TRANSPORTATION LAW CASES:

1.) DE GUZMAN v. C.A., CENDANA (G.R. No. L-47822, December 22,

1988) p.2
2.) VILUAN v. C.A., HUFANA (G.R. Nos. L-21477-81, April 29, 1966)
p.5
3.) PLANTERS PRODUCT INC., v. C.A. (G.R. No. 101503, Sept. 15,
1993) p.8
4.) YEPES v. SAMAR TRANSIT (G.R. Nos. L-19815-16, May 19, 1966)
p.13
5.) SWEET LINES v. HON. TEVES (G.R. No. 37750, May 19, 1978)
p.14
6.) LOPEZ v. PAN AMERICAN WORLD AIRWAYS (G.R. No. 22415,
March 30, 1966)
7.) ZULUETA v. PAN AMERICAN WORLD AIRWAYS (G.R. No. L-
28589, Jan. 8, 1973)
8.) TRANS WORLD AIRLINES v. C.A., VINLUAN (G.R. No. 78656,
Aug. 30, 1988)
9.) SPOUSES PERENA v. SPOUSES ZARATE (G.R. No. 157917,
G.R. No. Aug. 29, 2012) p.17
10.) F.C. FISHER v. YANGCO STEAMSHIP COMPANY (G.R. No.
L-8095, March 31, 1915)
11.) LOADSTAR SHIPPING CO., v. C.A. (G.R. No. 131621, Sept.
28, 1999)
12.) ZAMBOANGA TRANSPO. CO., v. C.A. (G.R. No. L-25292,
Nov. 29, 1969)
13.) FIRST PHIL. INDUSTRIAL CO., v. C.A. (G.R. No. 125948,
Dec. 29, 1998)
14.) HOME INSURANCE COMPANY v. AMERICAN STEAMSHIP
AGENCIES, INC., (G.R. No. L-2559, April 4, 1968)
15.) EPITACIO SAN PABLO v. PANTRANCO SOUTH EXPRESS,
INC., (G.R. No. L-61461, Aug. 21, 1987)
16.) NATIONAL STEEL CORP., v. C.A. (G.R. No. 112287, Dec. 12,
1997)
17.) AETNA INSURANCE CO., v. BARBER STEAMSHIP LINES,
INC., (G.R. No. L- 25266, Jan. 15, 1975)

1
 1. G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

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. 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.

2
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 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

3
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 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

4
 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
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.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

G.R. Nos. L-21477-81 April 29, 1966

FRANCISCA VILUAN, petitioner,

vs.
THE COURT OF APPEALS, PATRICIO HUFANA and GREGORIO HUFANA, respondents.

Jose A. Solomon, for petitioner.

Lourdes M. Garcia, for respondents.

REGALA, J.:

Seven persons were killed and thirteen others were injured in Bangar, La Union, on February 16,
1958, when a passenger bus on which they were riding caught fire after hitting a post and crashing
against a tree. The bus, owned by petitioner and driven by Hermenegildo Aquino, came from San
Fernando, La Union and was on its way to Candon, Ilocos Sur.

5
It appears that, as the bus neared the gate of the Gabaldon school building in the municipality of
Bangar, another passenger bus owned by Patricio Hufana and driven by Gregorio Hufana tried to
overtake it but that instead of giving way, Aquino increased the speed of his bus and raced with the
overtaking bus. Aquino lost control of his bus as a result of which it hit a post, crashed against a tree
and then burst into flames.

Among those who perished were Timoteo Mapanao, Francisca Lacsamana, Narcisa Mendoza and
Gregorio Sibayan, whose heirs sued petitioner and the latter's driver, Hermenegildo Aquino, for
damages for breach of contract of carriage. Carolina Sabado, one of those injured, also sued
petitioner and the driver for damages. The complaints were filed in the Court of First Instance of La
Union.

In their answer, petitioner and her driver blamed respondent Gregorio Hufana for the accident. With
leave of court, they filed third party complaints against Hufana and the latter's employer, Patricio
Hufana.

After trial, the court found that the accident was due to the concurrent negligence of the drivers of
the two buses and held both, together with their respective employers, jointly and severally liable for
damages.

The dispositive portion of its decision reads:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered, declaring the plaintiff's
entitled to damages to be paid jointly and severally by the defendants and third-party
defendants as follows:

(1) For plaintiff Juliana C. Vda. de Mapanao for the death of her son Timoteo Mapanao, the
sum of P5,000.00 for actual damages, P1,000.00 as moral damages and P250.00 as
attorney's fees;

(2) For plaintiff Leon Lacsamana for the death of his daughter Francisca Lacsamana, the
sum of P4,000.00 as actual damages, P1,000.00 as moral damages and P250.00 as
attorney's fees;

(3) For plaintiffs Juan Mendoza and Magdalena Mendoza for the death of their mother
Narcisa Mendoza, the sum of P4,000.00 for actual damages, P1,000.00 for moral damages
and P250.00 as attorney's fees;

(4) For plaintiffs Agustina Sabado, Quintin Sibayan, Julita Sibayan, Primitivo Sibayan and
Avelina Sibayan, the sum of P4,000.00 for actual damages, P1,500.00 for moral damages
and P250.00 as attorney's fees;

(5) For the injured passenger Carolina Sabado, P649.00 for actual damages, P1,000.00 for
moral damages and P250.00 for attorney's fees.

All such amounts awarded as damages shall bear interest at the legal rate of six per cent
(6%) per annum from the date of this decision until the same shall have been duly paid in
full.

Defendants and third-party defendants are further ordered to pay proportionate costs."

Both petitioner and her driver and the respondents herein appealed to the Court of Appeals. While
affirming the finding that the accident was due to the concurrent negligence of the drivers of both the
Viluan and the Hufana buses, the Court of Appeals differed with the trial court in the assessment of
liabilities of the parties. In its view only petitioner Francisca Viluan, as operator of the bus, is liable for
breach of contract of carriage. The driver, Hermenegildo Aquino, cannot be made jointly and
severally liable with petitioner because he is merely the latter's employee and is in no way a party to
the contract of carriage. The court added, however —

Hermenegildo Aquino is not entirely free from liability. He may be held liable, criminally and
civilly, under the Revised Penal Code (Articles 100 and 103), but not in a civil suit for
damages predicated upon a breach of contract, such as this one (Aguas, et al. vs. Vargas, et
al., CA-G.R. No. 27161-R, Jan. 22, 1963). Furthermore, the common carrier, Francisca

6
 Viluan could recover from Aquino any damages that she might have suffered by reason of
the latter's negligence.

Neither may respondents Patricio Hufana and Gregorio Hufana be held liable in the opinion of the
appellate court because the plaintiffs did not amend complaints in the main action so as to assert a
claim against the respondents as third party defendants.

The appellate court likewise disallowed the award of moral damages for P1,000.00 to Carolina
Sabado, there being no showing that the common carrier was guilty of fraud or bad faith in the
performance of her obligation. Accordingly, it rendered judgment as follows:

IN VIEW OF ALL THE FOREGOING, we hereby find defendant-appellant Francisca Viluan

solely liable to the plaintiffs-appellees for the damages and attorney's fees awarded to them
by the court below and further declare null and void the lower court's award of moral
damages in the amount of P1,000.00 in favor of plaintiff Carolina Sabado. Thus modified, the
judgment appealed from is affirmed in all other respects, with costs in this instance against
defendant-appellant Francisca Viluan.

From this judgment petitioner brought this appeal. In brief, her position is that since the proximate
cause of the accident was found to be the concurrent negligence of the drivers of the two buses,
then she and respondent Patricio and Gregorio Hufana should have been held equally liable to the
plaintiffs in the damage suits. The fact that the respondents were not sued as principal defendants
but were brought into the cases as third party defendants should not preclude a finding of their
liability.

We agree with petitioner's contention. To begin with, the Court of Appeals' ruling is based on section
5 of Rule 12 of the former Rules of Court, 1 which was adopted from Rule 14-a of the Federal Rules
of Civil Procedure. While the latter provision has indeed been held to preclude a judgment in favor of
a plaintiff and against a third party defendant where the plaintiff has not amended his complaint to
assert a claim against a third party defendant, 2 yet, as held in subsequent decisions, this rule applies
only to cases where the third party defendant is brought in on an allegation of liability to the
defendants. The rule does not apply where a third-party defendant is impleaded on the ground of
direct liability to the plaintiffs, in which case no amendment of the plaintiffs complaint is
necessary. 3 As explained in the Atlantic Coast Line R. Co. vs. U. S. Fidelity & Guaranty Co., 52 F.
Supp. 177 (1943):

From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the
admiralty rule, "covers two distinct subjects, the addition of parties defendant to the main
cause of action, and the bringing in of a third party for a defendant's remedy over." x x x

If the third party complaint alleges facts showing a third party's direct liability to plaintiff on
the claim set out in plaintiff's petition, then third party "shall" make his defenses as provided
in Rule 12 and his counterclaims against plaintiff as provided in Rule 13. In the case of
alleged direct liability, no amendment is necessary or required. The subject-matter of the
claim is contained in plaintiff's complaint, the ground of third party's liability on that claim is
alleged in third party complaint, and third party's defense to set up in his an to plaintiff's
complaint. At that point and without amendment, the plaintiff and third party are at issue as to
their rights respecting the claim.

The provision in the rule that, "The third-party defendant may assert any defenses which the
third-party plaintiff may assert to the plaintiff's claim," applies to the other subject, namely,
the alleged liability of third party defendant. The next sentence in the rule, "The third-party
defendant is bound by the adjudication of the third party plaintiff's liability to the plaintiff, as
well as of his own to the plaintiff or to the third-party plaintiff," applies to both subjects. If third
party is brought in as liable only to defendant and judgment is rendered adjudicating
plaintiff's right to recover against defendant and defendant's rights to recover against third
party, he is bound by both adjudications. That part of the sentence refers to the second
subject. If third party is brought in as liable to plaintiff, then third party is bound by the
adjudication as between him and plaintiff. That refers to the first subject. If third party is
brought in as liable to plaintiff and also over to defendant, then third party is bound by both
adjudications. The next sentence in the rule, "The plaintiff may amend his pleadings to assert
against the third-party defendant any claim which the plaintiff might have asserted against
the third-party defendant had he been joined originally as a defendant," refers to the second

7
 subject, that is, to bringing in third party as liable to defendant only, and does not apply to the
alleged liability of third party directly to plaintiff."

In this case the third-party complaints filed by petitioner and her driver charged respondents with
direct liability to the plaintiffs. It was contended that the accident was due "to the fault, negligence,
carelessness and imprudence of the third party defendant Gregorio Hufana" and, in petitioner's
motion for leave to file a third party complaint, it was stated that "Patricio Hufana and Gregorio
Hufana were not made parties to this action, although the defendants are entitled to indemnity
and/or subrogation against them in respect of plaintiff's claim."

