1

[G.R. No. 71929 : December 4, 1990.]

192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E.
PABLO, Respondents.

DECISION

NARVASA, J.:

Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1 and a
research grantee of the Philippine Atomic Energy Agency — was invited to take part at
a meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division
of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She
was invited in view of her specialized knowledge in "foreign substances in food and the
agriculture environment." She accepted the invitation, and was then scheduled by the
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on
the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on
petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and
time table set for her by ALITALIA. She was however told by the ALITALIA personnel
there at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of
the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2)
suitcases: one contained her clothing and other personal items; the other, her scientific
papers, slides and other research material. But the other flights arriving from Rome did
not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There,
she inquired about her suitcases in the domestic and international airports, and filled out
the forms prescribed by ALITALIA for people in her predicament. However, her baggage
could not be found. Completely distraught and discouraged, she returned to Manila
without attending the meeting in Ispra, Italy. : nad
Once back in Manila she demanded that ALITALIA make reparation for the damages
thus suffered by her. ALITALIA offered her "free airline tickets to compensate her for
any alleged damages. . . ." She rejected the offer, and forthwith commenced the action
6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7
Italy, but only on the day after her scheduled appearance and participation at the U.N.
meeting there. 8 Of course Dr. Pablo was no longer there to accept delivery; she was
already on her way home to Manila. And for some reason or other, the suitcases were
not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later, and four
(4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in
Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal
damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of
the judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision
 2

but also increased the award of nominal damages payable by ALITALIA to P40,000.00.
12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence
committed by defendant, the amount of P20,000.00 under present inflationary
conditions as awarded . . . to the plaintiff as nominal damages, is too little to
make up for the plaintiff's frustration and disappointment in not being able to
appear at said conference; and for the embarrassment and humiliation she
suffered from the academic community for failure to carry out an official mission
for which she was singled out by the faculty to represent her institution and the
country. After weighing carefully all the considerations, the amount awarded to
the plaintiff for nominal damages and attorney's fees should be increased to the
cost of her round trip air fare or at the present rate of peso to the dollar at
P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the
same points it tried to make before the Trial Court and the Intermediate Appellate Court,
i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S
liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal
damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to
have refused to pass on all the assigned errors and in not stating the facts and the law
on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident
causing it took place on board the aircraft or in the course of its operations of
embarking or disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if
the occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however,
founded, can only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner:
21
1. In the carriage of passengers the liability of the carrier for each passenger is
limited to the sum of 250,000 francs . . . Nevertheless, by special contract, the
carrier and the passenger may agree to a higher limit of liability.: nad
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier
is limited to a sum of 250 francs per kilogramme, unless the passenger or
consignor has made, at the time when the package was handed over to the
carrier, a special declaration of interest in delivery at destination and has paid a
supplementary sum if the case so requires. In that case the carrier will be liable
to pay a sum not exceeding the declared sum, unless he proves that sum is
greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or
of any object contained therein, the weight to be taken into consideration in
determining the amount to which the carrier's liability is limited shall be only the
total weight of the package or packages concerned. Nevertheless, when the loss,
damage or delay of a part of the registered baggage or cargo, or of an object
contained therein, affects the value of other packages covered by the same
 3

baggage check or the same air way bill, the total weight of such package or
packages shall also be taken into consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of
the carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in
accordance with its own law, in addition, the whole or part of the court costs and
of the other expenses of litigation incurred by the plaintiff. The foregoing
provision shall not apply if the amount of the damages awarded, excluding court
costs and other expenses of the litigation, does not exceed the sum which the
carrier has offered in writing to the plaintiff within a period of six months from the
date of the occurrence causing the damage, or before the commencement of the
action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions
which exclude or limit his liability, if the damage is caused by his wilful misconduct or by
such default on his part as, in accordance with the law of the court seized of the case, is
considered to be equivalent to wilful misconduct," or "if the damage is (similarly) caused
. . by any agent of the carrier acting within the scope of his employment." 22 The
Hague Protocol amended the Warsaw Convention by removing the provision that if the
airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved
that the damage resulted from an act or omission of the carrier, its servants or agents,
done with intent to cause damage or recklessly and with knowledge that damage would
probably result." The same deletion was effected by the Montreal Agreement of 1966,
with the result that a passenger could recover unlimited damages upon proof of wilful
misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of
an airline's liability, or as an absolute limit of the extent of that liability. Such a
proposition is not borne out by the language of the Convention, as this Court has now,
and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads to the
conclusion that it should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or
delay in its transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" 26 or
misconduct of its officers and employees, or for some particular or exceptional type of
damage. Otherwise, "an air carrier would be exempt from any liability for damages in
the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which
is absurd." 27 Nor may it for a moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a passenger, or maliciously destroy
or damage the latter's property, the Convention might successfully be pleaded as the
sole gauge to determine the carrier's liability to the passenger. 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. It is in this sense that the Convention has been applied, or ignored,
depending on the peculiar facts presented by each case.:-cralaw
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention
was applied as regards the limitation on the carrier's liability, there being a simple loss
of baggage without any otherwise improper conduct on the part of the officials or
employees of the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as
not restrictive of the carrier's liability, where there was satisfactory evidence of malice or
bad faith attributable to its officers and employees. 29 Thus, an air carrier was
 4

sentenced to pay not only compensatory but also moral and exemplary damages, and
attorney's fees, for instance, where its employees rudely put a passenger holding a first-
class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from the
plane to give his seat to a white man, 31 or gave the seat of a passenger with a
confirmed reservation to another, 32 or subjected a passenger to extremely rude, even
barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that
some special species of injury was caused to Dr. Pablo because petitioner ALITALIA
misplaced her baggage and failed to deliver it to her at the time appointed — a breach
of its contract of carriage, to be sure — with the result that she was unable to read the
paper and make the scientific presentation (consisting of slides, autoradiograms or
films, tables and tabulations) that she had painstakingly labored over, at the prestigious
international conference, to attend which she had traveled hundreds of miles, to her
chagrin and embarrassment and the disappointment and annoyance of the organizers.
She felt, not unreasonably, that the invitation for her to participate at the conference,
extended by the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of
the United Nations, was a singular honor not only to herself, but to the University of the
Philippines and the country as well, an opportunity to make some sort of impression
among her colleagues in that field of scientific activity. The opportunity to claim this
honor or distinction was irretrievably lost to her because of Alitalia's breach of its
contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned
that her suitcases were missing up to the time when, having gone to Rome, she finally
realized that she would no longer be able to take part in the conference. As she herself
put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in
the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but
safely. She is however entitled to nominal damages — which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered — and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the
purely technical argument that the award to her of such nominal damages is precluded
by her omission to include a specific claim therefor in her complaint, it suffices to draw
attention to her general prayer, following her plea for moral and exemplary damages
and attorney's fees, "for such other and further just and equitable relief in the premises,"
which certainly is broad enough to comprehend an application as well for nominal
damages. Besides, petitioner should have realized that the explicit assertion, and proof,
that Dr. Pablo's right had been violated or invaded by it — absent any claim for actual or
compensatory damages, the prayer thereof having been voluntarily deleted by Dr. Pablo
upon the return to her of her baggage — necessarily raised the issue of nominal
damages.: rd
This Court also agrees that respondent Court of Appeals correctly awarded attorney's
fees to Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises.
The law authorizes recovery of attorney's fees inter alia where, as here, "the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest," 34 or "where the court deems it just and
equitable." 35
 5

WHEREFORE, no error being perceived in the challenged decision of the Court of

Appeals, it appearing on the contrary to be entirely in accord with the facts and the law,
said decision is hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.

G.R. No. 71929ALITALIA vs.INTERMEDIATE APPELLATE COURTand FELIPAE.PABLO

December 4, 1990
NARVASA, J.

FACTS:
Dr. Felipa Pablo, an associate professor in the University of the Philippines and a research grantee of
the Philippine Atomic Energy Agency, was invited to take part at a meeting of the Department
of Research and Isotopes in Italy in view of her specialized knowledge in “foreign substances in food
and the agriculture environment”. She would be the second speaker on the first day of the meeting. Dr.
Pablo booked passage on petitioner Alitalia. She arrived in Milan on the day before the meeting, but
was told that her luggage was delayed and was in a succeeding flight from Rome to Milan. The
luggage included her materials for the presentation. The succeeding flights did not carry her luggage.
Desperate, she went to Rome to try to locate the luggage herself, but to no avail. She returned to
Manila without attending the meeting. She demanded reparation for the damages. She rejected
Alitalia’s offer of free airline tickets and commenced an action for damages. As it turned out, the
 6

luggage was actually forwarded to Ispra, but only a day after the scheduled appearance. It was
returned to her after 11 months. The trial court ruled in favor of Dr. Pablo, and this was affirmed by the
Court of Appeals.

ISSUES: W/N (1) the Warsaw Convention should be applied to limit Alitalia’s liability; (2) Dr. Pablo is
entitled to nominal damages

RULING: (1)NEGATIVE.
Under the Warsaw Convention, an air carrier is made liable for damages for: a. The death,
wounding or other bodily injury of a passenger if the accident causing it took place on
board the aircraft or I the course of its operations of embarking or disembarking; b.The destruction
or loss of, or damage to, any registered luggage or goods, if the occurrence causing it
took place during the carriage by air; and sea. Delay in the transportation by air of
passengers, luggage or goods. The convention however denies to the carrier availment of the
provisions which exclude or limit his liability, if the damage is caused by his willful misconduct, or by
such default on his part as is considered to be equivalent to willful misconduct. The Convention does
not thus operate as an exclusive enumeration of the instances of an airline's liability, or as an absolute
limit of the extent of that liability. It should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or delay in its
transport is not attributable to or attended by any willful misconduct, bad faith, recklessness, or
otherwise improper conduct on the part of any official or employee for which the carrier is responsible,
and there is otherwise no special or extraordinary form of resulting injury. In the case at bar, no bad
faith or otherwise improper conduct may be ascribed to the employees of petitioner airline; and Dr.
Pablo's luggage was eventually returned to her, belatedly, it is true, but without appreciable damage.
The fact is, nevertheless, that some species of injury was caused to Dr. Pablo because petitioner
ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed – a breach of its
contract of carriage. Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in the transport of
baggage.
(2) POSITIVE.
She is not, of course, entitled to be compensated for loss or damage to her luggage. She is
however entitled to nominal damages which, as the law says, is adjudicated in order that a right of the
plaintiff, whichhas been violated or invaded by the defendant, may be vindicated and recognized, and
not for the purposeof indemnifying the plaintiff that for any loss suffered and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at PhP 40,000.00.

G.R. No. 94149 May 5, 1992

AMERICAN HOME ASSURANCE, COMPANY, petitioner,

vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or
NATIONAL MARINE CORPORATION (Manila), respondents.
 7

PARAS, J.:

This is a petition for review on certiorari which seeks to annul and set aside the (a)
decision 1 dated May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043
entitled "American Home Assurance Company v. Hon. Domingo D. Panis, Judge of the
Regional Trial Court of Manila, Branch 41 and National Marine Corporation and/or
National Marine Corporation (Manila)", dismissing petitioner's petition for certiorari, and
(b) resolution 2 dated June 29, 1990 of the Court of Appeals denying petitioner's motion
for reconsideration.

The undisputed facts of the case are follows:

Both petitioner American Home Assurance Co. and the respondent National Marine
Corporation are foreign corporations licensed to do business in the Philippines, the
former through its branch. The American Home Assurance Company (Philippines), Inc.
and the latter through its branch. The National Marine Corporation (Manila) (Rollo, p.
20, Annex L, p.1).

That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales
(1,000 ADMT) of bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran",
which is owned and operated by herein respondent National Marine Corporation with
Registration No. PID-224. The said shipment was consigned to Mayleen Paper, Inc. of
Manila, which insured the shipment with herein petitioner American Home Assurance
Co. as evidenced by Bill of Lading No. HLMN-01.

On June 22, 1988, the shipment arrived in Manila and was discharged into the custody
of the Marina Port Services, Inc., for eventual delivery to the consignee-assured.
However, upon delivery of the shipment to Mayleen Paper, Inc., it was found that 122
bales had either been damaged or lost. The loss was calculated to be 4,360 kilograms
with an estimated value of P61,263.41.

Mayleen Paper, Inc. then duly demanded indemnification from respondent National
Marine Corporation for the aforesaid damages/losses in the shipment but, for apparently
no justifiable reason, said demand was not heeded (Petition, p. 4).

As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen
Paper, Inc. sought recovery from the former. Upon demand and submission of proper
documentation, American Home Assurance paid Mayleen Paper, Inc. the adjusted
amount of P31,506.75 for the damages/losses suffered by the shipment, hence, the
former was subrogated to the rights and interests on Mayleen Paper, Inc.

On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for
the recovery of the amount of P31.506.75 and 25% of the total amount due as
attorney's fees, by filing a complaint for recovery of sum of money (Petition, p. 4).

Respondent, National Marine Corporation, filed a motion to dismiss dated August 7,

1989 stating that American Home Assurance Company had no cause of action based
on Article 848 of the Code of Commerce which provides "that claims for averages shall
not be admitted if they do not exceed 5% of the interest which the claimant may have in
the vessel or in the cargo if it be gross average and 1% of the goods damaged if
particular average, deducting in both cases the expenses of appraisal, unless there is
an agreement to the contrary." It contended that based on the allegations of the
complaint, the loss sustained in the case was P35,506.75 which is only .18% of
P17,420,000.00, the total value of the cargo.
 8

On the other hand, petitioner countered that Article 848 does not apply as it refers to
averages and that a particular average presupposes that the loss or damages is due to
an inherent defect of the goods, an accident of the sea, or a force majeure or the
negligence of the crew of the carrier, while claims for damages due to the negligence of
the common carrier are governed by the Civil Code provisions on Common Carriers.

In its order dated November 23, 1989, the Regional Trial Court sustained private
respondent's contention. In part it stated:

Before the Court for resolution is a motion for reconsideration filed by

defendant through counsel dated October 6, 1989.

The record shows that last August 8, 1989, defendant through counsel
filed a motion to dismiss plaintiff's complaint.

Resolving the said motion last September 18, 1989, the court ruled to
defer resolution thereof until after trial on the merits. In the motion now
under consideration, defendant prays for the reconsideration of the order
of September 18, 1989 and in lieu thereof, another order be entered
dismissing plaintiff's complaint.

There appears to be good reasons for the court to take a second look at
the issues raised by the defendant.

xxx xxx xxx

It is not disputed defendants that the loss suffered by the shipment is only
.18% or less that 1% of the interest of the consignee on the cargo Invoking
the provision of the Article 848 of the Code of Commerce which reads:

Claims for average shall not be admitted if they do not

exceed five percent of the interest which the claimant may
have in the vessels or cargo if it is gross average, and one
percent of the goods damaged if particular
average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary. (Emphasis
supplied)

defendant claims that plaintiff is barred from suing for recovery.

Decisive in this case in whether the loss suffered by the cargo in question
is a "particular average."

Particular average, is a loss happening to the ship, freight, or

cargo which is not be (sic) shared by contributing among all
those interested, but must be borne by the owner of the
subject to which it occurs. (Black's Law Dictionary, Revised
Fourth Edition, p. 172, citing Bargett v. Insurance Co. 3
Bosw. [N.Y.] 395).

as distinguished from general average which

is a contribution by the several interests engaged in the

maritime venture to make good the loss of one of them for
the voluntary sacrifice of a part of the ship or cargo to save
the residue of the property and the lives of those on board,
or for extraordinary expenses necessarily incurred for the
 9

common benefit and safety of all (Ibid., citing California

Canneries Co. v. Canton Ins. Office 25 Cal. App. 303, 143 p.
549-553).

From the foregoing definition, it is clear that the damage on the

cargo in question, is in the nature of the "particular average." Since
the loss is less than 1% to the value of the cargo and there appears
to be no allegations as to any agreement defendants and the
consignee of the goods to the contrary, by express provision of the
law, plaintiff is barred from suing for recovery.

WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of

action. (Rollo, p. 27; Annex A, pp. 3-4).

The petitioner then filed a motion for reconsideration of the order of dismissal but same
was denied by the court in its order dated January 26, 1990 (supra).

Instead of filing an appeal from the order of the court a quo dismissing the complaint for
recovery of a sum of money, American Home Assurance Company filed a petition
for certiorari with the Court of Appeals to set aside the two orders or respondent judge
in said court (Rollo, p. 25).

But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as
constituting plain errors of law and not grave abuse of discretion correctible
by certiorari (a Special Civil Action). If at all, respondent court ruled that there are errors
of judgment subject to correction by certiorari as a mode of appeal but the appeal is to
the Supreme Court under Section 17 of the Judiciary Act of 1948 as amended by
Republic Act No. 5440. Otherwise stated, respondent Court opined that the proper
remedy is a petition for review on certiorari with the Supreme Court on pure questions of
law (Rollo, p. 30).

Hence, this petition.

In a resolution dated December 10, 1990, this Court gave due course to the petition and
required both parties to file their respective memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari was the proper remedy in
the case before the Court of Appeals.

The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that
the two orders dismissing the complaint for lack of cause of action are final orders within
the meaning of Rule 41, Section 2 of the Rules of Court, subject petition raised
questions which if at all, constituting grave abuse of discretion correctible by certiorari.

Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as
ruled by this Court, an order of dismissal whether right or wrong is a final order, hence,
a proper subject of appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]).
However, where the fact remains that respondent Court of Appeals obviously in the
broader interests of justice, nevertheless proceeded to decide the petition
for certiorari and ruled on specific points raised therein in a manner akin to what would
have been done on assignments of error in a regular appeal, the petition therein was
therefore disposed of on the merits and not on a dismissal due to erroneous choice of
remedies or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence, a review of the
decision of the Court of Appeals on the merits against the petitioner in this case is in
order.
 10

On the main controversy, the pivotal issue to be resolved is the application of the law on
averages (Articles 806, 809 and 848 of the Code of Commerce).

Petitioner avers that respondent court failed to consider that respondent National
Marine Corporation being a common carrier, in conducting its business is regulated by
the Civil Code primarily and suppletorily by the Code of Commerce; and that respondent
court refused to consider the Bill of Lading as the law governing the parties.

Private respondent countered that in all matters not covered by the Civil Code, the
rights and obligations of the parties shall be governed by the Code of Commerce and by
special laws as provided for in Article 1766 of the Civil Code; that Article 806, 809 and
848 of the Code of Commerce should be applied suppletorily as they provide for the
extent of the common carriers' liability.

This issue has been resolved by this Court in National Development Co. v. C.A. (164
SCRA 593 [1988]; citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470
[1987] where it was held that "the law of the country to which the goods are to be
transported persons the liability of the common carrier in case of their loss, destruction
or deterioration." (Article 1753, Civil Code). Thus, for cargoes transported to the
Philippines as in the case at bar, the liability of the carrier is governed primarily by the
Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws
(Article 1766, Civil Code).

Corollary thereto, the Court held further that 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 passengers transported by them according to all circumstances of each case.
Thus, under Article 1735 of the same Code, in all cases other than those mentioned in
Article 1734 thereof, the common carrier shall be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law (Ibid., p. 595).

But more importantly, the Court ruled that common carriers cannot limit their liability for
injury or loss of goods where such injury or loss was caused by its own negligence.
Otherwise stated, the law on averages under the Code of Commerce cannot be applied
in determining liability where there is negligence (Ibid., p. 606).

Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their
stead, it is but reasonable to conclude that the issue of negligence must first be
addressed before the proper provisions of the Code of Commerce on the extent of
liability may be applied.

The records show that upon delivery of the shipment in question of Mayleen's
warehouse in Manila, 122 bales were found to be damaged/lost with straps cut or loose,
calculated by the so-called "percentage method" at 4,360 kilograms and amounting to
P61,263.41 (Rollo, p. 68). Instead of presenting proof of the exercise of extraordinary
diligence as required by law, National Marine Corporation (NMC) filed its Motion to
Dismiss dated August 7, 1989, hypothetically admitting the truth of the facts alleged in
the complaint to the effect that the loss or damage to the 122 bales was due to the
negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the filing of a motion
to dismiss on the ground of lack of cause of action carries with it the admission of the
material facts pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181
SCRA 443 [1990]). Such being the case, it is evident that the Code of Commerce
provisions on averages cannot apply.
 11

On the other hand, Article 1734 of the Civil Code provides that common carriers are
responsible for loss, destruction or deterioration of the goods, unless due to any of the
causes enumerated therein. It is obvious that the case at bar does not fall under any of
the exceptions. Thus, American Home Assurance Company is entitled to
reimbursement of what it paid to Mayleen Paper, Inc. as insurer.

Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the
findings and conclusions of the court a quo are not supported by law and jurisprudence.

PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the
Regional Trial Court of Manila, Branch 41, appealed from are REVERSED; and (2)
private respondent National Marine Corporation is hereby ordered to reimburse the
subrogee, petitioner American Home Assurance Company, the amount of P31,506.75.

SO ORDERED.

American Home Assurance vs. CA Case Digest

(208 SCRA 343)

Facts: On or about June 19, 1998, Cheng Hwa Pulp Corp. shipped 5,000 bales of
bleached kraft pulp from Haulien, Taiwan on board “SS Kaunlaran” (owned by National
Marine Corporation). The shipment was consigned to Mayleen Paper, Inc. which
insured the same with American Home Assurance Co. On June 22, 1998, the shipment
arrived in manila and was discharged onto the custody of the Marina Port Services, Inc.
However, upon delivery to Mayleen Paper Inc., it was found that 122 bales had either
been damaged or lost with the value of P61, 263.41.

Mayleen Paper Inc, duly demanded indemnification from NMC but was not heeded.
Mayleen then sought recovery from American Home Assurance, the insurer, which was
adjusted to P31, 506.75. As subrogee, American Home then filed a suit against NMC for
the recovery of the said amount. NMC filed a motion to dismiss on the ground that there
was no cause of action based on Art 848 of the Code of Commerce which provides “that
claims for averages shall not be admitted if they do not exceed 5% of the interest which
the claimant may have in the vessel or in the cargo if it be gross average and 1% of the
goods damaged if particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary. NMC contended that based on
the allegations of the complaint, the loss sustained in the case was P35, 506.75 which
is only .18% of P17.420.000.00, the total value of the cargo.

The trial court dismissed the case for lack of cause of action. American Home then filed
a petition for certiorari with the Court of Appeals which later dismissed as constituting
plain errors of law. Hence, this petition.

Issue: Whether or not the law on averages applies when there is negligence?
 12

Held: NO. Common carriers cannot limit their liability for injury or loss of goods where
such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where
there is negligence. It is reasonable to conclude that the issue of negligence must first
be addressed before the proper provisions of the Code of Commerce on the extent of
liability may be applied.

Instead of presenting proof of the exercise of extraordinary diligence as requires by law,

NMC filed its motion to dismiss, hypothetically admitting the truth of the facts alleged in
the complaint to the effect that the loss or damage to the 122 bales was due to the
negligence or fault of NMC.

G.R. No. 166250 July 26, 2010

UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,

vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.

DECISION

NACHURA, J.:

For review is the Court of Appeals (CA) Decision1 dated April 29, 2004 and
Resolution2 dated November 26, 2004. The assailed Decision affirmed the Regional
Trial Court (RTC) decision3 dated February 22, 2001; while the assailed Resolution
denied petitioner Unsworth Transport International (Philippines), Inc., American
President Lines, Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s) motion
for reconsideration.

The facts of the case are:

 13

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a
shipment of 27 drums of various raw materials for pharmaceutical manufacturing,
consisting of: "1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x banana
flavoring; 2) 2 drums (of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags
dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract." 4 UTI issued Bill of
Lading No. C320/C15991-2,5covering the aforesaid shipment. The subject shipment
was insured with private respondent Pioneer Insurance and Surety Corporation in favor
of Unilab against all risks in the amount of ₱1,779,664.77 under and by virtue of Marine
Risk Note Number MC RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.7

On the same day that the bill of lading was issued, the shipment was loaded in a sealed
1x40 container van, with no. APLU-982012, boarded on APL’s vessel M/V "Pres.
Jackson," Voyage 42, and transshipped to APL’s M/V "Pres. Taft"8 for delivery to
petitioner in favor of the consignee United Laboratories, Inc. (Unilab).

On September 30, 1992, the shipment arrived at the port of Manila. On October 6,
1992, petitioner received the said shipment in its warehouse after it stamped the Permit
to Deliver Imported Goods9 procured by the Champs Customs Brokerage.10 Three days
thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation
(OCMSC) conducted a stripping survey of the shipment located in petitioner’s
warehouse. The survey results stated:

2-pallets STC 40 bags Dried Yeast, both in good order condition and properly
sealed

19- steel drums STC Vitamin B Complex Extract, all in good order condition and
properly sealed

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx.
spilling of 1%11

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc.
(Jardine) issued Gate Pass No. 761412 which stated that "22 drums13 Raw
Materials for Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-
434 facilitated by Champs for delivery to Unilab’s warehouse. The materials were
noted to be complete and in good order in the gate pass. 14 On the same day, the
shipment arrived in Unilab’s warehouse and was immediately surveyed by an
independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas).
The Report stated:

1-p/bag torn on side contents partly spilled

1-s/drum #7 punctured and retaped on bottom side content lacking

5-drums shortship/short delivery15

On October 23 and 28, 1992, the same independent surveyor conducted final
inspection surveys which yielded the same results. Consequently, Unilab’s quality
control representative rejected one paper bag containing dried yeast and one steel
drum containing Vitamin B Complex as unfit for the intended purpose.16

On November 7, 1992, Unilab filed a formal claim 17 for the damage against private
respondent and UTI. On November 20, 1992, UTI denied liability on the basis of the
gate pass issued by Jardine that the goods were in complete and good condition; while
private respondent paid the claimed amount on March 23, 1993. By virtue of the Loss
and Subrogation Receipt18 issued by Unilab in favor of private respondent, the latter
filed a complaint for Damages against APL, UTI and petitioner with the RTC of
 14

Makati.19 The case was docketed as Civil Case No. 93-3473 and was raffled to Branch
134.

After the termination of the pre-trial conference, trial on the merits ensued. On February
22, 2001, the RTC decided in favor of private respondent and against APL, UTI and
petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE

& SURETY CORPORATION and against the defendants AMERICAN PRESIDENT
LINES and UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. (now known
as JUGRO TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and
severally, the former the following amounts:

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and
27/100 (Php76,231.27) with interest at the legal rate of 6% per annum to be
computed starting from September 30, 1993 until fully paid, for and as actual
damages;

2. The amount equivalent to 25% of the total sum as attorney’s fees;

3. Cost of this litigation.

SO ORDERED.20

On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s
defense that it was merely a forwarder, declaring instead that it was a common carrier.
The appellate court added that by issuing the Bill of Lading, UTI acknowledged receipt
of the goods and agreed to transport and deliver them at a specific place to a person
named or his order. The court further concluded that upon the delivery of the subject
shipment to petitioner’s warehouse, its liability became similar to that of a depositary. As
such, it ought to have exercised ordinary diligence in the care of the goods. And as
found by the RTC, the CA agreed that petitioner failed to exercise the required
diligence. The CA also rejected petitioner’s claim that its liability should be limited to
$500 per package pursuant to the Carriage of Goods by Sea Act (COGSA) considering
that the value of the shipment was declared pursuant to the letter of credit and the pro
forma invoice. As to APL, the court considered it as a common carrier notwithstanding
the non-issuance of a bill of lading inasmuch as a bill of lading is not indispensable for
the execution of a contract of carriage.21

Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the
following issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN UPHOLDING THE DECISION OF THE REGIONAL TRIAL COURT
DATED 22 FEBRUARY 2001, AWARDING THE SUM OF SEVENTY SIX THOUSAND
TWO HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27) WITH LEGAL
INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY’S
FEES.

2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY

DILIGENCE.

4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED

THE ALLEGED DAMAGE TO ITS CARGO.22
 15

Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a
common carrier. It also questions the appellate court’s findings that it failed to establish
that it exercised extraordinary or ordinary diligence in the vigilance over the subject
shipment. As to the damages allegedly suffered by private respondent, petitioner
counters that they were not sufficiently proven. Lastly, it insists that its liability, in any
event, should be limited to $500 pursuant to the package limitation rule. Indeed,
petitioner wants us to review the factual findings of the RTC and the CA and to evaluate
anew the evidence presented by the parties.

The petition is partly meritorious.

Well established is the rule that factual questions may not be raised in a petition for
review on certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:

Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by

certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The petition
shall raise only questions of law which must be distinctly set forth.

Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm
holding itself out to the general public (other than as a pipeline, rail, motor, or water
carrier) to provide transportation of property for compensation and, in the ordinary
course of its business, (1) to assemble and consolidate, or to provide for assembling
and consolidating, shipments, and to perform or provide for break-bulk and distribution
operations of the shipments; (2) to assume responsibility for the transportation of goods
from the place of receipt to the place of destination; and (3) to use for any part of the
transportation a carrier subject to the federal law pertaining to common
carriers.231avvphi1

A freight forwarder’s liability is limited to damages arising from its own negligence,
including negligence in choosing the carrier; however, where the forwarder contracts to
deliver goods to their destination instead of merely arranging for their transportation, it
becomes liable as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the transport, even
though the forwarder does not carry the merchandise itself. 24

It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto,
petitioner undertook to transport, ship, and deliver the 27 drums of raw materials for
pharmaceutical manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement

to transport and to deliver them at a specified place to a person named or on his or her
order.25 It operates both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and

deliver the same as therein stipulated. As a receipt, it recites the date and place of
shipment, describes the goods as to quantity, weight, dimensions, identification marks,
condition, quality, and value. As a contract, it names the contracting parties, which
include the consignee; fixes the route, destination, and freight rate or charges; and
stipulates the rights and obligations assumed by the parties.26

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule,

are presumed to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that they exercised
extraordinary diligence in transporting the goods. In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they observed such
 16

diligence.27 Mere proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the transporter shall be held
responsible.28

Though it is not our function to evaluate anew the evidence presented, we refer to the
records of the case to show that, as correctly found by the RTC and the CA, petitioner
failed to rebut the prima facie presumption of negligence in the carriage of the subject
shipment.

First, as stated in the bill of lading, the subject shipment was received by UTI in
apparent good order and condition in New York, United States of America. Second, the
OCMSC Survey Report stated that one steel drum STC Vitamin B Complex Extract was
discovered to be with a cut/hole on the side, with approximate spilling of 1%. Third,
though Gate Pass No. 7614, issued by Jardine, noted that the subject shipment was in
good order and condition, it was specifically stated that there were 22 (should be 27
drums per Bill of Lading No. C320/C15991-2) drums of raw materials for pharmaceutical
manufacturing. Last, J.G. Bernas’ Survey Report stated that "1-s/drum was punctured
and retaped on the bottom side and the content was lacking, and there was a short
delivery of 5-drums."

All these conclusively prove the fact of shipment in good order and condition, and the
consequent damage to one steel drum of Vitamin B Complex Extract while in the
possession of petitioner which failed to explain the reason for the damage. Further,
petitioner failed to prove that it observed the extraordinary diligence and precaution
which the law requires a common carrier to exercise and to follow in order to avoid
damage to or destruction of the goods entrusted to it for safe carriage and delivery.29

However, we affirm the applicability of the Package Limitation Rule under the COGSA,
contrary to the RTC and the CA’s findings.

It is to be noted 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 rights and
obligations of common carriers are governed by the Code of Commerce and special
laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting
the carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill
of lading.30 Section 4(5) of the COGSA provides:

(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 of 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 not be conclusive on the carrier.

In the present case, the shipper did not declare a higher valuation of the goods to be
shipped. Contrary to the CA’s conclusion, the insertion of the words "L/C No. LC No. 1-
187-008394/ NY 69867 covering shipment of raw materials for pharmaceutical Mfg. x x
x" cannot be the basis of petitioner’s liability.31 Furthermore, the insertion of an invoice
number does not in itself sufficiently and convincingly show that petitioner had
knowledge of the value of the cargo.32

In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In
this case, as there was only one drum lost, private respondent is entitled to receive only
$500 as damages for the loss. In addition to said amount, as aptly held by the trial court,
 17

an interest rate of 6% per annum should also be imposed, plus 25% of the total sum as
attorney’s fees.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court

of Appeals Decision dated April 29, 2004 and Resolution dated November 26, 2004 are
AFFIRMED with MODIFICATION by reducing the principal amount due private
respondent Pioneer Insurance and Surety Corporation from ₱76,231.27 to $500, with
interest of 6% per annum from date of demand, and 25% of the amount due as
attorney’s fees.

The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

G.R. No. 166250 July 26, 2010UNSWORTH TRANSPORT INTERNATIONAL

(PHILS.), INC.,
Petitioner,vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION,
Respondents.
Facts
: On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered
to UTI a shipment of 27 drums of various raw materials for pharmaceutical
manufacturing, consisting of: "1) 3 drums (of) extracts, flavoring liquid, flammable liquid
x x x banana flavoring; 2) 2drums (of) flammable liquids x x x turpentine oil; 2 pallets.
STC: 40 bags dried yeast; and
3)2 0 d r u m s ( o f ) V i t a b s : V i t a m i n B C o m p l e x E x t r a c t . " U T I
i s s u e d B i l l o f L a d i n g N o . C320/C15991-2, covering the aforesaid
shipment. The subject shipment was insured with private respondent Pioneer
Insurance and Surety Corporation in favor of Unilab against all risks in the amount of
P1,779,664.77 under and by virtue of Marine Risk Note Number MCRM UL
0627 92 and Open Cargo Policy No. HO-022-RIU.On the same day that the bill of
lading was issued, the shipment was loaded in a sealed 1x40 container van,
with no. APLU-982012, boarded on APL’s vessel M/V "Pres. Jackson," Voyage
42, and trans shipped to APL’s M/V "Pres. Taft" for delivery to petitioner in favor of
the consignee United Laboratories, Inc. (Unilab).On September 30, 1992, the
shipment arrived at the port of Manila. On October 6,1992, petitioner received
the said shipment in its warehouse after it stamped the Permit to Deliver Imported
Goods procured by the Champs Customs Brokerage. Three days thereafter ,or on
October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a
stripping survey of the shipment located in petitioner’s
warehouse.C o n s e q u e n t l y , U n i l a b ’ s q u a l i t y c o n t r o l r e p r e s e n t a t i v e r e j e c t
e d o n e p a p e r b a g containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended purpose. On November 7, 1992,
Unilab filed a formal claim for the damage against private respondent and UTI. On
November 20, 1992, UTI denied liability on the basis of the gate pass issued by
Jardine that the goods were in complete and good condition; while private
respondent paid the claimed amount on March 23, 1993. By virtue of the Loss
andS u b r o g a t i o n R e c e i p t i s s u e d b y U n i l a b i n f a v o r o f p r i v a t e r e s p o n d e
n t , t h e l a t t e r f i l e d a complaint for Damages against APL, UTI and petitioner with
the RTC of Makati.
Issue
 18

: Whether or not petitioner is a common carrier.

