of its making. Stated otherwise, under DOLE’S theory, when its claim was received by Maritime, the one-year prescriptive period was interrupted — “tolled” would be the more precise term — and began to run anew from May 4, 1972, affording DOLE another period of one year counted from that date within which to institute action on its claim for damage. Unfortunately, DOLE let the new period lapse without filing action. In instituting Civil Case No. 91043 only on June 11, 1973, more than one month after that period has expired and its right of action has prescribed. DOLE’S contention that the prescriptive period “remained tolled as of May 4, 1972 (and that) in legal contemplation (the) case (Civil Case No. 96353) was filed on January 7, 1975 well within the one-year prescriptive period in Section 3(6) of the Carriage of Goods by Sea Act,” equates tolling with indefinite suspension. It is clearly fallacious and merits no consideration. A request for, and the result of a bad order examination, done within the reglementary period for furnishing notice of loss or damage to the carrier or it’s agent, serves the purpose of a claim under Paragraph 6, Section 3 of the COGS A; nevertheless, the same provision states that failure to comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within one year after delivery of the goods. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance, Inc.) G.R. No. 181163, July 24, 2013 FACTS: On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) 219 packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without engine, tires and batteries, on board the vessel S/S “Calayan Iris” from Japan to Manila. The shipment, which had a declared value of US$81,368 or P29,400,000, was insured with Philam against all risks. The carrying vessel arrived at the port of Manila on 272 CHAPTER V CARRIAGE OF GOODS BY SEA ACT April 20, 1995, and when the shipment was unloaded by the staff of ATI, it was found that the package marked as 03-245-42K/1 was in bad order. The Turn Over Survey of Bad Order Cargoes identified two packages, labeled 03-245-42K/1 and 03-237-7CK/2, as being dented and broken. On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker of Universal Motors, and delivered to the latter’s warehouse in Mandaluyong City. Upon the request of Universal Motors, a bad order survey was conducted on the cargoes and it was found that one Frame Axle Sub without LWR was deeply dented on the baffle plate, while six Frame Assembly with Bust were deformed and misaligned. Owing to the extent of the damage to said cargoes, Universal Motors declared them a total loss. On August 4, 1995, Universal Motors filed a formal claim for damages in the amount of P643,963.84 against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. When Universal Motor’s demands remained unheeded, it sought reparation from and was compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation Receipt in favor of Philam. On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint for damages against Westwind, ATI, and R.F. Revilla Customs Brokerage, Inc. before the Regional Trial Court (RTC) of Makati City, Branch 148. On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered Westwind and ATI to pay Philam, jointly and severally, the sum of P633,957.15, with interest at the rate of 12% per annum, PI58,989.28 by way of attorney’s fees, and expenses of litigation. On appeal, the Court of Appeals (CA) affirmed the decision of RTC, with modification. ISSUE: Whether or not Philam’s cause of action has prescribed. HELD: Upon a careful review of the records, the Court finds no reason to deviate from the finding that petitioners Westwind and ATI are concurrently accountable for the damage to the content of Steel Case No. 03-245-42K/1. Section 2 of the COGSA provides that under every contract of carriage of goods by the sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, 273 TRANSPORTATION LAWS shall be subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3(2) thereof then states that among the carrier’s responsibilities are to properly load, handle, stow, carry, keep, care for and discharge the goods carried. The Carriage of Goods bv Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress was accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by virtue of Commonwealth Act (C.A.) No. 65, Section 1 of C.A. No. 65 states: Section 1. That the provisions of Public Act Number Five Hundred and Twenty-one of the Seventy-fourth Congress of the United States approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of Commerce, which is now in force, or as limiting its application. The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph 6, Section 3, thus: Paragraph 6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection. In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within 274 CHAPTER V CARRIAGE OF GOODS BY SEA ACT one year after delivery of the goods or the date when the goods should have been delivered. Provided, that if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. S/S “Calayan Iris” arrived at the port of Manila on April 20,1995, and the subject cargoes were discharged to the custody of ATI the next day. The goods were then withdrawn from the CFS Warehouse on May 11,1995, and the last of the packages delivered to Universal Motors on May 17, 1995. Prior to this, the latter filed a Request for Bad Order Survey on May 12, 1995 following a joint inspection where it was discovered that six pieces of Chassis Frame Assembly from two bundles were deformed and one Front Axle Sub without Lower from a steel case was dented. Yet, it was not until August 4, 1995 that Universal Motors filed a formal claim for damages against petitioner Westwind. Even so, [W]e have held in Insurance Company of North America v. Asian Terminals, Inc. that a request for, and the result of a bad order examination, done within the reglementary period for furnishing notice of loss or damage to the carrier or it’s agent, served the purpose of a claim. A claim is required to be filed within the reglementary period to afford the carrier or depository reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available. Here, Universal Motors filed a request for bad order survey on May 12, 1995 even before all the packages could be unloaded to its warehouse. Moreover, Paragraph 6, Section 3 of the COGSA clearly states that failure to comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within one year after delivery of the goods. Petitioner Philam, as subrogee of Universal Motors, filed the Complaint for damages on January 18, 1996, just eight months after all the packages were delivered to its possession on May 17,1995. Eventually, petitioner Philam’s action against petitioners Westwind and ATI was seasonably filed. 275 TRANSPORTATION LAWS Section 3(6), Title I of the Carriage of goods by Sea Act admits of an exception: if the one-year period is suspended by express agreement of the parties. Universal Shipping Lines, Inc. v. Intermediate Appellate Court and Alliance Assurance Co., Ltd. G.R. No. 74125, July 31,1990 FACTS: On or about March 22,1974, SEVALCO, Limited, owned and operated by the petitioner, shipped from Rotterdam, Netherlands, to Bangkok, Thailand, aboard its M/V “TAIWAN,” two cargoes of 50 palletized cartons consisting of 2,000 units of 25 kilogram bags of Statex R Brand carton black, with a declared gross weight of 53,000 kilos each. They were respectively consigned to S. Lersen Company, Ltd. and Muang Ngarm Retreads, Ltd., per Bills of Lading Nos. RB- 15 both shipments were insured with the private respondent, Alliance Assurance Company, Ltd., a foreign insurance company domiciled in London, England, which had withdrawn from the Philippine market on June 30, 1951. Despite the arrival of the vessel on June 28, 1974 at Bangkok, the cargo covered by Bill of Lading No. RB-15 was not unloaded nor delivered to the consignee, S. Lersen Company, Ltd. The shipment under Bill of Lading No. RB-16 was delivered to Muang Ngarm Retreads, Ltd. with a total weight shortage of 11,070 kilos because the cargoes had been either totally or partially dissolved in saltwater which flooded Hatch No. 2 of the vessel where they had been stored. The consignees, S. Lersen Co., Ltd. and Muang Ngarm Retreads, Inc., filed their respective formal claims for loss and damage to their cargoes on August 7, 1974 and on November 12, 1974 the insurer paid both claims in the amounts of $12,180 and $2,547.18 for the loss and damage to their cargoes. On June 25, 1976, private respondent, as insurer-subrogee, filed an action in the Court of First Instance of Manila to recover from the petitioner and its Manila agent, Carlos Go Thong & Company, what it paid the consignees of the cargo. After the trial, the court a quo rendered judgment for the private respondent. 276 CHAPTER V CARRIAGE OF GOODS BY SEA ACT In this appeal by certiorari, petitioner alleges that respondent court erred in finding that private respondent’s cause of action has not yet prescribed. ISSUE: Whether or not the action under Section 3(6) of the Carriage of Goods by Sea Act has prescribed. HELD: Anent the issue of prescription of the action under Section 3(6), Title 1, of the Carriage of Goods by Sea Act (Commonwealth Act No. 65) which provides that: “x x x the carrier and the ship shall be dischargedfrom all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered, x x x ” This provision of the law admits of an exception: if the one-year period is suspended by express agreement of the parties. (Chun Kay v. Everett Steamship Corporation, L-5554, May 27, 1953; Tan Liao v. American President Lines, Ltd., L-7280, January 20, 1956) For in such a case, their agreement becomes the law for them. (Phoenix Assurance Co., Ltd. v. United Stated Lines, 22 SCRA 674; Baluyot v. Venegas, 22 SCRA 412; Lazo v. Republic Surety & Insurance, Co., Inc., 31 SCRA 329; Philippine American General Insurance Co., Inc. v. Mutuc, 61 SCRA 22-23) The exchange of correspondence between the parties and/or their associates/representatives shows that the parties had mutually agreed to extend the time within the plaintiff or its predecessors-in-interest may file suit until December 27, 1976. When the complaint was filed on June 25, 1976, that deadline had not yet expired. One-year period of prescription under COGSA suspended by express agreement of the parties. Benjamin Cua (Cua Uian Tek) v. Wallem Philippines Shipping, Inc. and Advance Shipping Corporation G.R. No. 171337, July 11, 2012 FACTS: On November 12, 1990, Cua filed a civil action for damages against Wallem and Advance Shipping before the Regional 277 TRANSPORTATION LAWS Trial Court (RTC) of Manila. Cua sought the payment of P2,030,303.52 for damage to 218 tons and for a shortage of 50 tons of shipment of Brazilian Soybean consigned to him as evidenced by Bill of Lading No. 10. He claimed that the loss was due to the respondents’ failure to observe extraordinary diligence in carrying the cargo. Advance Shipping (a foreign corporation) was the owner and manager of M/V Argo Trader that carried the cargo, while Wallem was its local agent. Advanced Shipping filed a motion to dismiss the complaint, assailing the RTC’s jurisdiction over Cua’s claim. It argued that Cua’s claim should have first been brought to arbitration. Cua contended that he, as a consignee, was not bound by the Charter Party Agreement, which was a contract between the ship owner (Advance Shipping) and the charterers. Upon motion by Advance Shipping, the RTC ruled that Cua was not bound by the arbitration clause in the Charter Party Agreement. In the meantime, Wallem filed its own motion to dismiss, raising the sole ground of prescription. Section 3(6) of the Carriage of Goods by Sea Act (COGSA) provides that “the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods.” Wallem alleged that the goods were delivered to Cua on August 16, 1989, but the damage suit was instituted only on November 12, 1990, more than one year than the period allotted under the COGSA. Since the action was filed beyond the one-year prescriptive period, Wallem argued that Cua’s action has been barred. Cua filed an opposition to Wallem’s motion to dismiss, denying the latter’s claim of prescription. Cua referred to the August 10, 1990 telex message sent by Mr. A.R. Filder of Thomas Miller, manager of the UK P&I Club, which stated that Advance Shipping agreed to extend the commencement of suit for 90 days, from August 14,1990 to November 12, 1990. The extension was made with the concurrence of the insurer of the vessel, the UK P&I Club. A copy of the August 10, 1990 telex was supposedly attached to Cua’s opposition. After trial on the merits, the RTC issued its decision on December 28, 1995, ordering the respondents jointly and severally liable to pay as 278 CHAPTER V CARRIAGE OF GOODS BY SEA ACT damages to Cua in the amount of P2,030,000.00, plus interest until the same is fully paid; the sum of PI 00,000 as attorney’s fees; and the cost of the suit, and dismissing the counterclaims of the respondents. The respondents filed an appeal with the Court of Appeals (CA), insisting that Cua’s claim is arbitrable and has been barred by prescription and/or laches. The CA found the respondents’ claim of prescription meritorious after finding that the August 10, 1990 telex message, extending the period to file an action, was neither attached to Cua’s opposition to Wallem’s motion to dismiss, nor presented during trial. The CA ruled that there was no basis for the RTC to conclude that the prescriptive period was extended by the parties’ agreement. Hence, it set aside the RTC decision and dismissed Cua’s complaint. Cua filed a motion for reconsideration of the CA’s decision, which was denied by the CA in a resolution dated January 31,2006. Cua thus filed the present petition to assail the CA rulings. ISSUE: Whether or not Cua’s claim for payment of damages against the respondents has prescribed. HELD: The COGSA is the applicable law for all contracts for carriage of goods by sea to and from Philippine ports in foreign trade. It is thus the law that the Court shall consider in the present case since the cargo was transported from Brazil to the Philippines. Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or damage to the cargo “unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.” Jurisprudence, however, recognized the validity of an agreement between the carrier and the shipper/consignee extending the one-year period to file a claim. The vessel M/V Argo Trader arrived in Manila on July 8, 1989. Cua’s complaint for damages was filed before the RTC of Manila on November 12, 1990. Although the complaint was clearly filed beyond the one-year period, Cua additionally alleged in his complaint (under paragraph 11) that “the defendants xxx agreed to extend the time for filing of the action up to November 12,1990” The allegation of an agreement extending the period to file an action in Cua’s complaint is a material averment that, under Section 11, 279 /) II .J ■i TRANSPORTATION LAWS Rule 8 of the Rules of Court, must be specifically denied by the respondents, otherwise, the allegation is deemed admitted. A specific denial is made by specifying each material allegation of fact, the truth of which the defendant does not admit, and whenever practicable, setting forth the substance of the matters upon which he relies to support his denial. The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint, which he succinctly intends to disprove at the trial, together with the mattery which he relied upon to support the denial A review of the pleadings submitted by the respondents disclosed that they failed to specifically deny Cua’s allegation of an agreement extending the period to file an action to November 12, 1990. Wallem’s motion to dismiss simply referred to the fact that Cua’s complaint was filed more than one year from the arrival of the vessel, but it did not contain a denial of the extension. Advance Shipping’s motion to dismiss, on the other hand, focused solely on its contention that the action was premature for failure to first undergo arbitration. While the joint answer submitted by the respondents denied Cua’s allegation of an extension, they made no further statement other than a bare and unsupported contention that Cua’s “complaint is barred by prescription and/or laches.” The respondent did not provide in their joint answer any factual basis for their belief that the complaint had prescribed. Given the respondents failure to specifically deny the agreement on the extension of the period to file an action, the Court considers the extension of the period as an admitted fact. This presumed admission is further bolstered by the express admission made by the respondent themselves in their Memorandum. Notes: Written extrajudicial demand by the creditor does not toll the running of the one-year prescriptive period imder the Carriage of Goods by Sea Act. (Dole Philippines, Inc. v. Maritime Company of the Philippines, 148 SCRA 118) The one-year prescriptive period under Section 3(6) of paragraph 4 of the Carriage of Goods by Sea Act is not applicable in cases of misdelivery or conversion. (Ang v. American Steamship Agencies, Inc.. 19 SCRA 123) 280 CHAPTER V CARRIAGE OF GOODS BY SEA ACT The prescriptive period for suits predicated not upon lost or damage but on alleged misdelivery or conversion of goods is that found in the New Civil Code, i.e., either ten years for breach of a written contract or four years for quasi-delict. Coverage of the one-year prescriptive period under the Carriage of Goods by Sea Act includes the insurer of the goods. Filipino Merchants Insurance Co., Inc. v. Hon. Jose Alejandro and Frota Oceanica Brasiliera G.R. No. L-54140, October 14,1986 Filipino Merchants Insurance Co., Inc. v. Hon. Alfredo Benipayo and AustraliaWest Pacific Line G.R. No. L-62001, October 14,1986 FACTS: On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 10991, against the petitioner before the then Court of First Instance of Manila for recovery of a sum of money under the marine insurance policy on cargo. Mr. Choa alleged that the goods he insured with the petitioner sustained loss and damage in the amount of P35,987.26. The vessel SS Frotario that was owned and operated by private respondent Frota Oceanica Brasiliera (Frota), discharged the goods at the port of Manila on December 13, 1976. The said goods were delivered to the arrastre operator E. Razon, Inc., on December 17, 1976 and on the same date were received by the consignee-plaintiff. On December 19, 1977, the petitioner filed its amended answer disclaiming the liability, imputing against the plaintiff the commission of fraud and counterclaiming for damages. On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent Frota and the arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the event that it is held liable to the plaintiff. Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner which was docketed as Civil 281 TRANSPORTATION LAWS Case No. 110061, for recovery under the marine insurance policy for cargo alleging that the goods insured with the petitioner sustained loss and damage in the sum of P55,996.49. The goods were delivered to the plaintiff-consignee on or about January 25-28,1977. On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended third-party complaint against respondent carrier, the Australia-West Pacific Line (Australia-West). In both cases, the private respondents filed their respective answers and subsequently filed a motion for preliminary hearing on their affirmative defense of prescription. The private respondents alleged in their separate answers that the petitioner is already barred from filing a claim because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed “within one year after delivery of the goods or the date when the goods should have been delivered, x x x” The petitioner contended that the provision relied upon by the respondents applies only to the shipper and not to the insurer of the goods. On April 30,1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and dismissed the petitioner’s third party complaint. Likewise, on August 31,1982, the respondent judge in CM Case No. 110061 dismissed the petitioner’s third-party complainant against respondent Australia-West on the ground that the same was filed beyond the prescriptive period provided in Section 3(6) of the Carriage of Goods by Sea Act of 1936. ISSUE: Whether or not the prescriptive period of one year under the said Act also applies to an insurer such as herein petitioner. HELD: The lower courts did not err. Section 3(6) of the Carriage of Goods by Sea Act provides: “(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the 282 CHAPTER V CARRIAGE OF GOODS BY SEA ACT goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery’. "Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof * ‘The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. “In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring the suit within one year after the delivery of the goods or the date when the goods should have been delivered. “In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. ” (Italics supplied) (Philippine Permanent and General Statutes, Revised Edition, Vol. 1, pp. 663-666) Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to prohibit after the lapse of the one- year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a claim against the insurer even after the lapse of one year. This would be the result if we follow petitioner’s argument that the insurer can, at any time, proceed against the carrier and the ship since it is not bound by the time-bar provision. In this situation, the one-year limitation will be practically useless. This could not have been the intention of the law which has also for its purpose the protection of the carrier and the ship from fraudulent claims by having “matters affecting transportation of goods by sea be decided in as short a time as possible” and by avoiding incidents which would “unnecessarily extend the period and permit delays in the settlement 283 TRANSPORTATION LAWS of questions affecting the transportation.” (See The Yek Tong Fire and Marine Insurance Co., Ltd. u American President Lines, Inc., 103 Phil. 1125-1126) In the case at bar, the petitioner’s action has prescribed under the provisions of the Carriage of Goods by Sea Act. Hence, whether it files a third-party complaint or chooses to maintain an independent action against herein respondents is of no moment. Had the plaintiffs in the civil cases below filed an action against the petitioner after the one-year prescriptive period, then the latter could have successfully denied liability on the ground that by their own doing, the plaintiffs had prevented the petitioner from being subrogated to their respective rights against the herein respondents by filing a suit after the one-year prescriptive period. The situation, however, does not obtain in the present case. The plaintiffs in the civil cases below gave extrajudicial notice to their respective carriers and filed suit against the petitioner well within one year from their receipt of the goods. The petitioner had plenty of time within which to act. In Civil Case No. 109911, the petitioner had more than four months to file a third-party complaint while in Civil Case No. 110061, it had more than five months to do so. In both instances, however, the petitioner failed to file the appropriate action. Under Section 3(6) of the Carriage of Goods by Sea Act, only the carrier’s liability is extinguished if no suit is brought within one year. Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. Court of Appeals, South Sea Surety and Insurance Co., Inc. and Charter Insurance Corporation 274 SCRA 432 (1997) FACTS: In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October 1983, Mayer shipped the pipes 284 CIIAI ’I I K V ( AKUI A<il Ol ( i< )ODS I lY SI {A ACT and Idlings to Hongkong as evidenced by Invoice Nos. MSFC-JOM, MSIV-1015, MSKM020, MSPC1017 and MSI,C-I022. Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International), Inc., as third-party inspector to examine whether the pipes and fittings arc manufactured in accordance with the specifications in the contract. Industrial inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods readied Hongkong, it was discovered that a substantial portion thereof was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent Charter paid petitioner Hongkong the amount of HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because the insurance surveyor’s report allegedly showed that the damage is a factory defect. On April 17,1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects, which are not covered by the insurance policies. The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are “all risks” policies, which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the “all risk” insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time 285 TRANSPORTATION LAWS (he goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that “the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.” Respondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro. ISSUE: Whether or not petitioner’s cause of action had already prescribed under Section 3(6) of the Carriage of Goods by Sea Act in the light of the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42). HELD: No. The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the carrier’s liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligation of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code. Mayer Steel Pipe Corporation Case compared to Filipino Merchants’ case The ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the other cases cited therein does not support respondent court’s view that the insurer’s liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer. In that case, the 286 /A I CHAPTER V CARRIAGE OF GOODS BY SEA ACT shipper filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held that the insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been delivered. The court said, “The coverage of the Act includes the insurer of the goods.” The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer, which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper, which filed a claim against the insurer. The basis of the shipper’s claim is the “all risks” insurance policies issued by private respondents to petitioner Mayer. The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer’s liability is the insurance contract. An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage, which he may suffer from a specified peril. An “all risks” insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the “all risks” policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. An amended complaint filed beyond the one-year prescriptive period under Section 3(6) of COGSA against the party impleaded 287 Jk TRANSPORTATION LAWS for the first time is barred by prescription the filing of the amended complaint does not retroact to the date of the filing of the original complaint. Wallem Philippines Shipping, Inc. v. S.R. Farms, Inc. G.R. No. 161849, July 9, 2010 FACTS: On March 25,1992, Continental Enterprises, Ltd. loaded on board the vessel M/V “Hui Yang” at Bedi Bunder, India, a shipment of Indian Soya Bean Meal, for transportation and delivery to Manila, with plaintiff (herein respondent) as consignee/notify party. The said shipment is said to weigh 1,100 metric tons and covered by Bill of Lading No. BEDI dated March 25, 1992 (Exhibit “A”, also Exhibit “1”). The vessel is owned and operated by defendant Conti-Feed with defendant (herein petitioner) Wallem as its ship agent. On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port of Manila, Pier 7, South Harbor. Thereafter, the shipment was discharged and transferred into the custody of the receiving barges, the NorthFront-333 and NorthFront-444. The offloading of the shipment went on until April 15, 1992 and was handled by Ocean Terminal Services, Inc. (OTSI) using its own manpower and equipment, and without the participation of the crewmembers of the vessel. All throughout the entire period of unloading operation, good and fair weather condition prevailed. At the instance of the plaintiff, a cargo check of the subject was made by one Lorenzo Bituin of Eme Maritime and Allied Services, Co. Inc., who noted a shortage in the shipment, which was placed at 80.467 metric tons based on draft survey made on the NorthFront-333 and NorthFront-444 showing that the quantity of cargo unloaded from the vessel was only 1019.53 metric tons. Thus, per the bill of lading, there was an estimated shortage of 80.467. Upon discovery thereof, the vessel chief officer was immediately notified of the said short shipment by the cargo surveyor, who accordingly issued the corresponding Certificate of Discharge dated April 15, 1992. On May 8, 1993, plaintiff then filed a Complaint for damages against Conti-Feed & Maritime Pvt. Ltd., a foreign corporation doing business in the Philippines and the owner of MW “Hui Yang,” RCS 288 CHAPTER V CARRIAGE OF GOODS BY SEA ACT Shipping Agencies, Inc., the ship agent of Conti-Feed, Ocean Terminal Services, Inc. (OTSI), the arrastre operator at Anchorage No. 7, South Harbor, Manila, and Cargo Trade, the customs broker. On June 7, 1993, respondent filed an Amended Complaint impleading herein petitioner as defendant, alleging that the latter, and not RCS, was the one which, in fact, acted as Conti-Feed’s ship agent. On October 8, 1999, the RTC rendered its decision dismissing respondent’s complaint, as well as the opposing parties’ counterclaims and cross-claims. Aggrieved by the RTC’s decision, respondent filed an appeal with the CA. On June 2, 2003, the CA rendered its presently assailed decision, REVERSED and SET ASIDE the RTC decision, and another one entered ordering defendants-appellees Conti-Feed and Maritime PVT, Ltd. and Wallem Philippines Shipping, Inc. to pay the sum representing the value of 80.467 metric tons of Indian Soya Beans short delivered, with legal interest from the time the judgment becomes final until full payment, plus attorney’s fees and expenses of litigation of PI 0,000.00, as well as the cost of suit. ISSUE: Whether or not the case was already time-barred when the case was filed as provided in Section 3(6) of the COGSA. HELD: With respect to the prescriptive period involving claims arising from shortage, loss of or damage to cargoes sustained during transit, the law the governs the instant case is the Carriage of Goods by Sea Act (COGSA), Section 3(6) of which provides: “Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge or at the time of the removal ofthe goods into the custody of the person entitled to delivery thereof under the contract of carriage , such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of delivery.99 Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of goods has at the time of their receipt been the subject of joint survey or inspection. In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage 289 TRANSPORTATION LAWS unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided: That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. Petitioner claims that pursuant to the abovecited provision, respondent should have filed its Notice of Loss within three days from delivery. It asserts that the cargo was fully discharged from the vessel on April 15, 1992, but the respondent failed to file any written notice of claim. Petitioner also avers that, pursuant to the same provision of the COGS A, respondent’s claim had already prescribed because the complaint for damages was filed more than one year after shipment was discharged. The Court agrees. Under Section 3(6) of the COGS A, notice of loss or damages must be filed within three days of delivery. Admittedly, respondent did not comply with the provision. Under the same provisions, however, failure to file a notice of claim within three days will not bar recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date when the goods should have been delivered. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the COGSA, which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit may be applied suppletorily to the case at bar. In the instant case, the Court is not persuaded by respondent’s claim that the complaint against petitioner was timely filed. Respondent argues that the suit for damages was filed on March 11, 1993, which is within one year from the time the vessel carrying the subject cargo arrived at the Port of Manila on April 11, 1992, or from the time the shipment was completely discharged from the vessel on April 15,1992. There is no dispute that the vessel carrying the shipment arrived at the Port of Manila on April 11, 1992, and that the cargo was completely discharged therefrom on April 15, 1992. However, respondent erred in arguing that the complaint for damages, insofar as the petitioner is 290 CHAPTER V CARRIAGE OF GOODS BY SEA ACT concerned, was filed on March 11, 1993. As the records would show, petitioner was not impleaded as a defendant in the original complaint filed on March 11, 1993. Respondent cannot argue that the filing of the Amended Complaint against petitioner should retroact to the date of the filing of the original complaint. The settled rule is that the filing of an amended pleading does not retroact to the date of the filing of the original, hence, the statute of limitation runs until the submission of the amendment. It is true that, as an exception, this Court has held that an amendment, which merely supplements and amplifies facts originally alleged in the complaint, relates back to the date of the commencement of the action and is not barred by the statute of limitation, which expired after the service of the original complaint. The exception, however, would not apply to the party impleaded for the first time in the amended complaint. In the instant case, petitioner was only impleaded in the amended complaint of June 7, 1993, or one year, one month and 23 days from April 15, 1992, the date when the subject cargo was fully unloaded from the vessel. Hence, reckoned from April 15, 1992, the one-year prescriptive period had already lapsed. New World International Development (Phils.), Inc. v. NYK Fil-Japan Shipping Corporation, et al G.R. No. 171468, August 24, 2011 New World International Development (Phils.), Inc. v. Seaboard-Eastern Insurance Co., Inc. G.R. No. 174241 FACTS: Petitioner New World International Development Philippines, Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00. DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in 291 TRANSPORTATION LAWS Manila. NYK issued a bill of lading, declaring that it received the goods in good condition. NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby v/72 that it also owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon “Kading,” whose captain filed a sea protest on arrival at the Manila South Harbor on October 5,1993, respecting the loss and damage that the goods on board his vessel suffered. An examination of the three generator sets in the presence of petitioner New World’s representatives revealed that all sets suffered extensive damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss. Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World to submit to it and itemized list of the damaged units, parts, and accessories, with corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim. On October 11,1994, petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770. On August 16, 2001, the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that the generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one-year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994, when the deadline for filing the action (on or before October 7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not from the date they were delivered to petitioner’s job site. As 292 * CHAPTER V CARRIAGE OF GOODS BY SEA ACT regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter couldn’t be faulted for denying the claim against ii since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation. On appeal, the Court of Appeals (CA) held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy considering that a) the submission of the Itemized listing is an unreasonable imposition, and b) the one-year prescriptive period under COGS A did not affect New World’s right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured. Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17,2006, the CA rendered an amended decision, reversing itself as regard the claim against Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World. Further, CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s right against the vessel owner. New World’s failure to comply promptly with what was required of it prejudiced such right. ISSUE: Whether or not the CA erred in failing to rule that the one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim against Seaboard, its insurer. HELD: Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of loss or damage, unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993, or about 11 months before the suit against NYK would have 293 TRANSPORTATION LAWS fallen due. In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an itemized list of the damaged units, part, and accessories, with corresponding values when it appeared settled that New World’s loss was total and when the insurance policy did not require the production of such list in the event of a claim. Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep. It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period. However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator. Insurance Company of North America v. Asian Terminals, Inc. G.R. No. 180784, February 15, 2012 FACTS: On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, through M/V “DIMI P” vessel, 185 packages (231,000 sheets) of electrolytic tin free steel, complete and in good order condition, and covered by a Bill of Lading. The shipment had a declared value of US$169,850.35 and was insured with petitioner Insurance Company of North America against all risks. The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment was discharged therefrom, it was noted that seven packages thereof were damaged and in bad order. The shipment was then turned over to the custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for storage and safekeeping pending its 294 CHAPTER V CARRIAGE OF GOODS BY SEA ACT withdrawal by the consignee’s authorized customs broker, R.V. Marzan Brokerage Corporation (Marzan). On November 22, 23, and 29, 2002, the subject shipment was withdrawn by Marzan from the custody of respondent. On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was conducted per the Request for Bad Order Survey, dated November 29, 2002, and the examination report, which was written on the same request, showed that an additional five packages were found to be damaged and in bad order. On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims against respondent and petitioner for the damage to 11,200 sheets of electrolytic tin free steel. Petitioner engaged the services of an independent adjuster/ surveyor, BA McLarens Philippines, Inc., to conduct an investigation and evaluation on the claim and to prepare the necessary report. BA McLarens Philippines, Inc., submitted to petitioner a Survey Report, dated January 22, 2003, and another report, dated May 5, 2003, regarding the damaged shipment. It noted that out of the reported 12 damaged skids, nine of them were rejected and three skids were accepted by the consignee’s representative as good order. BA McLarens Philippines, Inc., evaluated the total cost of damage to the nine rejected skids (11,200 sheets of electrolytic tin free steel) to be P431,592.14. The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for the damage caused to the shipment, as evidenced by the Subrogation Receipt, dated January 8, 2004. Therefore, petitioner, formally demanded reparation against respondent. As respondent failed to satisfy its demand, petitioner filed an action for damages with the Regional Trial Court (RTC) of Makati City. The trial court dismissed the complaint on the ground that the petitioner’s claim was already barred by the statute of limitations. It held that Carriage of Goods by Sea Act (COGSA) embodied in Commonwealth Act (CA) No. 65 applies to this case, since the goods were shipped from a foreign port to the Philippines. The trial court stated that under the said law, particularly paragraph 4, Section 3(6) thereof, the shipper has the right to bring a suit within one year after the delivery of the goods, or the date when the goods should have been delivered, in respect of loss or damage thereto. 295 TRANSPORTATION LAWS The trial court held: “In case at bar, the records show that the shipment was delivered to the consignee on 22, 23 and 29, of November 2002. The plaintiff took almost a year to approve and pay the claim of its assured, San Miguel, despite the fact that it had initially received the latter’s claim, as well as the inspection report and survey report of McLarens, as early as January 2003. The assured/consignee had only until November of2003 within which to file a suit against the defendant. However, the instant case was filed only on September 7, 2005 or almost three (3) years from the date the subject shipment was delivered to the consignee. The plaintiff, as insurer of the shipment, which has paid the claim of the insured, is subrogated to all the rights of the said insured in relation to the reimbursement of such claim. As such, the plaintiff cannot acquire better rights than that of the insured. Thus, the plaintiff has no one but itself to blame for having acted lackadaisically on San Miguel s claim. ” ISSUE: Whether or not the one-year prescriptive period for filing a suit under the COGS A applies to an arrastre operator. HELD: It is noted that the term “carriage of goods” covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship, and given to the custody of the arrastre operator, is not covered by the COGSA. The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph 6, Section 3, thus: Paragraph 6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. In any 296 CHAPTER V CARRIAGE OF GOODS BY SEA ACT event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the eoods or the date when the goods should have been delivered. Provided, that if a notice of loss or damage, either apparent or concealed, is not given as providedfor in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. From the provision above, the carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered. It has been held that not only the shipper but also the consignee or legal holder of the bill may invoke the prescriptive period. However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator. Domingo Ang v. Compania Maritima, Maritime Company of the Philippines and C.L. Diokno G.R. No. L-30805, December 26,1984 FACTS: In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the Philippines and C.L. Diokno. He prayed that the defendant be ordered to pay him solidarily the sum of US$130,539.68 with interest from February 9, 1963 plus attorney’s fees and damages. Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain conditions 559 packages of galvanized steel, Durzine sheets. The merchandise was loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon, a vessel owned and operated by the defendants, to be transported to Manila and consigned “to order” of the shipper, Tokyo Boeki, Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank. Ang further alleged that the defendants, by means of permit to deliver imported articles, authorized the delivery of the cargo to Teves who obtained delivery from the 297 TRANSPORTATION LAWS Bureau of Customs without the surrender of the bill of lading and in violation of the terms thereof. Teves dishonored the draft drawn by Yau Yue against him. The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft’s dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang. The defendants filed a motion to dismiss Ang’s complaint on the ground of lack of cause of action. Ang opposed the motion. The trial court on May 22, 1964 dismissed the complaint on the grounds of lack of cause of action and prescription since the action was filed beyond the one-year period provided in the Carriage of Goods by Sea Act. ISSUE: Whether or not the action has prescribed under Section 3(6) of the Carriage of Goods by Sea Act. HELD: In the American Steamship Agencies cases, it was held that the action of Ang is based on misdelivery of the cargo which should be distinguished from loss thereof. The one-year period provided for in Section 3(6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is applicable is the four-year period of prescription for quasi-delicts prescribed in Article 1146(2) of the Civil Code or 10 years for violation of a written contract as provided for in Article 1144(1) of the same Code. As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party-in-interest with a cause of action for damages. The prescriptive period of one year under Section 3(6) of COGSA will not apply to damages caused to the shipper’s goods in the general sense. Mitsui O.S.K. Lines Ltd. v. Court of Appeals and Lavine Loungewear Mfg. Corp. G.R. No. 119571, March 11,1998 FACTS: Petitioner Mitsui O.S.K. Lines Ltd., is a foreign corporation represented in the Philippines by its agent, Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., 298 CHAPTER V CARRIAGE OF GOODS BY SEA ACT an international freight forwarder, with private respondent Lavine Loungewear Manufacturing Corporation to transport goods of the latter from Manila to Le Havre, France. Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24, 1991, petitioner’s vessel loaded private respondent’s container van for carriage at the said port of origin. However, in Kaoshiung, Taiwan the goods were not transhipped immediately, with the result that the shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half of the value of the said goods on the ground that they did not arrive in France until the “off season” in that country. The remaining half was allegedly charged to the account of private respondent, which in turn demanded payment from petitioner through its agent. As petitioner denied private respondent’s claim, the latter filed a case in the Regional Trial Court on April 14, 1992. In the original complaint, private respondent impleaded as defendants Meister Transport, Inc. and Magsaysay Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993, it amended its complaint by impleading petitioner as defendant in lieu of its agent. The parties to the case thus became private respondent as plaintiff, on one side, and Meister Transport, Inc. and petitioner Mitsui O.S.K. Lines Ltd., as represented by Magsaysay Agencies, Inc., as defendants on the other. Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of Goods by Sea Act. The Regional Trial Court, denied petitioner’s motion as well as its subsequent motion for reconsideration. On petition for certiorari, the Court of Appeals sustained the trial court’s orders. ISSUE: Whether or not private respondent’s action is for “loss or damage” to goods shipped, within the meaning of Section 3(6) of the Carriage of Goods by Sea Act (COGSA). HELD: In Angv. American Steamship Agencies, Inc., the question was whether an action for the value of goods which had been delivered to a party other than the consignee is for “loss or damage” within the meaning of Section 3(6) of the COGSA. It was held that there was no loss because the goods had simply been misdelivered. “Loss” refers 299 TRANSPORTATION LAWS to the deterioration or disappearance of goods. As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, “loss ” contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered. Conformably with this concept of what constitutes “loss” or “damage,” this Court held in another case that the deterioration of goods due to delay in their transportation constitutes “loss” or “damage” within the meaning of Section 3(6), so that as suit was not brought within one year, the action was barred. Whatever damage or injury is suffered by the goods while in transit would result in loss or damage to either the shipper or the consignee. As long as it is claimed, therefore, as it is done here, that the losses or damages suffered by the shipper or consignee were due to the arrival of the goods in damaged or deteriorated condition, the action is still basically one for damage to the goods, and must be filed within the period of one year from delivery or receipt, under the abovequoted provision of the Carriage of Goods by Sea Act. In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused by the carrier’s breach of contract. Whatever reduction there may have been in the value of the goods is not due to their deterioration or disappearance because they had been damaged in transit. Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as provided by Section 3(6) of the COGSA, but its liability under its contract of carriage with private respondent as covered by laws of more general application. Precisely, the question before the trial court is not the particular sense of “damages” as it refers to the physical loss or damage of a shipper’s goods as specifically covered by Section 3(6) of COGSA but petitioner’s potential liability for the damages it has caused in the general sense and, as such, the matter is governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with private respondent. The Court concludes by holding that as the suit below is not for “loss or damage” to goods contemplated in Section 3(6), the question of prescription of action is governed not by the COGSA but by 300 CHAPTER V CARRIAGE OF GOODS BY SEA ACT Article 1144 of the Civil Code which provides for a prescriptive period of ten years. International Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co., Inc. G.R. No. 134514, December 8,1999 HELD: The legal relationship between an arrastre operator and a consignee is akin to that between a warehouseman and a depositor. As to both the nature of the functions and the place of their performance, an arrastre operator’s services are clearly not maritime in character. In a claim for loss filed by a consignee, the burden of proof to show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods rests within its knowledge, it must prove that the losses were not due to its negligence or that of its employees. “Shipper’s Load and Count. ” This means that the shipper was solely responsible for the loading of the container, while the carrier was oblivious to the contents of the shipment. Protection against pilferage of the shipment was the consignee’s lookout. The arrastre operator was, like any ordinary depositary, duty-bound to take good care of the goods received from the vessel and to turn the same over to the party entitled to their possession, subject to such qualifications as may have validly been imposed in the contract between the parties. The arrastre operator was not required to verify the contents of the container received and to compare them with those declared by the shipper because, as earlier stated, the cargo was at the shipper’s load and count. The arrastre operator was expected to deliver to the consignee only the container received from the carrier. Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc. G.R. No. 143133, June 5, 2002 FACTS: On June 13, 1990, CMC Trading A.G. shipped on board the MV Anangel Sky at Humburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the 301 TRANSPORTATION LAWS Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of Manila and within the subsequent days discharged the subject cargo. Four coils were found to be in bad order B.O. Tally Sheet No. 154974. Finding the four coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss. “Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee’s claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (Php506,086.50) and was subrogated to the latter’s rights and causes of action against defendant-appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of the amount paid by them to the consignee as insured. Defendants-appellees argued that their liability, if there be any, should not exceed the limitations of liability provided for in the bill of lading and other pertinent laws.” ISSUE: Whether or not the “PACKAGE LIMITATION” of liability under Section 4(5) of COGSA is applicable to the case at bar. HELD: There was no stipulation in the Bill of Lading limiting the carrier’s liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words “L/C No. 90/02/2447” cannot be the basis for petitioners’ liability. First, a notation in the Bill of Lading, which indicated the amount of the Letter of Credit obtained by the shipper for the importation of steel sheets, did not effect a declaration of the value of the goods as required by the bill. That notation was made only for the convenience of the shipper and the bank processing the Letter of Credit. Second, in Keng Hua Paper Products v. Court of Appeals, [the Court] held that a bill of lading was separate from the other Letter of Credit arrangements. “The contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount of goods described in the commercial 302 CHAPTER V CARRIAGE OF GOODS BY SEA ACT invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-vis the commercial invoice, and the letter of credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner’s obligation to private respondent arising from the contract of transportation. In the light of the foregoing, petitioners’ liability should be computed based on US$500 per package and not on the per metric ton price declared in the Letter of Credit. Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, explained the meaning of package: “When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the ‘package’ referred to in the liability limitation provision of Carriage of Goods by Sea Act.” Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should be considered as the shipping unit subject to the US$500 limitation. In the case of UCPB General Insurance Co., Inc. v. Aboitiz Shipping Corp., Eagle Express Lines, DAMCO Intermodal Services, Inc., and Pimentel Customs Brokerage Co., G.R. No. 168433, February 10,2009, the Supreme Court in denying the petition for certiorari of UCPB Gen. Ins. Co., interestingly applied Article 366 of the Code of Commerce which apply to overland, river and maritime transportation. Article 366 of the Code of Commerce states that within 24 hours following the receipt of the merchandise, the claim against the carrier for damage or average which may be found therein upon opening the 303 TRANSPORTATION LAWS packages, may be made provided that the indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of Appeals, the claims were dated October 30, 1991, more than three months from receipt of the shipment and, at that, even after the extent of the loss had already been determined by SMC’s surveyor. The claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by Article 366 of the Code of Commerce. Pursuant to an insurance agreement, petitioner paid SMC the amount of PI,703,381.40 representing the value of the damaged unit. In turn, SMC executed a Subrogation Form dated March 31,1992 in favor of plaintiff-appellee. Consequently, petitioners filed a Complaint on July 21, 1992 as subrogee of SMC seeking to recover from defendants the amount it had paid SMC. On September 20, 1994, petitioner moved to admit its Amended Complaint whereby it impleaded East Asiatic Co. Ltd. (EAST for brevity) as among the defendants for being the “general agent” of DAMCO. In its Order dated September 23, 1994, the lower court admitted the said amended complaint. The Supreme Court held: The law clearly requires that the claim for damages or average must be made within 24 hours from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo. In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation (462 SCRA 75, June 29, 2005), petitioner, as subrogee of Plastic Group Phil., Inc. (PGP), filed suit against respondent’s barge. Respondent claimed that no timely notice in accordance with Article 366 of the Code of Commerce was made by 304 CHAPTER V CARRIAGE OF GOODS BY SEA ACT petitioner because an employee of PGP merely made a phone call to respondent’s Vice President, informing the latter of the contamination of the cargo. The Court ruled that the notice of claim was not timely made or relayed to respondent in accordance with Article 366 of the Code of Commerce. The requirement to give notice of loss or damage to the goods is not an empty formalism. The fundamental reason or purpose ofsuch a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is still fresh and easily investigated so as to safeguard itselffrom false and fraudulent claims. (Philamgen Ins. Co., Inc. v. Sweetlines, Inc., 212 SCRA 194, August 5, 1992) It was construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former. In the light of the above pronouncement of the Supreme Court, a question may be asked whether or not Article 366 of the Code of Commerce is superior to the provision of Section 3(6) of the Carriage of Goods by Sea Act or in case of conflict between Article 366 of the Code of Commerce and Section 3(6) of COGSA, which one will prevail. Section 3(6) of the Carriage of Goods by Sea Act discussed in passing in the above case provides: Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. 305 TRANSPORTATION LAWS Said notice of loss or damage may be endorsed upon the receipt of the goods given by the person taking delivery thereof The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit its brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as providedfor in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods. It is clear from the above given provision of COGSA that it provides a similar claim mechanism as provided in Article 366 of the Code of Commerce but prescribes a period of three days within which notice of claim must be given if the loss or damage is not apparent. In fact, if this notice or claim was neglected by the shipper or owner of the goods, he may still hold the carrier and the ship liable provided that he filed a suit within one year after delivery of the goods or the date when the goods should have been delivered. Apparently, this provision of COGSA was not raised as an issue in the UCPB case. It must be emphasized that the Carriage of Goods by Sea Act (CA No. 65) is a special law but it cannot be construed as repealing or limiting any provision of the Code of Commerce. (Section l, CA 65) Hence, it can operate as suppletory law to the Code of Commerce, supplying the deficiencies thereof relating to contracts of carriage of goods by sea in foreign trade. But supposing Mr. A consignee received the shipment on March 1, 2010 but discovered that there were damaged articles on the shipment on March 2,2010. Mr. A did not file a claim against X Shipping Co., but went directly to the insurer Y Ins. Co., who paid the insured item one month later. Upon receipt of the subrogation letter, Y Ins. Co., instituted 306 T i CHAPTER V CARRIAGE OF GOODS BY SEA ACT an action for damages against X Shipping Co. invoking Section 3(6) of COGSA. X Shipping Co., filed a motion to dismiss on the ground of failure to comply with Article 366 of the Code of Commerce. Will the action of Y Ins. Co. prosper? In other words, there are two statutes now in conflict with each other. Courts of justice, when confronted with apparently conflicting statutes, should endeavor to reconcile the same instead of declaring outright the invalidity of one against the other. Such alacrity should be avoided. The wise policy is for the judge to harmonize them if this is possible, bearing in mind that they are equally the handiwork of the same legislature, and so to give effect to both while at the same time also accorded due respect to a coordinate department of the government. (Gordon v. Veridiano, 167 SCRA 51) But then, the two statutes cannot be applied in the given problem. Following the rule on statutory construction that a special law prevails over the general law regardless of their dates of passage, and the special law is to be considered as a remaining exception to the general law, it is submitted that Section 3(6) of the COGSA should prevail over Article 366 of the Code of Commerce, which is a general law. Philippine Charter Insurance Corporation v. Neptune Orient Lines/Overseas Agency Services, Inc. G.R. No. 145044, June 12, 2008 FACTS: On September 30, 1993, L.T. Garments Manufacturing Corporation, Ltd., shipped from Hong Kong three sets of warp yam on returnable beams aboard respondent Neptune Orient Lines’ vessel, M/V Baltimar Orion, for transport and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of No. 7 Jasmin Street, AUV Subdivision, Metro Manila. The said cargoes were loaded in Container No. IEAU- 4592750 in good condition under Bill of Lading No. HKG-0396180. Fukuyama insured the shipment against all risks with petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the amount of P228,085. During the course of the voyage, the container with the cargoes fell overboard and was lost. Thus, Fukuyama wrote a letter to respondent Overseas Agency 307 TRANSPORTATION LAWS Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines in Manila, and claimed for the value of the lost cargoes. However, Overseas Agency ignored the claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the insured value of the cargoes in the amount of P228,085, which claim was fully satisfied by PCIC. On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the latter to be subrogated in its right to recover losses from respondents. PCIC demanded from respondents’ reimbursement of the entire amount it paid to Fukuyama, but respondents refused payment. On March 21, 1994, PCIC filed a complaint for damages against respondents with the Regional Trial Court (RTC) Manila, Branch 35. Respondents filed an Answer with Compulsory Counterclaim denying liability. They alleged that during the voyage, the vessel encountered strong winds and heavy seas making the vessel pitch and roll, which caused the subject container with the cargoes to fall overboard. Respondents contended that the occurrence was a fortuitous event which exempted them from any liability, and that their liability, if any, should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower. In a Decision, dated January 12, 1996, the RTC held that respondents, as common carrier, failed to prove that they observed the required extraordinary diligence to prevent loss of the subject cargoes in accordance with the pertinent provisions of the Civil Code. The RTC ordered the defendants, jointly and severally, to pay the plaintiff the peso equivalent as of February 17, 1994 of HK$55,000 or the sum of P228,085, whichever is lower, with costs against the defendants. Respondents’ motion for reconsideration was denied. Respondents appealed the RTC decision to the Court of Appeals (CA). In its Resolution, dated April 13, 2000, the CA found the said argument of respondents to be meritorious. Holding the appellants shall be liable to pay appellee PCIC the value of the three packages lost computed at the rate of US$500 per package or a total of US$1,500. Hence, this petition. Petitioner contends that the CA erred in awarding damages to respondents subject to the US$500 per package limitation since the vessel committed a “quasi deviation”, which is a breach of the contract of carriage when it intentionally threw overboard the container with the subject shipment during the voyage to Manila 308 CHAPTER V CARRIAGE OF GOODS BY SEA ACT for its own benefit or preservation. The breach of contract resulted in the abrogation of respondents’ rights under the contract and COGS A including the US$500 per package limitation. Hence, respondents cannot invoke the benefit of the US$500 per package limitation, and the CA erred in considering the limitation and modifying its decision. ISSUE: Whether or not US$500 package limitation under the COGSA will apply. HELD: The facts, as found by the RTC, do not support the new allegation of facts by petitioner regarding the intentional throwing overboard of the subject cargoes and quasi deviation. The Court is of the opinion that the shipment of three cases of Various Warp Yam on Returnable Beams, which were containerized onto 40 feet LCL (no. IEAU-459750) and fell overboard the subject vessel during heavy weather, is an “Actual Total Loss.” The records show that the subject cargoes fell overboard the ship, and petitioner should not vary the facts of the case on appeal. This Court is not a trier of facts, and, in this case, the factual finding of the RTC and the CA, which is supported by the evidence on record, is conclusive upon this Court. As regards the issue on the limited liability of respondents, the Court upholds the decision of the CA. Since the subject cargoes were lost while being transported by respondent common carrier from Hong Kong to the Philippines, Philippine law applies pursuant to the Civil Code, which provides: Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction, or deterioration. Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. The rights and obligations of respondent common carrier are thus governed by the provisions of the Civil Code and the COGSA, which is a special law, applies suppletorily. The pertinent provisions of the Civil Code applicable to this case are as follows: 309 TRANSPORTATION LAWS Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. In addition, Section 4, paragraph 5 of the COGSA, which is applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade, provides: “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value ofsuch goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on the carrier. ” The bill of lading submitted in evidence by petitioner did not show that the shipper in Hong Kong declared the actual value of the goods as insured by the Fukuyama before shipment, and that the said value was inserted in the Bill of Lading, and so no additional charges were paid. Hence, the stipulation in the bill of lading that the carrier’s liability shall not exceed USS500 per package applies. To hold otherwise would amount to questioning the justness and fairness of the law itself. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. QUESTION: What is the effect on the liability of the shipowner and ship agent in case of loss or damage to the goods on the basis of the shipper’s load, count shipment? ANSWER: While the Civil Code contains provision making the common carrier liable for loss/damage to the goods transported, it 310 CHAPTER V CARRIAGE OF GOODS BY SEA ACT failed to outline the manner of determining the amount of such liability. Article 372 of the Code of Commerce fills this gap, thus: Article 372. The value of the goods which the carrier must pay in cases if loss or misplacement shall be determined in accordance with that declared in the bill of lading, the shipper not being allowed to present proof that among the goods declared therein there were articles of greater value and money. (Philam Insurance Co., Inc. v Heung-A Shipping Corporation and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 2014) NOTE: Article 366 of the Code of Commerce requiring that a claim must be made against the carrier within 24 hours from receipt of the merchandise applies only interisland shipments within the Philippines. 311 CHAPTER VI PUBLIC SERVICE A “public utility ” is a business or service engaged in regularly supplying the public with some commodity or service of public consequences such as electricity, gas, water, transportation, telephone or telegraph service. The term implies public use and service. (National Power Corporation v. Court of Appeals and Cepalco, G.R. No. 112702, September 26, 1997) Public utilities are privately owned and operated businesses whose services are essential to the general public. They are enterprises, which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is super induced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he has thus created. (Kilusang Mayo Uno Labor Center v. Hon. Jesus B. Garcia, Jr., the LTFRB and Provincial Bus Operators Association of the Philippines, Inc., G.R. No. 115381, December 23, 1994) In JG Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10, September 24, 2003, it was held that the terms “public service” and “public utility,” however, do not have the same legal meaning, at least since the enactment of C.A. No. 454. The terms are related though. The definition of “public service ” in the Public Service Act, as last amended by R.A. No. 2611, includes every person who owns, operates, manages or controls, for hire or compensation, and done 312 CHAPTFR M PI Bl 1C Sl-RVICF for general business purposes, any common carrier railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its classification, freight or carrier service of any class, express sen'ice, steamboat, or steamship line, pontines, ferries, and water craft engaged in the transportation of passengers or freight or both, shipyard, marine railway', 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 comtnunications systems, broadcasting stations and other similar public services. A ‘‘public utility,” on the other hand, is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service. Simply stated, a public utility provides a service or facility needed for present day living which cannot be denied to anyone who is willing to pay for it. Formerly, there was a statutory definition of “public utility, ” but it was abandoned in C.A. No. 454. The definition was instead solely applied to “public service” apparently because it did not exactly fit the concept of public utility. It is significant in this regard that while the 1935 Constitution which took effect on February 2, 1935 specifically mentioned “public utility,” C.A. No. 454 shifted from “public utility” to “public service” as the sole reference term in the Public Service Act. Another dissimilarity is that a public utility requires a franchise, aside from a certificate of public necessity and convenience, for its operation, while a public service, which is not a public utility, requires only a certificate of public convenience. The dichotomy in requirements flows from the enforced indeterminacy of the market for the service provided by a public utility. Thus, it may be pointed out that all public utilities are public services but the converse is not true. This is so because the term “public utility” connotes public use and service to the public. A legislative declaration such as the definition by enumeration in the Public Service Act does not ipso facto render a business or service a public utility. Whether or not one is a public utility is a matter of judicial, not legislative determination. 313 TRANSPORTATION LAWS COMMONWEALTH ACT NO. 146 (SECTIONS 13 TO 16) Section 13. (a) The Commission shall have jurisdiction, supervision, and control over all public services and their franchises, equipment, and other properties, and in the exercise of its authority, it shall have the necessary powers and the aid of the public force: Provided, That public service owned or operated by government entities or government-owned or -controlled corporations shall be regulated by the Commission in the same way as privately-owned public services, but certificates of public convenience or certificates of public convenience and necessity shall not be required of such entities or corporations: And provided, further, That it shall have no authority to require steamboats, motor ships and steamship lines, whether privately-owned, owned or operated by any Government controlled corporation or instrumentality to obtain certificate of public convenience or to prescribe their definite routes or lines of service. (b) The term “public service” includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railway, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal irrigation system, gas, electric light, heat and power, water supply power, petroleum, sewerage system, wire or wireless communication systems, wire or wireless broadcasting stations and other similar public services: Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle is offered for hire or compensation to a third-party or third-parties 314 CHAPTER Vf PUBLIC SERVICE engaged in agriculture, not itself or themselves a public service, for operation by the latter for a limited time and for a specific purpose directly connected with the cultivation of his or their farm, the transportation, processing, and marketing of agricultural products of such third-party or third-parties shall not be considered as operating a public service for the purposes of this Act. (c) The word “person” includes every individual, co-partnership, joint stock company or corporation, whether domestic or foreign, their lessees, trustees or receivers, as well as any municipality, province, city, government-owned or -controlled corporation, or agency of the Government of the Philippines, and whatever other persons or entities that may own or possess or operate public service. (As amended by R.A. Nos. 1270 and 2677) Powers and duties of the Public Service Commission, and the purpose and intent for which it was created, and the legal rights and privileges of a public utility operating under a prior license. Batangas Transportation Co. v. Cayetano Orlanes G.R. No. 28865, December 19,1928 The primary purpose of the Public Service Commission Law is to secure adequate, sustained service for the public at the least cost, and to protect and conserve investments, which have already been made for that purpose. It must be conceded that an autobus line is a public utility, and that in all things and respects, it is what is legally known as a common carrier, and that it is an important factor in the business conditions of the Islands, which is daily branching out and growing very fast. Before such a business can be operated, it must apply for, and obtain, a license or permit from the Public Service Commission, and comply with certain defined terms and conditions, and when the license is once granted, the operator must conform to, and comply with, all reasonable rules and regulations of the Public Service Commission. The object and purpose of such a commission, among other things, is to look 315 TRANSPORTATION LAWS out for, and protect, the interests of the public, and, in the instant case, to provide it with safe and suitable means of travel over the highways in question, in like manner that a railroad would be operated under like terms and conditions. To all intents and purposes, the operation of an autobus line is very similar to that of a railroad, and a license for its operation should be granted or refused on like terms and conditions. For many and different reasons, it has never been the policy of a public service commission to grant a license for the operation of a new line of railroad which parallels and covers the same field and territory of another old established line, for the simple reason that it would result in ruinous competition between the two lines, and would not be of any benefit or convenience to the public. The Public Service Commission has ample power and authority to make any and all reasonable rules and regulations for the operation of any public utility and to enforce compliance with them, and for failure of such utility to comply with, or conform to, such reasonable rules and regulations; the Commission has power to revoke the license for its operation. It also has ample power to specify and define what is a reasonable compensation for the services rendered to the traveling public. That is to say, the Public Service Commission, as such, has the power to specify and define the terms and conditions upon which the public utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the terms and conditions for which the license was granted, the Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions. Hence, and for such reasons, the fact that the Commission has previously granted a license to any person to operate a bus line over a given highway and refuses to grant a similar license to another person over the same highway, does not in the least create a monopoly in the person of the licensee, for the simple reason that at all times the Public Service Commission has the power to say what is a reasonable 316 CHAPTER VI PUBLIC' SERVICE compensation to the utility, and to make reasonable rules and regulations for the convenience of the traveling public and to enforce them. The proceeding we are considering is governed by Section 13. That is the general section of the Act comprehensively describing the duty of the Commission, vesting it with power to fix and order substituted new rates for existing rates. The power is expressly made to depend on the condition that, after full hearing and investigation, the commission shall find existing rates to be unjust, unreasonable, unjustly discriminatory, or unduly