It should make no difference therefore whether the respondents were brought in as principal
defendants or as third-party defendants. As Chief Justice Moran points out, since the liability of the
third-party defendant is already asserted in the third-party complaint, the amendment of the
complaint to assert such liability is merely a matter of form, to insist on which would not be in
keeping with the liberal spirit of the Rules of Court. 4

Nor should it make any difference that the liability of petitioner springs from contract while that of
respondents arises from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez,
56 Phil. 177,5 that in case of injury to a passenger due to the negligence of the driver of the bus on
which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two
vehicles are jointly and severally liable for damages. Some members of the Court, though, are of the
view that under the circumstances they are liable on quasi-delict.

Wherefore, the decision appealed from is hereby modified in the sense that petitioner as well as
respondents Patricio Hufana and Gregorio Hufana are jointly and severally liable for the damages
awarded by the trial court. The disallowance of moral damages in the amount of P1,000.00 is correct
and should be affirmed. No costs.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK
as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.

8
Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the
charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from

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

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy,
certain portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress.8 The petitioner's warehouse was made of
corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between
and alongside the trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI)
dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea
fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the
Court of First Instance of Manila. The defendant carrier argued that the strict public policy governing
common carriers does not apply to them because they have become private carriers by reason of
the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff
against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be.

9
 Even if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common
carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the case at bar. Thus
—

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee

to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel
remain with the shipowner, absent any stipulation to the contrary, such shipowner should made
liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying
the presumption of negligence against respondent carrier, and instead shifting the onus probandi on
the shipper to show want of due deligence on the part of the carrier, when he was not even at hand
to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter
parties are of two types: (a) contract of affreightment which involves the use of shipping space on
vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for
the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage,

10
the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray
the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the business, such that if the undertaking is a
single transaction, not a part of the general business or occupation, although involving the carriage
of goods for a fee, the person or corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry.25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving otherwise
rests on them.26 On the contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of proving that the cause was
the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a
more exacting interpretation of admiralty laws, more particularly, the rules governing common
carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to

11
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and
a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of
the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).

The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore under his
control and supervision, not when the same is done by the consignee or stevedores under the
employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38

12
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.

.R. Nos. L-19815-16 May 19, 1966

FILEMON YEPES and MATEO SUSAYA, plaintiffs and appellees,

vs.
SAMAR EXPRESS TRANSIT, represented by PEDRO TY BELIZAR operator, defendant and
appellant.

Lope C. Quimbo for defendant and appellant.

Nicolas A. Superable for plaintiffs and appellees.

DIZON, J.:

13
On July 23, 1959, appellees boarded appellant's Bus No. 56, with its driver, Alfredo Acol, at the
wheel, at Borongan, bound for Dolores, both of the province of Samar. While on its way the bus
turned turtle and caught fire, causing injuries to some of its passengers, amongst them the appellees
who suffered serious burns. Appellant had them taken to the Borongan Emergency Hospital in
Borongan, Samar, where they received medical treatment, but were later brought, upon their
request, to the Leyte Provincial Hospital at Tacloban City, for further treatment. Appellant paid all the
expenses for their hospitalization and medical treatment. It appears that before their transfer to the
Leyte Provincial Hospital, appellees were asked to sign as, in fact, they signed the document Exhibit
I wherein they stated that "in consideration of the expenses which said operator has incurred in
properly giving us the proper medical treatment, we hereby manifest our desire to waive any and all
claims against the operator of the Samar Express Transit." This document notwithstanding,
appellees filed with the lower court separate complaints for damages for breach of contract of
carriage (Civil Cases Nos. 2709 and 2815) against appellant. In its answers to the complaints the
latter invoked the following defenses: (a) that the accident was due to a fortuitous event beyond its
control and/or due to the negligence of one of its passengers, and (b) that the plaintiffs (appellees
here) had waived their right to claim for damages against it.

After a joint trial, the lower court rendered judgment ruling the above-mentioned waiver null and void
as being contrary to public policy, and awarding damages in the sum of P204.00 and P272.00 to
appellees Filemon Yepes and Mateo Susaya, respectively, and the further sum of P300.00 as
attorney's fees, and costs. Hence the. present appeal.

Sole contention of appellant is that the lower court erred in declaring that the "waiver" made by
appellees pursuant to Exhibit I is against public policy and morals, and therefore void. This claim, in
our opinion, is without merit.

Even a cursory examination of the document mentioned above will readily show that appellees did
not actually waive their right to claim damages from appellant for the latter's failure to comply with
their contract of carriage. All that said document proves is that they expressed a "desire" to make the
waiver — which obviously is not the same as making an actual waiver of their right. A waiver of the
kind invoked by appellant must be clear and unequivocal (Decision of the Supreme Court of Spain of
July 8, 1887) — which is not the case of the one relied upon in this appeal. 1äw phï1.ñët

In the light of the above conclusion, We deem it unnecessary to consider the question of whether or
not such waiver if actually made upon the consideration stated in the document already referred to,
is against public policy and morals.

Wherefore, the decision appealed from is affirmed, with costs.

G.R. No. L-37750 May 19, 1978

SWEET LINES, INC., petitioner,

vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII, LEOVIGILDO
TANDOG, JR., and ROGELIO TIRO, respondents.

Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.

Leovigildo Vallar for private respondents.

SANTOS, J.:

This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to restrain
respondent Judge from proceeding further with Civil Case No. 4091, entitled Leovigildo D. Tandog,
Jr. and Rogelio Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to Dismiss the
complaint, and the Motion for Reconsideration of said order. 1

Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a
contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on December 31,
1971 at the branch office of petitioner, a shipping company transporting inter-island passengers and

14
cargoes, at Cagayan de Oro City. Respondents were to board petitioner's vessel, M/S "Sweet Hope"
bound for Tagbilaran City via the port of Cebu. Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao, private respondents per advice, went to the
branch office for proper relocation to M/S "Sweet Town". Because the said vessel was already filled
to capacity, they were forced to agree "to hide at the cargo section to avoid inspection of the officers
of the Philippine Coastguard." Private respondents alleged that they were, during the trip," "exposed
to the scorching heat of the sun and the dust coming from the ship's cargo of corn grits," and that the
tickets they bought at Cagayan de Oro City for Tagbilaran were not honored and they were
constrained to pay for other tickets. In view thereof, private respondents sued petitioner for damages
and for breach of contract of carriage in the alleged sum of P10,000.00 before respondents Court of
First Instance of Misamis Oriental. 2

Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was
premised on the condition printed at the back of the tickets, i.e., Condition No. 14, which reads:

14. It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed
in the competent courts in the City of Cebu. 3

The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of denial, but
no avail. 5 Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the
respondent judge has departed from the accepted and usual course of judicial preoceeding" and
"had acted without or in excess or in error of his jurisdicton or in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further
with the case and required respondent to comment. 7 On January 18, 1974, We gave due course to
the petition and required respondent to answer. 8 Thereafter, the parties submitted their respesctive
memoranda in support of their respective contentions. 9

Presented thus for Our resolution is a question is aquestion which, to all appearances, is one of first
impression, to wit — Is Condition No. 14 printed at the back of the petitioner's passage tickets
purchased by private respondents, which limits the venue of actions arising from the contract of
carriage to theCourt of First Instance of Cebu, valid and enforceable? Otherwise stated, may a
common carrier engaged in inter-island shipping stipulate thru condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the ocntract of carriage should be
filed only in a particular province or city, in this case the City of Cebu, to the exclusion of all others?

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents
acceded to tit when they purchased passage tickets at its Cagayan de Oro branch office and took its
vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol — that the condition of the venue of
actions in the City of Cebu is proper since venue may be validly waived, citing cases; 10 that is an
effective waiver of venue, valid and binding as such, since it is printed in bold and capital letters and
not in fine print and merely assigns the place where the action sing from the contract is institution
likewise citing cases; 11 and that condition No. 14 is unequivocal and mandatory, the words and
phrases "any and all", "irrespective of where it is issued," and "shag" leave no doubt that the
intention of Condition No. 14 is to fix the venue in the City of Cebu, to the exclusion of other places;
that the orders of the respondent Judge are an unwarranted departure from established
jurisprudence governing the case; and that he acted without or in excess of his jurisdiction in is the
orders complained of. 12

On the other hand, private respondents claim that Condition No. 14 is not valid, that the same is not
an essential element of the contract of carriage, being in itself a different agreement which requires
the mutual consent of the parties to it; that they had no say in its preparation, the existence of which
they could not refuse, hence, they had no choice but to pay for the tickets and to avail of petitioner's
shipping facilities out of necessity; that the carrier "has been exacting too much from the public by
inserting impositions in the passage tickets too burdensome to bear," that the condition which was
printed in fine letters is an imposition on the riding public and does not bind respondents, citing
cases; 13 that while venue 6f actions may be transferred from one province to another, such
arrangement requires the "written agreement of the parties", not to be imposed unilaterally; and that
assuming that the condition is valid, it is not exclusive and does not, therefore, exclude the filing of
the action in Misamis Oriental, 14

15
There is no question that there was a valid contract of carriage entered into by petitioner and private
respondents and that the passage tickets, upon which the latter based their complaint, are the best
evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration
and object, are present. As held in Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a ship for

transportation from one place to another he is issued a ticket by the shipper which
has all the elements of a written contract, Namely: (1) the consent of the contracting
parties manifested by the fact that the passenger boards the ship and the shipper
consents or accepts him in the ship for transportation; (2) cause or consideration
which is the fare paid by the passenger as stated in the ticket; (3) object, which is the
transportation of the passenger from the place of departure to the place of
destination which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions — one of which
is "Condition No. 14" which is in issue in this case — printed at the back of the passage tickets,
these are commonly known as "contracts of adhesion," the validity and/or enforceability of which will
have to be determined by the peculiar circumstances obtaining in each case and the nature of the
conditions or terms sought to be enforced. For, "(W)hile generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, ... there are certain contracts almost all the
provisions of which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of his
signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on
the installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into — namely, that it
is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by
the other party, in this instance the passengers, private respondents, who cannot change the same
and who are thus made to adhere thereto on the "take it or leave it" basis — certain guidelines in the
determination of their validity and/or enforceability have been formulated in order to that justice and
fan play characterize the relationship of the contracting parties. Thus, this Court speaking through
Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and Rock Insurance Co., 17 and later through
Justice Fernando in Fieldman Insurance v. Vargas, 18 held —

The courts cannot ignore that nowadays, monopolies, cartels and concentration of
capital endowed with overwhelm economic power, manage to impose upon parties d
with them y prepared 'agreements' that the weaker party may not change one whit
his participation in the 'agreement' being reduced to the alternative 'to take it or leave
it,' labelled since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion)
in contrast to those entered into by parties bargaining on an equal footing. Such
contracts (of which policies of insurance and international bill of lading are prime
examples) obviously cap for greater strictness and vigilance on the part of the courts
of justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary.