Held
:

Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm
holding itself out to the general public (other than as a pipeline, rail, motor, or water
carrier) to provide transportation of property for compensation and, in the ordinary
courseof i t s b u s i n e s s , ( 1 ) t o a s s e m b l e a n d c o n s o l i d a t e , o r t
o p r o v i d e f o r a s s e m b l i n g a n d consolidating, shipments, and to
p e r f o r m o r p r o v i d e f o r b r e a k - b u l k a n d d i s t r i b u t i o n operations of the
shipments; (2) to assume responsibility for the transportation of goods f r o m
the place of receipt to the place of destination; and (3) to use for
a n y p a r t o f t h e transportation a carrier subject to the federal law pertaining
to common carriers. A freight forwarder’s liability is limited to damages arising from its
own negligence, including negligence in choosing the carrier; however, where
the forwarder contracts to deliver goods to their destination instead of merely
arranging for their transportation, it becomes liable
as a common carrier forloss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the transport, even
though the forwarder does not carry the merchandise itself. Undoubtedly, UTI is liable
as a common carrier. Common carriers, as a general rule, are presumed to have been
at fault or negligent if the goods they transported
deterioratedo r g o t l o s t o r d e s t r o y e d . T h a t i s , u n l e s s t h e y p r o v e t h a t t h e
y e x e r c i s e d e x t r a o r d i n a r y diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such diligence. Mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate explanation is
given as to how the deterioration, loss, or destruction of the goods happened,
the transporter shall be held responsible.

National Steel vs. CA G.R. No. 112287 December 12,1997 VLASONS SHIPPING, INC.
vs. CA AND NATIONAL STEEL CORPORATION
G.R. No. 112350. December 12, 1997 Article 1732 of the Civil Code, Article 361 of the
Code of Commerce, Article 362 of the Code of Commerce, common carrier,
transportation
OCTOBER 6, 2017

FACTS:

The MV Vlasons I is a vessel which renders tramping service and, as such, does not
transport cargo or shipment for the general public. Its services are available only to
specific persons who enter into a special contract of charter party with its owner. The
ship is a private carrier, and it is in this capacity that its owner, Vlasons Shipping, Inc.
(VSA), entered into a contract of affreightment or contract of voyage charter hire with
National Steel Corporation (NSC) on 17 July 1974, whereby NSC hired VSI’s vessel,
the MV ‘VLASONS I’ to make 1 voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila

The shipment was placed in the 3 hatches of the ship which arrived with the cargo at
Pier 12, North Harbor, Manila, on 12 August 1974. The following day, when the vessel’s
3 hatches containing the shipment were opened by NSC’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.
On 6 September 1974 NSC filed with VSI its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount of P941,145.18. Then on 3
 19

October 1974, NSC formally demanded payment of said claim but VSI refused and
failed to pay.

On appeal, and on 12 August 1993, the Court of Appeals modified the decision of the
trial court by reducing the demurrage from P88,000.00 to P44,000.00 and deleting the
award of attorneys fees and expenses of litigation. NSC and VSI filed separate motions
for reconsideration. The CA denied both motions. NSC and VSI filed their respective
petitions for review before the Supreme Court.

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

RULING:
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 test of a common carrier 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.”Herein, VSI did
not offer its services to the general public. It carried passengers or goods only for those
it chose under a “special contract of charter party.” 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.

In Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven
Brothers Shipping Corporation, the Court ruled 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.”

From the parties’ Contract of Voyage Charter Hire, dated 17 July 1974, VSI “shall not be
responsible for losses except on proven willful negligence of the officers of the vessel.”
The NANYOZAI Charter Party, which was incorporated in the parties’ contract of
transportation further provided that the shipowner shall not be liable for loss of or
damage to the cargo arising or resulting from unseaworthiness, unless the same was
caused by its lack of due diligence to make the vessel seaworthy or to ensure that the
same was “properly manned, equipped and supplied,” and to “make the holds and all
other parts of the vessel in which cargo was carried, fit and safe for its reception,
carriage and preservation.” The NANYOZAI Charter Party also provided that “owners
shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew.”

Herein, 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.
 20

Article 361 of the Code of Commerce provides that “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.”

Article 362 of the Code of Commerce provides that “The carrier, however, shall be liable
for damages arising from the cause 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 to believe that the goods were of a class or quality different
from what they really were.”

As 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.
The Supreme Court denied the consolidated petitions; and affirmed the questioned
Decision of the Court of Appeals with the modification that the demurrage awarded to
VSI is deleted. No pronouncement as to costs.

G.R. No. 184300 July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC., Respondents.
 21

DECISION

REYES, J.:

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan
Insurance Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and
Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
71204 which affirmed with modification the decision of the Regional Trial Court (RTC),
Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder
Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby
the latter undertook to transport and deliver the former’s products to its customers,
dealers or salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy)
from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its
interest over its own products. Philippines First thereby insured Wyeth’s nutritional,
pharmaceutical and other products usual or incidental to the insured’s business while
the same were being transported or shipped in the Philippines. The policy covers all
risks of direct physical loss or damage from any external cause, if by land, and provides
a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It
turned out, however, that the contract was not signed by Wyeth’s
representative/s.4 Nevertheless, it was admittedly signed by Reputable’s
representatives, the terms thereof faithfully observed by the parties and, as previously
stated, the same contract of carriage had been annually executed by the parties every
year since 1989.5

Under the contract, Reputable undertook to answer for "all risks with respect to
the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction,
or damage of the goods/products due to any and all causes whatsoever,
including theft, robbery, flood, storm, earthquakes, lightning, and other force
majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY".6

The contract also required Reputable to secure an insurance policy on Wyeth’s

goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable
received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be
delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by
about 10 armed men. They threatened to kill the truck driver and two of his helpers
should they refuse to turn over the truck and its contents to the said highway robbers.
The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines
First then demanded reimbursement from Reputable, having been subrogated to
the rights of Wyeth by virtue of the payment. The latter, however, ignored the
demand.
 22

Consequently, Philippines First instituted an action for sum of money against Reputable
on August 12, 1996.8 In its complaint, Philippines First stated that Reputable is a
"private corporation engaged in the business of a common carrier." In its
answer,9 Reputable claimed that it is a private carrier. It also claimed that it
cannot be made liable under the contract of carriage with Wyeth since the
contract was not signed by Wyeth’s representative and that the cause of the loss
was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to

collect the amount covered in the SR Policy. According to Reputable, "it was validly
insured with Malayan for P1,000,000.00 with respect to the lost products under the
latter’s Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1,
1995" and that the SR Policy covered the risk of robbery or hijacking. 10

Disclaiming any liability, Malayan argued, among others, that under Section 5 of
the SR Policy, the insurance does not cover any loss or damage to property
which at the time of the happening of such loss or damage is insured by any
marine policy and that the SR Policy expressly excluded third-party liability.

After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines
First for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan
was found by the RTC to be liable to Reputable to the extent of the policy
coverage. The dispositive portion of the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable]

liable for the loss of the Wyeth products and orders it to pay Philippines First the
following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines First

to Wyeth for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by

Philippines First to hired adjusters/surveyors;

3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance

policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

SO ORDERED.12

Dissatisfied, both Reputable and Malayan filed their respective appeals from the
RTC decision.

Reputable asserted that the 1. RTC erred in holding that its contract of carriage with
Wyeth was binding despite Wyeth’s failure to sign the same. 2. Reputable further
 23

contended that the provisions of the contract are unreasonable, unjust, and contrary to
law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover
any loss or damage to property which at the time of the happening of such loss or
damage is insured by or would but for the existence of this policy, be insured by
any Fire or Marine policy or policies except in respect of any excess beyond the
amount which would have been payable under the Fire or Marine policy or
policies had this insurance not been effected.

Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First securing the same subject matter against loss and that since the
monetary coverage/value of the Marine Policy is more than enough to indemnify the
hijacked cargo, Philippines First alone must bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative,
it prayed that it be held liable for no more than P468,766.70, its alleged pro-rata
share of the loss based on the amount covered by the policy, subject to the
provision of Section 12 of the SR Policy, which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening
to any property hereby insured, there be any other subsisting insurance or
insurances, whether effected by the insured or by any other person or persons,
covering the same property, the company shall not be liable to pay or contribute
more than its ratable proportion of such loss or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of
the RTC, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September

2000, as modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION
in that the award of attorney’s fees in favor of Reputable is DELETED.

SO ORDERED.13

The CA ruled, among others, that: (1) Reputable is estopped from assailing the
validity of the contract of carriage on the ground of lack of signature of Wyeth’s
representative/s; (2) Reputable is liable under the contract for the value of the
goods even if the same was lost due to fortuitous event; and (3) Section 12 of the
SR Policy prevails over Section 5, it being the latter provision; however, since the
ratable proportion provision of Section 12 applies only in case of double
insurance, which is not present, then it should not be applied and Malayan should
be held liable for the full amount of the policy coverage, that is, P1,000,000.00. 14

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it
was denied by the CA in its Resolution dated August 28, 2008. 15

Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory
limitations on the liability of common carriers" and the "difference between an ‘other
insurance clause’ and an ‘over insurance clause’."

Malayan also contends that the CA erred when it held that Reputable is a private carrier
and should be bound by the contractual stipulations in the contract of carriage. This
 24

argument is based on its assertion that Philippines First judicially admitted in its
complaint that Reputable is a common carrier and as such, Reputable should not be
held liable pursuant to Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is
not liable for the loss, then there is no reason to hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the CA
failed to apply the express provisions of Section 5 (referred to by Malayan as over
insurance clause) and Section 12 (referred to by Malayan as other insurance clause) of
its SR Policy as these provisions could have been read together there being no actual
conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier
or a private/special carrier. It, however, maintains the correctness of the CA ruling that
Malayan is liable to Philippines First for the full amount of its policy coverage and not
merely a ratable portion thereof under Section 12 of the SR Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private
carrier should be accorded the highest degree of respect and must be considered
conclusive between the parties, and that a review of such finding by the Court is not
warranted under the circumstances. As to its alleged judicial admission that Reputable
is a common carrier, Philippines First proffered the declaration made by Reputable that
it is a private carrier. Said declaration was allegedly reiterated by Reputable in its third
party complaint, which in turn was duly admitted by Malayan in its answer to the said
third-party complaint. In addition, Reputable even presented evidence to prove that it is
a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated

the ruling of the CA. Philippines First, however, prayed for a slight modification of the
assailed decision, praying that Reputable and Malayan be rendered solidarily liable to it
in the amount of P998,000.00, which represents the balance from the P1,000.000.00
coverage of the SR Policy after deducting P2,000.00 under Section 10 of the said SR
Policy.17

Issues

The liability of Malayan under the SR Policy hinges on the following issues for
resolution:

1) Whether Reputable is a private carrier;- ANS. YES

2) Whether Reputable is strictly bound by the stipulations in its contract of

carriage with Wyeth, such that it should be liable for any risk of loss or damage,
for any cause whatsoever, including that due to theft or robbery and other force
majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and

Section 12 of the SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the
amount of P998,000.00 due to Philippines First.

The Court’s Ruling

On the first issue – Reputable is a private carrier.

 25

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-
entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respect and
considered conclusive between the parties, save for certain exceptional and meritorious
circumstances, none of which are present in this case.18

Malayan relies on the alleged judicial admission of Philippines First in its complaint that
Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence
that "an admission verbal or written, made by a party in the course of the proceeding in
the same case, does not require proof," it is Malayan’s position that the RTC and CA
should have ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil

Code, the liability of Reputable for the loss of Wyeth’s goods should be dispensed with,
or at least diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require
proof, and need not be offered to be considered by the court. "The court, for the proper
decision of the case, may and should consider, without the introduction of evidence, the
facts admitted by the parties."20 The rule on judicial admission, however, also states that
such allegation, statement, or admission is conclusive as against the pleader, 21 and that
the facts alleged in the complaint are deemed admissions of the plaintiff and binding
upon him.22 In this case, the pleader or the plaintiff who alleged that Reputable is a
common carrier was Philippines First. It cannot, by any stretch of imagination, be made
conclusive as against Reputable whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth
and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from
Reputable under the terms of the contract of carriage. Philippines First is not in any
position to make any admission, much more a definitive pronouncement, as to the
nature of Reputable’s business and there appears no other connection between
Philippines First and Reputable which suggests mutual familiarity between them.

Moreover, records show that the alleged judicial admission of Philippines First was
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its
answer that it is actually a private or special carrier.23 In addition, Reputable stated in
paragraph 2 of its third-party complaint that it is "a private carrier engaged in the
carriage of goods."24 Such allegation was, in turn, admitted by Malayan in paragraph 2
of its answer to the third-party complaint.25 There is also nothing in the records which
show that Philippines First persistently maintained its stance that Reputable is a
common carrier or that it even contested or proved otherwise Reputable’s position that it
is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own
business, what was stated by Philippines First in its complaint is reduced to nothing
more than mere allegation, which must be proved for it to be given any weight or value.
The settled rule is that mere allegation is not proof.26

More importantly, the finding of the RTC and CA that Reputable is a special or private
carrier is warranted by the evidence on record, primarily, the unrebutted testimony of
Reputable’s Vice President and General Manager, Mr. William Ang Lian Suan, who
expressly stated in open court that Reputable serves only one customer, Wyeth. 27

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms,
or associations engaged in the business of carrying or transporting passenger or goods,
or both by land, water or air for compensation, offering their services to the public. On
the other hand, a private carrier is one wherein the carriage is generally undertaken by
 26

special agreement and it does not hold itself out to carry goods for the general
public.28 A common carrier becomes a private carrier when it undertakes to carry a
special cargo or chartered to a special person only.29 For all intents and purposes,
therefore, Reputable operated as a private/special carrier with regard to its contract of
carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it

entered into, provided its stipulations, clauses, terms and conditions are not contrary to
law, morals, good customs, public order, or public policy. "The Civil Code provisions on
common carriers should not be applied where the carrier is not acting as such but as a
private carrier. Public policy governing common carriers has no force where the public
at large is not involved."30

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for
the loss of the goods/products due to any and all causes whatsoever, including theft,
robbery and other force majeure while the goods/products are in transit and until actual
delivery to Wyeth’s customers, salesmen and dealers.31

On the third issue – other insurance vis-à-vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to

Section 12 as a "modified ‘other insurance’ clause".32 In rendering inapplicable said
provisions in the SR Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would
be sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12
which provides only for a pro-rated contribution between the two insurers. Being the
later provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should
therefore prevail.

xxxx

x x x The intention of both Reputable and Malayan should be given effect as against the
wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in
case of double insurance, or where the benefits of the policies of both plaintiff-appellee
and Malayan should pertain to Reputable alone. But since the court a quo correctly
ruled that there is no double insurance in this case inasmuch as Reputable was not
privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-
appellee in favor of Wyeth, then Malayan’s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance
coverage, would not be entitled to recover said amount for the simple reason that the
same property is covered by another insurance policy, a policy to which it was not a
party to and much less, from which it did not stand to benefit. Plainly, this unfair
situation could not have been the intention of both Reputable and Malayan in signing
the insurance contract in question.33

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate
provisions applicable under distinct circumstances. Malayan argues that "it will not be
completely absolved under Section 5 of its policy if it were the assured itself who
obtained additional insurance coverage on the same property and the loss incurred by
Wyeth’s cargo was more than that insured by Philippines First’s marine policy. On the
other hand, Section 12 will not completely absolve Malayan if additional insurance
 27

coverage on the same cargo were obtained by someone besides Reputable, in which
case Malayan’s SR policy will contribute or share ratable proportion of a covered cargo
loss."34

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and
"double insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, 35 which
validity was upheld by the Court as a warranty that no other insurance exists. The Court
ruled that Condition No. 336 is a condition which is not proscribed by law as its
incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also
the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not
absolutely declare void any violation thereof but expressly provides that the condition
"shall not apply when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the
nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of
the amount that was not covered by the other insurance policy. In interpreting the "other
insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case
of double insurance. The Court ruled that in order to constitute a violation of the clause,
the other insurance must be upon same subject matter, the same interest therein, and
the same risk. Thus, even though the multiple insurance policies involved were all
issued in the name of the same assured, over the same subject matter and covering the
same risk, it was ruled that there was no violation of the "other insurance clause" since
there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double
insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or
contribute more than its ratable proportion of such loss or damage." This is in accord
with the principle of contribution provided under Section 94(e) of the Insurance
Code,37 which states that "where the insured is over insured by double insurance, each
insurer is bound, as between himself and the other insurers, to contribute ratably to the
loss in proportion to the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The
pivotal question that now arises is whether there is double insurance in this case such
that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists
where the same person is insured by several insurers separately in respect to the same
subject and interest. The requisites in order for double insurance to arise are as
follows:38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both
issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered
 28

the same peril insured against, it is, however, beyond cavil that the said policies were
issued to two different persons or entities. It is undisputed that Wyeth is the recognized
insured of Philippines First under its Marine Policy, while Reputable is the recognized
insured of Malayan under the SR Policy. The fact that Reputable procured Malayan’s
SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under
its contract of carriage with the latter does not make Reputable a mere agent of Wyeth
in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is
also different and distinct from that of Reputable’s. The policy issued by Philippines First
was in consideration of the legal and/or equitable interest of Wyeth over its own goods.
On the other hand, what was issued by Malayan to Reputable was over the latter’s
insurable interest over the safety of the goods, which may become the basis of the
latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.39