preferential. We conclude that a valid order of the Commission under the act must contain a finding of fact after hearing and investigation, upon which the order is founded, and that, for lack of such a finding, the order in this case was void. “Is a certificate of public convenience going to be issued to a second operator to operate a public utility in a field where, and in competition with, a first operator who is already operating a sufficient, adequate and satisfactory service?” So long as the first licensee keeps and performs the terms and conditions of its license and complies with the reasonable rules and regulations of the Commission and meets the reasonable demands of the public, it should have more or less of a vested and preferential right over a person who seeks to acquire another and a later license over the same route. Otherwise, the first licensee would not have any protection on his investment, and would be subject to ruinous competition and thus defeat the very purpose and intent for which the Public Service Commission was created. The Court is clearly of the opinion that the order of the Commission granting the petition of Orlanes in question, for the reasons therein stated, is null and void, and that it is in direct conflict with the underlying and fundamental principles for which the Commission was created. The question presented is very important and far-reaching and one of first impression in this court, and for such reasons [the Court] ha[s] given this case the careful consideration which its importance deserves. The government having taken over the control and supervision of all public utilities, so long as an operator under a prior license complies with the terms and conditions of license and reasonable rules and 317 TRANSPORTATION LAWS regulations for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the granting of a subsequent license to another for the same thing over the same route of travel. The granting of such a license does not serve its convenience or promote the interests of the public. Section 14. The following are exempted from the provisions of the preceding section: (a) Warehouses; (b) Vehicles drawn by animals and baticas moved by oar or sail, and tugboats and lighters; (c) Airship within the Philippines except as regards the fixing of their maximum rates on freight and passengers; (d) Radio companies except with respect to the fixing of rates; (e) Public services owned or operated by any instrumentality of the National Government or by any government-owned or -controlled corporation, except with respect to the fixing of rates. (As amended by R.A. No. 2031) Section 15. With the exception of those enumerated in the preceding section, no public service shall operate in the Philippines without possessing a valid and subsisting certificate from the Public Service Commission, known as “certificate of public convenience,” or “certificate of convenience and public necessity,” as the case may be, to the effect that the operation of said service and the authorization to do business will promote the public interests in a proper and suitable manner. The Commission may prescribe as a condition for the issuance of the certificate provided in the preceding paragraph that the service can be acquired by the Republic of the Philippines or by any instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable depreciation; and likewise, that the certificate shall be valid only for a definite period of time, and that the violation of any of these conditions shall produce the immediate 318 CHAPTER VI PUBLIC SERVICE cancellation of the certificate without the necessity of any express action on the part of the Commission. In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the model, or other circumstances affecting its value in the market shall be taken into consideration. The foregoing is likewise applicable to any extension or amendment of certificates actually in force and to those which may hereafter be issued, to permit to modify itineraries and time schedules of public services, and to authorizations to renew and increase equipment and properties. (As amended by Com. Act No, 454) Section 16. Proceedings of the Commission, upon notice and hearing, — The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary: (a) To issue certificates which shall be known as Certificates of Public Convenience, authorizing the operation of public services within the Philippines whenever the Commission finds that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner: Provided, That thereafter, certificates of public convenience and necessity will be granted only to citizens of the Philippines or of the United States or to corporations, copartnerships, associations or joint-stock companies constituted and organized under the laws of the Philippines: Provided, That sixty per centum of the stock or paid-up capital of any such corporation, co-partnership, association or joint-stock company must belong entirely to citizens of the Philippines or of the United States: Provided, further, That no such certificates shall be issued for a period of more than fifty years. (b) To approve, subject to constitutional limitations, any franchise or privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of 319 ■- $ TRANSPORTATION LAWS the Philippines when, in the judgment of the Commission, such franchise or privilege will properly conserve the public interests, and the Commission shall in so approving impose such conditions as to construction, equipment, maintenance, service, or operation as the public interests and convenience may reasonably require, and to issue certificates of public convenience and necessity when such is required or provided by any law or franchise. (c) To fix and determine individual or joint rates, tools, charges, classifications, or schedules thereof, as well as commutations, mileage, kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by a public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (d) To fix just and reasonable standards, classifications, regulations, practices, measurements, or service to be furnished, imposed, observed, and followed thereafter by any public services. (e) To ascertain and fix adequate and serviceable standards for the measurement of quantity, quality, pressure, initial voltage, or other condition pertaining to the supply of the product or service rendered by any public service, and to prescribe reasonable regulations for the examination and test of such product or service and for the measurement thereof. (f) To establish reasonable rules, regulations, instructions, specifications, and standards, to secure the accuracy of all meters and appliances for measurements. (g) To compel any public service to furnish safe, adequate, and proper service as regards the manner of furnishing the same as well as the maintenance of the necessary material and equipment. 320 CHAPTER VI PUBLIC SERVICE (h) To require any public service to establish, construct, maintain, and operate any reasonable extension of its existing facilities, where, in the judgment of said Commission, such extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same, and when the financial condition of the said public service reasonably warrant the original expenditure required in making and operating such extension. (i) To direct any railroad, street railway or traction company to establish and maintain at any junction or point of connection or intersection with any other line of said road or tract, or with any other line of any other railroad, street railway or traction company, such just and reasonable connection as shall be necessary to promote the convenience of shippers of property, or of passengers, and in like manner to direct any railroad, street railways, or traction company engaged in carrying merchandise, to construct, maintain and operate, upon reasonable terms, a switch connection with any private sidetrack which may be constructed by any shipper to connect with the railroad, street railway or traction company line where, in the judgment of the Commission, such connection is reasonable and practicable, and can be put in with safety, and will furnish sufficient business to justify the construction and maintenance of the same. (j) To authorize, in its discretion, any railroad, street railway or traction company to lay its tracts across the tracks of any other railroad, street railway or traction company, or across any public highway. (k) To direct any railroad or street railway company to install such safety devices or adopt such other reasonable measures as may in the judgment of the Commission be necessary for the protection of the public at passing grade crossings of: (1) public highways and railroads, (2) public highways and street railways, or (3) railroads and streets railways. (l) To fix and determine proper and adequate rates of depreciation of the property of any public service which will he observed in a proper and adequate depreciation account to 321 TRANSPORTATION LAWS be carried for the protection of stockholders, bondholders or creditors, in accordance with such rules, regulations, and form of account as the Commission may prescribe. Said rates shall be sufficient to provide the amounts required over and above the expense of maintenance to keep such property in a state of efficiency corresponding to the progress of the industry. Each public service shall conform its depreciation accounts to the rates so determined and fixed, and shall set aside the money so provided for out of its earnings and carry the same in a depreciation fund. The income from investments of money in such fund shall likewise be carried in such fund. This fund shall not be expended otherwise than for depreciation, improvements, new constructions, extensions or conditions to the property of such public service. (m) To amend, modify or revoke at any time any certificate issued under the provisions of this Act, whenever the facts and circumstances on the strength of which said certificate was issued have been misrepresented or materially changed. (n) To suspend or revoke any certificate issued under the provisions of this Act whenever the holder thereof has violated or willfully and contumaciously refused to comply with any order, rule or regulation of the Commission or any provision of this Act: Provided, That the Commission, for good cause, may prior to the hearing suspend for a period not to exceed thirty days any certificate or the exercise of any right or authority issued or granted under this Act by order of the Commission, whenever such step shall in the judgment of the Commission be necessary to avoid serious and irreparable damage or inconvenience to the public or to private interests. (o) To fix, determine, and regulate, as the convenience of the State may require, a special type for auto-buses, trucks, and motor trucks, to be hereafter constructed, purchased, and operated by operators after the approval of this Act; to fix and determine a special registration fee for auto-buses, trucks, and motor trucks so constructed, purchased and operated: Provided, That said fees shall be smaller than those charged for auto-buses, trucks, and motor trucks of types not made regulation under the subsection. 322 CHAPTER VI PUBLIC SERVICE Certificate of Public Convenience, Defined A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as required by the law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC. By its terms, public convenience or necessity generally means something fitting or suited to the public need. As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets reasonable want of the public and supply a need, which the existing facilities do not adequately supply. The existence or non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators. Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at 323 TRANSPORTATION LAWS all times, be required to prove his capacity and capability to furnish the service which he has undertaken to render. And all this will be possible only if a public hearing were conducted for that purpose. (KMU Labor Center v. Hon. Garcia, supra) Certificate of Public Convenience and Certificate of Convenience and Public Necessity, distinguished. “Certificate of Public Convenience ” is issued by the Commission authorizing the operation of public service within the Philippines whenever the Commission finds that the operation of the public service proposed will promote the public interests in a proper and suitable manner; while “certificate of public convenience and necessity ” is issued by the Commission upon approval of any franchise or privilege granted by any political subdivision of the Philippines when in the judgment of the Commission, such franchise or privilege will properly conserve the public interest. fSee Subsections [a] and [b]) In Philippine Airlines, Inc. v. Civil Aeronautics Board and Grand International Airways, G.R. No. 119528, March 26, 1997, it was held that there is no more distinction between certificate of public convenience and certificate of convenience and public necessity. Said the Supreme Court: “Many and varied are the definition of certificates of public convenience which court’s and legal writers have drafted. Some statutes use the terms “convenience and necessity ” while others use only the words “public convenience. ” The terms “convenience and necessity, ” if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other and must be construed together. The word “necessity ” is so connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need, which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing.” “The terms ‘convenience’ and ‘necessity’ are to be construed together, although they are not synonymous, and effect must be given both. The convenience of the public must not be circumscribed by 324 CHAPTER VI PUBLIC SERVICE according to the word ‘necessity’ its strict meaning or an essential requisite.” The use of the word “necessity,” in conjunction with “public convenience” in a certificate of authorization to a public service entity to operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law, which determines the requisites for the issuance of such certification, and not the title indicating the certificate. Philippine Airlines v. Civil Aeronautics Board and Grand International Airways G.R. No. 119528, March 26,1997 FACTS: Petitioner Philippine Airlines, Inc. in a Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent’s Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways (Grandair, for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, and converse routes. Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of Grand Airs application for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a temporary operating permit in the meantime, since Grand Air has not been granted and does not possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before anyone may engage in air transport service. Respondent Grandair, on the other hand, posits that a legislative franchise is no longer a requirement for the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the Court’s pronouncements in the case of Albano v. Reyes, as restated by the Court of Appeals in Avia Filipinas International v. Civil Aeronautics Board and Silangan Airways, Inc. v. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board. 325 TRANSPORTATION LAWS ISSUES: 1) Whether the Civil Aeronautics Board can issue the Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator who does not possess a legislative franchise to operate as such. 2) Whether Congress, in enacting R.A. No. 776, has delegated the authority to authorize the operation of domestic air transport services to the respondent Board, such that Congressional mandate for the approval of such authority is no longer necessary. HELD: The Civil Aeronautics Board has jurisdiction over Grand Air’s Application for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines, Inc. v. Civil Aeronautics Board, promulgated on June 13,1968. The Board is expressly authorized by R.A. No. 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit before the completion of the applicant’s evidence and that of the oppositor thereto on the main petition. Indeed, the CAB’s authority to grant a temporary permit “upon its own initiative” strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit. The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that branch of government vested with plenary powers of legislation. “The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the state.” On the second issue, the Supreme Court held that: Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modem life, the multiplication of the subjects of governmental regulation, and the increased difficulty of CHAPTER VI PUBLIC SERVICE administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be delivered indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature. The trend of modem legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right. Given the foregoing postulates, [W]e find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. No. 776. There is nothing in the law or in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress’ control over any franchise, certificate or authority to operate public utility, it does not mean that Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public utility may operate. In many instances, Congress has seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service. Prior applicant rule. — Where there are various applicants for a public utility over the same territory, all conditions being equal, priority in the filing of the application for a certificate of public convenience becomes an important factor in the granting or refusal of a certificate. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455) 327 TRANSPORTATION LAWS Old operator rule. — Before permitting a new operator to invade the territory of another already established with a certificate of public convenience, thereby entering into competition with it, the prior operator must be given an opportunity to extend its service in order to meet the public. (Javier v. Orlanes, 53 Phil. 468) Third operator rule. — Where two operators are more than serving the public, there is no reason to permit a third operator to engage in competition with them. Thus, the fact that it is only one trip and of little consequence, is not sufficient reason to grant the application. (Yangco v. Esteban, 58 Phil. 346) However, if later on circumstances would change requiring the operation of new units or extending existing facilities, the third operator rule would be subject to the prior applicant rule and also as to who may best subserve the public interests. Protection of investment rule. — It is one of the primary purposes of the Public Service Law to protect and conserve investments, which have already been made for that purpose by public service operators. (Batangas Trans. Co. v. Orlanes, 52 Phil 455) First applicant to operate service be given preference if financially competent. Tomas Litimco v. La Mallorca G.R. Nos. L-17041-42, May 18,1962 FACTS: Tomas Litimco filed a petition before the Public Service Commission praying for authority to operate a TPU service on the line Manila-Malolos via Sta. Isabel with the use of 10 units. To the petition, several operators filed written oppositions. On the date set for hearing, petitioner adduced evidence in support of his petition, but none of the oppositors submitted evidence in support of their oppositions. Thereafter, the petition was submitted for decision. On November 7, 1958, before the Public Service Commission could render its decision, La Mallorca, another operator, moved to reopen the case stating that if the petition to operate the line proposed be granted it would work to its prejudice and so it requested a reopening in order that it may file its opposition and present evidence in support 328 CHAPTER VI PUBLIC SERVICE thereof. The motion was granted and, accordingly, the case was set for hearing on January 12, 1959. However, instead of presenting evidence in support of its opposition, La Mallorca moved for postponement, only to announce days later that instead of merely objecting to the petition, it decided to file an application under a separate number (Case No. 63120) requesting for authority to operate the same line applied for by petitioner by rerouting 4 of its 10 round trip units of the line Malolos-Manila via Guiguinto. To this application, several oppositions were presented, including petitioner himself, although only the latter presented evidence in support of his opposition. Because of the identity of the issues involved, the two applications were heard jointly. After a protracted hearing, the Public Service Commission rendered decision denying petitioner’s application but granting that of respondents on the ground that the latter has a better right to render the service applied for. Petitioner interposed the present petition for review. ISSUE: Whether or not the priority in filing of the application, other conditions being equal, is an important factor in determining the rights of public service companies. HELD: Yes. There is no doubt that petitioner was the first to apply for the service in the territory in question. Through his amended application, petitioner has applied for the new service as early as October 24,1958, while respondent only was awakened and followed suit when it filed its application on January 21,1959, after petitioner’s application was already submitted for decision. Since it is admitted that petitioner is financially competent and able to operate the line proposed, for it is a matter of record that he is also an operator of a bus line from Manila to Malolos via Bulacan, [W]e see no plausible reason why he should not be given preference to operate the service applied for considering that he is the first one to apply for such line. This is in accord with the policy constantly adopted by this Court in analogous cases, which we find to be sound, to stave off any act of discrimination or partiality against any applicant for operation of a new line. While there may be cases where an applicant, even if ahead in time, was not given the service, it is because it was proven that he was financially incompetent, or otherwise disqualified, to render the service. If an applicant is qualified financially, 329 TRANSPORTATION LAWS and is able to undertake the service, he should be given the preference as a matter of fairness and justice. Indeed, this Court has postulated that “priority in the filing of the application for a certificate of public convenience is, other conditions being equal, an important factor in determining the rights of the public service companies.” Considering that petitioner has filed his application much ahead in point of time than respondent, and is financially competent, the action of the Public Service Commission in giving preference to respondent is not justified. The argument that the application of petitioner for the operation of the new line calls for the purchase of 10 new trucks which would result in further depletion of the dollar reserve of our government, while the application for re-routing of respondent will not entail any further expenditure, is of no consequence, if the operation will redound to the benefit of the riding public. The operation of a new line as a general proposition always involves a new investment, which may happen even with old operators. In the course of operation, and with the passing of time, new equipment and facilities may be found necessary to maintain an efficient service, which additional expenditure cannot certainly be considered as a cause for disruption of the service. This is a matter of finance, which concerns exclusively the one who desires to operate the new line. At any rate, the new line merely covers seven kilometers of new territory, which traverses three sparsely populated barrios, and considering that respondent did not deem it necessary to cover said territory except after the passing of many years, and only thought of giving the service when petitioner filed his application. Fairness requires that preference be given to petitioner. A certificate of public convenience may be granted to a new operator without giving the old operator an opportunity to improve its equipment and service. Fortunato F. Halili v. Ruperto Cruz G.R. No. L-21061, June 27,1968 FACTS: Herein respondent filed, on September 19, 1961, with the Public Service Commission an application, praying for the grant of a certificate of public convenience to operate, under PUB denomination, 330 CIIAITKR V! I’Um.lC SRRV1CT. |() buses between Norzagaray (Bulacan) and Piers (Manila), via Novaliehes Road, A. Bonifacio Road, Blumentritt Street, Rizal Avenue, MacArtluir Bridge, Aduana and 13th Streets; and on the return trip, via Boston Street, MacArtluir Bridge, Rizal Avenue, Blumentritt, A. Bonifacio Road, and Novaliehes Road. The application was opposed by l)e Dios Transportation Co., Inc., Raymundo Transportation Co., Inc., POP Transit Inc., Villa Rey Transit, Inc., and by herein petitioner- appellant Fortunato F. Halili who was the operator of the transportation service known as “Halili Transit.” Petitioner, in his opposition alleged, substantially, that he was an operator of a bus service on the line applied for, enumerating at the same time the other lines he operated which were traversed by the route mentioned in respondent’s application; that his service, as well as that of other bus operators on the route, was more than adequate to meet the demands of the traveling public; that the grant of the application would merely result in wasteful and ruinous competition, and that the respondent was not financially capable of operating and maintaining the service proposed by him. After several hearings in which the parties presented their evidence, oral and documentary, the Public Service Commission rendered a decision, on February 13, 1963, granting a certificate of public convenience to respondent Ruperto Cruz to operate 10 buses under PUB denomination on the line Norzagaray (Bulacan)-Piers (Manila) passing through the routes applied for. Petitioner contends that “The Public Service Commission erred in failing to give petitioner-appellant the right of protection to investment to which petitioner-appellant is entitled.” ISSUE: Whether or not the protection to investment rule is a paramount consideration in the grant of certificate of public convenience. HELD: Petitioner claims, that the Public Service Commission failed to give him the protection that he is entitled to, being an old and established public service operator. As a general principle, public utility operators must be protected from ruinous competition, such that before permitting a new operator to serve in a territoiy already served by another operator, the latter should first be given opportunity to improve his equipment and service. This principle, however, is subject 331 TRANSPORTATION LAWS to justifiable exceptions. The primary consideration in the grant of a certificate of public convenience must always be public convenience. Thus, this Court said: “While it is the duty of the government as far as possible to protect public utility operators against unfair and unjustified competition, it is nevertheless obvious that public convenience must have the first consideration, x x x.” (Raymundo Transportation Co. v. Perez, 56 Phil. 274) The public convenience is properly served if passengers who take buses at points in one part of a line are able to proceed beyond those points without having to change buses. On this point, this Court said: “It is the convenience of the public that must be taken into account, other things being equal, and that convenience would be effectuated by passengers who take buses at points in one part of a line being able to proceed beyond those points without having to change buses and to wait for the arrival of buses of a competitive operator. We can perceive how under such conditions one public utility could gain business at the expense of a rival.” In the instant case, public convenience would be properly served if commuters from Norzagaray going to the Piers in Manila could go to their destination without the need of changing buses. Certainly, the Public Service Commission has power to grant a certificate of public convenience to a new operator, and the old operator cannot with reason complain that it had not been given opportunity to improve its equipment and service, if it is shown that the old operator has not placed in the service all the units of equipment that it had been authorized to operate, and also when the old operator has violated, or has not complied with, important conditions in its certificate. In the instant case, it has been shown that petitioner had not operated all the units that it was authorized to operate. Note: The rule where there are various applicants for a public utility over the same territory, is that priority of application, while an element to be considered, does not necessarily control the granting of a certificate of public convenience. The question to be considered in such 332 CHAPTER VI PUBLIC SERVICE cases is, which applicant can render the best service, considering the conditions and qualifications of the applicant to furnish the same. But where other conditions are equal, priority in the filing of the application for a certificate of public convenience becomes an important factor in the granting or refusal of a certificate. (Cruz v. Marcelo, L-l5301- 01, March 30, 1962, reiterating the rulings in Pineda v. Carandang, L-l3270-71, March 24, 1960; Benitez v. Santos, L-12911-12, and Lopez v. Santos, L-l3073-74, February 29, 1960; andBatangas Trans. Co., etal. v. Or lanes, et ai, 55 Phil. 745) Additional Service by Old Operators Raymundo Transportation Co. G.R. No. L-7880, May 18,1956 FACTS: Teofilo Cerda is a holder of a certificate of public convenience granted him by the Public Service Commission to operate a bus service for the transportation of passengers and freight on the line Binangonan (Rizal) to Manila and vice versa. This certificate is but a conversion into a permanent one of the emergency certificate previously given him by the Commission way back in 1947. On September 12, 1953, he asked for authority to increase his present number of trips by eight additional round trips with the use of three additional buses on the ground that public convenience required the operation of the additional trips. His application was opposed by Raymundo Transportation Co., A. Gergaray Tanchingco and the Halili Transit alleging that the services they are rendering on the same line are more than sufficient to satisfy the needs of the traveling public, and hence, there is no need for the additional trips on the same line. At the hearing, the applicant presented the testimony of Sisenando Sison, Pedro Fineza, and Fernando Flores, all residents of Binangonan, Rizal, while on the part of the oppositors, only the first two submitted evidence in support of their opposition, and on the strength of the evidence submitted, the Commission found that the preponderance of evidence “justifies the authorization of additional trips on the line although not in the number asked by the applicant” and granted him authority to operate only four additional round trips with one auto-truck 333 TRANSPORTATION LAWS subject to certain specified conditions. From this decision, oppositor Raymundo Transportation Co., interposed the present petition for review. It is contended for petitioner that the decision of the Public Service Commission is erroneous because if there is any need for additional service, petitioner should be given the preference of rendering it being an old operator. HELD: As to the claim that petitioner should be given the privilege of rendering the additional service because it is an old operator, suffice it to say that this rule only applies when the old operator offers to meet the increase in the demand the moment it arises and not after another operator had offered to render the additional service as was done in the present case. (Angat-Manila Trans. Co., Inc. v. Victoria Vda. de Tengco, 95 Phil. 58) The rule protects those who are vigilant in meeting the needs of the traveling public. The decision appealed from is affirmed, with costs against petitioner. The “prior operator” and “protection of investment” rules cannot take precedence over the convenience of the public. Intestate Estate of Teofilo M. Tiongson v. The Public Service Commission and Mario Z. Lanuza G.R. No. L-2470I, December 16,1970 FACTS: On May 11, 1965, the Public Service Commission decided its Case No. 124626, approving the application of Mario Z. Lanuza for a certificate of public convenience to install and operate a 20-ton daily capacity ice-plant in Pagsanjan, Laguna, and to sell the ice to be produced in said municipality as well as in the municipalities of Longos, Paete, Pakil, Pangil, Siniloan, Famy, Sta. Maria, Cavinti, Magdalena, Majayjay, Nagcarlan, Rizal, Lilio, Sta. Cruz, Lumban, Pila and Victoria, all in the province of Laguna. Three existing operators had opposed the application. One of them, Victorino de Pena, who has an ice plant in Mauban, Quezon, 334 CHAPTER VI PUBLIC SERVICE withdrew his opposition after the applicant excluded the municipality of Luisiana from the territory originally applied for. Another oppositor, Emilio Gomez, did not appeal from the decision of the Public Service Commission. The petitioner here, the Estate of Teofilo M. Tiongson, remains the only oppositor in the present appeal. The petitioner is the grantee of a certificate of public convenience to maintain and operate a 30-ton (increased to 40 tons in 1960 and then to 70 tons in 1964) ice plant in San Pablo City, with authority to sell ice therein as well as in the municipalities of Sta. Cruz, Rizal, Nagcarlan, Calauan, Victoria, Pila, Lumban, Paete, Pakil, Pangil, Cavinti, Siniloan, and Alaminos. ISSUE: There is no question as to the applicant’s financial capacity. The principal issue is whether there is sufficient need for ice in the places stated in the decision to justify the establishment of a plant in Pagsanjan with the daily capacity authorized by the Commission. This issue is essentially one of fact on which, as a rule, the findings of the Commission are binding on this Court unless it clearly appears that there is no evidence to reasonably support them. HELD: The Court has gone over the record in this regard and found enough support therein for the decision appealed from. Manuel Zaide is a fish dealer in Paete; Willing Limlengco is a sari-sari and refreshment store-owner in Pagsanjan; Conrado Almario has a similar business in Lumban; Alfonso Rebong was the municipal mayor of Victoria since 1960; Ernesto Marina is a businessman in Pila; Jose Acuiza is a businessman and fisherman in Pakil; Jose Maceda was the municipal secretary of Pagsanjan; and Eligio Lorenzo is a grocery merchant in Sta. Cruz. They all affirmed the inadequacy and frequent lack of ice supply in their respective localities not only for home consumption but also for restaurants and refreshment parlors as well as for the fishing industry or occupation of the inhabitants, particularly in the regions bordering Laguna Bay. It is true their combined testimony did not cover all the municipalities applied for, but the applicant himself, respondent here, demonstrated sufficient familiarity with the entire area to be able to give evidence, as he did, on the ice-supply situation in everyone of them. He did a lot of traveling as owner of three movie-houses in Pagsanjan, 335 TRANSPORTATION LAWS Sta. Cruz and Pila, and in connection with his application in this case, personally conducted a thorough investigation of the local demands for ice in the municipalities covered by said application. That he is the applicant does not necessarily affect his credibility; on the contrary, such an investigation was necessary and called for by sound business policy, for no one would invest capital in the production and sale of any commodity without first ascertaining the needs of the prospective market. One significant fact may be noted insofar as the petitioner’s existing ice plant in San Pablo is concerned. The petitioner formerly operated another plant in Pagsanjan, and each of them had one delivery truck to service the customers in different municipalities. The Pagsanjan plant, however, was closed in 1952 and transferred to San Pablo, and since then, the petitioner has been maintaining only one delivery-truck service, with a single dealer-employee in charge. Under the circumstances, the Public Service Commission correctly remarked that “the oppositors have not established the adequacy of the service rendered by them in the eighteen (18) municipalities proposed to be served by the applicant, considering that most of these municipalities are far from the locations of their ice-plants. The “prior operator ” and “protection of investment ” rules cited by petitioner cannot take precedence over the convenience of the public. There is no ice plant at present in Pagsanjan; and from the testimony of the witnesses for the applicant, there exists a great demand for ice not only there but also in certain neighboring municipalities. There is nothing in the record to show that the petitioner had exerted efforts to meet this demand before the respondent made his offer to service the areas where ice was needed. Moreover, the respondent is authorized to produce only 20 tons of ice daily, whereas, the petitioner has been allowed to increase its daily capacity from 30 to 40 tons in 1960, and recently, in 1964, to 70 tons. This only proves that there is indeed a great demand for ice in the area applied for by the respondent, and negates the probability of ruinous competition. On the contrary, the resulting competition will undoubtedly benefit the public through improvement in the service and reduction in retail prices. 