To the same effect and import, and, in recognition of the character of contracts of this kind, the
protection of the disadvantaged is expressly enjoined by the New Civil Code —

In all contractual property or other relations, when one of the parties is at a

disadvantage on account of his moral dependence, ignorance indigence, mental
weakness, tender age and other handicap, the courts must be vigilant for his
protection. 19

Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the
inter-island ship. ping industry in the country today, We find and hold that Condition No. 14 printed at
the back of the passage tickets should be held as void and unenforceable for the following reasons
first, under circumstances obligation in the inter-island ship. ping industry, it is not just and fair to
bind passengers to the terms of the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14 subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and interests of
innumerable passengers in different s of the country who, under Condition No. 14, will have to file
suits against petitioner only in the City of Cebu.

16
1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of
and acute shortage in inter- island vessels plying between the country's several islands, and the
facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are
congested with passengers and their cargo waiting to be transported. The conditions are even worse
at peak and/or the rainy seasons, when Passengers literally scramble to whatever accommodations
may be availed of, even through circuitous routes, and/or at the risk of their safety — their immediate
concern, for the moment, being to be able to board vessels with the hope of reaching their
destinations. The schedules are — as often as not if not more so — delayed or altered. This was
precisely the experience of private respondents when they were relocated to M/S "Sweet Town" from
M/S "Sweet Hope" and then any to the scorching heat of the sun and the dust coming from the ship's
cargo of corn grits, " because even the latter was filed to capacity.

Under these circumstances, it is hardly just and proper to expect the passengers to examine their
tickets received from crowded/congested counters, more often than not during rush hours, for
conditions that may be printed much charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions m fine print, as in this case. 20

Again, it should be noted that Condition No. 14 was prepared solely at the ms of the petitioner,
respondents had no say in its preparation. Neither did the latter have the opportunity to take the into
account prior to the purpose chase of their tickets. For, unlike the small print provisions of contracts
— the common example of contracts of adherence — which are entered into by the insured in his
awareness of said conditions, since the insured is afforded the op to and co the same, passengers
of inter-island v do not have the same chance, since their alleged adhesion is presumed only from
the fact that they purpose chased the tickets.

It should also be stressed that slapping companies are franchise holders of certificates of public
convenience and therefore, posses a virtual monopoly over the business of transporting passengers
between the ports covered by their franchise. This being so, shipping companies, like petitioner,
engaged in inter-island shipping, have a virtual monopoly of the business of transporting passengers
and may thus dictate their terms of passage, leaving passengers with no choice but to buy their
tickets and avail of their vessels and facilities. Finally, judicial notice may be taken of the fact that the
bulk of those who board these inter-island vested come from the low-income groups and are less
literate, and who have little or no choice but to avail of petitioner's vessels.

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although
venue may be changed or transferred from one province to another by agreement of the parties in
writing t to Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein. The
philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote 21 the ends of justice. Considering the expense and
trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or offices in
the respective ports of call of its vessels and can afford to litigate in any of these places. Hence, the
filing of the suit in the CFI of Misamis Oriental, as was done in the instant case, will not cause
inconvenience to, much less prejudice, petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good ... 22 Under this principle"
... freedom of contract or private dealing is restricted by law for the good of the public. 23 Clearly,
Condition No. 14, if enforced, will be subversive of the public good or interest, since it will frustrate in
meritorious cases, actions of passenger cants outside of Cebu City, thus placing petitioner company
at a decided advantage over said persons, who may have perfectly legitimate claims against it. The
said condition should, therefore, be declared void and unenforceable, as contrary to public policy —
to make the courts accessible to all who may have need of their services.

WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued on
November 20, 1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.

17
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:

18
A. FACTS:

(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;

19
 (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.

20
 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

21
 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

22
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

23
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
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

24
is not determined by reference to the personal judgment of the actor in the situation before him. The
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

25
death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his
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

26
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.

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.

G.R. No. L-25292 November 29, 1969

ZAMBOANGA TRANSPORTATION COMPANY, INC., and ZAMBOANGA RAPIDS COMPANY,

INC., petitioners,
vs.
THE COURT OF APPEALS and JOSE MARIO DAGAMANUEL, represented by PASCUALA
JULIAN DE PUNZALAN, respondents.

Oscar L. Uy for petitioners.

Climaco, Azcarraga and Silang for respondents.

BARREDO, J.:

Appeal by certiorari from the decision of the Court of Appeals in CA-G.R. No. 28297-R, affirming,
with modifications, the decision of the Court of First Instance of Zamboanga City in its Civil Case No.
574 — for breach of contract of carriage — wherein herein petitioners-appellants, along with their
driver named Valeriano Marcos,1 were condemned to pay damages to herein private respondent
minor Jose Mario Dagamanuel, for the deaths of his father and mother while on board a passenger
bus owned (by purchase) and operated by petitioner-appellant Zamboanga Transportation Co., Inc.
but which, at the time of the mishap causing the deaths referred to, was still registered with the
Public Service Commission in the name of petitioner-appellant Zamboanga Rapids Co., Inc.

The appeal being purely on question of law, We quote the antecedent facts, as set forth in the
pertinent portions of the decision of the Court of Appeals appealed from, as follows:

In the evening of August 13, 1955, the spouses Ramon and Josefina Dagamanuel boarded a
bus at Manicahan, Zamboanga City, to attend a benefit dance at the Bunguiao Elementary
School, also in Zamboanga City, where Josefina was a public school teacher. After the
dance, the couple boarded the same bus to return to Manicahan. At around 1 o'clock in the
early morning of August 14, 1955, the bus, with plate 1955 TPU-1137, and driven by
Valeriano Marcos, fell off the road and pinned to death the said spouses and several other
passengers.

The plaintiff, the only child of the deceased spouses, through his maternal grandmother, as
guardian ad-litem, instituted this action against the defendants Zamboanga Transportation
Co., Inc. and the Zamboanga Rapids Co., Inc. (hereinafter referred to as Zamtranco and
Zambraco, respectively) for breach of contract of carriage, alleging that the accident was due
to the fault and negligence of the driver in operating the bus and due to the negligence of the
defendant companies in their supervision of their driver. The plaintiff asks for actual or
compensatory damages in the sum of P40,000, moral damages in the sum of P40,000,
exemplary damages in the sum of P20,000, attorney's fees in the sum of P5,000 and costs.

The Zamtranco filed a third-party complaint against the driver Marcos, admitting that 'it is the
owner by purchase of Motor Vehicle with plate number 1955 TPU-11327 and employer' of
said driver, but contending, among others, that the said driver had no authority to drive the
bus, hence, the driver alone should be adjudged liable. In addition, the said defendant
company alleged that with intent to place his property beyond the reach of the creditors, the

27
driver sold his property to his brother, hence its additional prayer that the sale executed by
the driver be declared null and void. The Zambraco also filed a third-party complaint against
the driver, admitting that "it is the registered owner of Motor Vehicle with plate number 1955
TPU-11327 and employer of herein third-party defendant" (the driver), but also contending,
among others, that the accident occurred due solely to the negligence of the driver for taking
out the bus without authority from it. It also asked for the annulment of the deed of sale made
by the driver of his property.

Answering the complaint, the Zambraco alleges that it is engaged in land transportation
business and that at the time of the accident it was the registered owner of the ill-fated
vehicle. In exculpation, it denies that Marcos was authorized to operate the vehicle when it
met with the accident. In its own answer, the Zambraco admits that it is also engaged in land
transportation business at the time of the accident, and likewise claims that Marcos had no
authority to operate the vehicle.

Finding that (1) the Zamtranco and the Zambraco were under one management at the time
of the accident; (2) the accident was due to the negligence of the driver who was under their
employ; and (3) the sale made by Marcos of his property was done with intent to defraud his
creditors, the trial court rendered judgment (1) sentencing the three, jointly and severally, to
pay the plaintiff P16,000 for the death of the spouses, P4,000 as exemplary damages,
P2,000 as attorney's fees, and costs; and (2) annulling the deed of sale executed by Marcos.

All the three defendants appealed. Marcos' appeal was later dismissed; hence as to him the
judgment is already final and executory.

In their joint brief, the two appellant companies allege that the trial court erred in (1) "deciding
the case against the defendant Zamboanga Transportation Company, Inc., it being the
wrong party"; (2) "awarding damages based on an alleged contract of carriage"; (3)
"misquoting the very provision on which it based its decision, and consequently gave a
substantively wrong interpretation of the same to the detriment of the appellants"; (4)
"awarding excessive compensatory damages to the plaintiffs"; and (5) "awarding exemplary
damages."

xxx xxx xxx

With respect to the contract of carriage, the testimony of the principal teacher Filoteo de los
Reyes sufficiently establishes the existence of such contract. The appellants have not
introduced evidence to dispute the fact that De los Reyes entered into a contract for the bus
to make the trip to Bungiao, and that he paid for it. Neither have they contradicted Marcos'
affidavit (exh. C-28) to the effect that he was authorized by the manager of the Zamtranco to
make the trip in question.

xxx xxx xxx

This being a case of violation of a contract of carriage resulting in death to passengers, the
presumption is that the appellants as carriers have been at fault or have acted negligently
(art. 1756, new Civil Code; Sy vs. Malate Taxicab, L-8937, Nov. 29, 1957). This presumption
can, however, be rebutted by (1) proof of extraordinary diligence or (2) proof that the
accident was due to a fortuitous event.

With respect to the first possible defense, the appellants have not even as much as hinted
either at the trial or in this appeal that they had exercised the diligence required of them as
carriers. All they did was to deny that the driver was authorized to operate the vehicle in
question. As to the second, we note that only the driver has interposed fortuitous event
below, but as we have already noted, his appeal has been dismissed, and as to him, the
decision a quo had already become final and executory. Anent his second defense, the
appellants have raised this belatedly, as they did it only on appeal. At all events, the
occurrence of fortuitous event is belied by the report of investigation (exh. C) to the effect
that the driver was under the influence of liquor, and that the bus was running at a fast clip in
spite of the fact that the road was slippery.

xxx xxx xxx

28
 It is undisputed that Josefina was 32 years old it the time she died and a public school
teacher receiving P120 a month or P1,440 a year, with the prospect of increase in salary.
The probabilities that she would live until she reached the compulsory retirement age of 65
cannot be discounted for there is no evidence that she was suffering from any sickness.
There is likewise no dispute that her husband Ramon was 27 years old at the time of his
death, a farmer by calling and in good health. All these have been established, and the
appellants have not presented rebuttal evidence (t.s.n. 60. id). Allowing him a minimum
income of P120 a month, he was earning at least P1,440 a year. The probabilities of
advancement are also not remote as he was still young.

xxx xxx xxx

. . . . The manner with which the driver operated the vehicle as described in exh. C, and
appellants' absolute lack of precaution in assigning the driver to this particularly dangerous
night trip notwithstanding the driver's record of previous traffic violations (exh. C-47), are so
reprehensible as to call for the imposition of large exemplary damages to serve as a
deterrent to others. To us, the amount of P5,000 could serve the purpose.