Therefore, even though the two concerned insurance policies were issued over the
same goods and cover the same risk, there arises no double insurance since they were
issued to two different persons/entities having distinct insurable interests. Necessarily,
over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by
the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial
provisions of the SR Policy against Malayan.1âwphi1 This is in keeping with the rule
that:

"Indemnity and liability insurance policies are construed in accordance with the general
rule of resolving any ambiguity therein in favor of the insured, where the contract or
policy is prepared by the insurer. A contract of insurance, being a contract of adhesion,
par excellence, any ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its
obligations."40

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work
injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance
coverage, would not be entitled to recover said amount for the simple reason that the
same property is covered by another insurance policy, a policy to which it was not a
party to and much less, from which it did not stand to benefit. x x x41

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons,
the liability of the insurer is direct and such third persons can directly sue the insurer.
The direct liability of the insurer under indemnity contracts against third party[- ]liability
does not mean, however, that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault, since they are being held liable under different
obligations. The liability of the insured carrier or vehicle owner is based on tort, in
 29

accordance with the provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
obligations- Malayan's is based on the SR Policy while Reputable's is based on the
contract of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated

February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in
CA-G.R. CV No. 71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.
 30

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,

vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent
Court of Appeals1 promulgated on September 7, 1995, which affirmed the award of damages and
attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of
private respondent GOP Mahtani as well as the dismissal of its third-party complaint against Philippine
Airlines (PAL).2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he
obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a
ticket from BA where the following itinerary was indicated:3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL,
and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be
transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that
upon inquiry from the BA representatives, he was told that the same might have been diverted to London.
After patiently waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing
the "Property Irregularity Report."4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising, as special and
affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on November 9,
1990, BA filed a third-party complaint 7 against PAL alleging that the reason for the non-transfer of the
luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the proper
transfer of Mahtani's luggage to the BA aircraft bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability,
arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong.
Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of
Mahtani, 9 the dispositive portion of which reads as follows:
 31

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the
defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00)
Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing
the value of the contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and
actual damages and twenty percent (20%) of the total amount imposed against the defendant for
attorney's fees and costs of this action.

The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack
of cause of action.

SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings. Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to
be in accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs
against defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal
of its third-party complaint against PAL.11

Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate
sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since Mahtani in his
complaint12 stated the following as the value of his personal belongings:

8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in
the ticket, which reads:13

Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in
advance and additional charges are paid:

1. For most international travel (including domestic corporations of international journeys) the
liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked baggage
and U.S. $400 per passenger for unchecked baggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's contract of
carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination and
a contract to transport passengers to their destination. A business intended to serve the traveling public
primarily, it is imbued with public interest, hence, the law governing common carriers imposes an exacting
standard.14 Neglect or malfeasance by the carrier's employees could predictably furnish bases for an
action for damages.15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it
is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of cases 16 we
have assessed the airlines' culpability in the form of damages for breach of contract involving misplaced
luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendant's acts.17

In this regard, the trial court granted the following award as compensatory damages:
 32

Since plaintiff did not declare the value of the contents in his luggage and even failed to show
receipts of the alleged gifts for the members of his family in Bombay, the most that can be
expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per
kilo, or combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the
contents plus Seven Thousand (P7,000.00) Pesos representing the purchase price of the two (2)
suit cases.

However, as earlier stated, it is the position of BA that there should have been no separate award for the
luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the
luggage,18 and therefore, its liability is limited, at most, only to the amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to
recover a greater amount. Article 22(1) of the Warsaw Convention,19 provides as follows:

xxx xxx xxx

(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited
to a sum of 250 francs per kilogram, unless the consignor has made, at time the package was
handed over to the carrier, a special declaration of the value at delivery and has paid a
supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater than the actual value to the
consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in
excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being
binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent
thereto.20 This doctrine is recognized in this jurisdiction.21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts
where the facts and circumstances justify that they should be disregarded.22

In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier
failed to raise timely objections during the trial when questions and answers regarding the actual claims
and damages sustained by the passenger were asked. 23

Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited
liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement
of his luggage, without any objection. In this regard, we quote the pertinent transcript of stenographic
notes of Mahtani's direct testimony:24

Q — How much are you going to ask from this court?

A — P100,000.00.

Q — What else?

A — Exemplary damages.

Q — How much?

A — P100,000.00.

Q — What else?

A — The things I lost, $5,000.00 for the gifts I lost and my personal belongings,
P10,000.00.

Q — What about the filing of this case?

A — The court expenses and attorney's fees is 30%.

 33

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the latter has the right to object. However, such right is a
mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity,
lest silence when there is opportunity to speak may operate as a waiver of objections. 25 BA has precisely
failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well.26 In the early case of Abrenica v. Gonda,27 we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the
admission of any evidence must be made at the proper time, and that if not so made it will be
understood to have been waived. The proper time to make a protest or objection is when, from
the question addressed to the witness, or from the answer thereto, or from the presentation of
proof, the inadmissibility of evidence is, or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to
great respect.28 Since the actual value of the luggage involved appreciation of evidence, a task within the
competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus,
a finding not reviewable by this Court.29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals justified its
ruling in this wise, and we quote:30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL.

The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-
appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. When
plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact that in the ticket issued by appellant to
plaintiff-appellee, it is specifically provided on the "Conditions of Contract," paragraph 4 thereof
that:

4. . . . carriage to be performed hereunder by several successive carriers is

regarded as a single operation.

The rule that carriage by plane although performed by successive carriers is regarded as a single
operation and that the carrier issuing the passenger's ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31 we expounded on the nature
of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither
a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case
with leave of court, by the defendant, who acts, as third-party plaintiff to enforce against such
third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect
of the plaintiff's claim. The third-party complaint is actually independent of and separate and
distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would
have to be filed independently and separately from the original complaint by the defendant
against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in
the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter
arising from one particular set of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract
of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter
naturally denies. In other words, BA and PAL are blaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportation was exclusively between
Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's journey to PAL,
as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts" of the
ticket32issued by BA to Mahtani confirms that the contract was one of continuous air transportation from
Manila to Bombay.
 34

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single

operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to
Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent is
also responsible for any negligence in the performance of its function. 33 and is liable for damages which
the principal may suffer by reason of its negligent act. 34 Hence, the Court of Appeals erred when it opined
that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air Transport
Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship. 35 Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the principal, since it was the one
which issued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines
v.Court of Appeals.36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg
trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda to
a specific destination "bumped" him off.

An action for damages was filed aga inst Lufthansa which, however, denied any liability, contending that
its responsibility towards its passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage
with Antiporda and remains to be so, regardless of those instances when actual carriage was to
be performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda
covering his entire five-leg trip abroad successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone,
and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals,37 while not exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another carrier,
is also liable for its own negligent acts or omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the
purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After
all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail
receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It must
be borne in mind that the purpose of a third-party complaint is precisely to avoid delay and circuitry of
action and to enable the controversy to be disposed of in one suit. 38 It is but logical, fair and equitable to
allow BA to sue PAL for indemnification, if it is proven that the latter's negligence was the proximate
cause of Mahtani's unfortunate experience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309
dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.
 35

British Airways V. CA (1993)

G.R. No. 92288 February 9, 1993
Lessons Applicable: Actionable Document (Transportation)

FACTS:
February 15, 1981: First International Trading and General Services Co. (First Int'l), a
duly licensed domestic recruitment and placement agency, received a telex message
from its principal ROLACO Engineering and Contracting Services (ROLACO) in Jeddah,
Saudi Arabia to recruit Filipino contract workers in its behalf. Early March
1981: ROLACO paid British Airways, Inc. (BA) Jeddah branch the airfare tickets for 93
contract workers with specific instruction to transport the workers to Jeddah on or before
March 30, 1981. As soon as BA received a prepaid ticket advice from its Jeddah branch
informed First Int'l. Thereafter, First Int'l instructed ADB Travel and Tours. Inc. (its travel
agent) to book the 93 workers with BA but it failed. So First Int'l had to borrow
P304,416.00 for the purchase of airline tickets from the other airlines for the 93 workers
who must leave immediately since the visas are valid only for 45 days and the Bureau
 36

of Employment Services mandates that contract workers must be sent to the job site
within a period of 30 days. First week of June, 1981: First Int'l was again informed
by BA that it had received a prepaid ticket advice from its Jeddah branch for the
transportation of 27 contract workers. Immediately, First Int'l instructed its ADB to book
the 27 contract workers with the BA but only 16 seats were confirmed and booked on its
June 9, 1981 flight.
June 9, 1981: only 9 workers were able to board said flight while the remaining 7
workers were rebooked to:

June 30, 1981 - again cancelled by British without any prior notice to either First Int'l or
the workers

July 4,1981 - (6 + 7 workers) 13 workers were again cancelled and rebooked to July 7,
1981.

July 6, 1981: First Int'l paid the travel tax of the workers as required by BA but when the
receipt of the tax payments was submitted, only 12 seats were confirmed for July 7,
1981 flight

July 7, 1981: Flight was again cancelled without any prior notice
12 workers were finally able to leave for Jeddah after First Int'l had bought tickets from
the other airlines

As a result of these incidents, First Int'l sent a letter to BA demanding compensation for
the damages it had incurred by the repeated failure to transport its contract workers
despite confirmed bookings and payment of the corresponding travel taxes.

July 23, 1981: the counsel of First Int'l sent another letter to BA demanding P350,000.00
damages and unrealized profit or income - denied

August 8, 1981: First Int'l received a telex message from ROLACO cancelling the hiring
of the remaining recruited workers due to the delay in transporting the workers to
Jeddah.

January 27, 1982: First Int'l filed a complaint for damages against First Int'l
CA Affirmed RTC: BA to pay First Int'l damages, attorneys fees and costs

ISSUE: W/N BA is not liable because there was no contract of carriage as no ticket was
ever issued

HELD: Affirmed. MODIFICATION that the award of actual damages be deleted

(reimbursed by ROLACO)
In dealing with the contract of common carriage of passengers for purpose of accuracy,
there are two (2) aspects of the same, namely:
(a) the contract "to carry (at some future time)," which contract is consensual and is
necessarily perfected by mere consent - applicable in this case
(b) the contract "of carriage" or "of common carriage" itself which should be considered
as a real contract for not until the carrier is actually used can the carrier be said to have
already assumed the obligation of a carrier
Even if a prepaid ticket advice (PTA) is merely an advice from the sponsors that an
airline is authorized to issue a ticket and thus no ticket was yet issued, the fact remains
that the passage had already been paid for by the principal of the appellee, and the
appellant had accepted such payment
Besides, appellant knew very well that time was of the essence as the prepaid ticket
advice had specified the period of compliance therewith, and with emphasis that it could
only be used if the passengers fly on BA
 37

involvement of the BA in the contract "to carry" was well demonstrated when the it
immediately advised First Int'l
Acts of BA indeed constitute malice and evident bad faith which had caused damage
and besmirched the reputation and business image fo First Int'l
 38

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

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:

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 (2)
six-wheeler trucks which he owned for hauling the material to Manila. On the return trip
to Pangasinan, respondent would load his vehicles with cargo which various merchants
wanted delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly lower than regular commercial
rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized

dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted
with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of
General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent
himself, while 600 cartons were placed on board the other truck which was driven by
Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes
never reached petitioner, since the truck which carried these boxes was hijacked
somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took
with them the truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the

Court of First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed
value of the lost merchandise, plus damages and attorney's fees. Petitioner argued that
private respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the value of
the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that
he could not be held responsible for the value of the lost goods, such loss having been
due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent
to be a common carrier and holding him liable for the value of the undelivered goods (P
22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred
in considering him a common carrier; in finding that he had habitually offered trucking
services to the public; in not exempting him from liability on the ground of force
majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent
had been engaged in transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier.
 39

Petitioner came to this Court by way of a Petition for Review assigning as errors the
following conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

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

3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.

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

Article 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.

The above article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering
its services to the "general public," i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations
and other similar public services. ... (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a common

carrier even though he merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such back-hauling was done on a periodic or occasional rather
than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There is no
 40

dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable error.
A certificate of public convenience is not a requisite for the incurring of liability under the
Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier
has also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or
other franchise. To exempt private respondent from the liabilities of a common carrier
because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely
for failing to comply with applicable statutory requirements. The business of a common
carrier impinges directly and intimately upon the safety and well being and property of
those members of the general community who happen to deal with such carrier. The
law imposes duties and liabilities upon common carriers for the safety and protection of
those who utilize their services and the law cannot allow a common carrier to render
such duties and liabilities merely facultative by simply failing to obtain the necessary
permits and authorizations.

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

Common carriers, "by the nature of their business and for reasons of public policy" 2 are
held to a very high degree of care and diligence ("extraordinary diligence") in the
carriage of goods as well as of passengers. The specific import of extraordinary
diligence in the care of goods transported by a common carrier is, according to Article
1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the
Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the
loss, destruction or deterioration of the goods which they carry, "unless the same is due
to any of the following causes only:

(1) Flood, storm, earthquake, lightning or other natural

disaster or calamity;
(2) Act of the public enemy in war, whether international or
civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in
the containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a closed
list. Causes falling outside the foregoing list, even if they appear to constitute a species
of force majeure fall within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the

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. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific
cause alleged in the instant case — the hijacking of the carrier's truck — does not fall
within any of the five (5) categories of exempting causes listed in Article 1734. It would
 41

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 firelight at the
risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty
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 donot act with grave or
irresistible threat, violence or force, is dispensed with or
diminished; and

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

Under Article 1745 (6) above, a common carrier is held responsible — and will not be
allowed to divest or to diminish such responsibility — even for acts of strangers like
thieves or robbers, except where such thieves or robbers in fact acted "with grave or
irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the
goods are lost as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."

In the instant case, armed men held up the second truck owned by private respondent
which carried petitioner's cargo. The record shows that an information for robbery in
band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No.
198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando
Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully
and unlawfully taking and carrying away with them the second truck, driven by Manuel
Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at
petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
 42

accused acted with grave, if not irresistible, threat, violence or force.3 Three (3) of the
five (5) hold-uppers were armed with firearms. The robbers not only took away the truck
and its cargo but also kidnapped the driver and his helper, detaining them for several
days and later releasing them in another province (in Zambales). The hijacked truck
was subsequently found by the police in Quezon City. The Court of First Instance
convicted all the accused of robbery, though not of robbery in band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded as a
fortuitous event. It is necessary to recall that even common carriers are not made
absolute insurers against all risks of travel and of transport of goods, and are not held
liable for acts or events which cannot be foreseen or are inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise which
was lost because of an event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the
Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.

Pedro de Guzman v. CA and Ernesto Cendana

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

Feliciano, J.
FACTS:
Cendana - junk dealer engaged in buying up used bottles and scrap metal in
Pangasinan; upon gathering sufficient quantities of such scrap material, he would bring
such material to Manila for resale; he utilized 2 6-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, he would load
his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan.

de Guzman - merchant and authorized dealer of General Milk Company, Inc.

contracted with Cendana for the hauling of 750 cartons of Liberty filled milk
from a warehouse of General Milk in Makati, Rizal, to de Guzman’s establishment in Urdaneta,
Pangasinan

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.
ISSUE:
WON whether or not Cendana is a common carrier
HELD:
Yes.

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.

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
 43

no distinction between a person or enterprise offering transportation service on a

regularo r s c h e d u l e d b a s i s a n d o n e o f f e r i n g s u c h s e r v i c e o n a n o
c c a s i o n a l , e p i s o d i c o r unscheduled basis

no distinction between a carrier offering its services to the general public and
one who offers services or solicits business only from a narrow segment of the general
population

Cendana - common carrier even though he merely “back-

h a u l e d ” g o o d s f o r o t h e r merchants from Manila to Pangasinan, although such
back-hauling was done on a
periodico r o c c a s i o n a l r a t h e r t h a n r e g u l a r o r s c h e d u l e d m a n n e r ,
a n d e v e n t h o u g h p r i v a t e respondent’s principal occupation was not the
carriage of goods for others

Certificate of public convenience – compliance therewith as well as with the

requirements of the applicable regulatory statute and implementing regulations is not
needed to make one a common carrier for as long as a person or firm acts as a
common carrier

Art. 1734 - 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

for causes of loss, destruction or deteriorat ion which fall outside Art.
1 7 3 4 c o m m o n carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence (see Art.
1734 and Art 1733) hijacking of Cendana’s carrier’s truck is outside Art. 1734; hence he
is presumed to have been at fault or to have acted negligently, which presumption may
be overthrown by proof of extraordinary diligence
ISSUE:
WON Cendana exercised extraordinary diligence in the care of de Guzman’s goods;
what are the specific requirements of the duty of extraordinary diligence in
the vigilance over the goods carried in the specific context of hijacking or armed
robbery

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION
C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.
 44

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29,
1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City,
Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund
imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in 19671 and
renewed by the Energy Regulatory Board in 1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of
Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to
the Local Government Code3. The respondent City Treasurer assessed a business tax on the
petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for
products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order
not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for
the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the
pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of 1991 . . . .