336 CHAPTER VI PUBLIC SERVICE Municipality of Echague v. Hon. Leopoldo M. Abellera and Avelina Ballad G.R. No. L-48671, December 12,1986 FACTS: Since 1936, the petitioner municipality, through its then municipal council, and later, its Sangguniang Bayan, had been operating a municipal ferry service traversing the Cagayan River to and from the Barangays Soyung-Malitao and Barangays Embarcadero-Dammang East and West, all within the municipality of Echague, Isabela. In this regard, petitioner either operated the ferry service itself, or annually leased the operation of the same to the highest bidder. On November 16, 1977, herein private respondent Avelino Ballad furnished petitioner, through its then incumbent mayor, a xerox copy of a Decision issued on October 13, 1977 by the Board of Transportation granting respondent Ballad a Certificate of Public Convenience to operate a two-motor boat service for the regular and public transportation of passengers and freight between Barrio Soyung-Dammang West and vice versa across the Cagayan River all in the municipality of Echague, Isabela. In furnishing petitioner with a copy of the Decision in his favor, private respondent gave notice that he would start his ferry boat service operation in January 1978 and petitioner Municipality has to stop its own feiry boat service within the aforementioned routes. Petitioner expressed its surprise over said Decision because it is averred that it was never notified of the application of respondent Ballad with the Board of Transportation to operate the ferry service. On January 17,1977, the respondent Board of Transportation, upon motion of petitioner Municipality, issued an Order suspending the operation of the motorboat service of private respondent after a rehearing of the case by the Board en banc. On February 14, 1978, the petitioner filed a Motion for Reconsideration of the Decision, dated October 13, 1977, on the grounds of lack of notice and deprivation of the opportunity to be heard by respondent Board; and the award of said Certificate of Public Convenience to respondent Ballad was approved without favorable indorsement by resolution of the Sangguniang Bayan of Echague, Isabela of Ballad’s application. 337 TRANSPORTATION LAWS The respondent Board, on June 26, 1978, denied the Motion for Reconsideration and lifted and set aside the Order of suspension dated January 17, 1977. ISSUE: Whether or not under RD. No. 1 or the Integrated Reorganization Plan, which vests on the Board of Transportation the jurisdiction and authority to issue Certificate of Public Convenience for the operation of public land, water and air transportation utilities, there would still be need for an applicant for a ferry boat service operating between two points within a municipality to obtain a favorable resolution of the Sangguniang Bayan of said municipality before the Board of Transportation, can validly award the corresponding franchise to the applicant, considering the provisions of Sections 2318-2320 of the Revised Administrative Code. HELD: Indeed, the records reflect that in the case at bar there was no compliance made with the essential requirements of administrative due process. It appears that the notice of hearing was duly published once in two Manila daily newspapers of general circulation in the Philippines. Nonetheless, Respondent Board ruled that petitioner is not entitled to be notified of the hearing inasmuch as petitioner Municipality never informed the respondent Board that it is an operator of a ferry boat service, and that petitioner Municipality being then a de facto ferry boat operator, has no personality to oppose the application of private respondent Ballad. The Court cannot consider the alleged publication of the said notice in two unnamed Manila dailies as sufficient compliance of notice to petitioner when the singular date of such supposed publication is not even mentioned by respondents nor disclosed by the records. As a party to be directly affected by the setting up of a ferry service by private respondent, petitioner Municipality is entitled to be directly informed and afforded an opportunity to be heard by the Board. The Court holds that the specific jurisdiction and authority given by Sections 2318-2320 of the Revised Administrative Code to a municipality to operate or lease the ferry service within its own territorial limits should prevail. The grant of supervision and authority by Administrative Code to municipalities or municipal councils over public utilities such as municipal ferries, markets, etc., is specific, and 338 CHAPTER VI PUBLIC SERVICE undoubtedly was “intended to provide an additional source of revenue to municipal corporations for their maintenance and operation.” (Municipality of Gattaran v. Elizaga, 91 Phil. 440) On the other hand, the authority conferred on the respondent Board of Transportation was intended principally to insure and safeguard the convenience, comfort and safety of the public. The Court declines to accept the proposition that the operation of the ferry being then exercised by petitioner municipality, pursuant to clear provisions of the law, was removed by a general reorganization plan, which was intended only to indicate the agency which would supervise or regulate the operation of public services. The provisions of the Revised Administrative Code which grant to the municipal council or Sangguniang Bayan the power to acquire or establish municipal ferries, are different and should be distinguished from the authority of the Board of Transportation to issue a Certificate of Public Convenience. While the establishment of a municipal ferry is first given to a municipality, ferry service will nevertheless be subject to the supervision and control of the Board of Transportation. The winner in a public bidding conducted by the municipal council obtains the privilege to operate the ferry service, but he has to apply for a Certificate of Public Convenience from the Board of Transportation which then has the duty to regulate the operation, route, rates to be charged, as well as specify the kind of equipment to be used for the comfort, convenience and safety of the public using the ferry. Note: The aforestated sections of the Administrative Code read as follows: “Section 2318. Municipal ferries, wharves, markets, etc. — A municipal council shall have authority to acquire or establish municipal ferries, wharves, markets, slaughterhouses, pounds, and cemeteries. Public utilities thus owned by the municipality may be conducted by the municipal authorities upon account of the municipality or may be let for a stipulated return to private parties.” “Section 2320. Establishment of certain public utilities by private parties under license. — Where provisions of the next 339 i TRANSPORTATION LAWS two preceding sections hereof, for maintaining or conducting the ferries, wharves, markets, or slaughterhouses requisite for the needs of the municipality, the municipal council shall have authority in its discretion, to let the privilege of establishing and maintaining such utilities to private parties by license granted upon such terms as shall be fixed by the council.” “The right to reject any or all bids shall be preserved in all proposals for such bids; and the maximum charges, rents, or fees which may be exacted by the lessees shall be fixed in advance and shall be stated in the proposals for bids. The decision of a municipal council rejecting any bid or awarding any such privilege shall be subject to final revisal by the provincial board.” LGU’s indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the operation thereof The Department of Transportation and Communications (“DOTC”), through the LTO and the LTFRB, has since been tasked with implementing laws pertaining to land transportation. The LTO is a line agency under the DOTC whose powers and functions, pursuant to Article III, Section 4(d)[l], of R.A. No. 4136, otherwise known as Land Transportation and Traffic Code, as amended, deal primarily with the registration of all motor vehicles and the licensing of drivers thereof. The LTFRB, upon the other hand, is the governing body tasked by E.O. No. 202, dated June 19,1987, to regulate the operation of public utility or “for hire” vehicles and to grant franchises or certificates of public convenience (“CPC”). Finely put, registration and licensing functions are vested in the LTO while franchising and regulatory responsibilities had been vested in the LTFRB. Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs, thusly: “SEC. 458. Powers, Duties, Functions and Compensation. — “xxx XXX XXX “(3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises and authorizing the 340 CHAPTER VI PUBLIC SERVICE issuance of permits or licenses, upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city and pursuant to this legislative authority shall: “xxx xxx xxx “(VI) Subject to the guidelines prescribed by the Department of Transportation and communications, regulate the operation of tricycles and grant franchises for the operation thereof within the territorial jurisdiction of the city.” (Emphasis supplied) LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchise for the operation thereof. “To regulate” means to fix, establish, or control; to adjust by rule, method, or established mode; to direct by rule or restriction; or to subject governing principles or laws. A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right. On the other hand, “to register,” means to record formally and exactly, to enroll, or to enter precisely in a list or the like, and a “driver’s license” is the certificate or license issued by the government which authorizes a person to operate a motor vehicle. The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local governments are in good position to achieve the end desired by the law making body because of their proximity to the situation that can enable them to address that serious concern better than the national government. It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local Government Code, the power of LGUs to regulate the operation of tricycles and to grant franchises for the operation thereof is still subject to the guidelines prescribed by DOTC. In compliance therewith, the Department of Transportation and Communications (“DOTC”) issued “Guidelines to Implement the Devolution of LTFRBs 341 TRANSPORTATION LAWS Franchising Authority over Tricycles-For-Hire to Local Government units pursuant to the Local Government Code. ” Pertinent provisions of the guidelines state: “In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB) in the DOTC, the Sangguniang Bayan I Sangguniang Panglungsod (SB/SP) shall perform the following: “(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the appropriate terms and conditions therefore; “xxx XXX XXX “Operating Conditions: “1. For safety reasons, no tricycles should operate on national highways utilized by 4 wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH. However, the SB/SP may provide exceptions if there is no alternative route. “2. Zones must be within the boundaries of the municipality/city. However, existing zones within more than one municipality/city shall be maintained, provided that operators serving said zone shall secure MTOPs from each of the municipalities/cities having jurisdiction over the areas covered by the zone. “3. A common color for tricycles-for-hire operating in the same zone may be imposed. Each unit shall be assigned and bear an identification number, aside from its LTO license plate number. “4. An operator wishing to stop service completely, or to suspend service for more than one month, should report in writing such termination or suspension to the SB/SP which originally granted the MTOP prior thereto. Transfer to another zone may be permitted upon application. “5. The MTOP shall be valid for three (3) years, renewable for the same period. Transfer to another zone, change of ownership of unit or transfer of MTOP shall be construed as an amendment to an MTOP and shall require appropriate approval of the SB/SP. “6. Operators shall employ only drivers duly licensed by LTO for tricycle-for-hire. 342 CHAPTER VI PUBLIC SERVICE “7. No tricycle-for-hire shall be allowed to carry more passengers and/or goods than it is designed for. “8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service is rendered upon demand and without a fixed route within a zone.” Such as can be gleaned from the explicit language of the statute, as well as the corresponding guidelines issued by DOTC, the newly delegated powers pertain to the franchising and regulatory powers therefore exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of license for the driving thereof Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No. 4136 requiring the registration of all kinds of motor vehicles used or operated on or upon any public highway in the country. Thus — “SEC. 5. All motor vehicles and other vehicles must be registered— (a) No motor vehicle shall be used or operated on or upon any public highway of the Philippines unless the same is properly registered for the current year in accordance with the provisions of this Act.” (Article 1, Chapter II, R.A. No. 4136). (Land Transportation Office v. City of Butuan, G.R. No. 131512, January 20, 2000, 322 SCRA 805) EXECUTIVE ORDER NO. 202 CREATING THE LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD WHEREAS, the Department of Transportation and Communications is vested with, among others, quasi-judicial powers and functions pursuant to Executive Order No. 125, as amended: NOW, THEREFORE, I, CORAZON C. AQUINO, president of the Philippines, do hereby order: SECTION 1. Creation of the Land Transportation Franchising and Regulatory Board. — There is hereby created in 343 TRANSPORTATION LAWS the Department of Transportation and Communications, the Land Transportation Franchising and Regulatory Board, hereinafter referred to as the “Board.” SEC. 2. Composition of the Board. — The Board shall be composed of a Chairman and two (2) members with the same rank, salary and privileges of an Assistant Secretary, all of whom shall be appointed by the President of the Philippines upon recommendation of the Secretary of Transportation and Communications. One (1) member of the Board shall be a member of the Bar and shall have engaged in the practice of law in the Philippines for at least five (5) years, another a holder of a degree in civil engineering, and the other a holder of a degree in economics, finance or management both with the same number of years of experience and practice. SEC. 3. Executive Director and Support Staff of the Board. — The Board shall have an Executive Director who shall also be appointed by the President of the Philippines upon the recommendation of the Secretary of Transportation and Communications. He shall have the rank, salary and privileges of a Department Service Chief. He shall assist the Board in the performance of its powers and functions. The Board shall be supported by the Technical Evaluation Division, Legal Division, Management Information Division, Administrative Division and Finance Division. SEC. 4. Supervision and Control Over the Board. — The Secretary of Transportation and Communications, through his duly designated Undersecretary, shall exercise administrative supervision and control over the Land Transportation Franchising and Regulatory Board. SEC. 5. Powers and Functions of the Land Transportation Franchising. — The Board shall have the following powers and functions: a. To prescribe and regulate routes of service, economically viable capacities and zones or areas of operation of public 344 CHAPTER VI PUBLIC SERVICE land transportation services provided by motorized vehicles in accordance with the public land transportation development plans and programs approved by the Department of Transportation and Communications; b. To issue, amend, revise, suspend or cancel Certificate of Public Convenience or permits authorizing the operation of public land transportation services provided by motorized vehicles, and to prescribe the appropriate terms and conditions therefor; c. To determine, prescribe and approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles; d. To issue preliminary or permanent injunction, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply; e. To punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provisions of, and the penalties prescribed by, the Rules of Court; f. To issue subpoena and subpoena duces tecum and to summon witnesses to appear in any proceedings of the Board, to administer oaths and affirmations; g. To conduct investigations and hearings of complaints for violation of the public service laws on land transportation and of the Board’s rules and regulations, orders, decisions, and/or rulings and to impose fines and/or penalties for such violations; h. To review motu proprio the decisions/actions of the Regional Franchising and Regulatory Office herein created; i. To promulgate rules and regulations governing proceedings before the Board and the Regional Franchising and Regulatory Office: Provided, That except with respect to paragraphs d, e, f and g hereof, the rules of procedure and evidence prevailing in the courts of law should not be controlling f I' |. 345 TRANSPORTATION LAWS and it is the spirit and intention of said rules that the Board and the Regional Franchising and Regulatory Offices shall use every and all reasonable means to ascertain facts in its case speedily and objectively and without regard to technicalities of law and procedures, all in the interest of due process; j. To fix, impose and collect, and periodically review and adjust, reasonable fees and other related charges for services rendered; k. To formulate, promulgate, administer, implement and enforce rules and regulations on land transportation public utilities, standards of measurements and/or design, and rules and regulations requiring operators of any public land transportation service to equip, install and provide in their stations such devices, equipment facilities and operating procedures and techniques as may promote safety, protection, comfort and convenience to persons and property in their charges as well as the safety of persons and property within their areas of operations; l. To coordinate and cooperate with other government agencies and entities concerned with any aspect involving public land transportation services with the end in view of effecting continuing improvement of such services; and m. To perform such other functions and duties as may be provided by law, or as may be necessary, or proper or incidental to the purposes and objectives of this Executive Order. SEC. 6. Decision of the Board; Appeals therefrom and/ or Review thereof — The Board, in the exercise of its powers and functions, shall sit and render its decision en banc. Every such decision, order, or resolution of the Board must bear the concurrence and signature of at least two (2) members thereof. The decision, order or resolution of the Board shall be appealable to the Secretary within thirty (30) days from receipt of the decision: Provided, That the Secretary may motu proprio review any decision or action of the Board before the same becomes final. 346 CHAPTER VI PUBLIC SERVICE SEC. 7. Creation of Regional Franchising and Regulatory Offices. — There shall be a Regional Franchising and Regulatory Office in each of the administrative regions of the country, which shall be headed by a Board Regional Manager having the rank, salary and privileges of a Department Assistant Regional Director. The Regional Franchising and Regulatory Offices shall hear and decide uncontested applications/petitions for routes, within their respective administrative regions: Provided, That applications/ petitions for routes extending their respective territorial jurisdiction shall be heard and decided by the Board. SEC. 8. Appeals. — The decisions, orders or resolutions of the Regional Franchising and Regulatory Offices shall be appealable to the Board within thirty (30) days from receipt of the decision. SEC. 9. Appropriations. — Funds needed to carry out the provisions of this Executive Order shall be taken from the funds available in the Department of Transportation and Communications. Thereafter, the approved budget of the Board shall be included in the General Appropriations Act. SEC. 10. immediately. Effectivity. — This Executive Order shall take effect Done in the City of Manila this 19th day of June, in the year of Our Lord, nineteen hundred and eighty-seven. RULES OF PRACTICE AND PROCEDURE BEFORE THE LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD OF THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS The Land Transportation Franchising and Regulatory Board of the Department of Transportation and Communications hereby adopts and promulgates the following rules of pleadings, practice and procedure governing hearings before the Board, pursuant to the Public Service Act, as amended. 347 TRANSPORTATION LAWS PART I — GENERAL PROVISIONS Rule 1 TITLE AND CONSTRUCTION SECTION 1. Title. — The rules shall be known and cited as the Rules of Practice and Procedure before the Land Transportation Franchising and Regulatory Board of the Department of Transportation and Communications. SEC. 2. Scope.—These rules shall govern pleadings, practice and procedure before the Land Transportation Franchising and Regulatory Board in all matters of hearing, investigation and proceedings within the jurisdiction of the Board. However, to best serve public interest and subject to the due process clause, the Board may, in any particular matter, except itself from these rules and apply such fair and reasonable procedures to assist the parties to obtain a speedy disposition of cases. SEC. 3. Construction. — These rules shall be liberally construed to protect and promote public interest and to assist the parties in obtaining just, speedy, and inexpensive determination of every action or proceeding. SEC. 4. Definitions. — For the purposes of these rules, the terms: a) “Board” shall refer to the Land Transportation Franchising and Regulatory Board of the Department of Transportation and Communications. b) “EO ” shall refer to Executive Order No. 202. c) “Act ” shall refer to C.A. No. 146, as amended. d) “Chairman” shall refer to the Chairman of the Land Transportation Franchising and Regulatory Board. e) “Member ” shall refer to any member of said Board. f) “En Banc ” shall refer to hearing or deciding of cases by at least any two (2) of the three (3) composite members of the Board. g) “Secretary ” shall refer to the Secretary of Transportation and Communications. 348 CHAPTER VI PUBLIC SERVICE Rule 2 PARTIES SECTION 1. Applicant and Oppositor. —Any person or group of persons, natural or juridical, applying with the Board for a Certificate of Public Convenience for the operation of public transportation utilities and services or for any form of authorization within the regulatory powers of the Board shall be called the Applicant. Any person having substantial interest capable of pecuniary estimation in the application who opposes the application shall be called the Oppositor. For new and additional services, substantial interest shall mean that the line applied for affects the oppositor because on the line applied for or substantial portions thereof, the oppositor is authorized to operate and is actually operating the said service authorized. SEC. 2. Complainant, Petitioner and Respondent. — Any aggrieved person or group of persons who filed a complaint on matters within the jurisdiction of the Board shall be called the complainant, and the person complained of who may or may not be holder of a Certificate of Public Convenience shall be called the Respondent. In seeking remedies for violation of Certificates of Public Convenience or any form of authorization or relief from orders, rulings, regulations, standards, specifications or any act of the Board, the one filing the petition shall be called the Petitioner. SEC. 3. Appearance by Solicitor General — Whenever the Solicitor General appears in behalf of the public in applications for approval of rates with this Board, his appearance shall be considered as representative of all individuals, consumers or users who have filed their written oppositions to such applications and who are not represented by counsel. SEC. 4. Appearance by Consumers or Users. — If individual users or entities opposing the petition for approval of rates are represented by several lawyers, they shall choose not more than two among themselves who shall be allowed by the Board to represent them for that particular hearing. 349 TRANSPORTATION LAWS Rule 3 PLEADINGS SECTION 1. Pleading allowed. — The pleadings allowed by these rules are application, complaint, petition, opposition, answer, and such other pleadings as the Board may allow. All pleadings shall be in any of the official languages, English or Filipino, typewritten or printed as to be sufficiently legible, double space on legal size white bond paper, and shall be filed in six (6) copies with the Receiving and Assessment Section of the Technical Evaluation Division. Every pleading shall contain in methodical and logical form, a plain, concise and direct statement of the ultimate facts on which the party bases his claim or defense, as the case may be. SEC. 2. Verification and Supporting Documents. —Applications for new services, complaints petitions, oppositions, and answers shall be verified or accompanied by affidavits of merit and by such documents as would reasonably tend to establish prima facie the truth of the factual allegations thereof. A pleading is verified by an affidavit stating that the person verifying has read the pleading and that the allegations of facts thereof are true of his own personal knowledge. A verification based on “knowledge, information and belief’ shall be deemed sufficient. SEC. 3. Application. — By means of an application, the applicant seeks for authorization or permission to undertake any matter within the power of the Board under the Act and/or E.O. and the issuance of certificate of public convenience in appropriate cases. SEC. 4. Complaint. — The complaint is a concise statement of the ultimate facts constituting the acts or matters complained of within the power of the Board, and shall specify the relief sought. The names and addresses of the complainants and the respondents must be stated in the complaint, and whenever practicable, the date, place and hour of the commission of the alleged act or omission. 350 CHAPTER VI PUBLIC SERVICE SEC. 5. Petition. — A petition is a pleading covering any matter within the jurisdiction of the Board as provided in the Act and the E.O. concerning a controversy against any person whether a holder or not of Certificate of Public Convenience or grantee of any Board Order, ruling, resolution or act. SEC. 6. Answer. — An answer is a pleading in which the respondent sets forth the defense upon which he relies. The respondent to whom an order is issued by the Board to show cause or otherwise summoned to answer, shall file and answer within ten (10) days from receipt of the order. The answer shall admit or deny the material allegations of facts stated in the show cause order or in the complaint or petition. Whenever practicable, the respondent shall attach to his answer such documents and affidavits in support of his allegations. The respondent may seek an affirmative relief. SEC. 7. Amendment. —Amendment to the pleading which consists in the modification or supplement to an application, complaint, petition, answer or other pleading must comply with the requirements of these rules. Amendments may be made as a matter of right at any time before a responsive pleading has been filed, and thereafter only with leave of the Board. If a responsive pleading has been filed by any oppositor or respondent, a copy of the amended pleading should be served on the oppositor or respondent. The latter may amend his opposition or answer within five (5) days from receipt of amended application, complaint or petition and thereafter only with leave of the Board. SEC. 8. Amendment to conform to the evidence. — When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they have been raised in the pleadings. If evidence upon new issues is objected to on the ground that it is not within the issues raised in the pleadings, the Board may allow the pleading to be amended and receive such evidence when it appears that the presentation of the merits of the proceeding will be served thereby without prejudicing the public interest or the right of the parties. The Board may grant a continuance to enable the objecting party to meet such evidence. 351 TRANSPORTATION LAWS SEC. 9. Directed amendments. — The Board, may, at any time, on its own motion or upon motion of any party, direct a party to amend his pleading in order to state his case more fully or in a more specific manner. Such amendment shall be reduced in writing and filed within such time as may be fixed by the Board, and shall comply with the requirements of the rule pertaining to the pleading amended insofar as appropriate. Rule 4 MOTIONS SECTION 1. Scope and Contents. — Every application for any procedural or interlocutory ruling or relief may be made by a motion. A motion shall be in writing and shall state the ruling or relief sought to be obtained and the grounds upon which it is based, and if necessary shall be accompanied by supporting affidavits and other documents. The requirements of Rule 3 insofar as applicable shall apply to all written motions. However, every ancillary motion for temporary/ special authorization or proposed services or rates shall be governed by Section 3, Rule 15. SEC. 2. Form. — All motions shall be in writing except motions for continuance made in the presence of the adverse party, or those made in the course of a hearing. All written motions shall be served to all parties concerned at least three (3) working days before the hearing thereof. SEC. 3. Notice. — Written motions shall contain a notice setting the hearing thereof at a specified date and time. All parties must be furnished copies of the Motions. However, for good cause shown, the Board may hear a motion on shorter notice. SEC. 4. Proof of Service. — The Board shall not act upon any motion without proof of service of notice thereof on all parties. When the service of notice is made by registered mail, the submission of registry return cards and registry receipt is sufficient compliance with the proof of service required herein. 352 CHAW HR VI I'lJHUC SHKVICh SEC. 5. Ex-Parte Motions. — Ex-Parte motions shall be acted upon by the Board only upon showing of urgent necessity therefor and the rights of the opposing party are not substantially impaired. However, opposing party/ies must always be furnished copies of said motions. Rule 5 FILING, SERVICE OF PLEADING AND PUBLICATION SECTION L Filing. — A l l pleadings, motions, documents and other papers required or allowed to be filed shall be filed with the Receiving and Assessment Section. SEC. 2. Acceptance for filing. — Only pleadings, motions, documents, and other papers, which conform to the formal requirements of these Rules, shall be accepted for filing. Acceptance for filing is not a waiver of failure to comply with the Rules and such failure may be a cause for striking off all or part of such pleading filed. SEC. 3. Service upon parties. — All pleadings, documents, and other papers tendered to the Receiving and Assessment Section of the Board for filing shall show proof of service thereof upon all parties to the proceeding. Such service shall be made by personal delivery or by registered mail, properly addressed, with postage prepaid, of one (1) confirmed copy to each party, together with all annexes attached thereto. SEC. 4. Service upon Parties represented by Attorneys. — When any party has appeared by attorney, service upon him shall be made upon his attorney or any of his attorneys of record. SEC. 5. Service of orders. —All decisions, orders, and resolutions of the Board shall be served upon all parties or their attorneys who have entered their appearance either by personal delivery or registered mail. SEC. 6. Extension of time. — Whenever by any order of the Board, a pleading, motion or document is required to be filed within a fixed time or period, the Board may, for good cause shown, extend the period upon motion made before the terms as may be just, allow or permit any pleading to be filed after the time fixed by these Rules. 353 TRANSPORTATION LAWS Rule 6 PRE-HEARING CONFERENCE SECTION 1. Purpose. — Whenever the Board finds that a formal hearing should be held on any matter in dispute within the jurisdiction of the Board, it shall, after the last pleading is filed, set a pre-hearing conference between/among the parties together with their attomey/s and the Board at such time as the nature of the proceeding and the public interest may permit or require for the purpose of adopting means or procedures as may aid in the prompt disposition of the matter or action. SEC. 2. Scope. — All parties and their respective attorneys are required to appear before the Board to consider the following: a) The possibility and advisability of a consented decree for voluntary compliance or desistance on certain terms and conditions; b) The simplification of the issues; c) The obtaining of admission, or stipulation of fact, not remaining in dispute, or the authenticity of documents, which may properly shorten the hearing; d) The limitation of the number of witnesses; e) Admissibility and competence of evidence proposed to be submitted by a party; and f) Such other matters as may be of aid in the speedy disposition of the case. All the parties and their attorneys shall attend the pre-hearing conference. The presence of a party is indispensable unless his counsel is authorized to enter into an agreement on any or all of the above matters. SEC. 3. Judgment on the pleadings and summary judgment at pre-hearing. — If at the pre-hearing, the Board finds that facts exist upon which a decision on the pleadings or a summary decision may be made, a decision on the pleadings or a summary decision may be rendered as justice may require. 354 CHAPTER VI PUBLIC SERVICE SEC. 4. Records of pre-hearing proceedings. — After a pre- hearing, the Board shall make an order, which recites the action at the conference, the amendments allowed in the pleadings, and/or the agreements made by the parties as to any of the matters considered. Such order shall limit the issues for hearing, to those not disposed of by admission and agreements of the parties/counsel, and when entered controls the subsequent course of the proceeding, unless modified before the formal hearing to prevent manifest injustice. Rule 7 APPLICATION SECTION 1. How commenced. — Any proceeding the object of which is to obtain a certificate of public convenience or any form of authorization under the E.O. and/or Act shall be commenced by the filing of the corresponding application and the payment of the required fee. SEC. 2. Contents. — The application shall contain a concise statement of the service proposed or authorization applied for, and the ultimate facts that would qualify or entitle the applicant to the grant of the certificate, privilege, or authorization. When the application is predicated on a franchise, sale, lease, mortgage, or any other contract, such franchise or contract shall be impleaded in the application by alleging in substance its salient provisions and appending to the application a copy of the franchise, contract or pertinent document. Rule 8 NOTICE OF HEARING SECTION 1. Issuance of the Notice of Hearing . — After the filing of the application and the payment of the required fees, the application shall be docketed, and after a technical evaluation of the case, the Legal Division shall issue the notice of hearing and furnish the list of affected parties to the applicant for compliance with the Board’s jurisdictional requirements. 355 TRANSPORTATION LAWS SEC. 2. Publication and serving. —The applicant shall cause the notice of hearing to be published once in one (1) newspaper of general circulation at least ten (10) days before the date of hearing provided that if an application covers only one (1) region, publication in the local newspaper circulated within that region is sufficient, and serve copies of the same together with copies of the application to all affected parties, as furnished by the Board. Rule 9 OPPOSITION SECTION 1. Contents. — Within the time stated in the notice of hearing, a written opposition, not a motion to dismiss, may be filed against an application with copy served upon the applicant, in which the oppositor shall state concisely his right or interest affected by the application and the ultimate facts constituting all his grounds for opposition, including all grounds for a motion to dismiss. When any ground for a motion to dismiss is alleged in the opposition, the proceeding shall be taken as though a motion to dismiss has been filed. PART II — PROCEDURE IN COMPLAINTS Rule 10 COMPLAINTS SECTION 1. How commenced. — Any action, the object of which is to subject a holder of a certificate of public convenience or authorization or any person operating without authority from the Board to any penalty that may be taken in the public interest by the Board, or violation by such holder or any person of the provisions of the E.O. and/ or the Act, or the terms and conditions of his certificate or any order, decision, or regulations of the Board, shall be commenced by the filing of a complaint. SEC. 2. Filing. — All complaints based on the official report of an agent or inspector of the Board or any other person deputized in 356 CM API HR VI r imi. icsHRVii’H writing hy Che Board, shall be filed in the name of the appropriate unit of the Board, including all complaints based on the sworn statement of any public utility user, other private individual, and those made by any competing operator. Upon filing of the complaint and payment of the required fees, the Office of the Executive Director shall cause the case to be docketed. SEC. 3. Prosecution. — All complaints, other than commenced by a private party represented by counsel, or by a competing operator, shall be prosecuted under the direction and control of the Legal Division of the Board. SEC. 4. Sufficiency of complaints. —A complaint is sufficient if it conforms to Section 3 of Rule 4. SEC. 5. Separate allegations. — Whenever two or more offenses are charged in one (1) complaint, each offense must be separately alleged. Rule 11 SUMMONS SECTION 1. Duty of the Legal Division. — When the complaint is sufficient in form and substance in accordance with these Rules, it shall be the duty of the Chief of Legal Division to promptly issue the summons together with a copy of the complaint to the respondent. SEC. 2. Contents. — The summons shall be under the signature of the Chief of the Legal Division directing the respondent to answer the complaint within ten (10) days from receipt of the summons and to appear and produce evidence on the date and hour stated herein. Rule 12 ANSWER SECTION 1. Contents.