ACCORDINGLY, with the modification that the following damages are hereby awarded, to
wit, (1) P12,000 for the death of the spouses Ramon and Josefina Dagamanuel, (2) P11,520
for the loss of earnings of both spouses, (3) P5,000 as moral damages, and (4) P5,000 as
exemplary damages, the judgment a quo is affirmed in all other respects, at defendants-
appellants' cost.

In due time petitioners-appellants moved for the reconsideration of the above-quoted judgment of
the Court of Appeals, but the same was denied; hence, this appeal via the present petition
for certiorari.

Petitioners now contend that the Court of Appeals committed the following errors:

I. THE COURT OF APPEALS ERRED, AS A MATTER OF LAW AND APPLICABLE

DECISIONS OF THE SUPREME COURT, IN HOLDING PETITIONER ZAMTRANCO, THE
UNREGISTERED OWNER OF THE ILL-FATED VEHICLE, JOINTLY AND SEVERALLY
LIABLE WITH THE ZAMBRACO, THE REGISTERED OWNER, AND WITH THE DRIVER
THEREOF.

II. THE COURT OF APPEALS ERRED, AS A MATTER OF LAW AND APPLICABLE

DECISIONS OF THE SUPREME COURT, IN (A) AWARDING EXCESSIVE DAMAGES FOR
THE DEATH OF THE PARENTS OF RESPONDENT DAGAMANUEL; EXCESSIVE
COMPENSATORY DAMAGES; AND EXCESSIVE MORAL DAMAGES TO RESPONDENT,
WITHOUT THE LATTER APPEALING THE DECISION OF THE TRIAL COURT, AND (B) IN
HOLDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH THE DRIVER BY
WAY OF EXEMPLARY DAMAGES FOR THE LATTER'S WRONGFUL ACT.

That the Court of Appeals did not commit the first error assigned by appellants is obvious. While it is
true that according to previous decisions of this Court, transfer of a certificate of public convenience
to operate a transportation service is not effective and binding insofar as the responsibility of the
grantee under the franchise in its relation to the public is concerned, without the approval of the
transfer by the Public Service Commission required by the Public Service Act,2 and that in
contemplation of law, the transferor of such certificate continues to be the operator of the service as
long as the transfer is not yet approved, and as such operator, he is the one responsible jointly and
severally with his driver for damages incurred by passengers or third persons in consequence of
injuries or deaths resulting from the operation of such service,3 We do not find any need for applying
these rulings to the present petitioners for the simple reason that in their respective third-party
complaints, as noted by the Court of Appeals, they both admitted separately that they are the
owners of the bus involved in the incident in question and that Valeriano Marcos, the driver of said
bus at the time of said incident, was in their employ. And there is nothing strange in this because, as
found by said appellate court:

There is abundant evidence that although the Zambraco appears to be the registered owner,
Zamtranco was in fact the operator. To start with, there is the testimony of Filoteo de los
Reyes, principal teacher of Josefina, to the effect that for the trip to and from Bunguiao
where the benefit dance was held, he contracted with Zamtranco at Tetuan (t.s.n. 13-14,

29
 Aug. 7, 1956, Cabato); that he saw in Bunguiao the bus sent by Zamtranco (t.s.n. 33, id.);
and that he paid the fare to the driver of Zamtranco (t.s.n 21 id.). This testimony was never
contradicted by the appellants, either by documentary or testimonial evidence. . . .

In their own brief in this instance, appellants make these significant admissions:

The facts that TPU Bus No. 11327 which figured in the accident that caused the death of the
spouses Ramon Dagamanuel and Josefina Punzalan was registered in the name of
Zambraco in the year 1955, is not disputed. At that time, the sale and merger of this
Zambraco with the Zamtranco was to be the subject of application with the Public Service
Commission. Pending such approval, the ill-fated bus was again registered in the name of
the Zambraco in the year 1956, according to the testimony given at the trial by Leonardo
Galvez, then Acting Registrar of the Motor Vehicle Office in Zamboanga.

Indeed, under these circumstances, We cannot find any reason to disagree with Mr. Justice Fred
Ruiz Castro who penned the appealed decision in his ruling to the effect that:

We do not find any application of the ruling in the foregoing cases to the case at bar. There,
the registered owners invariably sought to pass on liability to the actual operators on the
pretext that they had already sold or transferred their units to the latter, whereas in the
present case, the registered owner, the Zambraco, admits whatever liability it has and
vigorously objects to any finding that the actual operator, the Zamtranco, is also liable with it,
claiming that as registered owner, it alone should be adjudged liable. We would not inquire
into the motive of the Zambraco why instead of sharing whatever liability it has with the
Zamtranco, it prefers to shoulder it alone. But the fact stands out in bold relief that although
still the registered owner at the time of the accident, it had already sold the vehicle to
Zamtranco and the latter was actually operating it.

It is our view that it is for the better protection of the public that both the owner of record and
the actual operator, as held by us in the past, should be adjudged jointly and severally liable
with the driver (see Dizon vs. Octavio, et al., 51 O.G. No. 8, 4059-4061; Castanares vs.
Pages, CA-G.R. 21809-R, March 8, 1962; Redado vs. Bautista, CA-G.R. 19295-R, Sept. 19,
1961; Bering vs. Noeth, CA-G.R. 28483-R, April 29 1965).

The second assignment of error refers to the different items of damages awarded by the respondent
court. Petitioners complain that the same are excessive if not without legal basis. To a certain extent,
petitioners are right.

It may be recalled that the trial court's judgment regarding the matter of damages was as follows:

1) P8,000.00 for the death of Ramon Dagamanuel;

2) P8,000.00 for the death of Josefina Punzalan;

3) P4,000.00 as exemplary damages;

4) P2,000.00 as attorney's fees; and

5) Costs.

From this judgment, only petitioners appealed. Private respondents did not appeal. Accordingly,
petitioners are correct in inviting Our attention thus:

The respondent did not appeal any portion of the decision of the lower Court, thus indicating
that he is fully satisfied with the same. On the other hand, the driver of the ill-fated bus failed
to perfect his appeal and consequently, as against him, the decision of the lower Court is
already final.

The lower Court rendered a decision against the driver of the bus and the two petitioners
herein for the death of the parents of the respondent in the sum of P16,000.00 together with
P4,000.00 exemplary damages. But notwithstanding the automatic exclusion of the driver
from the effects of the appealed decision, the Court of Appeals, while reducing the death

30
 award to P12,000.00 increased the exemplary damages to P5,000.00 adding thereto
P11,520.00 compensatory damages and P5,000.00 moral damages. We humbly contend
that to award damages when none was allowed by the lower Court, and to increase
damages when the successful party did not appeal, is simply improper and amounts to pure
abuse of discretion on the part of the respondent appellate Court, contrary to the doctrines
laid down by the Honorable Supreme Court in the following cases, to wit:

"The discretion in fixing moral and exemplary damages primarily lay in the trial court
and the same should be respected. (Coleongco vs. Claparols, No. L-18616, March
31, 1964; emphasis ours)."

"It is well-settled rule in this jurisdiction that whenever an appeal is taken in a civil
case, an appellee who has not himself appealed cannot obtain from the appellate
court any affirmative relief other than the ones granted in the decision of the court
below. An appellee, who is not appellant, may assign errors in his brief where his
purpose is to maintain the judgment on other grounds, but he may not do so if his
purpose is to have the judgment modified or reversed, for, in such a case, he must
appeal. HERE, THE RESPONDENT DID NOT APPEAL AND SO IT WAS ERROR
FOR THE COURT OF APPEALS TO AWARD HIM A RELIEF NOT GRANTED BY
THE LOWER COURT. (Dy, et al. vs. Kuison, L-16654, Nov. 30, 1961; emphasis
ours)."

Furthermore, it is respectfully submitted, that a child 3-year old, as the respondent herein
was when his parents died, cannot yet feel the mental anguish resulting from their death, as
to warrant such excessive award of P5,000.00 moral damages. We venture to ask, therefore,
what degree of mental torture could have been possibly endured by a boy of such tender
age? We believe that the measure of moral damages, if any, must be commensurate with
the mental anguish suffered by the heir. (Mercado, et al. vs. Lira, et al., Nos. L-13328-29 and
L-13358, Sept. 29, 1961.)

True it is, the awards of P8,000 each for the death of the parents of respondent Jose Mario
Dagamanuel may not be increased anymore, but We cannot say that they should be reduced. Quite,
on the contrary, We consider the judgment of the Court of Appeals in respect to the matter of
damages to be more in accordance with the facts, except perhaps, as to the item of moral damages,
considering the tender age of the above-named respondent child, and We would have upheld the
same had private respondent appealed from the decision of the trial court.4 Indeed, the Court of
Appeals properly interpreted the P16,000 awarded by the trial court as including not only damages
for the deceased couple but also the other items of recoverable damages, like compensatory or
actual, etc. Thus viewed, the amounts awarded by the trial court cannot be considered excessive.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Appeals is affirmed, with the
modification that as to damages, petitioners are sentenced to pay jointly and severally no more than
the amounts of damages adjudged by the trial court.

No costs in this instance.

G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,

vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case
No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the
amount of P6,067,178, with legal interest from the filing of the compliant until fully paid, P8,000 as

31
attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying
LOADSTAR's motion for reconsideration of said decision.

The facts are undisputed. 1âwphi 1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel)
the following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November
1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a
claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to
the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped
as a party defendant after it paid the insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed
its decision in toto.

In dismissing LOADSTAR's appeal, the appellate court made the following observations:

1) LOADSTAR cannot be considered a private carrier on the sole

ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship, but
LOADSTAR retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code,

which should be applied in determining the rights and liabilities of the
parties.

3) The vessel was not seaworthy because it was undermanned on

the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The
vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably
due to the "convergence of the winds," as stated by a PAGASA
expert, was not duly proven at the trial. The "limited liability" rule,
therefore, is not applicable considering that, in this case, there was
an actual finding of negligence on the part of the carrier.5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading

do not apply because said provisions bind only the shipper/consignee
and the carrier. When MIC paid the shipper for the goods insured, it
was subrogated to the latter's rights as against the carrier,
LOADSTAR. 6

32
 5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's defense
of "diligence of a good father of a family" in the training and selection of
its crew is unavailing because this is not a proper or complete defense
in culpa contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially construed
to mean that when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by reason of some
fact which legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means that the
latter bears the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature and defects of
the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in these

premises.