Moreover, Transportation contractors are not included in the enumeration of

contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code does
not include the power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee authorized

under Section 147 of the Local Government Code. The said section limits the
imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence, assuming
arguendo that FPIC is liable for the license fee, the imposition thereof based on
gross receipts is violative of the aforecited provision. The amount of P956,076.04
(P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection
and licensing. The fee is already a revenue raising measure, and not a mere
regulatory imposition.4

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code.5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax
refund with prayer for writ of preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia,
that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of
the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include
the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h),
the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and
erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid.7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under
Section 133 (j) of the Local Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and common carriers by air, land and
water." Respondents assert that pipelines are not included in the term "common carrier" which refers
 45

solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that
the term "common carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination.8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that
tax exemptions are to be strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be granted only by clear and
unequivocal provisions of law.

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387.
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under Sec.
137 of the Local Tax Code. Such being the situation obtained in this case (exemption
being unclear and equivocal) resort to distinctions or other considerations may be of
help:

1. That the exemption granted under Sec. 133 (j)

encompasses only common carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special
carrier extending its services and facilities to a single
specific or "special customer" under a "special
contract."

2. The Local Tax Code of 1992 was basically enacted

to give more and effective local autonomy to local
governments than the previous enactments, to make
them economically and financially viable to serve the
people and discharge their functions with a
concomitant obligation to accept certain devolution of
powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and 151
of the Code.9

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27,
1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication. 10 On November 29, 1995, the respondent court rendered a decision 11 affirming the trial
court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July
18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11,
1996. 13Petitioner moved for a reconsideration which was granted by this Court in a Resolution 14 of
January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a
common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not
clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged
in the business of transporting persons or property from place to place, for compensation, offering
his services to the public generally.
 46

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying

goods for others as a public employment, and must
hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;

2. He must undertake to carry goods of the kind to

which his business is confined;

3. He must undertake to carry by the method by which

his business is conducted and over his established
roads; and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for
hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons
who choose to employ its services, and transports the goods by land and for compensation. The fact
that petitioner has a limited clientele does not exclude it from the definition of a common carrier.
In De Guzman vs. Court of Appeals 16we ruled that:

The above article (Art. 1732, Civil Code) makes no distinction

between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a "sideline"). Article 1732 . . .
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering
its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732

may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

every person that now or hereafter may own, operate.

manage, or control in the Philippines, for hire or
compensation, with general or limited clientele,
whether permanent, occasional or accidental, and
done for general business purposes, any common
carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger,
or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the
transportation 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 andpower
petroleum, sewerage system, wire or wireless
 47

communications systems, wire or wireless

broadcasting stations and other similar public
services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local
Government Code refers only to common carriers transporting goods and passengers through
moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no
distinction as to the means of transporting, as long as it is by land, water or air. It does not provide
that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United
States, oil pipe line operators are considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. — A pipe line

shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to utilize
the remaining transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been
approved by the Secretary of Agriculture and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7
thereof provides:

that everything relating to the exploration for and exploitation of

petroleum . . . and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum, is hereby
declared to be a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling
No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that is engaged only

in transporting petroleum products, it is considered a common carrier
under Republic Act No. 387 . . . . Such being the case, it is not
subject to withholding tax prescribed by Revenue Regulations No. 13-
78, as amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore,
exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to
wit:

Sec. 133. Common Limitations on the Taxing Powers of Local

Government Units. — Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxx xxx xxx

(j) Taxes on the gross receipts of

transportation contractors and persons
engaged in the transportation of
passengers or freight by hire and
common carriers by air, land or water,
except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

 48

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the

Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of

transportation. This appears to be one of those being deemed to be
exempted from the taxing powers of the local government units. May
we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that local
government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of

Book II, one can see there that provinces have the power to impose a
tax on business enjoying a franchise at the rate of not more than one-
half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by
the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of

taxes by local government units on the carrier business. Local
government units may impose taxes on top of what is already being
imposed by the National Internal Revenue Code which is the so-
called "common carriers tax." We do not want a duplication of this
tax, so we just provided for an exception under Section 125 [now
Sec. 137] that a province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of the local government unit
the imposition of business tax against common carriers is to prevent a duplication of the so-called
"common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals
dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.
 49

First Philippine Industrial Corp. vs CA

FACTS:
1. First Philippines Industrial Corporation (FPIC) is a grantee of a pipeline concession under
Republic Act No. 387 to contract, install and operate oil pipelines.
a. Grant was renewed in 1992 by the Energy Regulation Board.
2. In 1995, FPIC applied for a mayor’s permit with the City of Batangas.
3. However, City Treasure required them to pay a local tax based on its gross receipts for the fiscal
year 1993.
a. It amounted to P956,076.04 payable in four installments
b. FPIC paid the tax under protest in the amount of P239,019.00 for the first quarter of
1993.
4. Subsequently, FPIC wrote a letter to the City Treasurer’s office, to wit:
a. FPIC is a pipeline concession grantee engaged in transporting petroleum products from
Batangas refineries via pipeline to Sucat and JTF Pandacan Terminals.
b. Thus, FPIC should be exempt from paying tax on gross receipts under Sec. 133 of LGC
c. Moreover, the authority to impose tax on contractors and other independent contractors'
under Section 143, Paragraph (e) of the LGC does not include the power to levy on
transportation contractors because its not included in the enumeration of contractors
under Sec 131 par (h).
5. City Treasurer’s office denied the protest ruling that petitioner cannot be considered engaged in
the business of transportation.
6. Thus, FPIC filed a complaint for tax refund with the RTC of Batangas against City of Batangas
and Adoracion Arellano (treasurer).
a. ALLEGATION: the authority of cities to impose and collect a tax on the gross receipts
of "contractors and independent contractors" under Sec. 141 (e) and 151 does not
include the authority to collect such taxes on transportation contractors.
7. City of Batangas argued otherwise:
a. ANSWER: Exemption under 133(j) of the LGC applies only to "transportation
contractors and persons engaged in the transportation by hire through moving
vehicles or vessels either by land, sea or water.
b. Hence, pipelines are not included in the term “common carrier” which refers only to
ordinary carriers such as trains, ships and the like.
c. Also, under the code, common carrier pertains to the mode or manner by which a product
is delivered to a destination.
8. RTC Batangas: NO EXEMPTION.
a. FPIC is either contractor or other independent contractor. The exemption has become
unclear. Thus, as a rule in taxation that exemptions are to be granted only by clear terms
of the law, the exemption claimed by FPIC cannot be favored.
 50

b. Neither the pipeline award contains any tax exemption.

c. Plaintiff is not a common carrier, but a special carrier extending its services and
facilities to a single specific or "special customer" under a "special contract."
9. CA affirmed the RTC ruling.

ISSUE: Whether CA wrongly ruled that FPIC is not a common carrier or a transportation contractor.

HELD: FPIC is a common carrier/transportation contractor. Hence, it is exempted from payment of local
taxes.

RATIO:

1. "Common carrier" is defined 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.
2. The test for determining whether a party is a common carrier of goods is:
a. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation of goods
for person generally as a business and not as a casual occupation;
b. He must undertake to carry goods of the kind to which his business is confined;
c. He must undertake to carry by the method by which his business is conducted and over
his established roads; and
d. The transportation must be for hire.
3. FPIC is a common carrier based from the definition.
a. It is engaged in the business of transporting or carrying goods, i.e. petroleum products,
for hire as a public employment.
b. 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.
c. The fact that petitioner has a limited clientele does not exclude it from the definition of a
common carrier.
4. Common carrier definition in Art. 1732 makes no distinction as to persons offering transportation
on a regular basis and occasional basis neither does the article distinguish between a carrier
offering its services to the public or to a narrow segment of the society.
5. Also, 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.
a. It does not say that transportation should be by motor vehicle.
b. In fact, in the United States, oil pipe line operators are considered common carriers.

Asia Lighterage and Shipping Inc. v. CA

Gr, No. 147246, August 19, 2003

FACTS:
Petitioner was contracted as carrier by a corporation from Portland, Oregon to deliver a
cargo to the consignee's warehouse at Pasig City. The cargo, however, never reached
 51

the consignee as the barge that carried the cargo sank completely, resulting in
damage to the cargo. Private respondent, as insurer, indemnified the consignee
for the lost cargo and thus, as subrogee, sought recovery from petitioner. Both the trial court
and the appellate court ruled in favor of private respondent. The Court ruled in favor of
private respondent. Whether or not petitioner is a common carrier, the Court
ruled in the affirmative. The principal business of petitioner is that of lighterage and
drayage, offering its barges to the public, although for limited clientele, for carrying or
transporting goods by water for compensation. Whether or not petitioner failed to
exercise extraordinary diligence in its care and custody of the consignee's goods, the
Court also ruled in the affirmative. The barge completely sank after its towing bits broke,
resulting in the loss of the cargo. Petitioner failed to prove that the typhoon was the
proximate and only cause of the loss and that it has exercised due diligence before,
during and after the occurrence. HCISED

ISSUE:
Whether or Not the petitioner is a common carrier.

RULING:
YES. Petitioner is a common carrier whether its carrying of goods is
done on an irregular rather than scheduled manner, and with an only limited
clientele. A common carrier need not have fixed and publicly known routes. Neither
does it have to maintain terminals or issue tickets. To be sure, petitioner fits the test of a common
carrier as laid down in Bascos vs. Court of Appeals. The test to determine a common
carrier is "whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather than
the quantity or extent of the business transacted." In the case at bar, the petitioner
admitted that it is engaged in the business of shipping and lighterage, offering its barges
to the public, despite its limited clientele for carrying or transporting goods by water for
compensation. Article 1732 of the Civil Code defines common carriers as persons,
corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation. Offering their
services to the public. Petitioner contends that it is not a common carrier but a
private carrier. Allegedly, it has no fixed and publicly known route, maintains no terminals, and issues
no tickets. It points out that it is not obliged to carry indiscriminately for any person. It is
not bound to carry goods unless it consents. In short, it does not hold out its services to
the general public. In De Guzman vs. Court of Appeals, we held that the definition of
common carriers in Article1732 of the Civil Code makes no distinction between
one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity. We also did not distinguish
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. Further, we ruled that Article 1732 does not distinguish
between a carrier offering its services to the general public, and one who offers services
or solicits business only from a narrow segment of the general population.
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. They are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, deterioration of the goods, the common carrier
must prove that it exercised extraordinary diligence. There are, however, exceptions to
this rule. Article1734 of the Civil Code enumerates the instances when the presumption of
negligence does not attach: Art. 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same is due to any of the following
causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity; (2) Act of the public enemy in war, whether international or civil; (3)Act or
omission of the shipper or owner of the goods; (4) The character of the goods or defects
in the packing or in the containers; (5) Order or act of competent public authority
 52

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,
vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
Modesto S. Bascos for petitioner.
Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. —

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the quantity or extent of the
business transacted." . . . The holding of the Court in De Guzman vs. Court of Appeals is instructive.
In referring to Article 1732 of the Civil Code, it held thus: "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 distinguished between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN

PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. — 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 . . . 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.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER

ABSOLVED FROM LIABILITY. — In De Guzman vs. 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 . . . (6) That the common carrier's liability for acts
committed by thieves, or of robbers who do not act with grave or irresistible threat, violences or
force, is dispensed with or diminished"; In the same case, the Supreme Court also held that: "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 of irresistible threat, violence of force," We believe and so
hold that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are
reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible
threat, violence or force."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case, petitioner

herself has made the admission that she was in the trucking business, offering her trucks to those
with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same.
 53

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. — Petitioner
presented no other proof of the existence of the contract of lease. He who alleges a fact has the
burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS

WITNESSES. — 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.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO

BE. — Granting that the said evidence were not self-serving, the same were not sufficient to prove
that the contract was one of lease. It must be understood that a contract is what the law defines it to
be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A.
CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee,
vs. ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-
appellant," C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby
affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul
the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE,
through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver
400 sacks of soya bean meal worth P156,404.00 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, . . ." 3

Cipriano 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 4 for breach of
a contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit
5 which contained the following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"

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 P11,000.00 for loading the 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 petitioner and the police exerted
 54

all efforts to locate the hijacked properties; that after preliminary investigation, an information for
robbery and carnapping 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 a decision *** the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the
latter to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be
counted from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors; to
wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL

RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT
THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE
RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN
FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE
TO FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT
THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT
HAS BEEN RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE
CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and
(2) was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her
answer that she did business under the name A.M. Bascos Trucking and that said admission
dispensed with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner
was a common carrier. The respondent Court also adopted in toto the trial court's decision that
petitioner was a common carrier, Moreover, both courts appreciated the following pieces of evidence
as indicators that petitioner was a common carrier: the fact that the truck driver of petitioner, Maximo
Sanglay, received the cargo consisting of 400 bags of soya bean meal as evidenced by a cargo
receipt signed by Maximo Sanglay; the fact that the truck helper, Juanito Morden, was also an
employee of petitioner; and the fact that control of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she
alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing
CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which referred to the
contract as "lease". These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She
further averred that Jesus Bascos confirmed in his testimony his statement that the contract was a
lease contract. 10 She also stated that: she was not catering to the general public. Thus, in her
answer to the amended complaint, she said that she does business under the same style of A.M.
 55

Bascos Trucking, offering her trucks for lease to those who have cargo to move, not to the general
public but to a few customers only in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the quantity or extent of the
business transacted." 12 In this case, petitioner herself has made the admission that she was in the
trucking business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same. 13

But petitioner argues that there was only a contract of lease because they offer their services only to
a select group of people and because the private respondents, plaintiffs in the lower court, did not
object to the presentation of affidavits by petitioner where the transaction was referred to as a lease
contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:

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

Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the
appellate court's factual conclusions. Yet, granting that the said evidence were not self-serving, the
same were not sufficient to prove that the contract was one of lease. It must be understood that a
contract is what the law defines it to be and not what it is called by the contracting parties. 15
Furthermore, petitioner presented no other proof of the existence of the contract of lease. He who
alleges a fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to
force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 18 There are very few instances when
the presumption of negligence does not attach and these instances are enumerated in Article 1734.
19 In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from
liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers
or the hijackers acted with grave or irresistible threat, violence, or force. 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

 56

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or robbers except
where such thieves or robbers in fact acted with grave or irresistible threat, violence or force. We
believe and so hold that the limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "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, We 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. 25 The subsequent filing of the information for
carnapping 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.

Having affirmed the findings of the respondent Court on the substantial issues involved, We find no
reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has
been rendered moot and academic by the decision on the merits.

In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained.
The petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Estrelita Bascos v. CA and Rodolfo Cipriano

G.R. No. 101089 April 7, 1993
Campos, Jr., J.
FACTS:
Cipriano, representing Cipriano Trading Enterprise (CIPTRADE) entered int
o a haulingcontract 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 subcontracted with Bascos to
transport and to deliver 400 sacks of soya beanmeal worth P156,404.00 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 thatfailure, Cipriano paid
Jibfair Shipping Agency the amount of the lost goods in accordance with the contract
which stated that: “CIPTRADE shall be held liable and answerable for any l o s s i n
 57

bags due to theft, hijacking and non-delivery or damages to the

c a r g o d u r i n g transport at market value.”
Cipriano filed a complaint for a sum of money and damages
w i t h w r i t o f p r e l i m i n a r y attachment for breach of a contract of carriage
Basco’s answer to the complaint: truck carrying the cargo was hijacked
along Canonigo St., Paco, Manila; that hijacking, being a force majeure, exculpated
her from any liability to CIPTRADE; and that the contract they entered into was a mere
lease of the truck

ISSUES:
1. was petitioner a common carrier?; 2. was
t h e h i j a c k i n g r e f e r r e d t o a f o r c e majeure?

HELD:
1. Yes. See Art. 1732. (the article makes no distinc
t i o n b e t w e e n o n e whose principal business activity is the carrying of persons
or goods or both, and one
whod o e s s u c h c a r r y i n g o n l y a s a n a n c i l l a r y a c t i v i t y ; n o d i s t i n c t
i o n b e t w e e n a p e r s o n o r enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis; no distinction between a carrier offering its services
to the general public and one who offers services or solicits business only from
a narrow segment of the general population)
the test to determine a common carrier is whether the given undertaking is a part of
the business engaged in by the carrier which he has held out to the general
public as his occupation rather than the quantity or extent of the business transacted
Basco herself has made the admission that she was in the trucking
business under the name of A.M. Bascos Trucking, offering her trucks to those with
cargo to move (hence she is a common carrier)
their contract was not one of lease: a contract is what the law defines it to be and not
what it is called by the contracting parties; furthermore, petitioner presented no other
proof of the existence of the contract of lease

2. Yes. Common carriers are obliged to observe extraordinary diligence in

the vigilance over the goods transported by them; they are presumed to have been at
fault or to have acted negligently if the goods are lost, destroyed or deteriorated; in
those cases where the presumption of negligence is applied, the common
carrier must prove that it exercised extraordinary diligence in order to overcome
the presumption.