—Within the time stated in the summons, a written answer, not a motion to dismiss, shall be filed with the Board, a copy of which shall be served by the respondent to the complainant. The respondent, in his answer, shall admit or deny specifically the 357 TRANSPORTATION LAWS material allegations in the complaint, and state all his lawful defenses, including all grounds for a motion to dismiss. When any ground for a motion to dismiss is alleged in the answer, the proceeding shall be taken as though a motion to dismiss had been filed. PART III — SUMMARY PROCEEDINGS Rule 13 ORDER TO SHOW CAUSE SECTION 1. When applicable. — Based on the official report of an agent or any person deputized in writing by the Board, or the credible sworn statement of any offended party, the Board instead of acting according to the procedure indicated for complaints, may, when public interest requires, issue an order directing a respondent to appear before the board within seventy-two (72) hours from receipt of the order and show cause why his certificate should not be cancelled or suspended for the cause stated in the report or complaint. This summary proceeding shall apply only in cases where the respondent is reported to have or will continue to cause death, physical injuries, defraudation of public utility users, or willfully or contumaciously refuse to comply with the orders, rules or regulations of the Board, or any provisions of the E.O. and the Act. The Board may prior to the hearing, suspend for a period not exceeding thirty (30) days any certificate or the exercise of any right or authority issued or granted under the Act or E.O., whenever it is necessary to avoid the causes mentioned in the preceding paragraph. SEC. 2. Contents. — The order to show cause shall include a statement in substance of the violation reported or complained of; and whenever practicable, there shall be appended to it a copy of the report or complaint upon which the order is based. SEC. 3. Non-Appearance. — Whenever the respondent failed to appear on the date and hour specified in the show cause order, the Board 358 CHAPTER VI PUBLIC SERVICE shall issue an order requiring such respondent to explain why he should not be declared in contempt of the Board. SEC. 4. Explanation without appearance. — Whenever the respondent mentioned in the immediately preceding sections failed to appear but filed a written explanation whether or not supported by any documentary evidence, the show cause order against respondent shall be deemed submitted for resolution based on the available evidence without further arguments. PART IV — EVIDENCE Rule 14 RECEPTION OF EVIDENCE SECTION 1. Composition of the Board. — The Board shall be composed of a Chairman and two members who shall sit and render decision en banc. SEC. 2. Hearing before the Board. — All powers necessary to be exercised in the hearing of cases when vested in the Board shall be considered vested upon the Chairman and the two (2) members. The Board shall proceed to hear and determine according to the merit of the case and provided that all cases may be delegated for reception of evidence to the Hearing Officer who shall submit a report on the evidence so received together with recommendations to enable the Board to render its decision. SEC. 3. Uncontested proceedings.—When in the initial pleading it appears that public interest requires the granting of the relief or authorization requested and there is no opposition not contest thereto and it is properly certified that there is no operator adversely affected, the Board shall terminate the proceeding upon consideration of the pleadings and the supporting affidavits and attached documents. SEC. 4. Consolidation. — The Board, on its own initiative, or upon motion of a party, may hold a joint hearing in proceedings involving common questions of law or facts. However, upon motion of any interested party, a separate hearing may be held on issues peculiar only to the movants. 359 TRANSPORTATION LAWS SEC. 5. Appearance. — Any party to a hearing may appear in person or by any attorney admitted to practice law in the Philippines who is a member of the Integrated Bar of the Philippines (IBP) and has paid professional tax and IBP dues for the current year. SEC. 6. Notice of appearance. — No attorney shall appear before the Board in behalf of a party without first serving and filing a written notice of appearance, unless such attorney signed the initial pleading of the party he represents, or manifests in open court his appearance or makes a special appearance for the attorney of record to postpone the case, stating therein his Membership in the Integrated Bar of the Philippines and the payment of his professional tax and IBP dues for the current year. SEC. 7. Order on procedure. — As far as practicable, the following order shall be followed in the presentation of evidence: (a) The presentation of evidence shall commence with the party initiating the proceedings by presenting his evidence with the offering of affidavits and supporting documents attached to his pleading, and such additional evidence as he may wish to present in consolidated proceedings, all parties initiating the consolidated proceedings shall first present their evidences; and (b) The party or parties opposing the grant of the relief sought shall then present their evidences; and (c) Presentation of rebuttal or surrebuttal evidence may be allowed at the discretion of the Board. SEC. 10. Deposition. — Where the witnesses reside in places distant from the offices of the Board and it would be inconvenient and expensive for them to appear personally before the Board, the Board upon the written request of any party, may authorize a municipal or city judge, or the Clerk of Court of the Regional Trial Court to take the depositions of witnesses in any case pending before the Board, substantially in accordance with the provisions of Rule 24 of the New Rules of Court. Unless the Board orders otherwise, cases in which depositions are taken according to the procedure stated above, shall be considered 360 Cl IAPTI K VI IMJHUCSIiRVIC’H submitted for decision on the basis of such deposition after tiling with the Board. SEC. 11. Regular Hearing. —- All hearings for reception of evidence of delegated cases from the Board to a Hearing Officer shall be subject to the provisions of these Rules. SEC. 12. Transcript and records. — Hearings shall be stenographically recorded by the official stenographer of the Board, and his transcript of stenographic notes shall be part of the records and the sole official transcript of the proceedings. Parties desiring copies of such transcript may obtain the same from official stenographers upon payment of the fees prescribed therefor. PART V — DECISIONS AND ORDERS Rule 15 DECISIONS AND ORDERS SECTION 1. How rendered. — In every case heard by the Board, all orders, rulings, decisions and resolutions disposing of the merits of the matter within its jurisdiction shall be reached with the concurrence of any two (2) of the composite members after deliberation and consultation, and thereafter assigned to a member for the deliberation and consultation, and thereafter assigned to a member for the writing of the opinion. Any member dissenting from the order, ruling, decision or resolution shall state in writing the reason for his dissent. SEC. 2. Form and contents. —All orders, rulings, decisions and resolution determining the merits of matters within the jurisdiction of the Board shall be in writing, stating clearly and distinctly the facts and the law on which it is based. They shall be filed with the Executive Director who shall, within three (3) days from receipt thereof, cause true copies thereof to be served upon their counsel, if any, otherwise upon the parties. SEC. 3. Provisional relief. — Upon the filing of an application, complaint or petition or at any stage thereafter, the Board may, if the case is uncontested, grant on motion of the pleaders or on its own 361 TRANSPORTATION LAWS initiative, the relief prayed for, based on the pleading, together with the affidavits and supporting documents attached thereto, without prejudice to a final decision after the termination of the hearing which shall be called within thirty (30) days from issuance of an order granting the relief prayed for. If contested, the Board may, after notice and hearing, grant the provisional relief, it there exists a compelling and urgent reason for the grant of such relief. However, in the broader interest of the public, the Board may exempt petitions for increase of rates from this rule and adopt the procedure mentioned in Rule 1, Section 2 for a fair and speedy adjudication of said petition. SEC. 4. Decision. — The Board shall render a decision, order, ruling or resolution. a) In non-contestedproceedings. — When the Board is satisfied that the pleading, together with the supporting affidavits and documents, establishes the right of the party to the relief prayed for, and there is no opposition thereto, said Board shall, within fifteen (15) days after the case has been submitted for resolution, render an order or decision on the matter. b) In contested proceedings. — The Board shall render a decision, ruling or resolution within sixty (60) days after the case has been submitted for decision, unless the evidence submitted is so voluminous and the issues so complicated requiring a longer period to prepare and render a decision or resolution. c) Grant of other relief. — In all decisions, orders, ruling or resolution, the Board may grant such other relief or impose such terms it may deem necessary in order to promote public interest. SEC. 5. Execution order, ruling, decision, or resolution. — The order, ruling, decision or resolution of the Board shall take effect immediately and shall become final unless motu proprio reviewed by the Secretary or an appeal is filed within thirty (30) days from receipt of the order, ruling or decision. SEC. 6. Compilation and publication of decisions. — The Executive Director shall compile all final decisions and resolutions of the Board including final decisions of the Supreme Court or Court of 362 CHAPTER VI PUBLIC SERVICE Appeals relevant to cases and proceedings before the Board if any. and shall cause them to be printed by the Bureau of Printing in bound and numbered volumes. PART VI — REOPENING, RECONSIDERATION, AND APPEAL Rule 16 MOTIONS FOR REOPENING OR RECONSIDERATIONS SECTION 1. Motion for re-opening. — Any party may file a motion for reopening of the proceeding at any time after the presentation of evidence has been completed but before promulgation of a decision, order, ruling or resolution, if during that period there should occur or arise transactions, events or matters, whether factual or legal which would change the situation of the parties. SEC. 2. Motion for reconsideration of decisions. — A party adversely affected by a decision, order, ruling or resolution may within fifteen (15) days from receipt of a copy thereof, file a motion for reconsideration. No more than one motion for reconsideration by each party shall be entertained unless otherwise permitted by the Board. SEC. 3. Service and hearing. — The motions allowed by this Rule shall be served upon all parties on record and shall be set for hearing within ten (10) days from service thereof. SEC. 4. Opposition. — Any party to the proceeding may file an opposition to the motions allowed by this Rule accompanied by supporting affidavits and documents, and serving a copy thereof upon the movants. Rule 17 APPEAL SECTION 1. Appeal. —Any party may appeal the order, ruling, or decision of the Board to the Secretary. However, interlocutory orders cannot be the subject of an appeal. The Secretary may motu proprio review any order, ruling or decision of the Board. 363 TRANSPORTATION LAWS SEC. 2. Procedure on appealed cases. — In case of an appeal under the preceding section, the following rules shall apply: a) An appeal from an order, decision or ruling of the Board shall be perfected by filing with the Board a Notice of Appeal and with the Secretary, within a period of thirty (30) days from notice of such order, ruling or decision; copy of the Notice of Appeal must be furnished all parties to the case; b) No appeal shall be entertained by the Secretary unless it is shown that a Motion for Reconsideration from the order, ruling or decisions has been filed with the Board and the same has been denied; c) Upon the filing of the Notice of Appeal, the appellant shall pay with the Board an appeal fee of Two Hundred (P200.00) pesos, whereupon, the Board shall act on the Notice of Appeal and shall transmit the certificate of payment of the appeal fee to the Secretary; d) Within five (5) days from receipt of the certificate from the Board, the Secretary shall notify and require the Board to forward the record of the case. Within five (5) days from such notice, the whole record shall be forwarded to the Office of the Secretary. When the appeal does not require a review of the entire record of the case, only pertinent documents or part of the record shall be forwarded to the Secretary; e) Immediately upon receipt of the records of the case and/or documents mentioned in the preceding paragraph, the Secretary shall inform the appellant thereof, and shall issue an order requiring the appellant to file within ten (10) days from receipt of the order a position paper together with the documents or evidence supporting the appeal. The appellant may file his/her position paper simultaneously within the filing of the Notice of Appeal; f) matters: Appellant’s position paper shall contain the following data/ (1) Exact date of the appealed order, ruling decision; (2) Exact date when the appealed order, ruling or decision was received by him; (3) Information regarding compliance with the requirements for appeal under these rules; 364 CHAPTER VI PUBLIC SERVICE (4) Brief statement of the case and the facts; (5) Reasons or grounds for appeal; (6) Arguments in support of the appeal; and (7) Relief sought. The Secretary may require the tiling of additional pleadings to provide additional information; g) Any party filing the required pleading or documents and other pleadings pertinent to the appealed case shall furnish the adverse party/ies, including the Board, copies thereof; h) Upon receipt of the appellant’s position paper, the Secretary shall issue an order requiring the adverse party/ies to file within fifteen (15) days from receipt of the order an answer, reply, comment or counterposition paper. Additional facts being adverted to in the comment or counter-position paper must be verified; i) Unless other pleadings are required by the Secretary, the appealed case shall be considered submitted for resolution when the papers above mentioned have been filed. Parties may, upon request, file their respective memorandum. SEC. 3. Effect of Appeal — The appeal shall not stay the award, order or decision of the Board unless the Secretary shall direct otherwise upon such terms as he may deem just. SEC. 4. Appeal from the order of the Secretary. — The order of the Secretary in appealed case shall be appealable within thirty (30) days from receipt thereof in accordance with the provisions of the Rules of Court. PART VII — RECONSTITUTION OF RECORDS Rule 18 RECONSTITUTION SECTION 1. Petition. — Any interested party may, by petition, apply for the reconstitution of lost or destroyed records of any case or proceeding before the Board, the Land Transportation Commission or of the defunct Public Service Commission. 365 TRANSPORTATION LAWS SEC. 2. Contents. — The petition shall be in writing with a copy served upon all affected parties, and shall state the title, case number and the parties in the case or proceeding desired to be reconstituted; the reason or reasons for its destruction or loss, if known, and that the party seeking its reconstruction has exhausted all means to locate said records to no avail. SEC. 3. Notice of publications. — The provisions of Rule 8 of these Rules shall be observed in the issuance and publication of the notice of hearing of the petition for reconstitution unless otherwise modified by the Board having jurisdiction on the subject matter. SEC. 4. Applicability of certain rules. — The rules governing procedure in application for the issuance of certificate of public convenience as provided in Part II of these Rules shall be applicable for the reconstitution of lost or destroyed records. SEC. 5. Order. — After hearing the parties the Board on the basis of available records and testimonies of witnesses, may grant or deny the petition or issue such orders justice may require. PART VIII — MISCELLANEOUS PROVISIONS Rule 19 APPLICABILITY OF THE RULES OF COURT SECTION 1. Rules of Court — The provisions of the Rules of Court applicable to proceedings before the Regional Trial Court, which are not inconsistent with these Rules, shall apply in an analogous and suppletory character whenever practicable and convenient. Rule 20 APPLICABILITY OF THIS RULE TO THE REGIONAL FRANCHISING AND REGULATORY OFFICES SECTION 1. Applicability. — This Rule shall apply whenever practicable to all cases filed before the Regional Franchising and Regulatory Offices within their jurisdiction. 366 CHAPTER VI IMJM.IC SERVICE Rule 21 REPEALING CLAUSE SECTION I. Repeal. — All prior rules, regulations or practices heretofore followed in the Board, which are inconsistent with these Rules, are hereby repealed. Rule 22 EFFECTIVITY SECTION L Effectivity. — These Rules shall take effect after fifteen (15) days following their publication in any newspaper of national circulation or in the Official Gazette. Approved in Quezon City, Philippines, this 8th of March 1988. KABIT SYSTEM Section 20 Commonwealth Act No. 146 Section 20. Acts requiring the approval of the Commission. — Subject to established limitations and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had — (a) To adopt, establish, fix, impose, maintain, collect or carry into effect any individual or joint rates, commutation, mileage or other special rate, toll, fare, charge, classification or itinerary. The Commission shall approve only those that are just and reasonable and not any that are unjustly discriminatory or unduly preferential, only upon reasonable notice to the public services and other parties concerned, giving them a reasonable opportunity to be heard, and the burden of the proof to show that the proposed rates or regulations are just and reasonable shall be upon the public service proposing the same. 367 TRANSPORTATION LAWS (b) To establish, construct, maintain, or operate new units or extend existing facilities or make any other addition to or general extension of the service. (c) To abandon any railroad station or stop the sale of passenger tickets, or cease to maintain an agent to receive and discharge freight at any station now or hereafter established at which passenger tickets are now or may hereafter be regularly sold, or at which such agent is now or may hereafter be maintained, or make any permanent change in its time tables or itineraries on any railroad or in its service. (d) To lay any railroad or street railway track across any highway so as to make a new crossing at grade, or cross the tracks of any other railroad or street railway, provided that this subsection shall not apply to replacements of lawful existing tracks. (e) Hereafter to issue any stock or stock certificates representing an increase of capital; or issue any share of stock without par value; or issue any bonds or other evidence of indebtedness payable in more than one year from the issuance thereof, provided that it shall be the duty of the commission, after hearing, to approve any such issue maturing in more than one year from the date thereof, when satisfied that the same is to be made in accordance with law, and the purpose of such issue be approved by the Commission. (f) To capitalize any franchise in excess of the amount, inclusive of any tax or annual charge, actually paid to the Government of the Philippines or any political subdivision thereof as the consideration of said franchise; capitalize any contract for consolidation, merger, or lease, or issue any bond or other evidence or indebtedness against or as a lien upon any contract for consolidation, merger, or lease: Provided, however, That the provisions of this section shall not prevent the issuance of stock, bonds, or other evidence of indebtedness subject to the approval of the commission by any lawfully merged or consolidated public services not in contravention of the provisions of this section. 368 CHAPTER VI PUBLIC SERVICE (g) To sell, alienate, mortgage, encumber or lease its property, franchises, certificates, privileges, or rights, or any part thereof; or merge or consolidate its property, franchises, privileges or rights, or any part hereof, with those of any other public service. The approval herein required shall be given, after notice to the public and after hearing the persons interested at a public hearing, if it be shown that there are just and reasonable grounds for making the mortgage or encumbrance, for liabilities of more than one year maturity, or the sale, alienation, lease, merger, or consolidation to be approved, and that the same are not detrimental to the public interest, and in case of a sale, the date on which the same is to be consummated shall be fixed in the order of approval: Provided\ however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business. (h) To sell or register in its books the transfer or sale of shares of its capital stock, if the result of that sale in itself or in connection with another previous sale, shall be to vest in the transferee more than forty per centum of the subscribed capital of said public service. Any transfer made in violation of this provision shall be void and of no effect and shall not be registered in the books of the public service corporation. Nothing herein contained shall be construed to prevent the holding of shares lawfully acquired. (As amended by Com. Act No. 454) (i) To sell, alienate or in any manner transfer shares of its capital stock to any alien if the result of that sale, alienation, or transfer in itself or in connection with another previous sale shall be the reduction to less than sixty per centum of the capital stock belonging to Philippine citizens. Such sale, alienation or transfer shall be void and of no effect and shall be sufficient cause for ordering the cancellation of the certificate. (j) To issue, give or tender, directly or indirectly, any free ticket, free pass or free or reduced rate of transportation for passengers, except to the following persons: (1) officers, agents, employees, attorneys, physicians and surgeons of said public 369 TRANSPORTATION LAWS service, and members of their families; (2) inmates of hospitals or charity institutions, and persons engaged in charitable work; (3) indigent, destitute, and homeless persons when transported by charitable societies or hospitals, and the necessary agents employed in such transportation; (4) the necessary caretakers, going and returning, of livestock, poultry, fruit, and other freight under uniform and non-discriminatory regulation; (5) employees of sleeping car corporations, express corporations and telegraph and telephone corporations, railway and marine mail service employees, when traveling in the course of their official duty; (6) post-office inspectors, customs officers and inspectors, and immigration inspectors when engaged in inspection; (7) witnesses attending any legal investigation in which the public service is an interested party; (8) persons injured in accidents or wrecks, and physicians and nurses attending such persons; (9) peace officers and men of regularly constituted fire departments. (As amended by Com. Act No. 454) (k) Adopt, maintain, or apply practices or measures, rules or regulations to which the public shall be subject in its relations with the public service. Kabit System is an arrangement whereby a person who has been granted a certificate of convenience allows another person who owns motor vehicles to operate under such franchise for a fee. Lita Enterprises v. Second Civil Cases Division, Intermediate Appellate Court, Nicasio M. Ocampo and Francisca P. Garcia G.R. No. L-64693, April 27,1984 FACTS: Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five 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 PI,000 370 CHAPTER VI PUBLIC SERVICE and a monthly rental of P200 per taxicab unit. To effectuate said agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc. Possession, however, remained with the spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner’s trade name. About a year later, on March 18,1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab. In the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000 and P7,000 for attorney’s fees. This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for P2,150 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000 to a certain Mr. Lopez. Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc., to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co., and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, dismissing the complaint 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 by executing a deed of conveyance in favor of the plaintiff.” 371 TRANSPORTATION LAWS “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.” On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive portion another paragraph, to wit: “In the event the condition of the three Toyota cars will no longer serve the purpose of the deed of conveyance because of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market values as of July 22, 1975.” ISSUE: Whether the decision of the Trial Court and the Court of Appeals are correct. HELD: Unquestionably, the parties herein operated under an arrangement, commonly known as the “habit system, ” whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege by the grantees thereof cannot be countenanced. The “kabit system ” has been identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, “this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the good faith of the government.” Although not outrightly penalized as a criminal offense, the “kabit system ” is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. “Ex pacto illicito non oritur action ” (No action arises out of an illicit bargain) is the time-honored maxim that must be applied to the 372 CHAPTER VI PUBLIC SERVICE 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 defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this court said in Eugenio v. Perdido, “the mere lapse of time cannot give efficacy to contracts that are null and void.” The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: “The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.” Although certain exceptions to the rule are provided by law, the Court see no cogent reason why the full force of the rule should not be applied in the instant case. Abelardo Lim and Esmadito Gunnaban v. Court of Appeals and Donato H. Gonzales G.R. No. 125817, January 16, 2002 FACTS: Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercjno 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 himself a certificate of public convenience for its operation. Thus, Vallarta remained on record as its registered owner and operator. On July 22, 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 373 TRANSPORTATION LAWS 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 further 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 passenger dead and many others wounded. Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger, and had the Ferroza restored to good condition. He also negotiated with private respondent and offered to have the passenger jeepney repaired at his shop. Private respondent, however, did not accept the offer of Lim. Instead, private respondent demanded a brand-new jeep or the amount of P236,000. Under the circumstances, negotiations had to be abandoned; hence, the filing of the complaint for damages by private respondent against petitioners. On October 1, 1993, the trial court upheld private respondent’s claim and awarded him P236,000 with legal interest from July 22, 1990 as compensatory damages, and P30,000 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. 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 the 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. On appeal, the Court of Appeals (CA), on July 17, 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 habit 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. CHAPTER VI PUBLIC SERVICE ISSUE: Whether or not the new owner has any legal personality to bring the action despite the fact that he is not the registered owner under the certificate of public convenience. HELD: The habit 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, the habit system is invariably recognized as being contrary to public policy and therefore, void and inexistent under Article 1409 of the Civil Code. In the early case of Dizon v. Octavio, the Court explained that one of the primary factors considered in the granting of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license so that liabilities arising from accidents may be duly compensated. The habit 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 habit 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. 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 habit system does not exist. First, neither of the parties to the pernicious habit system is being held liable for damages. Second, the case arose from the negligence of another vehicle 375 TRANSPORTATION LAWS in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus, it cannot be said that private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny him his right. In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his passenger jeepney, as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue should be discouraged, if not repelled. The registered owner or operator of record is the one liable for damages caused by a vehicle regardless of any alleged sale or lease made thereon. MYC Agro-Industrial Corporation v. Purificacion Camerino, et al. and the Court of Appeals G.R. No. L-52798, September 7,1984 FACTS: About 4:30 in the afternoon of March 21, 1971, a Toyota truck with Plate No. 12-90-4 CT ’70 owned by petitioner and operated by Ceferino Arevalo hit the right center side of a jeepney with Plate No. 24-97-40-3 1970 owned by Nicanor Silla and operated by Alfredo Rodolfo. There were 15 passengers of the jeepney, namely: (1) Laureano Lacson; (2) Salome Bautista; (3) Chona Alcaraz; (4) Ruby Gonzaga; (5) Felicitacion Gonzaga; (6) Epifania Bautista; (7) Avelino Ignacio; (8) Erlinda Candado; (9) Leniza Alcaraz; (10) Sotera Ramirez; (11) Rosario Ordonez; (12) Maximina Bautista; (13) Comelio Bautista; (14) Hermogena Bautista; and (15) Felicidad Alcaraz. The jeepney, at the time of the impact, was parked at Regiment Street, Anabu, Imus, 376 CHAPTER VI PUBLIC SERVICE Cavite. As a consequence, said jeepney turned turtle and was pushed to a cemented fence owned by Lucila Reyes, pinning down to death Carlito Pakingan, Hipolito Caldo, Azucena Camaclang-Navarette and Fortunato Bonifacio. Likewise, the passengers: Laureano Lacson, Salome Bautista and Chona Alcaraz died because of the injuries sustained in this incident; the other passengers suffered various injuries on the different parts of their bodies. The aforementioned jeepney and the wall fence were also damaged. Complaint for damages was filed by the owner of the wall fence, the aforementioned victims and the heirs of the deceased victims against petitioner MYC-AGRO INDUSTRIAL CORPORATION, the registered owner of the Toyota truck; Ceferino Arevalo, the driver of said truck; and Benedicto Kalaw-Katigbak, the general manager of petitioner corporation. In its responsive pleading, petitioner admitted ownership of the Toyota truck but alleged that the same, together with nine other units were leased to the Jaguar Transportation, Inc., and that Ceferino Arevalo, as well as Benedicto Kalaw-Katigbak are not its (petitioner) employees. Thereafter, petitioner, defendant in the damage suit, filed a third-party complaint against Jaguar Transportation Company. Third-party Jaguar pleads that its liability is only secondary and that it had already complied with its obligation under its contract of lease with petitioner when it secured third-party liability insurance from Federal Insurance Company, Inc. It then filed a fourth-party complaint against Federal Insurance Company, Inc., F.E. Zuellig, Inc. and Castro Madamba, claiming that Jaguar had obtained an insurance policy from Federal Insurance Company, Inc., of which F.E. Zuellig is its general manager, and fourth-party defendant Castro Madamba is the general agent of defendant Federal Insurance Company, Inc. In its answer to the fourth-party complaint, the fourth-party defendants alleged that Jaguar has no cause of action against them because F.E. Zuellig is only the general manager of Federal Insurance Company, Inc.; that Casto Madamba is only the general agent of Federal 377 TRANSPORTATION LAWS Insurance Company, Inc., and that the proper party in interest is herein petitioner, the registered owner of the Toyota truck. Ceferino Arevalo, driver of the truck in question was named defendant in Criminal Case No. 53-71 of the then Court of First Instance of Cavite, Branch V. Upon arraignment, he pleaded guilty to the crimes of multiple homicide, multiple serious physical injuries, multiple less serious physical injuries, slight physical injuries and damage to property through reckless imprudence. r Evidence is clear that the death of seven persons and the injuries suffered by private respondents were due to the negligence and reckless operation of the Toyota truck, owned by herein petitioner and driven by Ceferino Arevalo. On March 21, 1971, when the accident happened, subject vehicle was registered in the name of petitioner, which, however, would want to exculpate itself from liability because of the contract of lease with sale (Exhibit “1”) allegedly executed on December 1, 1970 between it and Jaguar Transportation Company. Petitioner claims that because of the lease of contract with sale to Jaguar it had no more control over the vehicle; that Ceferino Arevalo is not its employee but that of Jaguar. After trial, the lower court rendered Judgment ordering defendants MYC-Agro-Industrial Corporation and Ceferino Arevalo jointly and severally to pay plaintiff actual damages, exemplary damages and attorney’s fees and dismissed the complaint against Benedicto Katigbak, the counterclaim and the third and fourth party complaint. ISSUE: Who should be liable: MYC-Agro Industrial Corporation or Jaguar Transportation Company? z HELD: The Court cannot uphold the contention of petitioner. In the first place, Jaguar’s answer to the third-party complaint tendered no genuine or real issue. Secondly, Jaguar’s representative did not even appear in court after impleading fourth party defendants and its president, Benedicto Katigbak, did not adduce evidence in his behalf. Thirdly, the sign MYC that stands for petitioner still appears on subject vehicle and, as aptly observed by the appellate court “the agreement which allegedly transferred the truck from MYC to Jaguar failed to 378 CHAPTER VI PUBLIC SERVICE provide for a chattel mortgage to secure said transfer. The well-known practice is that motor vehicles acquired through installment pa\ments are secured by a chattel mortgage oveT the vehicle sold None exists in the instant case.” Finally, it is undisputed that the registered owner of the Toyota truck is petitioner. As held in Vargas v. Langcay, 6 SCRA 174, “the registered owner/operator of a passenger vehicle is jointly and severally liable with the driver for damages incurred by passengers or third persons as consequence of injuries (or death) sustained in the operation of said vehicles. Regardless of who the actual owner of a vehicle is, the operator of record continues to be the operator of the vehicles as regards the public and third persons, and as such is directly and primarily responsible for the consequences incident to its operation, so that, in contemplation of law, such owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as his agent.” There being no prior BOT approval in the transfer of property, transferee only held the property as agents. Y Transit Co., Inc. v. The National Labor Relations Commission and Yujuico Transit Employees Union G.R. Nos. 88195-96, January 27,1994 FACTS: Sometime in June and July 1979, the Yujuico Transit Employees Union (Associated Labor Union) filed two consolidated complaints against Yujuico Transit Co., Inc., for Unfair Labor Practice and violations of P.D. Nos. 525, 1123, 1614, and 851 (non-payment of living allowances). On May 21,1980, the Labor Arbiter rendered a decision dismissing the complaint for unfair labor practice but holding Yujuico Transit Co., Inc., liable under the aforementioned Presidential Decrees in the amount of P142,780.49. On February 9, 1982, a writ of execution for the said amount was issued by the Labor Arbiter. On June 14, 1982, an alias writ of execution was issued and levy was made upon the 10 buses. Thereafter, “Y” Transit Co., Inc. filed Affidavits of Third-Party Claim. 