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was
not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only "one shipper, one consignee for a special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the
maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these
precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1
was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the
convergence of winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and
not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the
case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

33
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same — suits based upon claims arising
from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual
of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on
4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the
cargo was due toforce majeure, because the same concurred with LOADSTAR's fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.

Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certificate of public convenience, and this public character is not altered by
the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo or
chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of
the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship totally chartered for the use of a
single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance
doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no
charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is
not reason enough to convert the vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the
Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:

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

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.

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 ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.

34
 xxx xxx xxx

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

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.

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.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the
time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this
case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel
owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in
having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not
sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods,
in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray &
Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be
recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or
restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to
the same limitations and restrictions. We do not agree. In the first place, the cases relied on by
LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the
parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On
the other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for the
loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the
carrier is not liable for any loss or damage to shipments made at "owner's risk." Such stipulation is
obviously null and void for being contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and pays a higher
rate of. freight. According to an almost uniform weight of authority, the first and

35
 second kinds of stipulations are invalid as being contrary to public policy, but the third
is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for loss
of, or damage to, cargoes sustained during transit — may be applied suppletorily to the case at bar.
This one-year prescriptive period also applies to the insurer of the goods. 22In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is
null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner. 1âwphi1.nêt

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.

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.

36
 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
complaint6 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 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

37
 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.

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

38
 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 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:

39
 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.

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

40
 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.

G.R. No. L-25599 April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.

William H. Quasha and Associates for plaintiff-appellee.

Ross, Selph, Salcedo and Associates for defendant-appellant.

BENGZON, J.P., J.:

"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1
and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home
Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.

Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 —
the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement
by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of
First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's
fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that

41
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.

American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the
goods and that as a mere forwarding agent, it was not responsible for losses or damages to the
cargo.

On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in the
same condition and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71
with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:

(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also
civilly liable for damages in favor of third persons due to the conduct of the captain of the
carrier;

(b) The stipulation in the charter party contract exempting the owner from liability is against
public policy under Article 1744 of the Civil Code;

(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?

The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if
any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-
versa,5 loading, stowing and discharging at its risk and expense.6Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of
the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.

Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..

Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587
of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the shipper or owner limiting
the liability of the former for loss or destruction of the goods to a degree less than extraordinary
diligence is valid provided it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public policy on common carriers.

42
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy,9 and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such policy has no force where the
public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.

WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.

G.R. No. L-61461 August 21, 1987

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,

vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner,

vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS,
INC., respondents.

GANCAYCO, J.:

The question that is posed in these petitions for review is whether the sea can be considered as a
continuation of the highway. The corollary issue is whether a land transportation company can be
authorized to operate a ferry service or coastwise or interisland shipping service along its authorized
route as an incident to its franchise without the need of filing a separate application for the same.

The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic

corporation engaged in the land transportation business with PUB service for passengers and freight
and various certificates for public conveniences CPC to operate passenger buses from Metro Manila
to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to
Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V
"Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and
Allen, Samar that will provide service to company buses and freight trucks that have to cross San
Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on
the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and

Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new
operators to Liner trade routes where these are adequately serviced by
existing/authorized operators.

2. Market conditions in the proposed route cannot support the entry of additional
tonnage; vessel acquisitions intended for operations therein are necessarily limited to
those intended for replacement purposes only. 2

43
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million
pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it
proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen
and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public
Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its
franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of
continuing the highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and obligation of
transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no
need ... to obtain a separate certificate for public convenience to operate a ferry service between
Allen and Matnog to cater exclusively to its passenger buses and freight trucks.4

Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting
Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the
application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO
from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should
not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are
franchise holders of the ferry service in this area interposed their opposition. They claim they
adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked
the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC
between Pasay City and Tacloban City may still be required to secure another certificate in order to
operate a ferry service between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus
operators to secure a separate CPC to operate a ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public

convenience is expected to provide efficient, convenient and adequate service to the
riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE
521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of
the public which has accepted the service of a public utility operator to demand that
the service should be conducted with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a
ferry service to its Pasay Tacloban route, it merely does so in the discharge of its
duty under its current certificate of public convenience to provide adequate and
convenient service to its riders. Requiring said bus company to obtain another
certificate to operate such ferry service when it merely forms a part — and
constitutes an improvement — of its existing transportation service would simply be
duplicitous and superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of
its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect
the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South Express
Co., Inc. be amended to embody the grant of authority to operate a private ferry boat
service as one of the conditions for the grant of the certificate subject to the condition
that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers
and freight trucks, and should it offer itself to the public for hire other than its own
passengers, it must apply for a separate certificate of public convenience as a public
ferry boat service, separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration
of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by
the BOT on July 21, 1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE

PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC
SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION

44
 DATED OCTOBER 23, 1981 WHICH MOTU PROPIOAMENDED RESPONDENT
PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION
OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON — ALLEN,
SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR
AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?

B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF

OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG,
SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR
FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR
CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH
AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-
ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN
FERRY SERVICE?

C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT

PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER,
NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT
THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF
HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE
FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE
OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT
APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-
REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO
ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL
AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING
AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF
AUGUST 10, 1976 AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE
ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE
SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL
SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR
RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:

a. the decision did not conform to the procedures laid down by law for an amendment
of the original certificate of public convenience, and the authority to operate a private
ferry boat service to PANTRANCO was issued without ascertaining the established
essential requisites for such grant, hence, violative of due process requirements;

b. the grant to PANTRANCO of authority to operate a ferryboat service as a private

carrier on said route contravenes existing government policies relative to the
rationalization of operations of all water transport utilities;

c. it contravenes the memorandum of agreement between MARINA and the Board of

Transportation; d. the grant of authority to operate a ferry service as a private carrier
is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a
degree less than extraordinary diligence?

e. PANTRANCO is not a private carrier when it operates its ferry service;

f. it runs counter to the "old operator" doctrine; and

g. the operation by PANTRANCO of the ferry service c•nstitutes undue competition.

45
 The foregoing considerations constitutes the substantial errors committed by the
respondent Board which would more than amply justify review of the questioned
decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.

The resolution of all said issues raised revolves on the validity of the questioned BOT decision.

The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a
part of the authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one side of
the water over which passes to the other side for transportation of passengers or of
travellers with their teams vehicles and such other property as, they may carry or
have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431).
It maybe said to be a necessary service of a specially constructed boat to carry
passengers and property across rivers or bodies of water from a place in one shore
to a point conveniently opposite on the other shore and continuation of the highway
making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac.
N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but
also the use for that purpose of the respective landings with outlets therefrom. (Nole
vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a
private ferry. A public ferry service is one which all the public have the right to resort
to and for which a regular fare is established and the ferryman is a common carrier
be inbound to take an who apply and bound to keep his ferry in operation and good
repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly
for the use of the owner and though he may take pay for ferriage, he does not follow
it as a business. His ferry is not open to the public at its demand and he may or may
not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696),
Harrison, 140 Ark 158; 215 S.W. 698).

The ferry boat service of Pantranco is a continuation of the highway traversed by its
buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through
San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used
exclusively to transport its own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own clientele (passengers on
board- Pantranco buses) and will not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore, Pantranco has the right to
operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog
(Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses,
passengers and freight trucks without the need of applying for a separate certificate
of public convenience or provisional authority. Since its operation is an integral part
of its land transport system, its original certificate of public convenience should be
amended to include the operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :

The term "ferry" implied the continuation by means of boats, barges, or rafts, of a
highway or the connection of highways located on the opposite banks of a stream or
other body of water. The term necessarily implies transportation for a short distance,
almost invariably between two points, which is unrelated to other transportation
.(Emphasis supplied)

The term "ferry" is often employed to denote the right or franchise granted by the
state or its authorized mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge toll for the use thereof by the
public. In this sense it has also been defined as a privilege, a liberty, to take tolls for
transporting passengers and goods across a lake or stream or some other body of
water, with no essential difference from a bridge franchise except as to the mode of
transportation, 22 Am. Jur. 553.

46
 A "ferry" has been defined by many courts as "a public highway or thoroughfare
across a stream of water or river by boat instead of a bridge." (St. Clare Country v.
Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)

The term ferry is often employed to denote the right or franchise granted by the state
or its authorized mandatories to continue by means of boats, an interrupted land
highway over the interrupting waters and to charge toll for the use thereof by the
public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann.
Cas. 1914C 1179; etc.) (Emphasis supplied)

"Ferry" is service necessity for common good to reach point across a stream lagoon,
lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'

"Ferry" properly means a place of transit across a river or arm of the sea, but in law it
is treated as a franchise, and defined as the exclusive right to carry passengers
across a river, or arm of the sea, from one vill to another, or to connect a continuous
line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.
A. Wash. 73 F. 2d. 831, 832)'

Includes various waters: (1) But an arm of the sea may include various subordinate
descriptions of waters, where the tide ebbs and flows. It may be a river, harbor,
creek, basin, or bay; and it is sometimes used to designate very extensive reaches of
waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach
C.C. 1093). (2) In an early case the court said: "The distinction between rivers
navigable and not navigable, that is, where the sea does, or does not, ebb and flow,
is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called
arms of the sea, while the latter pass under the denomination of private or inland
rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran
vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers.

However, in Javellana We made clear distinction between a ferry service and coastwise or
interisland service by holding that:

We are not unmindful of the reasons adduced by the Commission in considering the
motorboat service between Calapan and Batangas as ferry; but from our
consideration of the law as it stands, particularly Commonwealth Act No. 146, known
as the Public Service Act and the provisions of the Revised Administrative Code
regarding municipal ferries and those regarding the jurisdiction of the Bureau of
Customs over documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we have the
impression and we are inclined to believe that the Legislature intended ferry to mean
the service either by barges or rafts, even by motor or steam vessels, between the
banks of a river or stream to continue the highway which is interrupted by the body of
water, or in some cases to connect two points on opposite shores of an arm of the
sea such as bay or lake which does not involve too great a distance or too long a
time to navigate But where the line or service involves crossing the open sea like the
body of water between the province of Batangas and the island of Mindoro which the
oppositors describe thus "the intervening waters between Calapan and Batangas are
wide and dangerous with big waves where small boat barge, or raft are not adapted
to the service," then it is more reasonable to regard said line or service as more
properly belonging to interisland or coastwise trade. According to the finding of the
Commission itself the distance between Calapan is about 24 nautical miles or about
44.5 kilometers. We do not believe that this is the short distance contemplated by the
Legislature in referring to ferries whether within the jurisdiction of a single
municipality or ferries between two municipalities or provinces. If we are to grant that
water transportation between Calapan and Batangas is ferry service, then there
would be no reason for not considering the same service between the different
islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of
Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao,
Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.