In this case, 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
toh a v e b e e n a t f a u l t o r n e g l i g e n t . T o e x c u l p a t e t h e c a r r i e r f r o m l i a b i l i
t y a r i s i n g f r o m 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: “Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy: x x x (6) That the
common carrier’s liability for acts c o m m i t t e d b y t h i e v e s , o r o f r o b b e r s w h o
d o n o t a c t w i t h g r a v e o r i r r e s i s t i b l e t h r e a t , violence or force, is dispensed
with or diminished.”
Under Article 1745 (6) above, a common carrier is held responsible — and
will not be a l l o w e d t o d i v e s t o r t o d i m i n i s h s u c h r e s p o n s i b i l i t y —
even for acts of strangers like thieves or robbers except
w h e r e s u c h t h i e v e s o r r o b b e r s i n f a c t a c t e d w i t h g r a v e o r irresistible
threat, violence or force. We believe and so hold that the limits of the duty
of extraordinary diligence in the vigilance over the goods carried are reached
 58

where the goods are lost as a result of a robbery which is attended by “grave or
irresistible threat, violence or force.
 59

G.R. No.148496 March 19, 2002 Calvo v. UCPB Gen Insurance Co.

FACTS:

 At the time material to this case, Transorient Container Terminal Services, Inc. (TCTSI)
owned by Virgines Calvo entered into a contract with San Miguel Corporation (SMC) for
the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board
from the Port Area in Manila to SMC's warehouse at the Tabacalera Compound,
Romualdez St., Ermita, Manila.
o The cargo was insured by respondent UCPB General Insurance Co., Inc.
 July 14, 1990: arrived in Manila on board "M/V Hayakawa Maru" and later on unloaded
from the vessel to the custody of the arrastre operator, Manila Port Services, Inc
 July 23 to July 25, 1990: Calvo withdrew the cargo from the arrastre operator and
delivered it to SMC's warehouse in Ermita, Manila
 July 25, 1990: goods were inspected by Marine Cargo Surveyors, who found that 15 reels
of the semi-chemical fluting paper were "wet/stained/torn" and 3 reels of kraft liner board
were likewise torn
 SMC collected payment from UCPB the total damage of P93,112 under its insurance
contract
 UCPB brought suit against Calvo as subrogee of SMC
o Calvo: Art. 1734(4) The character of the goods or defects in the packing or in the
containers
 spoilage or wettage" took place while the goods were in the custody of
either the carrying vessel "M/V Hayakawa Maru," which transported the
cargo to Manila, or the arrastre operator, to whom the goods were
unloaded and who allegedly kept them in open air for 9 days
notwithstanding the fact that some of the containers were deformed,
cracked, or otherwise damaged
 Trial Court: Calvo liable
 CA: affirmed

ISSUE: W/N Calvo can be exempted from liability under Art. 1734(4)

HELD: NO. CA AFFIRMED.

 mere proof of delivery of goods in good order to a carrier, and of their arrival at the place
of destination in bad order, makes out a prima facie case against the carrier, so that if no
explanation is given as to how the injury occurred, the carrier must be held responsible
 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 the right to receive the same
 Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public."

The above article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population.
 60

 concept of "common carrier" under Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act (Commonwealth Act No. 1416,
as amended) which at least partially supplements the law on common carriers set forth in
the Civil Code
 Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

" x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x x x"

 when Calvo's employees withdrew the cargo from the arrastre operator, they did so
without exception or protest either with regard to the condition of container vans or their
contents
 Calvo must do more than merely show the possibility that some other party could be
responsible for the damage. It must prove that it used "all reasonable means to ascertain
the nature and characteristic of goods tendered for transport and that it exercised due care
in the handling
 61

SCHMITZ TRANSPORT & BROKERAGE CORPORATION vs. TRANSPORT

VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA
SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES
G.R. No. 150255. April 22, 2005
CARPIO-MORALES, J.

FACTS OF THE CASE:

SYTCO Pte Ltd. Singapore shipped from Russia on board a ship owned by Black
Sea, 545 hot rolled steel sheets. The cargoes to be discharged at the port of Manila in
favor of the consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured
against all risks with Industrial Insurance Company Ltd.
The vessel arrived at the port of Manila on October 24, 1991 and Schmitz
Transport, whose services the consignee engaged to secure the requisite clearances, to
receive the cargoes from the shipside, and to deliver them to its (the consignees)
warehouse, in turn engaged the services of TVI to send a barge and tugboat at
shipside.
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge
alongside the vessel, left and returned to the port terminal. At 9:00 p.m., 37 of the 545
coils were unloaded from the vessel unto the barge which was finished by 12:30 am of
October 27.
At around 5:30 a.m., due to strong waves due to an approaching storm, the crew of
the barge abandoned it and transferred to the vessel. The barge eventually capsized,
washing the 37 coils into the sea. At 7:00 a.m., a tugboat finally arrived to pull the
already empty and damaged barge back to the pier.
Little Giant thus filed a formal claim against Industrial Insurance which paid it the
amount of P5,246,113.11. Little Giant thereupon executed a subrogation receipt in favor
of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and
Black Sea through its representative Inchcape (the defendants) before the RTC of
Manila. Industrial Insurance faulted the defendants for undertaking the unloading of the
cargoes while typhoon signal No. 1 was raised in Metro Manila.
The RTC held all the defendants negligent for unloading the cargoes outside of the
breakwater notwithstanding the storm signal.
 62

Schmitz Transport and TVI filed a joint motion for reconsideration assailing the
finding that they are common carriers. And they argued that they were not motivated by
gross or evident bad faith and that the incident was caused by a fortuitous event.
The trial court denied the motion for reconsideration.
All the defendants appealed to the Court of Appeals which affirmed in toto the
decision of the trial court.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for
its principal, consignee Little Giant, hence, the transportation contract was by and
between Little Giant and TVI.
Black Sea argued that the cargoes were received by the consignee through
petitioner in good order hence, it cannot be faulted.
For its part, TVI maintained that it acted as a passive party as it merely received the
cargoes and transferred them unto the barge upon the instruction of petitioner.
ISSUES:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any
act of negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI.
HELD:
Whether or Not there was Negligence
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party
from any and all liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the

unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligation, must be independent of human will; (2) it must be impossible to foresee the
event which constitute the caso fortuito, or if it can be foreseen it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in any manner; and (4) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor.

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.

The appellate court, in affirming the finding of the trial court that human intervention
in the form of contributory negligence by all the defendants resulted to the loss of the
cargoes, held that unloading outside the breakwater, instead of inside the breakwater,
while a storm signal was up constitutes negligence. It thus concluded that the proximate
cause of the loss was Black Seas negligence in deciding to unload the cargoes at an
unsafe place and while a typhoon was approaching.
However, there is no indication that there was greater risk in loading the cargoes
outside the breakwater. As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port operations continued and
proceeded normally.
 63

The weather data report, states that while typhoon signal No. 1 was hoisted over
Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00
p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that
the defendants were negligent in unloading outside of the breakwater.
However, that no tugboat towed back the barge to the pier after the cargoes were
completely loaded by 12:30 in the morning can be considered the proximate cause of
the loss of the cargoes. Had the barge been towed back promptly to the pier, the
deteriorating sea conditions notwithstanding, the loss could have been avoided. But the
barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to sink
along with the cargoes. The loss thus falls outside the act of God doctrine.
Who among the parties are responsible?
The Supreme Court finds that petitioner is a common carrier. For it undertook to
transport the cargoes from the shipside of M/V Alexander Saveliev to the consignees
warehouse. As long as a person or corporation holds [itself] to the public for the purpose
of transporting goods as [a] business, [it] is already considered a common carrier
regardless if [it] owns the vehicle to be used or has to hire one. That petitioner is a
common carrier, the testimony of its own Vice-President and General Manager that part
of the services it offers as a brokerage firm includes the transportation of cargoes
reflects so.

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

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

xxx

Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity.

And in Calvo v. UCPB General Insurance Co. Inc. this Court held that as the
transportation of goods is an integral part of a customs broker, the customs broker is
also a common carrier.
Petitioner’s argument that being the agent of Little Giant, any negligence it
committed was deemed the negligence of its principal does not persuade. Petitioner
was discharging its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler to provide the barge and the tugboat. In their Service Contract, while Little Giant
was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant. Little Giant did not thus
become a party to the Service Contract and was not bound by the terms and conditions
therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based
thereon but it can maintain a cause of action for negligence.
In the case of TVI, as a private carrier was still required to observe ordinary
diligence to ensure the proper and careful handling, care and discharge of the carried
goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
 64

ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2202, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would
have used in the same situation exercised by TVI?
This Court holds not.
TVIs failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was the proximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open
sea, knowing that the barge does not have any power of its own and is defenseless
from the ravages of the sea. That it was nighttime and, therefore, the members of the
crew of a tugboat would be charging overtime pay did not excuse TVI from calling for
one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 of
the Civil Code, prove that it exercised due diligence to prevent or minimize the loss,
before, during and after the occurrence of the storm in order that it may be exempted
from liability for the loss of the goods.
While petitioner sent checkers and a supervisor on board the vessel to counter-
check the operations of TVI, it failed to take all available and reasonable precautions to
avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge
despite the deteriorating sea conditions, it should have summoned the same or another
tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:

In the discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common carrier is not
relieved of its responsibilities under the contract of carriage.

The liability of the common carrier and an independent contractor would be solidary
(Art. 2194). 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.

As for Black Sea, its duty as a common carrier extended only from the time the
goods were surrendered or unconditionally placed in its possession and received for
transportation until they were delivered actually or constructively to consignee Little
Giant.
Parties to a contract of carriage may, however, agree upon a definition of delivery
that extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2
covering the shipment provides that delivery be made to the port of discharge or so near
 65

thereto as she may safely get, always afloat. The delivery of the goods to the consignee
was not from pier to pier but from the shipside of M/V Alexander Saveliev and into
barges, for which reason the consignee contracted the services of petitioner. Since
Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it
had discharged its duty.
In fine, no liability may thus attach to Black Sea.
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport
& Brokerage Corporation, and Transport Venture Incorporation jointly and severally
liable for the amount of P5,246,113.11 with the MODIFICATION that interest at SIX
PERCENT per annum of the amount due should be computed from the promulgation on
November 24, 1997 of the decision of the trial court.

AF Sanchez Brokerage vs CA and FGU Insurance

(Dec 21, 2004), 488 Phil. 430
 66

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate court's
Decision[1] of August 10, 2000 reversing and setting aside the judgment of
Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B
which dismissed the complaint of respondent FGU Insurance Corporation
(FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).

On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of

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

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

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA),[5] it was discharged "without
exception" and delivered to the warehouse of the Philippine Skylanders,
[6]

Inc. (PSI) located also at the NAIA for safekeeping.[7]

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

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of

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

Wyeth-Suaco being a regular importer, the customs examiner did not

inspect the cargoes[13] which were thereupon stripped from the aluminum
containers[14] and loaded inside two transport vehicles hired by Sanchez
Brokerage.[15]

Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas,[16] employees of Elite
 67

Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo

surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on
behalf of FGU Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon

Laboratories Inc. in Antipolo City for quality control check.[17]The delivery
receipt, bearing No. 07037 dated July 29, 1992, indicated that the delivery
consisted of one container with 144 cartons of Femenal and Nordiol and 1
pallet containing Trinordiol.[18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,

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

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

The Elite Surveyors later issued Certificate No. CS-0731-

1538/92[23] attached to which was an "Annexed Schedule" whereon it was
indicated that prior to the loading of the cargoes to the broker's trucks at
the NAIA, they were inspected and found to be in "apparent good
condition."[24] Also noted was that at the time of delivery to the warehouse
of Hizon Laboratories Inc., slight to heavy rains fell, which could account
for the wetting of the 44 cartons of Femenal and Nordiol tablets.[25]

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction

Report[26] confirming that 38 x 700 blister packs of Femenal tablets, 3 x
700 blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol
tablets were heavily damaged with water and emitted foul smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials

Rejection[27] of 38 cartons of Femenal and 3 cartons of Nordiol on the
ground that they were "delivered to Hizon Laboratories with heavy water
damaged (sic) causing the cartons to sagged (sic) emitting a foul order and
easily attracted flies."[28]

Wyeth-Suaco later demanded, by letter[29] of August 25, 1992, from Sanchez

Brokerage the payment of P191,384.25 representing the value of its loss
arising from the damaged tablets.

As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed

an insurance claim against FGU Insurance which paid Wyeth-Suaco the
amount of P181,431.49 in settlement of its claim under Marine Risk Note
 68

Number 4995.

Wyeth-Suaco thus issued Subrogation Receipt[30] in favor of FGU

Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it

paid Wyeth-Suaco, Sanchez Brokerage, by letter[31] of January 7, 1993,
disclaimed liability for the damaged goods, positing that the damage was
due to improper and insufficient export packaging; that when the sealed
containers were opened outside the PSI warehouse, it was discovered that
some of the loose cartons were wet,[32]prompting its (Sanchez Brokerage's)
representative Morales to inform the Import-Export Assistant of Wyeth-
Suaco, Ramir Calicdan, about the condition of the cargoes but that the
latter advised to still deliver them to Hizon Laboratories where an adjuster
would assess the damage.[33]

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

The trial court, by Decision[34] of July 29, 1996, dismissed the complaint,
holding that the Survey Report prepared by the Elite Surveyors is bereft of
any evidentiary support and a mere product of pure guesswork.[35]

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

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

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is

GRANTED. The Decision of the Court a quo is REVERSED. Another
Decision is hereby rendered in favor of the Appellant and against the
Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal

amount of P181, 431.49, with interest thereupon at the rate of 6% per
annum, from the date of the Decision of the Court, until the said
 69

amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of

P20,000.00 as and by way of attorney's fees; and

3. The counterclaims of the Appellee are DISMISSED.[38]

Sanchez Brokerage's Motion for Reconsideration having been denied by the

appellate court's Resolution of December 8, 2000 which was received by
petitioner on January 5, 2001, it comes to this Court on petition for
certiorari filed on March 6, 2001.

In the main, petitioner asserts that the appellate court committed grave and
reversible error tantamount to abuse of discretion when it found petitioner
a "common carrier" within the context of Article 1732 of the New Civil
Code.

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

On the merits, respondent FGU Insurance contends that petitioner, as a

common carrier, failed to overcome the presumption of negligence, it being
documented that petitioner withdrew from the warehouse of PSI the
subject shipment entirely in good order and condition.[39]

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of

Appeals in any case, i.e., regardless of the nature of the action or
proceedings involved, may be appealed to this Court by filing a petition for
review, which would be but a continuation of the appellate process over the
original case.[40]

The Resolution of the Court of Appeals dated December 8, 2000 denying

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

In another vein, the rule is well settled that in a petition for certiorari, the
petitioner must prove not merely reversible error but also grave abuse of
discretion amounting to lack or excess of jurisdiction.
 70

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

Where the issue or question involves or affects the wisdom or legal

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

Procedural technicalities aside, the petition still fails.

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

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the
public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez
Brokerage, himself testified that the services the firm offers include the
delivery of goods to the warehouse of the consignee or importer.

ATTY. FLORES:

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

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and
those upon approval of the importer, we prepare the entry together for
processing and claims from customs and finally deliver the goods to the
warehouse of the importer.[43]
Article 1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only as an
ancillary activity.[44] The contention, therefore, of petitioner that it is not a
common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as
required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under

Article 1733[45] of the Civil Code, extraordinary diligence in the vigilance
over the goods it transports according to all the circumstances of each case.
 71

In the event that the goods are lost, destroyed or deteriorated, it is

presumed to have been at fault or to have acted negligently, unless it
proves that it observed extraordinary diligence.[46]

The concept of "extra-ordinary diligence" was explained in Compania

Maritima v. Court of Appeals:[47]

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to
it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage, including
such methods as their nature requires."[48]
In the case at bar, it was established that petitioner received the cargoes
from the PSI warehouse in NAIA in good order and condition;[49]and that
upon delivery by petitioner to Hizon Laboratories Inc., some of the cargoes
were found to be in bad order, as noted in the Delivery Receipt[50] issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors[51] and
the Destruction Report of Hizon Laboratories, Inc.[52]

In an attempt to free itself from responsibility for the damage to the goods,
petitioner posits that they were damaged due to the fault or negligence of
the shipper for failing to properly pack them and to the inherent
characteristics of the goods[53]; and that it should not be faulted for
following the instructions of Calicdan of Wyeth-Suaco to proceed with the
delivery despite information conveyed to the latter that some of the cartons,
on examination outside the PSI warehouse, were found to be wet.[54]

While paragraph No. 4 of Article 1734[55] of the Civil Code exempts a

common carrier from liability if the loss or damage is due to the character
of the goods or defects in the packing or in the containers, the rule is that if
the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not
relieved of liability for the resulting damage.[56]

If the claim of petitioner that some of the cartons were already damaged
upon delivery to it were true, then it should naturally have received the
cargo under protest or with reservations duly noted on the receipt issued by
PSI. But it made no such protest or reservation.[57]

Moreover, as observed by the appellate court, if indeed petitioner's

employees only examined the cargoes outside the PSI warehouse and found
some to be wet, they would certainly have gone back to PSI, showed to the
warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.[58] Or, petitioner
would have presented, as witness, the employees of the PSI from whom
 72

Morales and Domingo took delivery of the cargo to prove that, indeed, part
of the cargoes was already damaged when the container was allegedly
opened outside the warehouse.[59]

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no

rain fell that day. Instead, it asserts that some of the cargoes were already
wet on delivery by PSI outside the PSI warehouse but such notwithstanding
Calicdan directed Morales to proceed with the delivery to Hizon
Laboratories, Inc.