379 TRANSPORTATION LAWS Private respondents herein opposed the Third-Party Claim on the ground that the transactions leading to the transfer of the buses to “Y” Transit Co., Inc. were void because they lacked the approval of the BOT as required by the Public Service Act. They also argued that the buses were still registered in the name of Yujuico Transit Co., which was, therefore, still the lawful owner thereof. The Labor Arbiter found that “Y” Transit Co., Inc. had valid title to the buses and that the BOT, by its subsequent acts had approved the transfer. Accordingly, the Third-Party Claim was granted and the release of all the buses levied for execution was ordered. On appeal, the NLRC reversed the labor arbiter’s decision on the ground that the transfer of the buses lacked the BOT approval. It ordered the reinstatement of the levy and the auction of the properties. ISSUE: Whether the levy on the buses, which have been allegedly, transferred to a third-party, herein petitioner “Y” Transit Co., Inc., can be reinstated. HELD: The following facts have been established before the NLRC: that the transfer of ownership from Yujuico Transit Co., Inc., to Jesus Yujuico, and from Jesus Yujuico to “Y” Transit Co., Inc. lacked the prior approval of the BOT as required by Section 20 of the Public Service Act; that the buses were transferred to “Y” Transit Co., Inc. during the pendency of the action; and that until the time of execution, the buses were still registered in the name of Yujuico Transit Co., Inc. In Montoya v. Ignacio, the Court held: “x x x The law really requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is personal in nature, any transfer or lease thereof should be notified to the Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that before the approval is granted, there should be a public hearing with notice to all interested parties in CHAP7 kV VI PUBLIC SLPVICfc order that the commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest. Such being the reason and philosophy behind this requirement, it follows that if the property covered by the franchise is transferred, or leased to another without obtaining the requisite approval, the transfer is not binding against the Public Service Commission and in contemplation of law, the grantee continues to be responsible under the franchise in relation to the Commission and to the public, x x x public and the Public Service Commission. The approval is only necessary to protect public interest. ” There being no prior BOT approval in the transfer of the property from Yujuico Transit Co., Inc., to Jesus Yujuico, it only follows that as far as the BOT and third-parties are concerned, Yujuico Transit Co., Inc., still owned the properties, and Yujuico and later, “Y” Transit Co., Inc., only held the same as agents of the former. In Tamayo v. Aquino, the Supreme Court stated, thus: “x x x In operating the truck without transfer thereof having been approved by the Public Service Commission, the transferee acted merely as agent of the registered owner and should be responsible to him (the registered owner) for any damages that he may cause the latter by his negligence.” Conversely, where the registered owner is liable for obligations to third-parties and vehicles registered under his name are levied upon to satisfy his obligations, the transferee of such vehicles cannot prevent the levy by asserting his ownership because as far as the law is concerned, the one in whose name the vehicle is registered remains to be the owner and the transferee merely holds the vehicles for the registered owner. Thus, “Y” Transit Co., Inc., cannot now argue that the buses could not be levied upon to satisfy the money judgment in favor of herein private respondents. However, this does not deprive the transferee of the right to recover from the registered owner any damages, which may have been incurred by the former since the transfer, or lease is valid and binding between the parties. 381 TRANSPORTATION LAWS Actual owner of passenger jeep liable solidarily with registered owner in a civil action based on quasi-delict. Angel Jereos v. Hon. Court of Appeals and Soledad Rodriguez, et al G.R. No. L-48747, September 30,1982 FACTS: Private respondent, Domingo Pardorla, Jr. is the holder of a certificate of public convenience for the operation of a jeepney line in Iloilo City. On February 23, 1971, one of his jeepneys, driven by Narciso Jaravilla, hit Judge Jesus S. Rodriguez and his wife, Soledad, while they were crossing Bonifacio Drive, Iloilo City, causing injuries to them, which resulted in the death of Judge Rodriguez. Narciso Jaravilla was prosecuted and, on his plea of guilty, was convicted of the crime of Homicide and Physical Injuries through Reckless Imprudence and sentenced accordingly. Thereafter, Soledad Rodriguez and her children filed with the Court of First Instance of Iloilo an action for damages against Narciso Jaravilla, Domingo Pardorla, Jr., and Angel Jereos, the actual owner of the jeepney. Domingo Pardorla, Jr., upon the other hand, claimed that he was only the franchise owner and has nothing to do with the actual operation and supervision of the passenger jeepney in question which is under the actual control, operation and supervision of Angel Jereos who operates the same under the "habit system. ” ISSUE: Who should be liable? The actual owner of passenger jeep or the franchise holder? HELD: Finally, the petitioner, citing the case of Vargas v. Langcay, contends that it is the registered owner of the vehicle, rather than the actual owner, who must be jointly and severally liable with the driver of the passenger vehicle for damages incurred by third persons as a consequence of injuries or death sustained in the operation of said vehicle. The contention is devoid of merit. While the Court therein ruled that the registered owner or operator of a passenger vehicle is jointly and severally liable with the driver of the said vehicle for damages 382 CHAPTER VI PUBLIC SERVICE incurred by passengers or third persons as a consequence of injuries or death sustained in the operation of the said vehicle, the Court did so to correct the erroneous findings of the Court of Appeals that the liability of the registered owner or operator of a passenger vehicle is merely subsidiary, as contemplated in Article 103 of the Revised Penal Code. In no case did the Court exempt the actual owner of the passenger vehicle from liability. On the contrary, it adhered to the rule followed in the cases of Erezo v. Jepte, Tamayo v. Aquino, and De Peralta v. Mangusang, among others, that the registered owner or operator has the 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. The right to be indemnified being recognized, recovery by the registered owner or operator may be made in any form - either by a cross-claim, third-party complaint, or an independent action. The result is the same. 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 bad been transferred to a third person. B. A. Finance Corporation v. Hon. Court of Appeals G.R. No. 9S215, November 13,1992 FACTS: On March 6, 1983, an accident occurred involving petitioner’s Isuzu 10-wheeler truck then driven by an employee of Lino Castro. The lower court ascertained after due trial that Rogelio Villar Y. Amare, the driver of the Isuzu truck, was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as much as the truck was registered in its name 383 TRANSPORTATION LAWS during the incident in question, following the doctrine laid down by this Court in Perez v. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. v. Jepte (102 Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc., was ordered to reimburse petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as expressly stipulated in the contract of lease between petitioner and Rock Component Philippines, Inc. Petitioner asseverates that it should not have been haled to court and ordered to respond for the damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the negligent driver who was under the control and supervision of Lino Castro at the time of the accident, apart from the fact that the Isuzu truck was in the physical possession of Rock Component Philippines by virtue of the lease agreement. ISSUE: Whether or not petitioner can be held responsible to the victims albeit the truck was leased to Rock Component Philippines when the incident occurred. HELD: In previous decisions, the Court already has 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 v. Ignacio, 94 Phil 182, 50 Off. Gaz., 108; Roque v. Malibay Transit, Inc., November 18, 1955; Vda. de Medina v. 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? The Court does not imply by this doctrine however, that the registered owner may not recover whatever amount he had paid by 384 CHAPTER VI PUBLIC SERVICE 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 ofthe damage because he had previously sold it to another. ” The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways. “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 “share and delusion,” if courts would entertain such defenses as that put forward by appelle[e] 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” 385 TRANSPORTATION LAWS between them and the public, and escape liability by the manner in which they recompense servants.” (King v. Brenham Automobile Co., Inc., 145 S.W. 278, 279) “With the above policy in mind, the question that defendant- appellant poses is: should not the 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 by and lay the same on the person actually owning the vehicle? The Court holds with the trial court that the law 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 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 not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person. “The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. The Court 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. 386 CHAPTER VI PUBLIC SERVICE If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold to another, there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case where the subject vehicle was merely leased by petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle. In a much later case of Equitable Leasing Corporation v. Lucita Suyom, 388 SCRA445, September 5,2002, the Court held that petitioner Equitable Leasing Corporation [is] liable for the deaths and the injuries complained of, because it was the registered owner of the tractor at the time of the accident on July 17, 1994. The Court has consistently ruled that, regardless of sales made of a motor vehicle, the registered owner is the lawful operator insofar as the public and third persons are concerned; consequently, it is directly and primarily responsible for the consequences of its operation. In contemplation of law, the owner/ operator of record is the employer of the driver, the actual operator and employer being considered as merely its agent. The same principle applies even if the registered owner of any vehicles does not use it for public service. fSee also St. Mary’s Academy v. Carpitano, 376 SCRA 473) RECENT CASES ON REGISTERED OWNER RULE Under the Public Service Act, if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in contemplation of law, the grantee continued to be responsible under the franchise in relation to the operation of the vehicle, such as damaged or injury to third parties due to collisions. PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc. G.R. No. 162267, July 4, 2008 FACTS: On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate No. PHD-206 owned by United Coconut Planters 387 TRANSPORTATION LAWS Bank was traversing the Laurel Highway. Barangay Balintawak, Lipa City. The car was insured with plaintiff-appellee (UCPB General Insurance, Inc.), then driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737, and Trailer Plate No. NVM- 133, owned by defendants-appellants PCI Leasing & Finance, Inc., allegedly leased to and operated by defendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its employee, defendant- appellant Renato Gonzaga. The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the rear part of the car. The driver and passenger suffered physical injuries. However, the driver, defendant- appellant Gonzaga, continued on its way to its destination and did not bother to bring his victims to the hospital. Plaintiff-appellee paid the assured UCPB the amount of P244,500, representing the insurance coverage of the damaged car. As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were made by plaintiff-appellee for the payment of the aforesaid amounts. However, no payment was made. Thus, plaintiff-appellee filed the instant case on March 13, 1991. PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could not be held liable for the collision since the driver of the truck, Gonzaga, was not its employee, but that of its co-defendant Superior Gas & Equitable Co. Inc. (SUGECO), and not petitioner that was the actual operator of the truck, pursuant to a Contract of Lease signed by petitioner and SUGECO. Petitioner, however, admitted that it was the owner of the truck in question. After the trial, the Regional Trial Court (RTC) rendered its Decision, dated April 15, 1999, in favor of plaintiff UCPB General Insurance, ordering the defendants PCI Leasing and Finance, Inc. and Renato Gonzaga to pay jointly and severally the former. In its Decision, dated December 12, 2003, the Court of Appeals (CA) affirmed the RTC’s Decision, with certain modifications. ISSUE: Whether or not petitioner, as registered owner of a motor vehicle that figured in a quasi delict, may be held liable, jointly and CHAPTER VI PUBLIC SERVICE severally, with the driver thereof, for the damages caused to the third parties. HELD: Under the Public Service Act, if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in contemplation of law, the grantee continues to be responsible under the franchise in relation to the operation of the vehicle such as damage or injury to third parties due to collisions. “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 statute is thwarted, and the displayed number becomes a “snare and delusion, ” if courts would 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 v. Brenham Automobile Co., 145, S. W. 278, 279) The registered owner of a motor vehicle whose operation causes injury to another is legally liable to the latter. But it is error not to allow the registered owner to recover reimbursement from the actual and present owner by way of its cross-claim. Metro Manila Transit Corporation v. Reynaldo Cuevas and Junnel Cuevas, represented by Reynaldo Cuevas G.R. No. 167797, June 15, 2015 FACTS: Metro Manila Transit Corporation (MMTC) and Mina’s Transit Corporation (Mina’s Transit) entered into an agreement to sell, 389 TRANSPORTATION LAWS dated August 31,1990, whereby the latter bought several bus units from the former at a stipulated price. They agreed that MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime, Mina’s Transit could operate the buses within Metro Manila. On October 14,1994, one of the buses, subject of the agreement to sell, bearing Plate No. NXM-449-TB-pil 94 hit and damaged a Honda Motorcycle owned by Reynaldo and driven by Junnel. Reynaldo and Junnel sued MMTC and Mina’s Transit for damages in the Regional Trial Court (RTC) in Cavite, docketed as Civil Case No. N-6127, pertinently alleging and praying that defendants Metro Manila Transit Corporation and Mina’s Transit are registered joint-owners or operator of an MMTC/Mina’s Transit passenger bus with Plate No. NXM-449TB-pil 94, and is the employers (sic) of the driver Jessie Rillera y Gaceta. In its answer with compulsory counterclaim and cross-claim, MMTC denied liability and averred that although it retained the ownership of the bus, the actual operator and employer of the bus driver was Mina’s Transit, and that, in support of its cross-claim against Mina’s Transit, a provision in the agreement to sell mandated Mina’s Transit to hold it free from liability arising from the use and operation of the bus units. On its part, Mina’s Transit contended that it was not liable because (a) it exercised due diligence in the selection and supervision of its employees; (b) Its bus driver exercised due diligence; and (c) Junnel’s negligence was the cause of the accident. Meanwhile, Mina’s Transit filed a third-party complaint against its insurer, Perla Compania de Seguros, Inc. (Perla), seeking reimbursement should it be adjudged liable, pursuant to its insurance policy issued by Perla with the following coverage: (a) third-party liability of P50,000 as the maximum amount; and (b) third-party damage to property of P20,000 as maximum amount. In [its] answer to the third-party complaint, Perla denied liability because Mina’s Transit had waived its recourse by failing to notify Perla of the incident within one year from its occurrence, as required by Section 384 of the Insurance Code. It submitted that even assuming 390 CHAPTER VI PUBLIC SERVICE that the claim had not yet prescribed, its liability should be limited to the maximum of P50,000 for third-party liability and 1*20,000 for third- party damage. After trial, the RTC rendered judgment in favor of the respondents on September 17, 1999, ordering petitioner Metro Manila Transit Corporation (MMTC) and its co-defendant Mina’s Transit Corporation (Mina’s Transit) to pay damages in favor of respondents Reynaldo Cuevas and Junnel Cuevas. The RTC concluded that the proximate cause of the mishap was the negligence of the bus driver; that following Article 2180 of the Civil Code, his employers should be solidarity liable; that MMTC and Mina’s Transit, being the joint owners of the bus, were liable; and that the third-party complaint was dismissed because no evidence was presented to prove it. The RTC, however, did not rule on the propriety of the cross-claim. On appeal, the Court of Appeals (CA) affirmed the RTC’s decision. ISSUE: Whether or not MMTC was liable for the injuries sustained by the respondents despite the provision in the agreement to sell that shielded it from liability. HELD: MMTC urges the revisit of the registered-owner rule in order to gain absolution from liability. It contends that although it retained ownership of the bus at the time of the vehicular accident, the actual operation was transferred to Mina’s Transit; that for it to be held liable for the acts of the bus driver, the existence of an employer- employee relationship between them must be established; and that because the bus driver was not its employee, it was not liable for his negligent act. The contentions of MMTC cannot persuade. In view of MMTC’s admission in its pleadings that it had remained the registered owner of the bus at the time of the incident, it could not escape liability for the personal injuries and property damage suffered by the Cuevases. This is because of the registered-owner rule, whereby the registered owner of the motor vehicle involved in a vehicular accident could be held liable for the consequences. The registered-owner rule remained good law in this jurisdiction considering its impeccable and timeless rationale, as enunciated in the 1957 ruling in Erezo, et 391 TRANSPORTATION LAWS al. v. Jepte, where the Court pronounced: 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 v. 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), to wit: “JC jt x it is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation with Article 2180 of the Civil Code. ” In Equitable Leasing Corporation v. Suyom, [W]e ruled that in so far as third persons are concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer is considered merely as an agent of such owner. Thus, it is clear that for the purpose of holding the registered owner of the motor vehicle primarily and directly liable for damages under Article 2176, in relation with Article 2180 of the Civil Code, the existence of an employer-employee relationship, as it is understood in labor relation law, is not required. It is sufficient to establish that Filcar is the registered owner of the motor vehicle causing damage in order that it may be held vicariously liable under Article 2180 of the Civil Code. (Citations omitted.) Indeed, MMTC could not evade liability to passing the buck to Mina’s Transit. The stipulation in the agreement to sell did not bind third parties like the Cuevases, who were expected to simply rely on the data contained in the registration certificate of the erring bus. Although the registered-owner rule might seem to be unjust towards MMTC, the law did not leave it without any remedy or recourse. According to Filcar Transport Services v Espinas, MMTC could recover from Mina’s Transit, the actual employer of the negligent driver, under the principle of unjust enrichment, by means of a crossclaim seeking reimbursement of all the amounts that it could be required to pay as damages arising from the driver’s negligence. A cross-claim 392 CHAPTER VI PUBLIC SERVICE is a claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein, and may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant. The Court AFFIRMS the decision promulgated on June 28,2004 subject to the MODIFICATION that the cross-claim of Metro Manila Transit Corporation against Mina’s Transit Corporation is GRANTED, and, ACCORDINGLY, Mina’s Transit Corporation is ORDERED to reimburse to Metro Manila Transit Corporation whatever amounts the latter shall pay to the respondents pursuant to the judgment of the Regional Trial Court in Civil Case No. N-6127. The principle of holding the registered owner liable for damages notwithstanding that ownership of the offending vehicle has already been transferred to another is designed to protect the public and not as a shield on the part of the unscrupulous transferees of the vehicle to take refuge in, in order to free itself from liability arising from its own negligent act. R Transport Corporation v. Luisito G. Yu G.R. No. 174161, February 18, 2015 FACTS: At around 8:45 in the morning of December 12, 1993, Loreta J. Yu, after having alighted from a passenger bus in front of Robinson’s Galleria along the northbound lane of Epifanio Delos Santos Avenue (EDSA), was hit and run over by a bus driven by Antonio R Gimena, who was then employed by petitioner R Transport Corporation. Loreta was immediately rushed to Medical City Hospital where she was pronounced dead on arrival. On February 3, 1994, the husband of the deceased, respondent Luisito G. Yu, filed a Complaint for damages before the Regional Trial Court (RTC) of Makati City against petitioner R Transport, Antonio Gimena and Metro Manila Transport Corporation (MMTC) for the death of his wife. MMTC denied its liability reasoning that it is merely the registered owner of the bus involved in the incident, the actual owner, being petitioner R Transport. It explained that under the Bus Installment Purchase Program of the government, MMTC 393 TRANSPORTATION LAWS merely purchased the subject bus, among several others, for resale to petitioner R Transport, which will in turn operate the same within Metro Manila. Since it was not actually operating the bus which killed respondent’s wife, nor was it the employer of the driver thereof. For its part, petitioner R Transport alleged that respondent had no cause of action against it for it had exercised due diligence in the selection and supervision of its employees and drivers and that its buses are in good condition. Meanwhile, the driver Antonio Gimena was declared in default for his failure to file an answer to the complaint. After trial on the merits, wherein the parties presented their respective witnesses and documentary evidence, the trial court rendered judgment in favor of respondent Yu ruling that petitioner R Transport failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of its driver, who, by its negligence, ran over the deceased resulting in her death. It also held that MMTC should be held solidarity liable with petitioner R Transport because it would unduly prejudice a third person who is a victim of a tort to look beyond the certificate of registration and prove who the actual owner is in order to enforce a right of action. Thus, on June 3,2004, the trial court ordered defendants Rizal Transport and Metro Manila Transport Corporation to be primarily and solidarity liable and defendant Antonio Parraba Gimena subsidiarity liable to plaintiff Luisito Yu. On September 9, 2005, the Court of Appeals (CA) affirmed the Decision of the RTC. The CA noted that the fact that petitioner is not the registered owner of the bus, which caused the death of the victim, does not exculpate it from liability. Motion for Reconsideration was likewise denied. ISSUE: Whether or not the actual owner of a common carrier can be held solidarity liable with the registered owner. HELD: Under Article 2180 of the New Civil Code, employers are liable for the damages caused by their employees acting within the scope of their assigned tasks. Once negligence on the part of the employee is established, a presumption instantly arises that the employer was remiss in the selection and/or supervision of the negligent employee. To avoid liability for the quasi-delict committed by its employee, it is incumbent upon the employer to rebut this presumption by presenting adequate 394 CHAPTER VI PUBLIC SERVICE and convincing proof that it exercised the care and diligence of a good father of a family in the selection and supervision of its employees. Unfortunately, however, the records of this case are bereft of any proof showing the exercise by petitioner of the required diligence. As aptly observed by the CA, no evidence of whatever nature was ever presented depicting petitioner’s due diligence in the selection and supervision of its driver, Gimena, despite several opportunities to do so. In fact, in its petition, apart from denying the negligence of its employee and imputing the same to the bus from which the victim alighted, petitioner merely reiterates its argument that since it is not the registered owner of the bus, which bumped the victim, it cannot be held liable for the damage caused by the same. Nowhere was it even remotely alleged that petitioner had exercised the required diligence in the selection and supervision of its employee. Because of this failure, petitioner cannot now avoid liability for the quasi-delict committed by its negligent employee. With the enactment of the motor vehicle registration law, the defense available under Article 2180 of the Civil Code - that the employee acts beyond the scope of his assigned task or that it exercised the due diligence of a good father of a family to prevent damage - are no longer available to the registered owner of the motor vehicle, because the motor vehicle registration law, to a certain extent, modified Article 2180. Mariano C. Mendoza and Elvira Lim v. Sps. Leonora J. Gomez and Gabriel V. Gomez G.R. No. 160110, June 18,2014 FACTS: On 7 March 1997, Isuzu Elf truck (Isuzu truck) with Plate No. UAW-582, owned by respondent Leonora J. Gomez and driven by Antenojenes Perez (Perez), was hit by a Mayamy Transportation bus (Mayamy bus) with temporary Plate No. 1376-1280, registered under the name of petitioner Elvira Lim (Lim) and driven by petitioner Mariano C. Mendoza (Mendoza). Owning to the incident, an Information for reckless imprudence resulting in damage to property and multiple physical injuries was filed 395 TRANSPORTATION LAWS against Mendoza. Mendoza, however, eluded arrest, thus, respondents filed a separate complaint for damages against Mendoza and Lim, seeking actual damages, compensation for lost of income, moral damages, exemplary damages, attorney’s fees and costs of the suit. According to POl Melchor F. Rosales (POl Rosales), investigating officer of the case, at around 5:30 a.m., the Isuzu truck, coming from Katipunan Road and heading toward E. Rodriguez, Sr. Avenue, was traveling along the downward portion of Boni Serrano Avenue when, upon reaching the comer of Riviera Street, fronting St. Ignatius Village, its left front portion was hit by the Mayamy bus. According to POl Rosales, the Mayamy bus, while traversing the opposite lane, intruded on the lane occupied by the Isuzu truck. POl Rosales also reported that Mendoza tried to escape by speeding away, but he was apprehended in Katipunan Road comer C. P. Garcia Avenue by one Traffic Enforcer and a security guard of St. Ignatius Village. As a result of the incident, Perez, as well as the helpers on board the Isuzu truck, namely, Melchor V. Anla (Anla), Romeo J. Banca (Banca), and Jimmy Repisada (Repisada), sustained injuries necessitating medical treatment amounting to PI 1,267.35, which amount was shouldered by respondents. Moreover, the Isuzu truck sustained extensive damages on its cowl, chassis, lights, and steering wheel amounting to PI42,757.40. Additionally, respondents averred that the mishap deprived them of a daily income of PI,000. Engaged in the business of buying plastic scraps and delivering them to recycling plants, respondents claimed that the Isuzu truck was vital in the furtherance of their business. For their part, petitioners capitalized on the issue of ownership of the bus in question. Respondents argued that although the registered owner was Lim, the actual owner of the bus was SPOl Cirilo Enriquez (Enriquez), who had the bus attached with Mayamy Transportation Company (Mayamy Transport) under the so-called “habit system.” Respondents then impleaded both Lim and Enriquez. After weighing the evidence, the Regional Trial Court (RTC) found Mendoza liable for direct personal negligence under Article 2176 of the Civil Code, and it also found Lim vicariously liable under 396 ('I I A m :K V! pimut' si'RVici- Article 2180 of the same Code. As regards Lim, the RTC relied on the Certificate of Registration issued by the Land Transportation Office (LTO) on December 9, 1996 in concluding that she is the registered owner of the bus in question. Although actually owned by Enriquez, following the established principle in transportation law, Lim, as the registered owner, is the one who can be held liable. Displeased, petitioners appealed to the CA. After evaluating the damages awarded by the RTC, such were affirmed by the CA, with the exception of the award of unrealized income. Unsatisfied with the CA ruling, petitioners filed an appeal by certiorari before the Court. ISSUE: Whether or not the defense of diligence in the selection and supervision of employees is still a valid defense under the motor vehicle registration law. HELD: The Court is in agreement with the findings of the RTC, and as affirmed by the CA that Mendoza was negligent in driving the subject Mayamy bus, as demonstrated by the fact that at the time of the collision the bus intruded on the lane intended for the Isuzu truck. Having encroached on the opposite lane, Mendoza was clearly in violation of traffic laws. Article 2185 of the Civil Code provides that unless there is a proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap he was violating any traffic regulation. In the case at bar, Mendoza’s violation of traffic laws was the proximate cause of the harm. Mendoza’s employer may also be held liable under the doctrine of vicarious liability or imputed negligence. Under such doctrine, a person who has not committed the act or omission, which caused damage or injury to another, may nevertheless be held civilly liable to the latter either directly or subsidiarily under certain circumstances. In our jurisdiction, vicarious liability or imputed negligence is embodied in Article 2180 of the Civil Code and the basis for damages in the action under said article is the direct and primary negligence of the employer in the selection or supervision, or both, of his employee. In the case at bar, who is deemed as Mendoza’s employer? Is it Enriquez, the actual owner of the bus, or Lim, the registered owner of the bus? 397 TRANSPORTATION LAWS In Filcar Transport Services v. Espinas, the Court held that the registered owner is deemed the employer of the negligent driver, and is thus vicariously liable under Article 2176, in relation to Article 2180 of the Civil Code. Citing Equitable Leasing Corporation v. Suyom, the Court ruled that in so far as third persons are concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer is considered merely as an agent of such owner. Thus, whether there is an employer-employee relationship between the registered owner and the driver is relevant in determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury, or death caused by the operation of the vehicle in the streets and highways. Generally, when an injury is caused by the negligence of a servant or employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee {culpa in eligiendo) or in the supervision over him after the selection {culpa vigilando), or both. The presumption is juris tantum and not juris et de jure\ consequently, it may be rebutted. Accordingly, the general rule is that if the employer shows to the satisfaction of the court that in the selection and supervision of his employee he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved of liability. However, with the enactment of the motor vehicle registration law, the defenses available under Article 2180 of the Civil Code - that the employee acts beyond the scope of his assigned task or that it exercised the due diligence of a good father of a family to prevent damage - are no longer available to the registered owner of the motor vehicle because the motor vehicle registration law, to a certain extent, modified Article 2180. As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza. 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 398 CHAPTER VI PUBLIC SERVICE law and of the rules of conserv ative 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 of discover him. Nostradamus Villanueva v. Priscilla R. Domingo and Leandro Luis R. Domingo G.R. No. 144274, September 20,2004 FACTS: Respondent Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer car model 1980 bearing Plate No. NDW- 781 ‘91 with co-respondent Leandro Luis R. Domingo as authorized driver. Petitioner Nostradamus Villanueva was then the registered “owner’' of a green Mitsubishi Lancer bearing Plate No. PHK-201 ‘91. On October 22, 1991 at about 9:45 in the evening, following a green traffic light, respondent Priscilla Domingo’s silver Lancer car with Plate No. NDW-781 ‘91, then driven by co-defendant Leandro Luis R. Domingo, was cruising along the middle lane of South Superhighway at a moderate speed from north to south. Suddenly, a green Mitsubishi Lancer with Plate No. PHK-201 ‘91, driven by Renato Del a Cruz Ocfemia, darted from Vito Cruz Street towards the South Superhighway directly into the path of NDW-781 ‘91 thereby hitting and bumping its left front portion. As a result of the impact, NDW 781 ‘91 hit two parked vehicles at the roadside, the second hitting another parked car in front of it. Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the filing of information for reckless imprudence resulting to (sic) damage to property and physical injuries. The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-seller, and second, impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace Car Exchange. Except 399 TRANSPORTATION LAWS for Ocfemia, all the defendants filed separate answers to the complaint. Petitioner Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. On the other hand, Auto Palace Car Exchange represented by Albert Jaucian claimed that he was not the registered owner of the car. Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was off-duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his employment. ISSUE: Whether or not the registered owner of a motor vehicle be held liable for damages arising from a vehicular accident involving his motor vehicle while being operated by the employee of its buyer without the latter’s consent and knowledge. HELD: The Court consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being operated. The rationale behind such doctrine was explained way back in 1957 in Erezo v. Jepte. The principle upon r 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 require to prove who the actual owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply by his Z 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. 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 v. 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 400 VHAI'U U VI mu u st uvu i or injury is caused by the \vhiolo on the public highways, responsibility ihervfore can bo fixed on a definite individual, the registered owner. Instances are numerous wheiv vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification or the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways. One of the principal purposes of motor vehicle 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 “share and delusion,” if courts would 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 pace a “middleman” between them and the public, and escape liability by the manner in which they recompense servants. (King v. Brenham Automobile Co., Inc., 145 S.W. 278, 279) The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage, or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid. Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement under the motor vehicle law. 401 TRANSPORTATION LAWS There is no categorical statutory pronouncement in the Land Transportation and Traffic Code stipulating the liability of the registered owner. The source of registered owner’s liability is not a distinct statutory provision, but remains to be Articles 2176 and 2180 of the Civil Code. Greenstar Express, Inc. and Fruto L. Sayson Jr. v. Universal Robina Corporation and Nissin Universal Robina Corporation G.R. No. 205090, October 17,2016 FACTS: Petitioner Greenstar Express, Inc. is a domestic corporation engaged in the business of public transportation, while petitioner Fruto L. Sayson, Jr. is one of its bus drivers. Respondents Universal Robina Corporation (URC) and Nissin Universal Robina Corporation (NURC) are domestic corporations engaged in the food business. NURC is a subsidiary of URC. URC is the registered owner of a Mitsubishi L-300 van with Plate No. WRN-403 (URC van). At about 6:50 a.m. on February 25, 2003, which was then a declared national holiday, petitioner’s bus, which was then being driven toward the direction of Manila by Sayson, collided head-on with the URC van, a company vehicle, which was then driven to Quezon province bound by NURC’s Operations Manager, Renante Bicomong, whose purpose in going to Quezon was to visit his family and give money to his daughter. According to the bus driver’s account, at a distance of more or less five meters away from his bus, he noticed that the L-300 UV was running at full speed as he saw dust clouds, and was already near his bus when it managed to return to its proper lane coming from the shoulder. It was heading directly towards his direction. The point of impact happened on his lane. The incident occurred along Km. 76, Maharlika Highway, Brgy. San Agustin, Alaminos, Laguna. Bicomong died on the spot, while the colliding vehicles sustained considerable damage. For fear of reprisals from bystanders, Sayson fled the scene. In September 2003, petitioners filed a Complaint against NURC to recover damages sustained during the collision, premised on negligence. The Regional Trial Court (RTC) ruled that the plaintiff has no cause of action and cannot recover from the defendants even 402 CHAPTER VI PUBLIC SERVICE assuming that the direct and proximate cause of the accident was the negligence of the defendant’s employee Renato Bicomong. Under Article 2180, “employers shall be held liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. ” In other words, for the employer to be liable for the damages caused by his employee, the latter must have caused the damage in the course of doing his assigned tasks or in the performance of his duties. The Court of Appeals (CA) affirmed the decision of the lower court. ISSUE: (1) Whether or not URC is liable as the registered owner of the vehicle; and (2) Whether or not the bus, which is a common carrier, observed extraordinary diligence at the time of the collision. HELD: In Caravan Travel and Tours International, Inc. v. Abejar, the Court made the following relevant pronouncements: “The resolution of this case must consider two rules: First, Article 2180’s specification that employers shall be liable for the damages caused by their employees x x x acting within the scope of their assigned task; Second, the operation of the registered-owner rule that the registered owners are liable for the death or injuries caused by the operation of their vehicles. These rules appear to be in conflict when it comes to cases in which the employer is also the registered owner of a vehicle. Article 2180 requires proof of two things: first, an employment relationship between the driver and the owner; and second, that the driver acted within the scope of his or her assigned tasks. On the other hand, applying the registered-owner rule only requires the plaintiff to prove that the defendant-employer is the registered owner of the vehicle. Aguilar, Sr. v. Commercial Savings Bank recognized the seeming conflict between Article 2180 and the registered-owner rule and applied the latter. Preference for the registered-owner rule became more pronounced in Del Carmen, Jr. v. Bacoy; Filcar Transport Services v. Espinas stated that the registered owner of the vehicle can no longer use the defenses found in Article 2180. Mendoza v. Souses Gomez reiterated this doctrine. However, Aguilar, Sr, Del Carmen, Filcar, and Mendoza should not be taken to mean that Article 2180 of the Civil Code should be 403 TRANSPORTATION LAWS completely discarded in cases where the registered-owner rule finds application. As acknowledged in Filcar, there is no categorical statutory pronouncement in the Land Transportation and Traffic Code stipulating the liability of a registered owner. The source of a registered owner’s liability is not a distinct statutory provision, but remains to be Articles 2176 and 2180 of the Civil Code. While Republic Act No. 4136 of the Land Transportation and Traffic Code does not contain any provision on the liability of registered owners in case of motor vehicle mishaps, Article 2176, in relation with Article 2180 of the Civil Code, imposes an obligation upon Filcar, as registered owner, to answer for the damages caused to Espinas’ car. Thus, it is imperative to apply the registered- owner rule in a manner that harmonizes it with Articles 2176 and 2180 of the Civil Code. Rules must be construed in a manner that will harmonize them with other rules so as to form a uniform and consistent system of jurisprudence. In light of this, the words used in Del Carmen are particularly notable. There, this Court stated that Article 2180 “should defer to” the registered-owner rule. It never stated that Article 2180 should be totally abandoned. Therefore, the appropriate approach is that in cases where both the registered-owner rule and Article 2180 apply, the plaintiff must first establish that the employer is the registered owner of the vehicle in question. Once the plaintiff successfully proves ownership, there arises a disputable presumption that the requirements of Article 2180 have been proven. As a consequence, the burden of proof shifts to the defendant to show that no liability under Article 2180 has arisen. In the present case, it has been established that on the day of the collision, or on February 25,2003, URC was the registered owner of the URC van, although it appears that it was designated for use by NURC, as it was officially assigned to the latter’s Logistics Manager, Florante Soro-Soro (Soro-Soro); that Bicomong was the Operation Manager of NURC and assigned to the First Cavite Industrial Estate; that there was no work as the day was declared a national holiday; that Bicomong was on his way home to his family in Quezon province; that the URC van was not assigned to Bicomong as well, but solely for Soro-Soro’s official use; that the company service vehicle officially assigned to Bicomong was a Toyota Corolla, which he left at the Cavite plant, and 404 CHAPTER VI PUBLIC SERVICE instead, he used the URC van; and that other than the Cavite plant, there is no other NURC plant in the provinces of Quezon, Laguna or Bicol. Applying the above pronouncement in the Caravan Travel and Tours case, it must be said that when by evidence of ownership of the van and Bicomong’s employment were proved, the presumption of negligence on respondents’ part attached, as the registered owner of the van, and as Bicomong’s employer. His burden of proof then shifted to respondents to show that no liability under Article 2180 arose. This may be done by proof of any of the following: (1) that they had no employment relationship with Bicomong; or (2) that Bicomong acted outside the scope of his assigned tasks; or (3) that they exercised the diligence of a good father of a family in the selection and supervision of Bicomong. Respondents succeeded in overcoming the presumption of negligence, having shown that when the collision took place, Bicomong was not in the performance of his work; that he was in possession of a service vehicle that did not belong to his employer NURC, but to URC, and which vehicle was not officially assigned to him, but to another employee; that his use of the URC van was unauthorized, even if he had used the same vehicle in furtherance of a personal undertaking in the past, this does not amount to implied permission; that the accident occurred on a holiday and while Bicomong was on his way home to his family in Quezon province; and that Bicomong had no official business whatsoever in his hometown in Quezon, or in Laguna, where the collision occurred; his area of operation being limited to the Cavite area. On the other hand, the evidence suggests that the collision could have been avoided if Sayson exercised care and prudence, given the circumstances and information that he has immediately prior to the accident. The law exacts from common carriers (i.e., those persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods, or both, by land, water, or air, for compensation, offering their services to the public) the highest degree of diligence (i.e., extraordinary diligence) in ensuring the safety of its passengers. In this relation, Article 1756 of the Civil Code provides that in case of death of or injuries to passengers, common carriers are 405 TRANSPORTATION LAWS 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. However, Sayson took no defense maneuver whatsoever in spite of the fact that he saw Bicomong drive his van in a precarious manner, as far as 250 meters away, or at a point in time and space where Sayson had all the opportunity to prepare and avert a possible collision. The collision was certainly foreseen and avoidable but Sayson took no measures to avoid it. Rather than exhibit concern for the welfare of his passengers and the driver of the oncoming vehicle, who might have fallen asleep or suddenly fallen ill at the wheel, Sayson coldly and uncaringly stood his ground, closed his eyes, and left everything to fate without due regard for the consequences. Such a suicidal mindset cannot be tolerated, for the grave danger it poses to the public and passengers availing of petitioners’ services. To add insult to injury, Sayson hastily fled the scene of the collision instead of rendering assistance to the victims, thus exhibiting a selfish, cold-blooded attitude, and utter lack of concern motivated by the self-centered desire to escape liability, inconvenience, and possible detention by the authorities, rather than secure the wellbeing of the victims of his own negligent act. An experienced driver, who is presented with the same facts, would have adopted an attitude consistent with a desire to preserve life and property; for common carriers, the diligence demanded is of the highest degree. The doctrine of last clear chance provides that where both parties are negligent but the negligent act of one is appreciably later in point of time than that of the other, or where it is impossible to determine whose fault or negligence brought about the occurrence of the incident, the one who had the last clear opportunity to avoid the impending harm but failed to do so, is chargeable with the consequences arising therefrom. Stated differently, the rule is that the antecedent negligence of a person does not preclude recovery of damages caused by the supervening negligence of the latter, who had the last fair chance to prevent the impending harm by the exercise of due diligence. Boundary System, defined. — “Boundary System," is an arrangement in which the drivers (and their conductors) of jeepneys or busses, for the use thereof, within a specified number of hours, with the ■St. 406 CHAPTER VI PUBLIC SERVICE gasoline burned for their account, give to the owner-operator a fixed amount of the daily earnings derived from their operation, their day’s earnings being the excess over the amount paid for the gasoline and use of the vehicles. (See National Labor Union v. Dinglasan, L-7945, March 23, 1956; Doce v. Workmens Compensation Commission, L-91417, December 22, 1958) It is a system whereby: a franchise operator of jeepneys rents out his jeepney to a driver, at say P30.00 a day. The owner (operator) expects to collect from the driver his P30.00 at the end of the day. Any earning over and above the P30.00 (the boundary) goes to the driver. So the bigger the earnings over and above the boundary, as in this example, the better for the driver. This is the reason why drivers, under this boundary agreement, are apt to drive faster and always on the go, for the more trips they make in a day, the bigger their earnings. This rush maneuver or operation, however, almost always results in accidents unfortunately. (Moreno, Philippine Law Dictionary, p. 112, 3rd Ed., citing Gubot v. Bulaon, 59473-R, October 1, 1982) The jeepney owner/operator-driver relationship under the boundary system is that of employer-employee and not lessor-lessee. (National Labor Union v. Dinglasan, 98 Phil. 649) This doctrine was affirmed under similar factual settings, in Magboo v. Bernardo (7 SCRA 952) and Lantaco, Sr. v. Llamas (108 SCRA 502), and was analogously applied to govern the relationships between auto-calesa owner/operator and driver, bus owner/operator and conductor, and taxi owner/operator and driver. The boundaiy 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 latter’s daily earnings are remitted to the owner/operator less the excess of the boundaiy which represents the driver’s 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 407 TRANSPORTATION LAWS 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. (Oscar Villamaria, Jr. v. Court of Appeals and Jerry Bustamante, G.R. No. 165881, April 19, 2006) To exempt from liability the owner of a public vehicle who operates it under the “boundary system” on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service Law, but also to place the riding public at the mercy of reckless and irresponsible drivers—reckless because the measure of their earnings depends largely upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no position to pay the damages they might cause. (Erezo v. Jepte, 102 Phil. 103 [1957]; Hernandez v. Dolor, 435 SCRA 668, July 30, 2004) 408 CHAPTER VII VESSELS ADMIRALTY AND MARITIME JURISDICTION OF A COURT Maritime transaction may be invoked before our courts in an action in rem or quasi in rem or an action in personam as provided in Articles 579, 580, and 584 of the Code of Commerce. Under B.P. Big. 129, as amended by R.A. No. 7691, the Regional Trial Court exercise exclusive original jurisdiction “in all actions in admiralty and maritime where the demand or claim exceeds two hundred thousand pesos (P200,000.00) or in Metro Manila, where such demand or claim exceeds four hundred thousand pesos (P400,000.00).” Two tests have been used to determine whether a case involving a contract comes within the admiralty and maritime jurisdiction of a court - the locational test and the subject matter test. The English rule follows the locational test wherein maritime and admiralty jurisdiction, with a few exceptions, is exercised only on contracts made upon the sea and to be executed thereon. This is totally rejected under the American rule where the criterion in determining whether a contract is maritime depends on the nature and subject matter of the contract, having reference to maritime service and transaction. In International Harvester Company of the Philippines v. Aragon (G.R. No. L-2372, August 26, 1949), the Court adopted the American rule and held that “whether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject matter of the contract, making the true criterion a maritime service or a maritime transaction. In the Philippines, the Court have a complete legislation, both substantive and adjective, under which to bring an action in rem against a vessel for the purpose of enforcing liens. The substantive law is found in Article 580 of the Code of Commerce. The procedural law is to be 409 TRANSPORTATION LAWS found in Article 584 of the same Code. The result is, therefore, that in the Philippines any vessels — even though it be a foreign vessel — found in any port of this Archipelago may be attached and sold under the substantive law which defines the right, and the procedural law contained in the Code of Commerce by which this right is to be enforced. But where neither the law nor the contract between the parties creates any lien or charge upon the vessel, the only way in which it can be seized before judgment is by pursuing the remedy relating to attachment under Rule 57 of the Rules of Court. (Crescent Petroleum, Ltd. v. M/V Lok Maheshwari, G.R. No. 155014, November 11, 2005) ART. 573. Merchant vessels constitute property, which may be acquired and transferred by any of the means recognized by law. The acquisition of a vessel must appear in a written instrument, which shall not produce any effect with regard to third persons if not recorded in the registry of vessels. The ownership of a vessel shall also be acquired by possession thereof in good faith for three years, with a good title duly recorded. In the absence of any of these requisites, continuous possession for ten years shall be necessary in order to acquire ownership. Note: The “prescription adquisitiva ”has been amended by Art. 1132 of the Civil Code — good faith is 4 yrs. and bad faith is 8 yrs. A captain cannot acquire by prescription of the ship of which he is in command. ART. 574. The builders of vessels may employ the materials and, with regard to the construction and rigging, may follow the systems most appropriate to their interest. Ship agents and seamen shall be subject to the provisions of the laws and regulations of the government on navigation, customs, health, safety of the vessels, and other similar provisions. ART. 575. Part owners of the vessels shall enjoy the right of pre-emption and redemption in sales made to strangers; but they can only exercise it within the nine days following the registration of the sale in the registry and by delivering the price at once. 410 CHAPTER Vll VESSELS ART. 576. The rigging, tackle, stores, and engine of a vessel, if it is a steamer, shall always be understood as included in the sale thereof if, at the time of sale, they are owned by the vendor. The arms, munitions of war, provisions, and fuel shall not be considered as included in the sale. The vendor shall be under the obligation to deliver to the purchaser a certificate of the record of the vessel in the registry up to the date of the sale. ART. 577. If the sale of the vessel should take place while she is on a voyage, all the freightage she earns from the time she received her last cargo shall belong to the buyer, and the latter shall pay the crew and other persons who go to make up her complement for the said voyage. If the sale should take place after the arrival of the vessel at the port of her destination, the freightage shall belong to the seller and the latter shall pay the crew and other persons who go to make up her complement, unless there is an agreement to the contrary in either case. ART. 578. If, the vessel while on a voyage or in a foreign port, her owner or owners should voluntarily sell her either to Filipinos or to foreigners domiciled in the capital or in a port of another country, the bill of sale shall be executed before the consul of the Philippines of the port where she terminates her voyage; and said instrument shall have no effect with regard to third persons if it is not registered in the registry of the consulate. The consul shall immediately forward a true copy of the bill of purchase of the vessel to the registry of vessels of the port where said vessel is entered and registered. In every case the sale of the vessel must be made to appear with a statement whether the seller receives the full price or part thereof, or whether he retains any interest in said vessel in full or in part. In case the sale is made to a Filipino, this fact shall be stated in the certificate of navigation. TRANSPORTATION LAWS When a vessel, while on a voyage, should become useless for navigation, the captain shall report the matter to the judge or court of competent jurisdiction of the port of arrival, should she be in the Philippines; and should she be in foreign port, to the Filipino consul should there be one; or to the judge, or court, or local authority in the absence of the former; and the consul, or judge, or court, or, in their absence, the local authority, shall order an examination of the vessel to be made. If the consignee or the insurer should reside at said port, or should have representatives there, they must be cited in order to take part in the proceedings for the account of whom it may concern. ART. 579. After the damage of the vessel and the impossibility of her being repaired, in order to continue the voyage, having been proven, her sale at public auction shall be ordered, subject to the following rules: 1. The hull of the vessel, her rigging, engines, stores, and other articles shall be appraised by means of an inventory, said proceedings being brought to the notice of the persons who may wish to take part in the auction. 2. The order or decree ordering the public auction shall be posted in the usual places, and shall be advertised in the newspapers of the port where the auction is to be held, should there be any, and in other newspapers which the court may determine. The period, which may be fixed, for the auction shall not be less than twenty days. 3. These advertisements shall be repeated every ten days, and their publication shall be recorded in the proceedings. 4. The auction shall be held on the day fixed, with the formalities prescribed in the common law for judicial sales. 5. If the sale should take place when the vessel is in a foreign country, the special provisions governing such cases shaU be observed. 412 CHAnW VII VhSSbl.S ART. 580. In all judicial sales of vessels for the payment of creditors, the following shall he preferred in the order named: 1. The credits in favor of the public treasury’ proven by means of an official certificate of the competent authority. 2. The judicial costs of the proceedings, according to an appraisement approved by the judge or court. 3. The pilotage charge, tonnage dues, and the other sea or port charges, proven by means of proper certificates of the officers intrusted with the collection. 4. The salaries of the caretakers and watchmen of the vessel and any other expenses connected with the preservation of said vessel, from the time of arrival in the port until her sale, which appear to have been paid or to be due by virtue of a true account approved by the judge or court. 5. The rent of the warehouse where the rigging and stores of the vessel have been taken cared of, according to contract. 6. The salaries due the captain and crew during their last voyage, which shall be verified by means of the liquidation based on the rolls of the crew and the account books of the vessel, approved by the chief of the bureau of merchant marine where there is one, and, in his absence, by the consul, or judge, or court. 7. The reimbursement for the goods transported which the captain may have sold in order to repair the vessel, provided the sale has been ordered by a judicial instrument executed with the formalities required in such cases, and recorded in the certificate of the registry of the vessel. 8. The part of the price which has not been paid to the last seller, the credits pending for the payment of materials and work in the construction of the vessel when she has not navigated, and those arising from the repair and equipment of the vessel and her provisioning with victuals and fuel during her last voyage. In order that said credits may enjoy the preference provided for in this subdivision, they must appear by means of contracts 413 TRANSPORTATION LAWS recorded in the registry of vessels, or if they were contracted for the vessel while on a voyage and said vessel has not returned to the port of her registry, they must be made under the authority required for such cases and entered in the certificate of the record of the vessel. 9. The amounts borrowed on bottomry loans before the departure of the vessel, proven by means of the contracts executed according to law and recorded in the registry of vessels, the amounts borrowed during the voyage with the authority mentioned in the foregoing subdivision, complying with the same requisites, and the insurance premium, proven by the policy of the contract or certificate taken from the books of the broker. 10. The indemnity due to the shippers for the value of the goods transported which were not delivered to the consignee, or for averages suffered for which the vessel is liable, provided either shall appear in a judicial or arbitration decision. Note: Expressly repealed by R.A. 6106 effective August 4, 1969. ART. 581. If the proceeds of the sale are not sufficient to pay all the creditors included in one number or grade, the amount shall be divided among them pro rata. ART. 582. After the bill of the judicial sale at public auction has been executed and recorded in the registry of vessels, all the other liabilities of the vessel in favor of the creditors shall be considered cancelled. But if the sale should have been voluntary, and made while the vessel was on a voyage, the creditors shall retain their rights against the vessel until her return to the port of her registry, and three months after the record of sale in the registry of vessels, or after her arrival. ART. 583. If the ship being on a voyage the captain should find it necessary to contract one or more of the obligations mentioned in sub-divisions 8 and 9 of Article 580, he shall apply to the judge or court if he is in Philippines territory, and otherwise to the Filipino 414 CHAPTER YU VESSEL S consul, should there be one and in his absence, to the judge or court or to the proper local authority, presenting the certificate of the registry of the vessel treated of in Article 612, and the instruments proving the obligation contracted. The judge or court, the consul or the local authority as the case may be, in view of the result of the proceedings instituted, shall make a temporary memorandum in the certificate of their result, in order that it may be recorded in the registry when the vessel returns to the port of her registry, or so that it can be admitted as a legal and preferred obligation in case of sale before the return, by reason of the sale of the vessel by virtue of a declaration of unseaworthiness. The omission of this formality shall make the captain personally liable for the credits, which may be prejudiced through his fault. ART. 584. The vessels subject to the liability for the credits mentioned in Article 580 may be attached and judicially sold in the manner prescribed in Article 579, in the port in which they may be found, at the instance of any of the creditors; but if they should be loaded and ready to sail, the attachment cannot take place except for debts contracted by reason of the preparation and provisioning of the vessel for the voyage, and even then the attachment shall be dissolved if any person interested in her sailing should give bond for the return of the vessel within the period fixed in the certificate of navigation, binding himself to pay the debt, in so far as it may be legal, should the vessel fail to do so, even if this failure may have been caused by fortuitous events. For debts of any other kind whatsoever not included in the said Article 580, the vessel may only be attached in the port of her registry. Note: Expressly repealed by R.A. 6106, effective August 4, 1969. ART. 585. For all purposes of law not modified or restricted by the provisions of the Code, vessels shall continue to be considered personal property. 415 TRANSPORTATION LAWS The Code of Commerce classified vessels as personal property. (Art. 585) Merchant vessels are considered as property and as such can be acquired by any of the modes of acquiring ownership. The acquisition of vessel, however, to be binding against third persons, must be in writing and recorded in the registry of vessels. (Art. 573) Thus, sale of vessel must be in writing and recorded in the registry of vessels to bind third persons. The Code of Commerce likewise provides what is deemed included and excluded in case of sale of vessels. (Art. 576) Sale of vessel may likewise be consummated while on voyage or after arrival at the port of destination. The only difference is to whom shall the earned freightage accrue and who shall pay the crew and other persons who goes to make up the complement of the voyage. (Art. 557) Sale of vessel may likewise be executed in foreign port. (Art. 578) In judicial sales, preferred creditors are likewise named. (Art. 580) When the mercantile code speak of vessels, they refer solely and exclusively to merchant ships, as they do not include war ships, and furthermore, they almost always refer to craft which are not accessory to another as in the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship, vessel, boat embarkation, etc., refer exclusively to those which are engaged in the transportation of passengers, and freight from one port to another or from one place to another; in a word, they refer to merchant vessels and in no way can they or should they be understood as referring to pleasure craft, yachts, pontoons, health service and harbor police vessels, floating storehouses, warships or patrol vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as for instance coast and geodetic survey, those engaged in scientific research and exploration, craft engaged in the loading and discharge of vessels from same to shore or docks, or in transshipment, and those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in transporting passengers and baggage. (Eastern, Der. Men, Vol. IV, p. 195 cited in Lopez v. Duruelo, 52 Phil. 299) Note: The importance of the distinction lies on the applicable law that will apply on the rights and obligations of the parties involved. If it is a merchant vessel, then the Code of Commerce will apply. If ordinary vessel, the Civil Code will apply. 416 CHAPTER VII VESSELS The basic operative fact for the institution and perfection of proceedings in rem is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. This means that to acquire jurisdiction over the vessel, as a defendant, the trial court must have obtained either actual or constructive possession over it. Commissioner of Customs v. The Court of Appeals, Hon. Arsenio M. Gonong, Presiding Judge, Regional Trial Court, Branch 8; Hon. Mauro T. Allarde, Presiding Judge, Regional Trial Court, Kalookan City, Branch 123; Amado Sevilla and Antonio Velasco, Special Sheriffs of Manila of Manila; Jovenal Salayon, Special Sheriff of Kalookan City, Dionisio J. Camangon, Ex-Deputy Sheriff of Manila; and Cesar S. Urbino, Sr., doing business under the name and style “Duraproof Services” G.R. Nos. 111202-05, January 31, 2006 FACTS: On January 7, 1989, the vessel M/V “Star Ace,” coming from Singapore laden with cargo, entered the Port of San Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had an appraised value, at that time, of more or less P200,000,000. When the Bureau of Customs later became suspicious that the vessel’s real purpose in docking was to smuggle its cargo into the country, seizure proceedings were instituted under S.I. Nos. 02-89 and 03-89 and, subsequently, two Warrants of Seizure and Detention were issued for the vessel and its cargo. Respondent Cesar S. Urbino, Sr. does not own the vessel or any of its cargo but claimed a preferred maritime lien under a Salvage Agreement dated June 8, 1989. To protect its claim, Urbino initially filed two motions in the seizure and detention cases: a Motion to Dismiss and a Motion to Lift Warrant of Seizure and Detention. Urbino, likewise, sought relief with the regular courts by filing a case for Prohibition, Mandamus, and Damages before the Regional Trial Court (RTC) of SFLU on July 26, 1989, seeking to restrain the District 417 TRANSPORTATION LAWS Collector of Customs from interfering with his salvage operation. The case was docketed as Civil Case No. 89-4267. On January 31, 1991, the RTC of SFLU dismissed the case for lack of jurisdiction because of the pending seizure and detention cases. Urbino then elevated the matter to the Court of Appeals (CA) where it was docketed as CA- G.R. CV No. 32746. The Commissioner of Customs, in response, filed a Motion to Suspend Proceedings, advising the CA that it intends to question the jurisdiction of the CA before this Court. On January 9, 1990, Urbino filed another case for Certiorari and Mandamus with the RTC of Manila, presided by Judge Arsenio M. Gonong, this time to enforce his maritime lien. Impleaded as one among several defendants is the Commissioner of Customs. This case was docketed as Civil Case No. 89-51451. The Office of the Solicitor General filed a Motion to Dismiss on the ground that a similar case was pending with the RTC of SFLU. The Motion to Dismiss was granted on July 2, 1990, but only insofar as the Commissioner of Customs and the District Collector was concerned. The RTC of Manila proceeded to hear the case against the other parties and received evidence ex -parte. The RTC of Manila later rendered a decision on February 18, 1991, finding in favor of Urbino. Thereafter, on March 13, 1991, a writ of execution was issued by the RTC of Manila. Respondent Camangon was appointed as Special Sheriff to execute the decision and he issued a notice of levy and sale against the vessel and its cargo. The Commissioner of Customs, upon learning of the notice of levy and sale, filed with the RTC of Manila a motion to recall the writ, but before it could be acted upon, Camangon had auctioned off the vessel and the cargo to Urbino for PI20,000,000. The following day, Judge Gonong issued an order commanding Sheriff Camangon to cease and desist from implementing the writ. Despite the order, Camangon issued a Certificate of Sale of Urbino. A week later, Judge Gonong issued another order recalling the writ of execution. Both cease and desist and recall orders of Judge Gonong were elevated by Urbino to the CA on April 12, 1991 where it was docketed as CA- G.R. SP No. 24669. On April 26, 1991, the CA issued a Temporary Restraining Order (TRO) enjoining the RTC of Manila from enforcing its cease and desist and recall orders. The TRO was eventually substituted by a writ of preliminary injunction. A motion to lift the injunction was filed by the Commissioner of Customs but it was denied. 418 CHAPTER VII VESSELS On June 26, 1992, the Executive Judge for the RTC of Manila, Judge Bernardo P. Pardo, having been informed of the circumstances of the sale, issued an order nullifying the report and all proceedings taken in connection therewith. With this order, Urbino filed his fourth case with the CA on July 15, 1992, a Petition for Certiorari, Prohibition, and Mandamus against Judge Pardo. This became CA-G.R. SP No. 28387. The CA issued a Resolution on August 6, 1992, granting the TRO against the Executive Judge to enjoin the implementation of his June 26, 1992 Order. Going back to the seizure and detention proceedings, the decision of the District Collector of Customs was to forfeit the vessel and cargo in favor of the Government. The decision was affirmed by the Commissioner of Customs. Three appeals were then filed with the Court of Tax Appeals (CTA) by different parties, excluding Urbino, who claimed an interest in the vessel and cargo. These three cases were docketed as CTA Case No. 4492, CTA Case No. 4494 and CTA Case No. 4500. Urbino filed his own case, CTA Case No. 4497, but it was dismissed for want of capacity to sue. He, however, was allowed to intervene in CTA Case No. 4500. On October 5, 1992, the CTA issued an order authorizing the Commissioner of Customs to assign customs police and guards around the vessel and to conduct an inventory of the cargo. In response, on November 3, 1992, Urbino filed a fifth Petition for Certiorari and Prohibition with the CA to assail the order, as well as the jurisdiction of the Presiding Judge and Associate Judges of the CTA in the three cases. That case was docketed as CA G.R. SP No. 29317. On November 10, 1992, the CA issued a Resolution reminding the parties that the vessel is under the control of the appellate court. ISSUE: Whether or not the RTC acquired jurisdiction over the vessel. HELD: The Court rules in favor of the Commissioner of Customs. First of all, the Court finds the decision of the RTC of Manila, insofar as it relates to the vessel M/V “Star Ace,” to be void as jurisdiction was never acquired over the vessel. In filing the case, Urbino had impleaded the vessel as a defendant to enforce his alleged maritime lien. This meant that he brought an action in rem under the Code of Commerce under which the perfection of proceedings in rem is the actual or constructive possession of the 419 TRANSPORTATION LAWS res by the tribunal empowered by law to conduct the proceedings. This means that to acquire jurisdiction over the vessel, as a defendant, the trial court must have obtained either actual or constructive possession over it. Neither was accomplished by the RTC of Manila. In his comment to the petition, Urbino plainly stated that “petitioner has actual physical custody not only of the goods and/or cargo but the subject vessel, M/V Star Ace, as well.” This is clearly an admission that the RTC of Manila did not have jurisdiction over the res. While Urbino contends that the Commissioner of Custom’s custody was illegal, such fact, even if true, does not deprive the Commissioner of Customs of jurisdiction thereon. This is a question that ought to be resolved in the seizure and forfeiture cases, which are now pending with the CTA, and not by the regular courts as a collateral matter to enforce his lien. By simply filing a case in rem against the vessel, despite its being in the custody of customs officials, Urbino has circumvented the rule that regular trial courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in the Bureau of Customs, on his mere assertion that the administrative proceedings were a nullity. On the other hand, the Bureau of Customs had acquired jurisdiction over the res ahead and to the exclusion of the RTC of Manila. The forfeiture proceedings conducted by the Bureau of Customs are in the nature of proceedings in rem and jurisdiction was obtained from the moment the vessel entered the SFLU port. Moreover, there is no question that forfeiture proceedings were instituted and the vessel was seized even before the filing of the RTC of Manila case. The Court is aware that Urbino seeks to enforce a maritime lien and because of its nature, it is equivalent to an attachment from the time of its existence. Nevertheless, despite his lien’s constructive attachment, Urbino still cannot claim an advantage as his lien only came about after the warrant of seizure and detention was issued and implemented. The Salvage Agreement, upon which Urbino based his lien, was entered into on June 8,1989. The warrants of seizure and detention, on the other hand, were issued on January 19 and 20,1989. And to remove further doubts that the forfeiture case takes precedence over the RTC of Manila case, it should be noted that forfeiture retroacts to the date of the commission of the offense, in this case, the day the vessel entered the country. A maritime lien, in contrast, relates back to the period when it first attached in this 420 CHAPTER VII VESSELS case the earliest retroactive date can only be the date of the Salvage Agreement. Thus, when the vessel and its cargo are ordered forfeited, the effect will retroact to the moment the vessel entered the Philippine waters. Accordingly, the RTC of Manila’s decision never attained finality as to the defendant vessel, inasmuch as no jurisdiction was acquired over it, and the decision cannot be binding, and the writ of execution issued in connection therewith is null and void. Moreover, even assuming that execution can be made against the vessel and its cargo, as goods and chattels to satisfy the liabilities of the other defendants who have an interest therein, the RTC of Manila may not execute its decision against them while, as found by this Court, these are under the proper and lawful custody of the Bureau of Customs. This is especially true when, in case of finality of the order of forfeiture, the execution cannot anymore cover the vessel and cargo, as ownership of the Government will retroact to the date of entry of the vessel into Philippine waters. PRESIDENTIAL DECREE NO. 474 PROVIDING FOR THE REORGANIZATION OF MARITIME FUNCTIONS IN THE PHILIPPINES, CREATING THE MARITIME INDUSTRY AUTHORITY, AND FOR OTHER PURPOSES. WHEREAS, the efficient sea transport of raw materials, products, commodities and people is vital to the growth of the Philippine economy; WHEREAS, the functions pertaining to the development and regulation of shipping enterprises are fragmented among various government agencies, resulting in