47
 The Commission makes the distinction between ferry service and motorship in the
coastwise trade, thus:

A ferry service is distinguished from a motorship or motorboat service engaged in the

coastwise trade in that the latter is intended for the transportation of passengers
and/or freight for hire or compensation between ports or places in the Philippines
without definite routes or lines of service.

We cannot agree. The definiteness of the route of a boat is not the deciding factor. A
boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu,
Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it
may not for that reason be regarded as engaged in ferry service. Again, a vessel of
the Compania Maritima makes the trip from Manila to Tacloban and back, twice a
week. Certainly, it has a definite route. But that service is not ferry service, but rather
interisland or coastwise trade.

We believe that it will be more in consonance with the spirit of the law to consider
steamboat or motorboat service between the different islands, involving more or less
great distance and over more or less turbulent and dangerous waters of the open
sea, to be coastwise or inter-island service. Anyway, whether said service between
the different islands is regarded as ferry service or coastwise trade service, as long
as the water craft used are steamboats, motorboats or motor vessels, the result will
be the same as far as the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the
Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of
Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San
Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance
between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As
the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be
choppy and rough so that it will not be safe to navigate the same by small boats or barges but only
by such steamboats or vessels as the MV "Black Double. 19

Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly
not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be
considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing
rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen
are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. Its CPC as a bus
transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service.

The contention of private respondent PANTRANCO that its ferry service operation is as a private
carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo
trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the
charges for the bus trips and issues separate tickets whenever they board the MV "Black Double"
that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers
it did so as a private carrier and not as a common carrier. The Court does not see any reason why
inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in
passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to
this effect has been submitted. 21 What is even more difficult to comprehend is that while in one
breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from its obligation as a
common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to
operate a private ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and
interests of its passengers and the cargo owners cannot be allowed.

What appears clear from the record is that at the beginning PANTRANCO planned to operate such
ferry boat service between Matnog and Alien as a common carrier so it requested authority from
MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for
by law for such application for a certificate of public convenience. 23 However when its request was
denied as the said routes "are adequately serviced by existing/authorized operators, 24 it
nevertheless purchased the vessel and started operating the same. Obviously to go about this
obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private

48
ferryboat service across a small body of water for the exclusive use of its buses, trucks and
passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City
to Tacloban so that it believes it need not secure a separate certificate of public
convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render
an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of
public respondent of October 23, 1981. 27 Certainly the Court cannot give itsimprimatur to such a
situation.

Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat
service but a coastwise or interisland shipping service. Before private respondent may be issued a
franchise or CPC for the operation of the said service as a common carrier, it must comply with the
usual requirements of filing an application, payment of the fees, publication, adducing evidence at a
hearing and affording the oppositors the opportunity to be heard, among others, as provided by
law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of
Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982
in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed
and set aside and declared null and void. Respondent PANTRANCO is hereby permanently
enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog
and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in
accordance with the requirements of the law, with costs against respondent PANTRANCO.

SO ORDERED.

G.R. No. 112287 December 12, 1997

NATIONAL STEEL CORPORATION, petitioner,

vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

G.R. No. 112350 December 12, 1997

VLASONS SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's
responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The Court
also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals.1 The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant
on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;

2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and

49
 3. Costs of suit.

SO ORDERED.2

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the
award for demurrage to P44,000.00 and deleting the award for attorney's fees and expenses
of litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement
as to costs.

SO ORDERED.3

The 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. It is undisputed that the ship is a private carrier. And
it is in the capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or
contract of voyage charter hire with National Steel Corporation.

The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire
(Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to make
one (1) voyage to load steel products at Iligan City and discharge them at North Harbor,
Manila, under the following terms and conditions, viz:

1. . . .

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.

3. . . .

4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of

Lading within fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24

consecutive hours, Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. . . .

9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the
vessel.

10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally
recognized Charter Party Agreement shall form part of this Contract.

xxx xxx xxx

The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for "Freight In and Out including Stevedoring and
Trading", which means that the handling, loading and unloading of the cargoes are the
responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states,

50
"Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . .
(Emphasis supplied).

Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning
of the voyage, exercise due diligence to make the vessel seaworthy and properly manned,
equipped and supplied and to make the holds and all other parts of the vessel in which cargo
is carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable
for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused
by want of due diligence on the part of the owners to make the vessel seaworthy, and to
secure that the vessel is properly manned, equipped and supplied and to make the holds
and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; . . . ; perils, dangers and accidents of the sea or other navigable
waters; . . . ; wastage in bulk or weight or any other loss or damage arising from inherent
defect, quality or vice of the cargo; insufficiency of packing; . . . ; latent defects not
discoverable by due diligence; any other cause arising without the actual fault or privity of
Owners or without the fault of the agents or servants of owners."

Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default
of the master and crew."

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the
MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total
weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the
three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the corresponding bill of lading,
B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974.
The following day, August 13, 1974, when the vessel's three (3) hatches containing the
shipment were opened by plaintiff's agents, nearly all the skids of tinplates and hot rolled
sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by
stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after
incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading
operations. (Exhibit "E")

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of
the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the
NSC dated March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular inspection
conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO
reported that it found wetting and rusting of the packages of hot rolled sheets and metal
covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over. MASCO ventured the opinion that
"rusting of the tinplates was caused by contact with SEA WATER sustained while still on
board the vessel as a consequence of the heavy weather and rough seas encountered while
en route to destination (Exhibit "F"). It was also reported that MASCO's surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to
the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad
order samples of packing materials . . . shows that wetting was caused by contact with SEA
WATER".

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with
the defendant its claim for damages suffered due to the downgrading of the damaged
tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally
demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed
its complaint against defendant on April 21, 1976 which was docketed as Civil Case No.
23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of
P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the defendant

51
to make the vessel seaworthy and to make the holds and all other parts of the vessel in
which the cargo was carried, fit and safe for its reception, carriage and preservation — all in
violation of defendant's undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
"VLASONS I" was seaworthy in all respects for the carriage of plaintiff's cargo; that said
vessel was not a "common carrier" inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan
City to Manila, the MV "VLASONS I" encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and big waves to continuously pound
against the vessel and seawater to overflow on its deck and hatch covers, that under the
Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the vessel, that the officers of said MV
"VLASONS I" exercised due diligence and proper seamanship and were not willfully
negligent; that furthermore the Voyage Charter Party provides that loading and discharging
of the cargo was on FIOST terms which means that the vessel was free of risk and expense
in connection with the loading and discharging of the cargo; that the damage, if any, was due
to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to
latent defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or servants
of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who
discharged the cargo in Manila were negligent and did not exercise due care in the discharge
of the cargo; land that the cargo was exposed to rain and seawater spray while on the pier or
in transit from the pier to plaintiff's warehouse after discharge from the vessel; and that
plaintiff's claim was highly speculative and grossly exaggerated and that the small stain
marks or sweat marks on the edges of the tinplates were magnified and considered total loss
of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations
under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In
turn, it alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its
obligations under the Voyage Charter Hire Contract, plaintiff failed and
refused to pay the agreed charter hire of P75,000.00 despite demands made
by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its
cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage
in the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff
should be ordered to pay defendant attorney's fees and all expenses of
litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following
findings which were set forth in its decision:

(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the

tramping service and is available for hire only under special contracts of
charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage
Charter Hire (Exh. "1"), the MV VLASONS I" was covered by the required
seaworthiness certificates including the Certification of Classification issued
by an international classification society, the NIPPON KAIJI KYOKAI (Exh.
"4"); Coastwise License from the Board of Transportation (Exh. "5");
International Loadline Certificate from the Philippine Coast Guard (Exh. "6");
Cargo Ship Safety Equipment Certificate also from the Philippine Coast
Guard (Exh. "7"); Ship Radio Station License (Exh. "8"); Certificate of
Inspection by the Philippine Coast Guard (Exh. "12"); and Certificate of
Approval for Conversion issued by the Bureau of Customs (Exh. "9"). That
being a vessel engaged in both overseas and coastwise trade, the MV
"VLASONS I" has a higher degree of seaworthiness and safety.

52
(c) Before it proceeded to Iligan City to perform the voyage called for by the
Contract of Voyage Charter Hire, the MV "VLASONS I" underwent
drydocking in Cebu and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessel's first voyage after the
drydocking. The evidence shows that the MV "VLASONS I" was seaworthy
and properly manned, equipped and supplied when it undertook the voyage.
It has all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship.
The hatch openings were covered by hatchboards which were in turn
covered by two or double tarpaulins. The hatch covers were water tight.
Furthermore, under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is
not supported by evidence. The provisions of the Civil Code on common
carriers pursuant to which there exists a presumption of negligence in case of
loss or damage to the cargo are not applicable. As to the damage to the
tinplates which was allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that tinplates "sweat" by
themselves when packed even without being in contract (sic) with water from
outside especially when the weather is bad or raining. The trust caused by
sweat or moisture on the tinplates may be considered as a loss or damage
but then, defendant cannot be held liable for it pursuant to Article 1734 of the
Civil Case which exempts the carrier from responsibility for loss or damage
arising from the "character of the goods . . ." All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It
was shown as claimed by plaintiff that the tinplates themselves were
wrapped in kraft paper lining and corrugated cardboards could not be
affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates
were negligent in not closing the hatch openings of the MV "VLASONS I"
when rains occurred during the discharging of the cargo thus allowing
rainwater to enter the hatches. It was proven that the stevedores merely set
up temporary tents to cover the hatch openings in case of rain so that it
would be easy for them to resume work when the rains stopped by just
removing the tent or canvas. Because of this improper covering of the
hatches by the stevedores during the discharging and unloading operations
which were interrupted by rains, rainwater drifted into the cargo through the
hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter
Party which was expressly made part of the Contract of Voyage Charter Hire,
the loading, stowing and discharging of the cargo is the sole responsibility of
the plaintiff charterer and defendant carrier has no liability for whatever
damage may occur or maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad
weather while en route from Iligan City to Manila causing sea water to splash
on the ship's deck on account of which the master of the vessel (Mr. Antonio
C. Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh. "15"); which
can be invoked by defendant as a force majeure that would exempt the
defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of
the Voyage Charter Hire contract that it was to insure the cargo because it
did not. Had plaintiff complied with the requirement, then it could have
recovered its loss or damage from the insurer. Plaintiff also violated the
charter party contract when it loaded not only "steel products", i.e. steel bars,
angular bars and the like but also tinplates and hot rolled sheets which are
high grade cargo commanding a higher freight. Thus plaintiff was able to ship
grade cargo at a lower freight rate.