While Calicdan testified that he received the purported telephone call of

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

The 4-page weather data furnished by PAGASA[61] on request of Sanchez

Brokerage hardly impresses, no witness having identified it and interpreted
the technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories,

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

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral

contraceptives, that arrived at the NAIA were damaged and claimed by the
Wyeth-Suaco without any question?

WITNESS:

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

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:

A: We experienced, there was a time that we experienced that there was a

cartoon (sic) wetted (sic) up to the bottom are wet specially during rainy
season.[62]
 73

Since petitioner received all the cargoes in good order and condition at the
time they were turned over by the PSI warehouseman, and upon their
delivery to Hizon Laboratories, Inc. a portion thereof was found to be in
bad order, it was incumbent on petitioner to prove that it exercised
extraordinary diligence in the carriage of the goods. It did not, however.
Hence, its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is

hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

AF Sanchez Brokerage vs CA and FGU Insurance

(Dec 21, 2004)

Facts:
AF Sanchez is engaged in a broker business wherein its main job is to calculate
customs duty, fees and charges as well as storage fees for the cargoes. Part also of the
services being given by AF Sanchez is the delivery of the shipment to the consignee
upon the instruction of the shipper.

Wyett engaged the services of AF Sanchez where the latter delivered the shipment to
Hizon Laboratories upon instruction of Wyett. Upon inspection, it was found out that at
least 44 cartons containing contraceptives were in bad condition. Wyett claimed
insurance from FGU. FGU exercising its right of subrogation claims damages against
AF Sanchez who delivered the damaged goods. AF Sanchez contended that it is not a
common carrier but a brokerage firm.

Issue:
Is AF Sanchez a common carrier?

Held:
SC held that Art 1732 of the Civil Code in defining common carrier does not distinguish
whether the activity is undertaken as a principal activity or merely as an ancillary
activity. In this case, while it is true that AF Sanchez is principally engaged as a broker,
it cannot be denied from the evidence presented that part of the services it offers to its
customers is the delivery of the goods to their respective consignees.

Addendum:
AF Sanchez claimed that the proximate cause of the damage is improper packing.
Under the CC, improper packing of the goods is an exonerating circumstance. But in
this case, the SC held that though the goods were improperly packed, since AF
Sanchez knew of the condition and yet it accepted the shipment without protest or
reservation, the defense is deemed waived.

Foul Bill of Lading – reservation or protest on a shipment or goods improperly packed.

 74

FIRST DIVISION [G.R. No. 141910. August 6, 2002] FGU INSURANCE

CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION and
LAMBERT M. EROLES, respondents. D E C I S I O N VITUG, J.: G.P. Sarmiento

Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of
Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in
Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the
truck was traversing the north diversion road along McArthur highway in Barangay
Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a
deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an
insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered
cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and
interests of Concepcion Industries, Inc., sought reimbursement of the amount it had
paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU
filed a complaint for damages and breach of contract of carriage against GPS and its
driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its
answer, respondents asserted that GPS was the exclusive hauler only of Concepcion
Industries, Inc., since 1988, and it was not so engaged in business as a common
carrier. Respondents further claimed that the cause of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the
extent of damage to the cargoes and the amount it had paid to the assured. GPS,
instead of submitting its evidence, filed with leave of court a motion to dismiss the
complaint by way of demurrer to evidence on the ground that petitioner had failed to
prove that it was a common carrier. The trial court, in its order of 30 April 1996, [1]
granted the motion to dismiss, explaining thusly: Under Section 1 of Rule 131 of the
Rules of Court, it is provided that Each party must prove his own affirmative allegation,
xxx. In the instant case, plaintiff did not present any single evidence that would prove
that defendant is a common carrier. x x x x x x x x x Accordingly, the application of the
law on common carriers is not warranted and the presumption of fault or negligence on
the part of a common carrier in case of loss, damage or deterioration of goods during
transport under 1735 of the Civil Code is not availing. Thus, the laws governing the
contract between the owner of the cargo to whom the plaintiff was subrogated and the
owner of the vehicle which transports the cargo are the laws on obligation and contract
of the Civil Code as well as the law on quasi delicts. Under the law on obligation and
contract, negligence or fault is not presumed. The law on quasi delict provides for some
presumption of negligence but only upon the attendance of some circumstances. Thus,
Article 2185 provides: 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. Evidence for the plaintiff shows no proof that
 75

defendant was violating any traffic regulation. Hence, the presumption of negligence is
not obtaining. Considering that plaintiff failed to adduce evidence that defendant is a
common carrier and defendants driver was the one negligent, defendant cannot be
made liable for the damages of the subject cargoes. [2] The subsequent motion for
reconsideration having been denied, [3] plaintiff interposed an appeal to the Court of
Appeals, contending that the trial court had erred (a) in holding that the appellee
corporation was not a common carrier defined under the law and existing jurisprudence;
and (b) in dismissing the complaint on a demurrer to evidence. The Court of Appeals
rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its
decision of 10 June 1999, [4] discoursed, among other things, that "x x x in order for the
presumption of negligence provided for under the law governing common carrier (Article
1735, Civil Code) to arise, the appellant must first prove that the appellee is a common
carrier. Should the appellant fail to prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant would have to prove that the
carrier was negligent. "x x x x x x x x x "Because it is the appellant who insists that the
appellees can still be considered as a common carrier, despite its `limited clientele,
(assuming it was really a common carrier), it follows that it (appellant) has the burden of
proving the same. It (plaintiffappellant) `must establish his case by a preponderance of
evidence, which means that the evidence as a whole adduced by one side is superior to
that of the other. (Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175).
This, unfortunately, the appellant failed to do hence, the dismissal of the plaintiffs
complaint by the trial court is justified. "x x x x x x x x x "Based on the foregoing
disquisitions and considering the circumstances that the appellee trucking corporation
has been `its exclusive contractor, hauler since 1970, defendant has no choice but to
comply with the directive of its principal, the inevitable conclusion is that the appellee is
a private carrier. "x x x x x x x x x "x x x the lower court correctly ruled that 'the
application of the law on common carriers is not warranted and the presumption of fault
or negligence on the part of a common carrier in case of loss, damage or deterioration
of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x.
"Finally, We advert to the long established rule that conclusions and findings of fact of a
trial court are entitled to great weight on appeal and should not be disturbed unless for
strong and valid reasons." [5] Petitioner's motion for reconsideration was likewise
denied; [6] hence, the instant petition, [7] raising the following

issues: I WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON

CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.
II WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A
PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE
GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY
DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION.
III WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN
THE INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of
Appeals to be amply justified. GPS, being an exclusive contractor and hauler of
Concepcion Industries, Inc., rendering or offering its services to no other individual or
entity, cannot be considered a common carrier. Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for hire or compensation, offering
their services to the public, [8] whether to the public in general or to a limited clientele in
particular, but never on an exclusive basis. [9] The true test of a common carrier is the
carriage of passengers or goods, providing space for those who opt to avail themselves
of its transportation service for a fee. [10] Given accepted standards, GPS scarcely falls
within the term common carrier. The above conclusion notwithstanding, GPS cannot
escape from liability. In culpa contractual, upon which the action of petitioner rests as
being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of
 76

the contract and the failure of its compliance justify, prima facie, a corresponding right of
relief. [11] The law, recognizing the obligatory force of contracts, [12] will not permit a
party to be set free from liability for any kind of mis performance of the contractual
undertaking or a contravention of the tenor thereof. [13] A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have been
lost or suffered. The remedy serves to preserve the interests of the promisee that may
include his expectation interest, which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been
performed, or his reliance interest, which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he would have
been in had the contract not been made; or his restitution interest, which is his interest
in having restored to him any benefit that he has conferred on the other party. [14]
Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action. [15] The effect of every infraction is to create a new
duty, that is, to make recompense to the one who has been injured by the failure of
another to observe his contractual obligation [16] unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the diligence
of a good father of a family or, exceptionally by stipulation or by law such as in the case
of common carriers, that of extraordinary diligence) or of the attendance of fortuitous
event, to excuse him from his ensuing liability. Respondent trucking corporation
recognizes the existence of a contract of carriage between it and petitioners assured,
and admits that the cargoes it has assumed to deliver have been lost or damaged while
in its custody. In such a situation, a default on, or failure of compliance with, the
obligation in this case, the delivery of the goods in its custody to the place of destination
gives rise to a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has failed to do
so. Respondent driver, on the other hand, without concrete proof of his negligence or
fault, may not himself be ordered to pay petitioner. The driver, not being a party to the
contract of carriage between petitioners principal and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered into it or
their successors who have assumed their personality or their juridical position. [17]
Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract
can neither favor nor prejudice a third person. Petitioners civil action against the driver
can only be based on culpa aquiliana, which, unlike culpa contractual, would require the
claimant for damages to prove negligence or fault on the part of the defendant. [18] A
word in passing. 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 latters 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. [19] 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. [20] 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. [21] 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. [22] 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. [23] Nevertheless, the
requirement that responsible causes other than those due to defendants conduct must
first be eliminated, for the doctrine to apply, should be understood as being confined
 77

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 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. If a demurrer to
evidence is granted but on appeal the order of dismissal is reversed, the movant shall
be deemed to have waived the right to present evidence. [24] Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in
transporting the cargoes of the assured so as to still warrant a remand of the case to the
trial court. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court,
Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of
Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned,
but said assailed order of the trial court and decision of the appellate court are
REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby
ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes
in the amount of P204,450.00. No costs. SO ORDERED.

FGU Insurance Corp. vs. GP Sarmiento Trucking Corp. and Lambert

M. Eroles

Facts
Respondent GP Sarmiento Trucking Company (GTS) undertook to
transport cargoes for Concepcion Industries Inc. when it collided with an
unidentified truck, causing damage to the cargoes. Petitioner, FGU, insurer
of the shipment, paid to Concepcion Industries the value of the covered
cargoes. Then, as subrogee of Concepcion Industries Inc., petitioner FGU
sued GPS for breach of contract of carriage for reimbursement. Instead of
filing an answer, GPS filed a demurrer to evidence, claiming that it could not
be held liable as a common carrier because it was only a private carrier,
being the exclusive hauler only of Concepcion Industries Inc. since 1988.
The lower court granted the motion, ruling that plaintiff FGU failed to
prove that GPS was a common carrier. The CA affirmed the trial court's
order.

Issue
Whether or not GPS is considered a common carrier and may be
presumed negligent and therefore liable for damages.

Ruling
The Supreme Court held that GPS cannot be considered a common
carrier as it renders service exclusively to Concepcion Industries; that
notwithstanding, GPS cannot escape from liability since in culpa contractual,
mere proof of the existence of the contract and the failure of its compliance
justify prima facie a corresponding right of relief. Respondent driver,
however, who is not a party to the contract of carriage, may not be held
liable under the agreement without concrete proof of his negligence or fault.
Hence, the Supreme Court affirmed the assailed order of the trial court
and the CA insofar as the respondent driver was concerned, but GPS
trucking company was ordered to pay the petitioner FGU the value of the
damaged and lost cargoes.
 78

005 CRISOSTOMO VS. CA

[G.R. NO. 138334; AUGUST 25, 2003]
TOPIC: DISTINCTION BETWEEN COMMON
CARRIERS AND OTHER TYPES OF
CONTRACTS (TRAVEL AGENCY)
PONENTE: YNARES-SANTIAGO, J.

FACTS:

1. Petitioner Estela L. Crisostomo (Crisostomo) contracted the services of respondent Caravan Travel and Tours
International, Inc. (Caravan) to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed
“Jewels of Europe”.
2. Pursuant to said contract, Meriam Menor (MENOR) who is also the niece of Crisostomo, went to the latter’s
residence to deliver the travel documents and plane tickets. Crisostomo, in turn, gave Menor the full payment
for the package tour.
3. Without checking her travel documents, Crisostomo went to NAIA. However, she discovered that the flight
she was supposed to take had already departed the previous day. She thus called up Menor to complain.
4. Subsequently, Menor prevailed upon Crisostomo to take another tour – the “British Pageant” to which
Crisostomo was asked to pay once again.
5. Upon Crisostomo’s return from Europe, she demanded from Caravan the reimbursement of P61,421.70,
representing the difference between the sum she paid for “Jewels of Europe” and the amount she owed Caravan
for the “British Pageant” tour. Despite several demands, Caravan refused to reimburse the amount, contending
that the same was non-refundable. Crisostomo thus filed a case.
6. Crisostomo alleged that her failure to join “Jewels of Europe” was due to Caravan’s fault since it did not
clearly indicate the departure date on the plane ticket. Caravan was also negligent in informing her of the wrong
flight schedule through its employee Menor.
7. Caravan insisted that Crisostomo was informed of the correct departure date, which was clearly and legibly
printed on the plane ticket. The travel documents were given two days ahead of the scheduled trip. Crisostomo
had only herself to blame for missing the flight, as she did not bother to read or confirm her flight schedule as
printed on the ticket.
8. RTC: Caravan was negligent in erroneously advising Crisostomo of the wrong date. Crisostomo incurred
contributory negligence for not checking her travel documents. Caravan should reimburse Crisostomo but with
deductions due to her contributory negligence.
9. CA: Both parties were at fault. However, Crisostomo is more negligent because as a lawyer and well-traveled
person, she should have known better than to simply rely on what was told to her. This being so, she is not
entitled to any form of damages.
10. Crisostomo appealed to SC. She contended that Caravan did not observe the standard of care required
 79

of a common carrier when it informed her wrongly of the flight schedule. She could not be deemed more
negligent than Caravan since the latter is required by law to exercise extraordinary diligence in the
fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the proximate
cause of the damage she suffered.
ISSUE: Whether or not a travel agency is a common carrier and is therefore required to exercise extraordinary
diligence.
HELD: No, a travel agency is not an entity engaged in the business of transporting either passengers or goods
and is therefore, neither a private nor a common carrier.
RATIO: 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. A common carrier is defined under Article 1732 of the Civil Code 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 is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods. Respondent did not undertake to transport petitioner from one
place to another since its covenant with its customers is simply to make travel arrangements in their
behalf. Respondent’s services as a travel agency include procuring tickets and facilitating travel permits
or visas as well as booking customers for tours.
The object of petitioner’s contractual relation with respondent is the latter’s service of arranging and
facilitating petitioner’s booking, ticketing and accommodation in the package tour. In contrast, the object of a
contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the
parties in this case was an ordinary one for services and not one of carriage.

CASE LAW/ DOCTRINE: a travel agency is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. It goes without saying that a travel
agency is not required by law to exercise extra ordinary diligence.

DISSENTING/CONCURRING OPINION(S): None

G.R. No. 157917 August 29, 2012

 80

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the
COURT OF APPEALS Respondents.
DECISION
BERSAMIN, J.:

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 an unemployed high school student at the time of the
accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed
with modification the decision rendered on December 3, 1999 by the Regional Trial Court (RTC),
Branch 260, in Parañaque City that had decreed them jointly and severally liable with Philippine
National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for
the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high school student of Don
Bosco Technical Institute (Don Bosco).

Antecedents

The Pereñas were engaged in the business of transporting students from their respective residences
in Parañaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the
Pereñas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity to transport 14
students at a time, two of whom would be seated in the front beside the driver, and the others in the
rear, with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the
Zarates’ residence. Aaron took his place on the left side of the van near the rear door. The van, with
its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student
riders on their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15
a.m., and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow
path underneath the Magallanes Interchange that was then commonly used by Makati-bound
vehicles as a short cut into Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the narrow path had no
railroad warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn to warn motorists of
its approach. When the train was about 50 meters away from the passenger bus and the van, Alano
applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a
collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van
driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine of the 12
students in the rear, including Aaron, out of the van. Aaron landed in the path of the train, which
dragged his body and severed his head, instantaneously killing him. Alano fled the scene on board
the train, and did not wait for the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not be served with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:
 81

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(2) Spouses Zarate engaged the services of spouses Pereña for the adequate and
safe transportation carriage of the former spouses' son from their residence in
Parañaque to his school at the Don Bosco Technical Institute in Makati City;

(3) During the effectivity of the contract of carriage and in the implementation
thereof, Aaron, the minor son of spouses Zarate died in connection with a
vehicular/train collision which occurred while Aaron was riding the contracted carrier
Kia Ceres van of spouses Pereña, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided with the train of
PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;

(4) At the time of the vehicular/train collision, the subject site of the vehicular/train
collision was a railroad crossing used by motorists for crossing the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no appropriate
and safety warning signs and railings at the site commonly used for railroad crossing;

(6) At the material time, countless number of Makati bound public utility and private
vehicles used on a daily basis the site of the collision as an alternative route and
short-cut to Makati;

(7) The train driver or operator left the scene of the incident on board the commuter
train involved without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the vehicular
collision;

(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train collision;

(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and

(12) The site of the vehicular/train collision was within the vicinity or less than 100
meters from the Magallanes station of PNR.