inadequate and inefficient shipping facilities, dependence on external shipping interests, maldistribution of commodities, and piece-meal solutions; WHEREAS, there is imperative need to modernize and expand the Philippine merchant fleet, and to rationalize and improve their operations in order to make them effective instalments in promoting domestic production, inter-island and overseas trade, price stabilization, and employment generation; 42 J * TRANSPORTATION LAWS WHEREAS, it is urgently necessary to provide a strong organizational framework to effect the accelerated and integrated development and effective regulation of shipping enterprises; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, in order to effect the desired changes and reforms in the social, economic and political structure of our society, do hereby decree and order that the following be adopted and made part of the laws of the land: Section 1. Title. — This Decree shall be known as the “Maritime Industry Decree of 1974. ” Section 2. Declaration of Policies and Objectives. — It is hereby declared the policy of the State to accelerate the integrated development of the maritime industry of the Philippines to attain the following objectives: (a) To increase production and productivity in the various islands and regions of the archipelago through the provision of effective sea linkage; (b) To provide for the economical, safe, adequate and efficient shipment of raw materials, products, commodities and people; (c) To enhance the competitive position of Philippine flag vessels in the carriage of foreign trade; (d) To strengthen the balance of payments position minimizing the outflow of foreign exchange and increasing dollar earnings; and (e) To generate new and more job opportunities. For the attainment of these objectives, the Government through the Maritime Industry Authority hereinafter created, shall: (a) Adopt and implement a practicable and coordinated Maritime Industry Development Program which shall include, among others, the early replacement of obsolescent and uneconomic vessels; modernization and expansion of the Philippine merchant fleet; enhancement of domestic capability for shipbuilding, repair and maintenance; and development of reservoir of trained manpower; (b) Provide and help provide the necessary: (i) financial assistance to the industry through public and private financing institutions and instrumentalities; (ii) technological assistance; 422 CHAPTER Ml VESSELS and (iii) in general, a favorable climate for expansion of domestic and foreign investments in shipping enterprises: and (c) Provide for the effective supervision, regulation and rationalization of the organizational management, ownership and operations of all water transport utilities, and other maritime enterprises. Section 3. Definition of Terms. — The terms, as used, in this Decree shall have the following meaning, unless the context of the particular usage of the term indicates otherwise: a. “Maritime Industry, ” briefly referred to as “industry” in the broadest concept of the term. —All enterprises engaged in the business of designing, constructing, manufacturing, acquiring, operating, supplying, repairing, and/or maintaining vessels, or component parts thereof; of managing and/or operating shipping lines, stevedoring arrastre and customs brokerage services, shipyards, drydocks, marine railways, marine repair shops, shipping and freight forwarding agencies and similar enterprises. b. “Vessels ” or “Watercraft. ” — Any barge, lighter, bulk carrier, passenger ship freighter, tanker, container ship, fishing boats or other artificial contrivance utilizing any source of motive power, designed, used or capable of being used as a means of water transportation operating either as common contract carrier, including fishing vessels covered under Presidential Decree No. 43, except (i) those owned and/or operated by the Armed Forces of the Philippines and by foreign governments for military purposes, and (ii) bancas, sailboats and other waterborne contrivance of less than three gross tons capacity and not motorized. c. “Philippine National. ” — A citizen of the Philippines; or a partnership or association wholly owned by and composed of citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent of the capital stock outstanding and entitled to vote is owned and held by Philippine citizens; or a trustee of funds for pensions or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent of the funds 423 TRANSPORTATION LAWS will accrue to the benefit of the Philippine nationals; Provided, That where a corporation and its non-Filipino stockholders own stock in an enterprise, at least sixty percent of the members of the governing board of both corporations must be Philippine nationals. d. “Philippine flag vessel. ” — A vessel or watercraft registered under Philippine laws. e. “Foreign flag vessel. ” — A vessel or watercraft registered under the laws of a country other than the Philippines. f. “Philippine shipping companies. ” — Philippine nationals registered and licensed under the laws of the Philippines to engage in the business of overseas and/or domestic water transportation. A. MARITIME INDUSTRY AUTHORITY Section 4. Maritime Industry Authority, Creation and Organization. — There is hereby created a Maritime Industry Authority, hereinafter referred to as the Authority, under the Office of the President. It shall be composed of a governing board of directors to be known as Maritime Industry Board and the Management. The Authority shall have general jurisdiction and control over all persons, corporations, firms or entities in the maritime industry of the Philippines and shall supervise, regulate in accordance with this Decree. The principal office of the Authority shall be in the Greater Manila Area. Regional or branch offices may be established at such other place or places within the Philippines as may be deemed necessary by the Board. Section 5. Maritime Industry Development Program. -— The Authority shall prepare and annually update a Ten-Year Maritime Industry Development Program, hereinafter referred to as “Program” which shall contain a rational and integrated development of the maritime industry. The Authority shall submit the same for approval by the President of the Philippines. 424 CHAPTER VII VESSELS Upon approval of the Program by the President, all government departments, bureaus, agencies and instrumentalities shall implement the same within their respective jurisdictions. The Authority shall ensure that the approved program is being effectively implemented by the participating agencies. No government body or instrumentality shall adopt any policy or take course of action contrary to or inconsistent with the Program. B. MARITIME INDUSTRY BOARD Section 6. Powers and Functions of the Board. — The Maritime Industry Board shall have the following powers, functions, and duties, among others: a. To provide comprehensive policy guidance for the promotion and development of the maritime industry as provided for in this Decree; b. To promulgate and prescribe such promotional and development rules and regulations, standards, guidelines and procedures and recommend laws or measures as may be necessary for the growth and effective regulation of shipping enterprises; c. To formulate a comprehensive and practicable Maritime Industry Development Program for a ten-year period and review and update the same annually; d. To prescribe specific policies in the determination of just and reasonable passenger fares, freight rates and other charges relative to the operation of inter-island vessels. Accordingly, the Board of Transportation shall exercise its rate-fixing functions in accordance with such policies; e. To recommend to the President that the State, through such agency or agencies as the President may designate, purchase, lease, manage, operate or requisition any vessel, ship or shipping enterprise, for national security purposes, to meet emergency situations or when the national interest so requires; f. To approve contracts; 425 TRANSPORTATION LAWS g. To approve the organizational structure, staffing pattern, and budget of the Authority upon the recommendation of the Administrator; h. To appoint, discipline and remove, and determine the composition of the Authority technical staff and other personnel: Provided, That all regular professional and technical personnel in the Authority shall be permanent and career in status, but exempt from WAPCO and Civil Service rules and regulations: Provided, further, That the personnel shall be entitled to the benefits normally accorded to government employees, such as retirement, GSIS insurance, leave and similar matters: Provided, finally, That the Board or the Administrator may engage on contractual basis or other arrangements for the temporary services, and fix the compensation of highly qualified professionals, expert technical advisers or consulting firms; i. To adopt a common seal for the Authority, which shall be juridically noticed, determine the exact location of its office and prescribe the rules and regulations to govern its proceedings; j. To recommend to the President, through the National Economic and Development Authority, the grant of necessary incentives for the development of shipping and other related maritime enterprises; and k. To perform such acts as are proper and necessary to implement this Decree. Section 7. Composition and Organization. — The Board shall be composed of eight members as follows: The Secretary of Trade; the Secretary of Public Works; Transportation and Communications; the Secretary of National Defense; the Executive Secretary; the Chairman of the Board of Investments; the Chairman of the Development Bank of the Philippines; the Chairman of the Board of Transportation and the Maritime Administrator. The Chairman of the Board shall be appointed by the President of the Philippines from among its members. The officials next in rank to the regular members shall serve as permanent alternate members, except that, in the absence of the 426 CHAPTER VII VESSELS chairman, the Board shall elect a temporary presiding officer. The alternate members shall attend meetings of the Board and committees assigned to their principals and receive the corresponding per diems whenever their principal is absent or the said position is vacant. The Board shall meet regularly once a month and may hold special meetings to consider urgent matters upon call of the Chairman or any three members thereof. A majority shall constitute a quorum for the transaction of business. Each member shall receive a monthly commutable allowance of Five hundred pesos and per diem of One hundred for every meeting of the Board or committee thereof actually attended: Provided' That the total amount ofper diems which each may receive shall not exceed Five hundred pesos a month. C. MANAGEMENT Section 8. Management Head. — The management of the Authority shall be vested in the Maritime Administrator who shall be directly assisted by the Deputy Administrator for Planning and a Deputy Administrator for Operations, hereinafter referred to as “ Deputy Administrators. ” Section 9. The Maritime Administrator and Deputy Administrators. — The Maritime Administrator and Deputy Administrators shall be appointed by the President for a term of six years: Provided, That upon the expiration of their respective terms, they shall continue to serve until their successor shall have been appointed and qualified: Provided, further, That no vacancy shall be filled except for the unexpired portion of the term: Provided, finally, That the President may remove the Administrator and Deputy Administrators from office for cause upon recommendation of the Board. The Maritime Administrator and Deputy Administrators shall be citizens of the Philippines, at least thirty-five years old on the date of their appointment, of good moral character, of recognized executive ability and competence in previous public or private employment, with adequate training and experience in economics, technology, finance, law, management, public utility, or in other phases or aspects of the 427 TRANSPORTATION LAWS maritime industry, receive an annual salary of Fifty thousand pesos and a monthly commutable allowance of Two thousand pesos. Each Deputy Administrator shall receive an annual salary of Forty thousand pesos and a monthly allowance of One thousand five hundred pesos. The Administrator shall be directly responsible to the Board, and shall have powers, functions and duties as provided in this Decree. The Deputy Administrator shall be directly responsible to the Administrator, and their respective powers, functions and duties shall be determined by the Board, upon recommendation of the Administrator. Section 10. Authority to Administer Oath. — The Chairman of the Board, the Administrator, the Deputy Administrators, the Chief Legal Officer and heads of divisions of the Authority shall have the power to administer oaths for the transaction of official business. Section 11. General Powers and Functions of the Administrator. — Subject to the general supervision and control of the Board, the Administrator shall have the following general powers, functions and duties: a. To implement, enforce and apply the policies, programs, standards, guidelines, procedures, decisions and rules and regulations issued, prescribed or adopted by the Board pursuant to this Decree; b. To undertake researches, studies, investigations and other activities and projects, on his own initiative or upon instructions of the Board and to submit comprehensive reports and appropriate recommendations to the Board for its information and action; c. To undertake studies to determine present and future requirements for port development including navigational aids, and improvement of waterways and navigable waters in consultation with appropriate agencies; d. To pursue continuing research and developmental programs on expansion and modernization of the merchant fleet and supporting facilities taking into consideration the needs of the domestic trade and the need of regional economic cooperation schemes; and 428 CHAPTER VII VESSELS e. To manage the affairs of the Authority subject to the provisions of this Decree and applicable laws, orders, rules and regulations of other appropriate government entities. Section 12. Specific Powers and Functions of the Administrator. — In addition to his general powers and functions, the Administrator shall: a. Issue Certificates of Philippine Registry for all vessels being used in Philippine waters, including fishing vessels covered by Presidential Decree No. 43 except transient civilian vessels of foreign registry, vessels owned and/or operated by the Armed Forces of the Philippines or by foreign governments for military purposes, and bancas, sailboats and other watercraft which are not motorized, of less than three gross tons; b. Provide a system of assisting various officers, professionals, technicians, skilled workers and seamen to be gainfully employed in shipping enterprises, priority being given to domestic needs; c. In collaboration and coordination with the Department of Labor, to look into, and promote improvements in, the working conditions and terms and employment of the officers and crew of vessels of Philippine registry, and of such officers and crew members who are Philippine citizens and employed by foreign flag vessels, as well as of personnel of other shipping enterprises, and to assist in the settlement of disputes between the shipowners and ship operators and such officers and crew members, and between the owner or manager of other shipping enterprises and their personnel; d. To require any public water transport utility or Philippine flag vessels to provide shipping services to any coastal areas in the country where such services are necessary for the development of the area, to meet emergency sealift requirements, or when public interest so requires; e. Investigate by itself or with the assistance of other appropriate government agencies or officials, or experts from 429 TRANSPORTATION LAWS the private sector, any matter within its jurisdiction, except marine casualties or accidents, which shall be undertaken by the Philippine Coast Guard; f. Impose, fix, collect and receive in accordance with the schedules approved by the Board, from any shipping enterprise or other persons concerned, such fees and other charges for the payment of its services; g. Inspect, at least annually, the facilities of port and cargo operators and recommend measures for adherence to prescribed standards of safety, quality and operations; h. Approve the sale, lease or transfer of management of vessels owned by Philippine nationals to foreign-owned or controlled enterprises; i. Prescribe and enforce rules and regulations for the prevention of marine pollution in bays, harbours and other innavigable waters of the Philippines, in coordination with the government authorities concerned; j. Establish and maintain, in coordination with the appropriate government offices and agencies, a system of regularly and promptly producing, collating, analysing and disseminating traffic flows, port operations, marine insurance services and other information on maritime matters; k. Recommend such measures as may be necessary for the regulation of the importation into and exportation from the Philippines of vessels, their equipment and spare parts; l. Implement the rules and regulations issued by the Board of Transportation; m. Compile and codify all maritime laws, orders, rules and regulations, decisions in leading cases of courts and the Authority’s procedures and other requirements relative to shipping and other shipping enterprises, make them available to the public and whenever practicable, to publish such materials; n. Delegate his powers in writing to either of the Deputy Administrators or any other ranking officials of the Authority; 430 CHAPTER VII VESSELS Provided, That he informs the Board of such delegation promptly ; and o. Perform such other duties as the Board may assign, and such acts as may be necessary and proper to implement this Decree. Section 13. Maritime Industry Manpower Needs. —The Authority shall establish and support a system of maintaining and developing a reservoir of trained manpower to meet the current and future needs of the industry. For the attainment of this objective, it shall undertake the following: a. Evaluate, in collaboration with the Department of Education and Culture, the capability of maritime educational and training institutions and programs in the Philippines, including the Philippine Merchant Marine Academy, herein placed under the administrative supervision of the Authority, to supply shipping and shipyard manpower needs. b. Inspect and evaluate periodically the standards, facilities and performance of the maritime educational and training programs of government and private schools and enterprises and recommend to the Department of Education and Culture and other appropriate government agencies such changes in the curriculum as may be necessary. c. Conduct or arrange for the holding of pre-employment, on-the-job and other training programs to provide and upgrade shipping skills and techniques, with the cooperation and support of private enterprises and government agencies. d. Provide incentives for education and training in shipping and shipbuilding fields, especially those which are not attractive to students such as naval architecture, including scholarships and fellowships, in the Philippines or abroad, with liberal grants for the entire duration of the course, to be sponsored directly or arranged by the Administration. Section 14. Penalties. —Any person who gives false or misleading data or information or wilfully or through gross negligence, conceals 431 TRANSPORTATION LAWS or falsifies a material fact, in any investigation, inquiry or hearing, or other proceedings held pursuant to this Decree, shall be punished with imprisonment of not less than two nor more than six months and with a fine or not less than Five hundred nor more than One thousand pesos: Provided, however, That if the false or misleading data or information shall have been given under oath, the maximum penalty for giving false testimony or perjury shall be imposed. D. MISCELLANEOUS PROVISIONS Section 15. Auditor. — The Commission on Audit shall be the ex-officio Auditor of the Authority and it shall appoint its representative therein, who shall audit all accounts thereof. Section 16. Reorganizational Changes. — a. Department of Trade. — The Shipping and Freight Study Unit of the Department of Trade is hereby transferred to the Authority together with its applicable appropriations, records, equipment, property and such personnel as may be necessary. b. Bureau of Transportation. — The powers and functions pertaining to the development and supervision of maritime shipping of the Bureau of Transportation for Water are hereby transferred to the Authority. Accordingly, the Water Transportation Division of the Bureau is hereby abolished. c. National Development Company. — The powers and functions of the National Development Company relative to ship acquisition under Republic Act No. 1407, as amended (Philippine Overseas Act of 1955), are hereby transferred to the Authority together with its applicable records, equipment and property. In addition to the powers and functions herein transferred, balances of all appropriations, funds, accounts and notes receivable derived from shipping companies, equipment, records and supplies are likewise transferred to the Authority. Section 17. Retention of the Functions and Powers of the Philippine Coast Guard. — Nothing in this Decree shall be constructed to affect or delimit the present functions and powers of the Philippine 432 CHAPTER VI! VESSELS Coast Guard relative to maritime affairs. All such functions and powers of the Philippine Coast Guard are retained by it. Furthermore, in the performance of its functions, especially in the classification and inspection of vessels, the Philippine Coast Guard will be assisted by the Authority: Provided, That within two years from the issuance of this Decree, the President may transfer to the Authority such regulatory functions of the Philippine Coast Guard pertaining to maritime affairs as may be necessary for the achievement of the aims and purposes of the Authority. The Authority shall coordinate with the Philippine Coast Guard in the exercise of supervision and regulation of the operation of water transport utilities. Section 18. Coordination With Other Agencies. —The Authority shall coordinate with the Department of Labor, the Department of Education and Culture and the National Manpower and Youth Council in the exercise of its pertinent functions that have relation to the functions of the above-mentioned agencies, particularly as these pertain to the development of trained and qualified seamen for Philippine vessels. In order to strengthen its coordinative functions, the Authority shall hire and train appropriate technical personnel which may be assigned to other government agencies involved in the implementation of laws, rules and regulations relative to maritime affairs. Section 19. Transitory Provision. — Officials and employees of all existing offices or agencies which are abolished or reorganized under this Decree may be absorbed into the Authority on the basis of merit and fitness: Provided, That employees who shall be laid off by reason of this Decree shall be given gratuity equivalent to one month’s salary for every year of service but in no case more than twenty-four months salary, in addition to all benefits to which they are entitled under existing laws and regulations. To carry out the provisions of this Section there is hereby appropriated the sum of Five hundred thousand pesos out of the unappropriated funds in the National Treasury. Section 20. Appropriations. — To carry out the provisions of this Decree, there is hereby appropriated the sum of Two million pesos out of the funds in the National Treasury not otherwise appropriated. 433 / TRANSPORTATION LAWS Thereafter, the succeeding appropriations of the Authority shall be included in the annual Appropriations Act. In addition to the above, the Authority is hereby authorized to retain fifty percent of its collections from fees, charges and fines to defray any deficiency in annual appropriations and to finance its other projects. Section 21. Repealing and Separability Clauses. — All laws, decrees, orders, rules and regulations, policies, programs or parts thereof, which are inconsistent with any of the provisions of this Decree, are hereby repealed or modified accordingly. If for any reason any section or provision of this Decree is declared to be unconstitutional or invalid, the other sections or provisions hereof, which are not affected thereby, shall continue in full force and effect. Section 22. Effectivity. — This Decree shall take effect upon its promulgation: Provided, That these portions hereof which may require a transition period to assure the orderly transfer of powers and functions shall take effect as stated in the implementing details: Provided' further, That such implementing details shall be prepared by the Board, in consultation with the government agency heads concerned, and submitted to the President for approval within four months after issuance of this Decree. DONE in the City of Manila, this 1st day of June, in the year of Our Lord, Nineteen Hundred and Seventy-Four. RULES OF PRACTICE AND PROCEDURE OF THE MARITIME INDUSTRY AUTHORITY MEMORANDUM CIRCULAR NO. 74-A By virtue of the powers vested in the MARINA pursuant to Section 11(a) of P.D. No. 474 and Section 12, E.O. No. 125/125-A, in relation to Chapter V, Section 29 of the Public Service Act and paragraph 2 of E.O. No. 26, dated October 7, 1992 and in furtherance of the policy of the MARINA to obtain an inexpensive, speedy and equitable disposition of cases before it, the MARINA Board in its meeting of July 13, 1995, 434 CHAPTER VII VESSELS orders the implementation of the following rules of procedure in cases enumerated in Rule I of PART I and PART II hereof. Parti Rule 1: Coverage The procedure set forth hereunder shall govern and apply to the following cases, heard before the Maritime Regional Offices and the Central Office, to wit: a) Application or petitions for the issuance of Certificate of Public Convenience (CPC), Provisional Authority (PA) or Special Permit (SP), granting authority or permitting the operation of inter-island vessels as public service in the domestic trade, for the carriage of cargo, or cargo/passenger or both, either as liner or tramp services; b) Renewals or amendments to the CPC, PA or SP; and c) Petitions for rate increase/adjustments. Rule 2: Definition of Terms a) Uncontested Application — one in which the application is uncontroverted, unopposed and unadversarial. b) Contested Application — one in which the application is controverted, litigated, opposed, and disputed. c) Affected Operators — any unauthorized or authorized/ franchised operation who stands to be prejudiced by a probable grant of the reliefrprayer, sought in the application. d) Affected Parties — parties who stand to be prejudiced by any grant of rate increase! e) MARINA — Maritime Industry Authority. Rule 3: Construction These rules shall be liberally construed in order to promote their object in obtaining a just, speedy and inexpensive disposition and resolution of applications/petitions filed before the MARINA. 435 TRANSPORTATION LAWS Rule 4: Venue Section 1. Applications for the issuance of CPC, PA, or SP shall be filed in the Maritime Regional Office (MRO) or the Central Office whose territorial jurisdiction the vessel(s) is (are) being operated in, Provided, That in case of tramping vessels, the MRO where the vessels are home ported: Provided, further, That in case the operation involves two (2) or more regions the MRO where the vessel is home ported to the exclusion of all the MROs: Provided, finally, That in case the application is contested the MRO concerned shall after hearing, forward the records of the case to the Central Office for final resolution or decision in accordance with Section 2, sub-section 2.2 of Administrative Order No. 06-94. Section 2. Venue may be transferred at the discretion of the MARINA, upon a written motion by any of the parties based on convenience and other meritorious reasons. Rule 5: Filing of the Application Section 1. Jurisdiction is acquired over the applicant upon the filing of the application and the payment of the required fees. Section 2. No CPC shall be granted without substantially complying with the three requisites stated in Section 16(a), Chapter 2 of the Public Service Act or C.A. No. 146, as amended, namely: (1) Filipino ownership; (2) public necessity; and (3) financial capacity. Section 3. Hearing shall be set on a date that will allow a ten (10)- day period for publication prior to the initial hearing. Section 4. The Notice of Hearing (NOH) should specify the route and schedule applied for by the applicant and shall contain the attached list of existing/affected operators and concerned parties who shall be individually furnished a copy of the NOH and a copy of the application, at least five (5) days before the initial hearing. Section 5. The notice of hearing shall be published once in a newspaper of general circulation or in the case of regions, of regional circulation at least 10 days before the date of hearing. 436 ( IIAIMI.K VII VIISSI.LS Section 6. The applicant shall serve to the affected operators and affected parties copies of the application and NO! I either by personal delivery or by registered mail. Section 7. Postponements shall he allowed only in meritorious cases, at the discretion of this Authority upon the filing of an appropriate pleading or motion at least three (3) days before the scheduled hearing and with proof of service to the affected parties. Rule 6: Pre-Trial Section 1. After the applicant has submitted proofs of compliance with jurisdictional requirements of publication of the notice of hearing and service of notice to the affected parties, the hearing officer shall direct the parties to appear before it for a pre-trial conference to consider the following: a) the possibility of arriving at an amicable settlement or for submission to arbitration; b) possible stipulation of facts in order to simplify the issues; c) the number of witnesses and the nature of their written testimonies; d) on settings of the subsequent hearings; and e) such other matters as may aid for the prompt disposition of the case. Section 2. Applicants or oppositors may be declared non-suited or in default respectively motu proprio by the Authority or upon the motion of the parties. Section 3. The pre-trial conference shall be called by the Hearing Officer in uncontested applications for the purpose of shortening the period of the proceedings. Section 4. After the pre-trial conference, the Hearing Officer shall issue an Order stating the ultimate facts that the parties have stipulated on the issues to be heard, the number of witnesses and the provisions of law involved. Rule 7: Compromise To expedite administrative proceedings involving conflicting rights to obviate expensive litigation, the parties are encouraged and enjoined to enter into an amicable settlement, compromise and arbitration. 437 TRANSPORTATION LAWS Rule 8: Summary Procedure Section 1. At the initial hearing of uncontested applications, the applicants shall submit to the MARINA through the Hearing Officer their formal written offer of exhibits with the following documents attached thereto, stating the nature and purpose of the offer: A. Application for CPC/PA/SP shall indicate the proposed schedule of trips and the proposed route for the vessel (schedule of trips not applicable to tramping). B. Documents to be submitted upon filing of the application. B. l Vessel Documents. B.1.1 Updated/Valid Bay and River License (BRL) Coastwise License (CWL) for the motor boaM vessel. B.l.2 Updated/Valid Certificate of Inspection (Cl) reflecting the vessel’s authorized area of operation/vessel’s authority to carry either passengers or cargoes or both. B. 1.3 Certificate of ownership, Certificate of Philippine Registry or Certificate of Vessel Registry and Certificate of Admeasurement. B.2 Financial Statements. B.2.1 For existing operators. 1.1 Latest Annual Report, or 1.2 Latest Balance Sheet, and latest Income Sheet. B.2.2 For new operators. 1.1 Estimated/Projected Income and Expense Summary for at least a period of two (2) months; and 2.2 Beginning Balance Sheet, or Certified Statement of Assets and Liabilities as of 438 CHAPTER VII VESSELS the latest date together with a schedule showing an itemized list of income producing properties and/or Source of Income and the average annual income from each. C. 3 Other Mandatory Requirements. C. 3.1 Certified Distance from the National Mapping Resource and Information Authority (NAM- RIA), formerly Bureau of Coast and Geodetic Survey (BCGS) showing distance of port-to- port link (not applicable to tramping) C.3.2 Sketch showing the proposed route or line or operation, the homeport, and the port(s) of call(s) or origin and destination, (not applicable to tramping) C.3.3 Updated/Valid Radio Station License issued by the National Telecommunications Commission (NTC) for vessels 35 GRT and above. C.3.4 Article of Incorporation/Partnership approved by the Securities and Exchange Commission (SEC) for Corporations and Partnership reflecting as its primary/secondary purpose(s) the operation of a common carrier as defined in the Public Service Act as amended: Registration of Business Name/Business License for Single Proprietorship, Charter Agreement if vessel is locally chartered. DOT accreditation, (if vessel is for tourism purposes) C.3.5 Condition Survey Report/Provisional Class Certificate/Class Maintenance Survey/Provisional Class Certificate/Final Class Certificate/ Class Maintenance Survey Report, (if vessel is required to be classed) 439 TRANSPORTATION LAWS C.3.6 Insurance Policy. 1. Tankers and barges petroleum products. carrying oil and 1.1 Oil/Marine Pollution/Protection and Indemnity (P & I) Cover or their equivalent, of not less than USS300 million per vessel for vessels carrying a capacity of 700,000 liters or more. 1.2 Oil/Marine Pollution/Protection and Indemnity. (P & I) cover, or their equivalent, of not less than US$10 million per vessel for vessels carrying a capacity of less than 700,000 liters. 1.3 Tanker Owners Voluntary Agreement on Liability for Oil Pollution (TOVALOP), if applicable. 2. LPG Carriers-Insurance cover against third party liability in the amount equivalent to US$2 Million. 3. Passenger vessels-insurance coverage of P50,000 per authorized vessel. For tankers and barges carrying oil and petroleum products: 1. P2M paid-up corporations. 2. Petroleum industry suitability checklist requirements/hauling contract/spot hire contract with oil companies, (for tankers and barges 500 GRT and below) 440 capitalization for CHAPTER VII VESSELS C.3.7 Registration accreditation Circular No. 79. under Memorandum C.3.8 Payment of filing'processing fees. C.3.9 Three colored photographs of the vessels (5” x T) showing port side, starboard side and eastern view. C. Proof of compliance of jurisdictional requirements to be submitted during the hearing: 1. Affidavit of the editor or business manager of the newspaper of regional or provincial publication in which the notice of hearing was published together with a complete copy of the issue of the newspaper clippings; 2. Proof of mailing/delivery of the notice of hearing to the affected operator/s within the specified period of affidavit, showing that a copy of the application and the notice of hearing, enclosed in an envelope properly addressed to the affected parties postage prepaid was mailed ten (10) days prior to the date of hearing to which affidavit the registry receipt and return cards, or any enclosed letters, shall be attached. Section 2. The foregoing summary procedure shall be applicable to contested and uncontested applications. Rule 9: Petition for Rate Increase Section 1. The provisions in Rule 5 of this Book shall be applicable to petitions for freight and/or passenger rate increase adjustments. Section 2. In addition, the petition should state the existing rates being charged, as well as the proposed rates. A list of affected parties should be attached to the petition. Section 3. The list of affected parties shall contain all affected sector(s), i.e., shippers, passenger group, local government units, nongovernmental units and the like. 441 TRANSPORTATION LAWS Section 4. The NOH and the petition shall be published in accordance with the provisions of Section 5, Rule 5 of this Book. Section 5. Provisions of Rules 6 and 7 shall also be applicable. Section 6. The following documents/data shall be required: A. Latest audited financial statement/annual Report, i.e.f balance sheet; income statement of subject vessel; income sheet of the company; and cost of the subject vessel; (projected income statements for new operators); B. Passenger capacity/Cargo capacity/Roro capacity; C. Frequency of trips; D. Commissionable days; E. General arrangement plan, if applicable; F. Other documents as may be required by the MARINA’S Domestic Shipping Office (DSO). Rule 10: Opposition Section 1. Parties opposed to the grant of the CPC/PA/SP or petitions for rate increase/adjustment shall, at the hearing, submit counter-affidavit of their witnesses, controverting applicant’s evidence. Section 2. Every party shall have the right to cross-examine witnesses presented against him and to submit rebuttal evidence. Section 3. With the submission by the parties of the aforesaid documentary evidence and written testimonies under oath, the application shall be deemed submitted for final decision upon the filing of the written formal offer of evidence. Witnesses may be called for clarificatory questions. Rule 11: Renewals or Extension or Amendments In case of extension of the PA/SP or amendments to the PA/CPC, a timely motion shall be filed before the MARINA with proof of service to affected operators (in the case of contested applications). CHAPTER VII VESSELS In case of renewals, the operator, shipping company or shipowner shall signify its intention to renew its PA or CPC in writing. Rule 12: Prohibition Section 1. No application/petition shall be processed or be gi

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