(i) As regards defendant's counterclaim, the contract of voyage charter hire

under Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable
to defendant carrier upon presentation of the bill of lading within fifteen (15)

53
 days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands. The evidence also showed that the plaintiff was required and
bound under paragraph 7 of the same Voyage Charter Hire contract to pay
demurrage of P8,000.00 per day of delay in the unloading of the cargoes.
The delay amounted to eleven (11) days thereby making plaintiff liable to pay
defendant for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:

The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned,
equipped and supplied, and that there is no proof of willful negligence of the vessel's officers.

II

The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.

III

The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSC's shipment.

IV

The trial court erred in exempting VSI from liability on the ground of force majeure.

The trial court erred in finding that NSC violated the contract of voyage charter hire.

VI

The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI.4

As earlier stated, 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. In a Resolution5 dated October
20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective
petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions.6

The Issues

In its petition7 and memorandum,8 NSC raises the following questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;

2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8",
"9", "11" and "12") were admissible in evidence and constituted evidence of the vessel's
seaworthiness at the beginning of the voyages; and

3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability
for cargo damage.

Questions of Fact

54
 1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's
cargo;

3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted
on their own; and

4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of
NSC's tinplates.

In its separate petition,9 VSI submits for the consideration of this Court the following alleged errors of
the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of
P100,000 for attorney's fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum:10

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common carrier in
case of loss or damage to the cargo are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including
the Nanyozai Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:

1. Questions of Fact

2. Effect of NSC's Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

4. Demurrage and Attorney's Fees.

The Court's Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as
a private carrier. The resolution of this preliminary question determines the law, standard of diligence
and burden of proof applicable to the present case.

Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public." It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee.11 A carrier which does not
qualify under the above test is deemed a private carrier. "Generally, private carriage is undertaken
by special agreement and the carrier does not hold himself out to carry goods for the general public.
The most typical, although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use and service of all
or some part of a ship for a period of time or a voyage or voyages."12

In the instant case, it is undisputed that VSI did not offer its services to the general public. As found
by the Regional Trial Court, it carried passengers or goods only for those it chose under a "special

55
contract of charter party." 13 As correctly concluded by the Court of Appeals, the MV Vlasons I "was
not a common but a private carrier."14Consequently, 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.15 Recently, in Valenzuela Hardwood and Industrial
Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation,16 the Court ruled:

. . . 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.17

Extent of VSI's Responsibility and

Liability Over NSC's Cargo

It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not
be responsible for losses except on proven willful negligence of the officers of the vessel." The
NANYOZAI Charter Party, which was incorporated in the parties' contract of transportation further
provided that the shipowner shall not be liable for loss of or a 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."18 The NANYOZAI Charter Party also provided that
"[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew."19

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden
of proof was placed on NSC by the parties' agreement.

This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due
to fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for
the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the 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.

Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule,
places the prima faciepresumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods
were lost or damaged while in the carrier's custody does not put the burden of proof on the
carrier.

56
 Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach
of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carrier's
possession does not cast on it the burden of proving proper care and diligence on its part or
that the loss occurred from an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier
is in a better position to know the cause of the loss and that it was not one involving its
liability, the law requires that it come forward with the information available to it, and its
failure to do so warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with evidence, do not
alter the burden of proof which remains on plaintiff, and, where the carrier comes forward
with evidence explaining the loss or damage, the burden of going forward with the evidence
is again on plaintiff.

Where the action is based on the shipowner's warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage rests
on plaintiff, and proof that the goods were lost or damaged while in the carrier's possession
does not cast on it the burden of proving seaworthiness. . . . Where the contract of carriage
exempts the carrier from liability for unseaworthiness not discoverable by due diligence, the
carrier has the preliminary burden of proving the exercise of due diligence to make the
vessel seaworthy.20

In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position
in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's]
interpretation of Clause 12 is not even correct), it argues that 'a careful examination of the evidence
will show that VSI miserably failed to comply with any of these obligation's as if defendant-appellee
[VSI] had the burden of
proof."21

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly relevant:
(1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose
under the charter party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether
the rusting of the tinplates was caused by its own "sweat" or by contact with seawater.

These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties' conflicting claims and to carefully weigh their respective evidence.
The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are binding on this
Court.22 We stress that, subject to some exceptional instances,23only questions of law — not
questions of fact — may be raised before this Court in a petition for review under Rule 45 of the
Rules of Court. After a thorough review of the case at bar, we find no reason to disturb the lower
court's factual findings, as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit
for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked
and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to
Manila under the contract of voyage charter hire.24The vessel's voyage from Iligan to Manila was the
vessel's first voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it
as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel.25 The Court of
Appeals itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We find
no reason to modify or reverse this finding of both the trial and the appellate courts.

Who Were Negligent:

Seamen or Stevedores?

57
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit
for the carriage of tinplates. NSC failed to discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It
faults the Court of Appeals for failing to consider such claim as an "uncontroverted fact"26 and denies
that MV Vlasons I "was equipped with new canvas covers in tandem with the old ones as indicated
in the Marine Protest . . ."27 We disagree.

The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition
to the new one used primarily to make the ship's hatches watertight. The foregoing are clear from
the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the
ship's boatswain, Jose Pascua. The salient portions of said marine protest read:

. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974,
loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National
Steel Corporation; that before departure, the vessel was rigged, fully equipped and cleared
by the authorities; that on or about August 9, 1974, while in the vicinity of the western part of
Negros and Panay, we encountered very rough seas and strong winds and Manila office was
advised by telegram of the adverse weather conditions encountered; that in the morning of
August 10, 1974, the weather condition changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing sea water to overflow on deck
andhatch (sic) covers and which caused the first layer of the canvass covering to give way
while the new canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro;
that we re-secured the canvass covering back to position; that in the afternoon of August 10,
1974, while entering Maricaban Passage, we were again exposed to moderate seas and
heavy rains; that while approaching Fortune Island, we encountered again rough seas,
strong winds and big waves which caused the same canvass to give way and leaving the
new canvass holding on;

xxx xxx xxx 28

And the relevant portions of Jose Pascua's deposition are as follows:

q What is the purpose of the canvas cover?

a So that the cargo would not be soaked with water.

q And will you describe how the canvas cover was secured on the hatch
opening?

WITNESS

a It was placed flat on top of the hatch cover, with a little canvas flowing over
the sides and we place[d] a flat bar over the canvas on the side of the
hatches and then we place[d] a stopper so that the canvas could not be
removed.

ATTY DEL ROSARIO

q And will you tell us the size of the hatch opening? The length and the width
of the hatch opening.

a Forty-five feet by thirty-five feet, sir.

xxx xxx xxx

q How was the canvas supported in the middle of the hatch opening?

58
 a There is a hatch board.

ATTY DEL ROSARIO

q What is the hatch board made of?

a It is made of wood, with a handle.

q And aside from the hatch board, is there any other material there to cover
the hatch?

a There is a beam supporting the hatch board.

q What is this beam made of?

a It is made of steel, sir.

q Is the beam that was placed in the hatch opening covering the whole hatch
opening?

a No, sir.

q How many hatch beams were there placed across the opening?

a There are five beams in one hatch opening.

ATTY DEL ROSARIO

q And on top of the beams you said there is a hatch board. How many pieces
of wood are put on top?

a Plenty, sir, because there are several pieces on top of the hatch beam.

q And is there a space between the hatch boards?

a There is none, sir.

q They are tight together?

a Yes, sir.

q How tight?

a Very tight, sir.

q Now, on top of the hatch boards, according to you, is the canvass cover.
How many canvas covers?

a Two, sir.29

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not
give way and the ship's hatches and cargo holds remained waterproof. As aptly stated by the Court
of Appeals, ". . . we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; . . .30

59
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who
were negligent in unloading the cargo from the ship.

The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the ship.
Vicente Angliongto, an officer of VSI, testified thus:

ATTY ZAMORA:

Q Now, during your testimony on November 5, 1979, you stated on August

14 you went on board the vessel upon notice from the National Steel
Corporation in order to conduct the inspection of the cargo. During the course
of the investigation, did you chance to see the discharging operation?

WITNESS:

A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all the
hatches were opened.

Q In connection with these cargoes which were unloaded, where is the place.

A At the Pier.

Q What was used to protect the same from weather?

ATTY LOPEZ:

We object, your Honor, this question was already asked. This particular
matter . . . the transcript of stenographic notes shows the same was covered
in the direct examination.

ATTY ZAMORA:

Precisely, your Honor, we would like to go on detail, this is the serious part of
the testimony.

COURT:

All right, witness may answer.

ATTY LOPEZ:

Q What was used in order to protect the cargo from the weather?

A A base of canvas was used as cover on top of the tin plates, and tents
were built at the opening of the hatches.

Q You also stated that the hatches were already opened and that there were
tents constructed at the opening of the hatches to protect the cargo from the
rain. Now, will you describe [to] the Court the tents constructed.

A The tents are just a base of canvas which look like a tent of an Indian camp
raise[d] high at the middle with the whole side separated down to the hatch,
the size of the hatch and it is soaks [sic] at the middle because of those
weather and this can be used only to temporarily protect the cargo from
getting wet by rains.

Q Now, is this procedure adopted by the stevedores of covering tents

proper?

60
 A No, sir, at the time they were discharging the cargo, there was a typhoon
passing by and the hatch tent was not good enough to hold all of it to prevent
the water soaking through the canvass and enter the cargo.

Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the
water enter and soak into the canvass and tinplates.

A Yes, sir, the second time I went there, I saw it.

Q As owner of the vessel, did you not advise the National Steel Corporation
[of] the procedure adopted by its stevedores in discharging the cargo
particularly in this tent covering of the hatches?

A Yes, sir, I did the first time I saw it, I called the attention of the stevedores
but the stevedores did not mind at all, so, called the attention of the
representative of the National Steel but nothing was done, just the same.
Finally, I wrote a letter to them.31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores' negligence on the first day of unloading, pointing out that he
wrote his letter to petitioner only seven days later.32 The Court is not persuaded. Angliongto's candid
answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed because
he first called the attention of the stevedores, then the NSC's representative, about the negligent and
defective procedure adopted in unloading the cargo. This series of actions constitutes a reasonable
response in accord with common sense and ordinary human experience. Vicente Angliongto could
not be blamed for calling the stevedores' attention first and then the NSC's representative on location
before formally informing NSC of the negligence he had observed, because he was not responsible
for the stevedores or the unloading operations. In fact, he was merely expressing concern for NSC
which was ultimately responsible for the stevedores it had hired and the performance of their task to
unload the cargo.