B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his functions,
liable for negligence constituting the proximate cause of the vehicular collision, which
resulted in the death of plaintiff spouses' son;

(2) Whether or not the defendant spouses Pereña being the employer of defendant
Alfaro are liable for any negligence which may be attributed to defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning
signs and railings in the area commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular collision which resulted in the death
of the plaintiff spouses' son;

(4) Whether or not defendant spouses Pereña are liable for breach of the contract of
carriage with plaintiff-spouses in failing to provide adequate and safe transportation
for the latter's son;

(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;
 82

(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the
diligence of employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of
Aaron John Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the commuter
train involved in the accident, in allowing or tolerating the motoring public to cross,
and its failure to install safety devices or equipment at the site of the accident for the
protection of the public;

(9) Whether or not defendant PNR should be made to reimburse defendant spouses
for any and whatever amount the latter may be held answerable or which they may
be ordered to pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the
amounts claimed by the latter in their Complaint by reason of its gross negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral
and exemplary damages and attorney's fees.2

The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.

In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had
been issued a driver’s license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña had sometimes
accompanied Alfaro in the van’s trips transporting the students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow path
traversed by the van had not been intended to be a railroad crossing for motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision,3 disposing:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the
cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the death
of Aaron; and that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.
 83

The CA’s Ruling

Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and

severally liable together with defendant-appellants spouses Teodorico and Nanette
Pereña and defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the
death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses
despite overwhelming documentary evidence on record, supporting the case of
defendants-appellants Philippine National Railways.

The Pereñas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and
exemplary damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the
absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did
not state the factual and legal bases, to wit:6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Parañaque City is AFFIRMED with the modification that the award of Actual Damages is reduced
to ₱ 59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is
Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the Court gave
the heirs of Cariaga a sum representing the loss of the deceased’s earning capacity despite Cariaga
being only a medical student at the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:–

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy
from age of 21 (the age when he would have graduated from college and started working for his own
livelihood) instead of 15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron’s death were unknown, it used the prevailing minimum wage of ₱
280.00/day to compute Aaron’s gross annual salary to be ₱ 110,716.65, inclusive of the thirteenth
month pay. Multiplying this annual salary by Aaron’s life expectancy of 39.3 years, his gross income
would aggregate to ₱ 4,351,164.30, from which his estimated expenses in the sum of ₱
2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income. Due to Aaron’s
computed net income turning out to be higher than the amount claimed by the Zarates, only ₱
2,109,071.00, the amount expressly prayed for by them, was granted.

On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8

 84

Issues

In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.

II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.

III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.

Ruling

The petition has no merit.

1.
Were the Pereñas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereñas and the PNR,
basing their claim against the Pereñas on breach of contract of carriage and against the PNR on
quasi-delict.

The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
driver’s license and that he had not been involved in any vehicular accident prior to the fatal collision
with the train; that they even had their own son travel to and from school on a daily basis; and that
Teodoro Pereña himself sometimes accompanied Alfaro in transporting the passengers to and from
school. The RTC gave scant consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.

We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use, the exact nature of the operation
of a school bus service has not been finally settled. This is the occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire.11 The provisions on ordinary
contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common
carrier is a 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 such
services to the public.12 Contracts of common carriage are governed by the provisions on common
carriers of the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A
common carrier is required to observe extraordinary diligence, and is presumed to be at fault or to
have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14
 85

In relation to common carriers, the Court defined public use in the following terms in United States v.
Tan Piaco,15viz:

"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we must
look not only to the character of the business to be done, but also to the proposed mode of doing it.
If the use is merely optional with the owners, or the public benefit is merely incidental, it is not a
public use, authorizing the exercise of the jurisdiction of the public utility commission. There must be,
in general, a right which the law compels the owner to give to the general public. It is not enough that
the general prosperity of the public is promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is whether the public may enjoy it by
right or only by permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any
distinction between a person or an enterprise offering transportation on a regular or an isolated
basis; and has not distinguished a carrier offering his services to the general public, that is, the
general community or population, from one offering his services only to a narrow segment of the
general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides
neatly with the notion of public service under the Public Service Act, which supplements the law on
common carriers found in the Civil Code. Public service, according to Section 13, paragraph (b) of
the Public Service Act, includes:

x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientèle, whether permanent or occasional, and done
for the 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, 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.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has considered
as common carriers pipeline operators,18 custom brokers and warehousemen,19 and barge
operators20 even if they had limited clientèle.

As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in the activity,
but whether the undertaking is a part of the activity engaged in by the carrier that he has held out to
the general public as his business or occupation. If the undertaking is a single transaction, not a part
of the general business or occupation engaged in, as advertised and held out to the general public,
the individual or the entity rendering such service is a private, not a common, carrier. The question
must be determined by the character of the business actually carried on by the carrier, not by any
secret intention or mental reservation it may entertain or assert when charged with the duties and
obligations that the law imposes.21

Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a fee.
Despite catering to a limited clientèle, the Pereñas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee.

The common carrier’s standard of care and vigilance as to the safety of the passengers is defined by
law. Given the nature of the business and for reasons of public policy, the common carrier is 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."22 Article 1755 of
the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
 86

due regard for all the circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand.23 No device, whether by stipulation, posting of notices, statements on tickets, or otherwise,
may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24

And, secondly, the Pereñas have not presented any compelling defense or reason by which the
Court might now reverse the CA’s findings on their liability. On the contrary, an examination of the
records shows that the evidence fully supported the findings of the CA.

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger.25 The presumption of
negligence, being a presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent.26 It was the law no less that required them to prove their
observance of extraordinary diligence in seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences of such death.

There is no question that the Pereñas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient. According to Article 1759 of the
Civil Code, their liability as a common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employee. This was the
reason why the RTC treated this defense of the Pereñas as inappropriate in this action for breach of
contract of carriage.

The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier.27 In this
connection, the records showed their driver’s actual negligence. There was a showing, to begin with,
that their driver traversed the railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that point had been used by
motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into taking that
route. On the other hand, with his familiarity with that shortcut, their driver was fully aware of the
risks to his passengers but he still disregarded the risks. Compounding his lack of care was that loud
music was playing inside the air-conditioned van at the time of the accident. The loudness most
probably reduced his ability to hear the warning horns of the oncoming train to allow him to correctly
appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a passenger bus
on the left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train
that was then coming from the opposite side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of the train. As a result, the bus avoided
a collision with the train but the van got slammed at its rear, causing the fatality. Lastly, he did not
slow down or go to a full stop before traversing the railroad tracks despite knowing that his
slackening of speed and going to a full stop were in observance of the right of way at railroad tracks
as defined by the traffic laws and regulations.28He thereby violated a specific traffic regulation on right
of way, by virtue of which he was immediately presumed to be negligent.29

The omissions of care on the part of the van driver constituted negligence,30 which, according to
Layugan v. Intermediate Appellate Court,31 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,32 or as Judge Cooley
defines it, ‘(t)he failure to observe for the protection of the interests of another person, that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.’"33

The test by which to determine the existence of negligence in a particular case has been aptly stated
in the leading case of Picart v. Smith,34 thuswise:

The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case
is not determined by reference to the personal judgment of the actor in the situation before him. The
 87

law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they
can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions to guard against that
harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this
prevision, is always necessary before negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a given case is this: Conduct is said to
be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect
harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against
its consequences. (Emphasis supplied)

Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when he
traversed the railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware
of the grave harm to be thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court, 35 where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers
when its train hit the rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the showing of negligence on
the part of both the Pereñas and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated railroad crossing
when it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at a point not
intended for that purpose.

At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same complaint
as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact and of law were
common as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of
contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school
van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through
the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was
aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily,
the Pereñas and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aaron’s earning capacity proper?

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC
on the liability, the CA modified the amount. Both lower courts took into consideration that Aaron,
while only a high school student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The basis for the
computation of Aaron’s earning capacity was not what he would have become or what he would
have wanted to be if not for his untimely death, but the minimum wage in effect at the time of his
death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his
 88

age of 15 years at the time of his death, but on 21 years, his age when he would have graduated
from college.

We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded. They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
1âwphi1

Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before the shooting, and was at
the time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his
ambition to become a professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.

We reject the Pereñas’ submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino
was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron would be
some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician, or a lawyer).
Instead, the computation of Aaron’s earning capacity was premised on him being a lowly minimum
wage earner despite his being then enrolled at a prestigious high school like Don Bosco in Makati, a
fact that would have likely ensured his success in his later years in life and at work.

And, secondly, the fact that Aaron was then without a history of earnings should not be taken 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."38 Accordingly, we emphatically
hold in favor of the indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for
loss of the deceased’s power or ability to earn money.39

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas
Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriaga’s
earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he could have finished the
medical course and would have passed the medical board examinations in due time, and that he
could have possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due time, and that their
jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the
time of their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baños, the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates in
the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts
were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their suffering for the loss of their
child. At any rate, reducing the amount as excessive might prove to be an injustice, given the
passage of a long time from when their mental anguish was inflicted on them on August 22, 1996.
 89

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only
to render effective the desired example for the public good. As a common carrier, the Pereñas
needed to be vigorously reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an award of exemplary
damages in that amount would suffice to instill in them and others similarly situated like them the
ever-present need for greater and constant vigilance in the conduct of a business imbued with public
interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on
November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

Spouses Teodoro and Nanette Perena, vs. Spouses Nicolas and Teresita Zarate
GR no. 157917 August 29, 2012

The facts of the case are as follows:

Spouses Perena were engaged in school bus service, transporting students from
Paranaque to Don Bosco Technical Institute in Makati. In June 1996, spouses Zarate contracted
spouses Perena to transport their son, Aaron Zarate, from their residence in Paranaque to Don
Bosco. As on the usual days of school in August 22, 1996, the van picked-up Aaron in their
house, he then took the left side seat near the rear door of the said vehicle. Considering that the
students were due by 7:15am at Don Bosco, and because of heavy traffic at the South
Superhighway, the driver, Clemente Alfaro, decided to take the narrow path underneath the
Magallanes interchange which then is being used by Makati bound vehicles as short cut. The said
narrow path has a railroad crossing, and while traversing the said narrow path, closely tailing a
huge passenger bus, the driver of the school service decided to overtake the said bus at about 50
meters away from the railroad crossing. Considering that the stereo is playing loudly and blinded
by the bus, he did not hear the blowing of horn of the oncoming train as a warning to the
vehicles. The bus successfully crossed the railroad crossing but the van did not. The train hit the
rear side of the van and the impact threw 9 of the 12 students including Aaron. His body landed
 90

in the path of the train, which dragged him, severed his head, instantaneously killing him.
Devastated by the sudden death of their son, spouses Zarate commenced this action for damages.
The Regional Trial Court ruled in favor of the spouses Zarate. On appeal, The Court of Appeals
affirmed the decision of the lower court but lowered the moral damages to php 2,500,000.00.

ISSUE:
Whether or not there is a breach of contract of a common carrier and whether there is
negligence.

HELD:

The Supreme Court ruled in favor spouses Zarate, affirming the decision of the Court of
Appeals.

In this case, the Supreme Court, once and for all lay the matter to rest that the school
service is a common carrier and not a private carrier, and as such, they are required to observe
the extraordinary diligence as provided under Article 1733 of the Civil Code.

According to the Supreme Court, the true test for a common carrier is not the quantity or
extent of the business actually transacted, or the number and character of the conveyances used
in the activity, but whether the undertaking is a part of the activity engaged in by the carrier that
he has held out to the general public as his business or occupation. Otherwise stated, making the
activity or holding himself or itself out to the public as a ready to act for all who may desire his
or its services to transport goods or persons for a fee.

Applying the considerations mentioned above, there is no question that Perenas as the
operators of a school service were: a) engaged in transporting passengers generally as a business
not just as a casual occupation; b) undertaking to carry passengers over established roads; c)
transporting students for a fee. Despite catering limited clientele, the Perenas operated as a
common carrier because they hold themselves out as a ready transportation indiscriminately to
the students of a particular school living within or near where they operated the service and for a
fee.

On the second issue, Article 1756 of the Civil code provides that, 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. In this case, Aaron Zarate died, and thus as provided under the above-mentioned
law, they are negligent.
 91

Valenzuela Hardwood and Industrial Supply, Inc. v. CA and Seven

BrothersShipping Corp.
G.R. No. 102316 June 30, 1997
Panganiban, J.
FACTS:

Valenzuela Hardwood entered into an agreement with Seven Brothers whereby the
latterundertook to load on board its vessel the former’s 940 lauan round logs
at the port of Maconacon, Isabela for shipment to Manila.

The charter party between Valenzuela Hardwood and Seven Brothers stipulated that
theowners shall not be responsible for loss, split, short-landing, breakages
and any kind of damages to the cargo.

Valenzuela Hardwood insured the logs against loss and/or damage with South Sea
Suretyand Insurance Co., Inc.

the vessel sank resulting in the loss of the insured logs

a check to cover payment of the premium and documentary stamps due on the
insurancep o l i c y p r o c u r e d b y V a l e n z u e l a H a r d w o o d w a s t e n d e r e d t o t h e
i n s u r e r b u t w a s n o t accepted; South Sea Surety cancelled the insurance policy it
issued as of the date of thei n c e p t i o n f o r n o n -
p a y m e n t o f t h e p r e m i u m d u e i n a c c o r d a n c e w i t h S e c t i o n 7 7 o f t h e Insu
rance Code

Valenzuela Hardwood demanded from defendant South Sea Surety the

payment of theproceeds of the policy but the latter denied liability under the policy; it
also filed a formalclaim with Seven Brothers for the value of the lost logs but the latter denied the
claim.
ISSUE:
WON a stipulation in a charter party that the owners shall not be responsible
forloss, split, short-landing, breakages and any kind of damages to the cargo is valid
HELD:
Yes. Seven Brothers had acted as a private carrier in transporting petitioner’s
lauanlogs. Thus, Article 1745 and other Civil Code provisions on common
carriers may not beapplied unless expressly stipulated by the parties in their charter
party.
 92

the proximate cause of the sinking of the vessel resulting in the loss of its cargo was
thesnapping of the iron chains and the subsequent rolling of the logs to the portside due
tothe negligence of the captain in stowing and securing the logs on board the vessel
and notdue to fortuitous event

contract of private carriage – parties may validly stipulate that responsibility for the
cargorests solely on the charterer, exempting the shipowner from liability for loss of or
damageto the cargo caused even by the negligence of the ship captain

pursuant to Art. 1306, the assailed stipulation is valid because it is freely entered into
bythe parties and the same is not contrary to law, morals, good customs,
public order, orpublic policy
ISSUE:
WON the charter party stipulation is contrary to Arts. 586 and 587 of the
Code of Commerce which confer on petitioner the right to recover damages from the
shipowner andship agent for the acts or conduct of the captain
HELD:
No. Whatever rights Valenzuela Hardwood may have
under the aforementionedstatutory provisions were waived when it entered into the
charter party.
ISSUE:
WON the charter party stipulation is void for being contrary to Arts. 1170 and 1173
HELD:
No. These articles are applicable only to the obligor or the one with an obligation
top e r f o r m . I n t h i s c a s e , S e v e n B r o t h e r s i s n o t a n o b l i g o r i n r e s p e c t
o f t h e c a r g o , f o r t h i s obligation to bear the loss was shifted to petitioner by virtue of
the charter party.

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ISSUE:
what is the effect of the South Sea Resolution wherein the SC affirmed the liability
of South Sea for the loss suffered by Valenzuela Hardwood with respect to the latter’s
actionfor damages against Seven Brothers?
HELD:
The Resolution SC affirming the liability of South Sea does not, by itself,
necessarilypreclude the petitioner from proceeding against private respondent.
Pursuant to Art. 2207,an aggrieved party may still recover the deficiency for the
person causing the loss in theevent the amount paid by the insurance company
does not fully cover the loss

Valenzuela Hardwood vs. CA

(GR 102316, 30 June 1997)
FACTS:
Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an agreement with
the Seven Brothers 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. VHIS insured the logs against loss and/or damage with
South Sea Surety and Insurance Co.

The said vessel sank resulting in the loss of VHIS’ insured logs. VHIS demanded from
 93

South Sea Surety the payment of the proceeds of the policy but the latter denied liability
under the policy for non-payment of premium. VHIS likewise filed a formal claim with
Seven Brothers for the value of the lost logs but the latter denied the claim.

The RTC ruled in favor of the petitioner.Both Seven Brothers and South Sea Surety
appealed. The Court of Appeals affirmed the judgment except as to the liability of Seven
Brothers.South Sea Surety and VHIS filed separate petitions for review before the
Supreme Court. In a Resolution dated 2 June 1995, the Supreme Court denied the
petition of South Sea Surety. The present decision concerns itself to the petition for
review filed by VHIS.

ISSUE:
Is a stipulation in a charter party that the “(o)wners shall not be responsible for loss,
split, short-landing, breakages and any kind of damages to the cargo” valid?

HELD:
Yes. Xxx [I]t 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.

x x x

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 is not
similarly situated. It can -- and in fact it usually does -- enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the
carrier’s obligations and liabilities over the shipment which, in turn, determine the price
or consideration of the charter. Thus, a charterer, in exchange for convenience and
economy, may opt to set aside the protection of the law on common carriers. When the
charterer decides to exercise this option, he takes a normal business risk.