We see no reason to reverse the trial and the appellate courts' findings and conclusions on this
point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSC's shipment. We do not
think so. Such negligence according to the trial court is evident in the stevedores hired by
[NSC], not closing the hatch of MV 'VLASONS I' when rains occurred during the discharging
of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to
and fall on the cargo. It was proven that the stevedores merely set up temporary tents or
canvas to cover the hatch openings when it rained during the unloading operations so that it
would be easier for them to resume work after the rains stopped by just removing said tents
or canvass. It has also been shown that on August 20, 1974, VSI President Vicente
Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were
discharging the cargo on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tinplates' covers and [Vicente
Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that
the hatches be totally closed down and covered with canvas and the hatch tents lowered.
(Exh. "13"). This letter was received by [NSC] on 22 August 1974 while discharging
operations were still going on (Exhibit "13-A").33

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be
noted that the NSC may seek indemnification, subject to the laws on prescription, from the
stevedoring company at fault in the discharge operations. "A stevedore company engaged in
discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence . . . and where the officers and members and
crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores . . .
the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ."34 as in the instant case.

Do Tinplates "Sweat"?

61
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by
themselves when packed even without being in contact with water from outside especially when the
weather is bad or
raining . . ."35 The Court of Appeals affirmed the trial court's finding.

A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the unloading.

Second Issue: Effect of NSC's Failure to

Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I.
Clearly, therefore, NSC's failure to insure the cargo will not affect its right, as owner and real party in
interest, to file an action against VSI for damages caused by the latter's willful negligence. We do not
find anything in the charter party that would make the liability of VSI for damage to the cargo
contingent on or affected in any manner by NSC's obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates

Proving Seaworthiness

NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of
the certificates of seaworthiness offered in evidence by VSI. The said certificates include the
following:

1. Certificate of Inspection of the Philippines Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard

3. International Load Line Certificate from the Philippine Coast Guard

4. Coastwise License from the Board of Transportation

5. Certificate of Approval for Conversion issued by the Bureau of Customs36

NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of
public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications or
certified true copies" as required by Sections 25 and 26, Rule 132, of the Rules of Court.37

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12
are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven by one who saw the writing
executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence
rule have not been demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made
in the performance of a duty by a public officer of the Philippines, or by a person in the performance
of a duty specially enjoined by law, are prima facie evidence of the facts therein stated."38 Exhibit 11
is an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade
Noli C. Flores to the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG Inspectors
were sent on board for inspection . . . After completion of drydocking and duly inspected by PCG
Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast
Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's claim, therefore, is obviously
misleading and erroneous.

At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the

62
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to
discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in
damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient
proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorney's Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.

xxx xxx xxx

6. Loading/Discharging Rate: 750 tons per WWDSHINC.

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.39

The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo.40It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. . . . If laytime is
expressed in "running days," this means days when the ship would be run continuously, and
holidays are not excepted. A qualification of "weather permitting" excepts only those days
when bad weather reasonably prevents the work contemplated.41

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included.42 The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo.43 Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable
weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was
error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding
by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court
also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorney's fees under Article 2208 of the Civil Code when ". . . no sufficient showing of bad
faith would be reflected in a party's persistence in a case other than an erroneous conviction of the
righteousness of his cause . . ."44 Moreover, attorney's fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is tantamount to
imposing a premium on one's right to litigate or seek judicial redress of legitimate grievances.45

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain and seawater seeped through
the cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that
factual findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one
of them. Second, the agreement between the parties — the Contract of Voyage Charter Hire —
placed the burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such

63
stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of
private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a
parry from the effects of a private contract freely entered into, on the ground that it is allegedly one-
sided or unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations
are agreed upon in consideration of many factors, not the least of which is the transport price which
is determined not only by the actual costs but also by the risks and burdens assumed by the shipper
in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even
stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under
the charter party. That NSC failed or neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure or neglect.

WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-25266 January 15, 1975

AETNA INSURANCE COMPANY, plaintiff-appellant,

vs.
BARBER STEAMSHIP LINES, INC., and/or LUZON STEVEDORING CORPORATION and/or
LUZON BROKERAGE CORPORATION, defendants-appellees.

Camacho, Zapa Andaya and Associates for plaintiff-appellant.

Rose, Selph, Salcedo, Del Rosario, Bito and Mesa for defendant-appellee Barber Steamship Lines,
Inc.

H. San Luis and L. V. Simbulan for defendant-appellee Luzon Stevedoring Corporation.

Jalandoni and Jamir for defendant-appellee Luzon Brokerage Corporation.

AQUINO, J.:

Aetna Insurance Company appealed on a legal question from the order of the Court of First Instance
of Manila, dismissing its amended complaint against Barber Line Far East Service on the ground of
prescription.

The facts are as follows:

On February 22, 1965 Aetna Insurance Company, as insurer, filed a complaint against Barber
Steamship Lines, Inc., Luzon Stevedoring Corporation and Luzon Brokerage Corporation.

It sought to recover from the defendants the sum of P12,100.06 as the amount of the damages
which were caused to a cargo of truck parts shipped on the SS Turandot. The insurer paid the
damages to Manila Trading & Supply Company, the consignee.

In a manifestation dated March 31, 1965, Barber Steamship Lines, Inc., without submitting to the
court's jurisdiction, alleged that it was a foreign corporation not licensed to do business in the
Philippines, that it was not engaged in business here, that it had no Philippine agent and that it did
not own nor operate the SS Turandot.

On April 5, 1965 Barber Steamship Lines, Inc., again with the caveat that it was not submitting to the
court's jurisdiction, filed a motion to dismiss on the grounds of (a) lack of jurisdiction over the person
and (b) that it was not the real party in interest.

Barber Steamship Lines, Inc. alleged that the service of summons was not effected upon it in
accordance with section 14, Rule 14 of the Rules of Court. It clarified that the summons intended for
it was served upon Macondray & Co., Inc. which was not its agent.

64
It asserted that it was not the real party in interest because according to the bill of lading annexed to
the complaint the owner of the SS Turandot, the carrying vessel, was the Wilh, Wilhemsen Group.
(Note, however, that the same bill of lading indicated that Barber Steamship Lines, Inc. was the
vessel's agent).

Two days later, or on April 7, 1965 plaintiff Aetna Insurance Company filed a manifestation stating
that the name of defendant Barber Steamship Lines, Inc. was incorrect and that the correct name
was Barber Line Far East Service. Attached to the manifestation was an amended complaint
containing the correction. Aetna Insurance Company manifested that copies of the amended
complaint would be served on the parties by means of alias summons.

On April 20, 1965 Aetna Insurance Company filed a motion for the admission of its amended
complaint. Barber Steamship Lines, Inc. opposed the motion. It contended that its pending motion to
dismiss the original complaint should first be resolved before the amended complaint may be
admitted.

Judge Ramon O. Nolasco in an order dated April 19, 1965 dismissed the complaint against Barber
Steamship Lines, Inc. and directed that alias summonses be issued to the defendants named in the
amended complaint.

On May 19, 1965 Barber Line Far East Service, supposedly without admitting to the court's
jurisdiction, moved for the dismissal of the amended complaint on the grounds (1) that it is not a
juridical person and, hence, it could not be sued; (2) that the court had no jurisdiction over its person;
(3) that it was not the real party in interest and (4) that the action had prescribed according to the bill
of lading and the Carriage of Goods by Sea Act. Aetna Insurance Company opposed the motion.

Judge Nolasco in his order of July 7, 1965 ruled that inasmuch as according to the complaint the
shipment arrived in Manila on February 22, 1964 and the amended complaint, impleading Barber
Line Far East Service, was filed on April 7, 1965, or beyond the one-year period fixed in the Carriage
of Goods by Sea Act, the action had already prescribed. The case was dismissed as to Barber Line
Far East Service.

The legal question under the above facts is whether the action of Aetna Insurance Company against
Barber Line Far East Service, as ventilated in its amended complaint, which was filed on April 7,
1965, had prescribed.

As previously stated, the action was for the recovery of damages to a cargo of truck parts which was
insured by Aetna Insurance Company and which arrived in Manila on the SS Turandot and were
delivered in bad order to the consignee on February 25, 1968 (4 Record on Appeal).

The bill of lading covering the shipment provides:

19. In any event the Carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after the delivery of
the goods or the dates when the goods should have been delivered. Suit shall not be
deemed brought until jurisdiction shall have been obtained over the Carrier and/or
the ship by service of process or by an agreement to appear.

On the other hand, the Carriage of Goods by Sea Act, Commonwealth Act No. 65 (Public Act No.
521 of the 74th Congress of the United States) provides:

RESPONSIBILITIES AND LIABILITIES

Section 3. xxx xxx xxx

(6) xxx xxx xxx

In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered: Provided, That, if a notice of
loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit

65
 within one year after the delivery of the goods or the date when the goods should
have been delivered.

Aetna Insurance Company contends in this appeal that the trial court erred (1) in holding that the
Barber Line Far East Service was substituted for Barber Steamship Lines, Inc. and (2) in dismissing
the action on the ground of prescription.

There is no merit in the appeal. The trial court correctly held that the one-year statutory and
contractual prescriptive period had already expired when appellant company filed on April 7, 1965 its
action against Barber Line Far East Service. The one year period commenced on February 25, 1964
when the damaged cargo was delivered to the consignee. (See Chua Kuy vs. Everrett Steamship
Corporation, 93 Phil. 207; Yek Tong Fire & Marine Insurance Co., Ltd. vs. American President Lines,
Inc., 103 Phil. 1125).

Appellant company invokes the rule that where the original complaint states a cause of action but
does it imperfectly, and afterwards an amended complaint is filed, correcting the defect, the plea of
prescription will relate to the time of the filing of the original complaint (Pangasinan Transportation
Co. vs. Phil. Farming Co., Ltd., 81 Phil. 273). It contends that inasmuch as the original complaint was
filed within the one year period, the action had not prescribed.

That ruling would apply to defendants Luzon Stevedoring Corporation and Luzon Brokerage
Corporation. But it would not apply to Barber Line Far East Service which was impleaded for the first
time in the amended complaint.

It should be recalled that the original complaint was dismissed as to Barber Steamship Lines, Inc. in
the lower court's order of April 19, 1965. New summons had to be issued to Barber Line Far East
Service which had replaced Barber Steamship Lines, Inc. as a defendant.

The filing of the original complaint interrupted the prescriptive period as to Barber Steamship Lines,
Inc. but not as to Barber Line Far East Service, an entity supposedly distinct from the former.
Appellant's contention that there was merely a correction in the name of a party-defendant is
untenable. *

In view of the foregoing considerations, the lower court's order of dismissal is affirmed. Costs against the plaintiff-appellant.

SO ORDERED.

66