Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

L-65510 March 9, 1987 TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner, vs. HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents. Cirilo A. Diaz, Jr. for petitioner. Henry V. Briguera for private respondent. PARAS, J.: "'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.) The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, as follows: On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his own request, the period of paying the balance was extended to one year in monthly installments until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees. In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of the balance of the purchase price. It has been the practice of financing firms that whenever there is a balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank. On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of the condition that the plaintiff would be the one to register every year the motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle the defendant suffered damages when he failed to claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being registered. The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting in its not being registered. The truth being that the motorcycle was being used for transporting passengers and it kept on travelling from one place to another. The motor vehicle sold to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx ... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the transportation business and for this purpose said trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit. Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositive portion of which reads: WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs. SO ORDERED. On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of which reads However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code]. xxx xxx xxx WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed. No pronouncement as to costs. SO ORDERED. The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto." We find the petition devoid of merit. Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the contract, or demand, the performance of the other's undertaking. The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time cannot give efficacy to contracts that are null and void. WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur. Alampay, J., took no part. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-26815 May 26, 19810 ADOLFO L. SANTOS, petitioner, vs. ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J.: The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words, SANTOS became what is known in ordinary parlance as akabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement. On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred to as the BRANCH XVII CASE. On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1 On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD, and scheduled the public auction sale thereof on May 8,1964. On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld. On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the BONDING COMPANY as a party defendant although its bond had not become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not receive any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2 No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond securing him against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and personal liability." The mentioned discretional power and personal liability have been further elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the property levied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless he is given by the judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the Indemnity bond, but in such case he will answer for any damages with his own personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39.). It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant. On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, and decreed:
1wph1. t 1w ph1.t 1w ph1.t

WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale of the vehicle in question ordering its return to the plaintiff and furthermore sentencing the defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's fee's as well as the costs. 4

This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the BONDING COMPANY as jointly slid severally liable with SIBUG. 5 ... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums it is ordered to pay under this decision. The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed. Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: ... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... (g) to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof. In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards the public and third persons 7 even if the vehicle involved in the accident had been sold to another where such sale had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS, as the kabitshould not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one way of curbing the pernicious kabitsystem that facilitates the commission of fraud against the travelling public. As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplary damages. 10 From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X had no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11 On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree of another court of concurrent jurisdiction." 12 Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13On September 28, 1966, respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled that:
1wph 1.t 1w ph1.t 1w ph1.t

... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVII when it issued a restraining order and finally a decision permanently enjoining the other court from excuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an interference with the powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitably lead to confusion which might hamper or hinder the proper administration of justice. ... 14 Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being levied upon but registered in another's name in a separated action, observing that: As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any person affected by the representation that said vehicle is registered under the name of a particular person had the right to rely on his declaration of ownership and registration: and the registered owner or any other person for that matter cannot be permitted to repudiate said declaration with the objective of proving that said registered vehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code) xxx xxx xxx Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be opened to collusion between a person and a registered owner for the latter to escape said responsibility to the public or to any person. ... SANTOS now seeks a review of respondent Court's Decision contending that:
1wph1.t 1wph1.t

1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy the judgment indebtedness of another person: 2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its registered owner; 3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482. We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for decision on July 20, 1967. One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the vehicle levied upon through a separate action. Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15speaking through Mr. Justice Ramon Aquino, succinctly held: It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is applied in cases, where no third-party claimant is involved, in order to prevent one court from nullifying the judgment or process of another court of the same rank or category, a power which devolves upon the proper appellate court. xxx xxx xxx When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction, which is issued to stop the auction sale of that property, is not an interference with the writ of execution issued by another court because the writ of execution was improperly implemented by the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized to levy upon the property of the thirdparty claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102). An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively: Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of concurrent jurisdiction. No court has power to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction. Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court must interfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and the relief sought by such injunction must be one which could be granted by the court which rendered the judgment or issued the decree. Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims property levied upon on execution. Under section 17 of Rule 39 a third person who claims property levied upon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring him to be the owner of the property - would not constitute interference with the powers or processes of the court which rendered the judgment to enforce which the execution was levied. lf that be so - and it is so because the property, being that of a stranger, is not subject to levy - then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as such interference either. Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules of Court, interpreted The right of a person who claims to be the owner of property levied upon on execution to file a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be suffered by the third party claimant. By "action", as stated in the Rule, what is meant is a separate and independent action. Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers or processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in question was in custodia legis, and should not be interfered with without the permission of the proper Court, the property must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply and interference with his custody is not interference with another Court's Order of attachment. 17 However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent Court of Appeals to be in consonance with justice.
1wph1.t 1w ph1.t

WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santos is dismissed with costs against the petitioner. SO ORDERED. Makasiar, Guerrero and De Castro, * JJ., concur. Teehankee (Chairman), concurs in the result.
1wph1.t

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-64693 April 27, 1984 LITA ENTERPRISES, INC., petitioner, vs. SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents. Manuel A. Concordia for petitioner. Nicasio Ocampo for himself and on behalf of his correspondents. ESCOLIN, J.: "Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts. The factual background of this case is undisputed. Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name. About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees. This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez. Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned. Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff. Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo) Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p. 121, Ibid.) On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive portion another paragraph, to wit: In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.) Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: 1. ...
+.wp h!1 t.hqw t.hqw t.hqw

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of public respondent so that: (a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted; (b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.) Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government. Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed; (1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking. The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void." The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case. WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs. SO ORDERED. Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur. Aquino, J., took no part.
t.hqw 1wph1.t

SECOND DIVISION [G.R. No. 125817. January 16, 2002] ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT OF APPEALS and DONATO H. GONZALES, respondents. DECISION
BELLOSILLO, J.:

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

he did not have the registration of the vehicle transferred in his name nor did he secure for himself a certificate of public convenience for its operation. Thus Vallarta remained on record as its registered owner and operator. On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan, Bulacan, it collided with a ten-wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned responsibility for the accident, explaining that while he was traveling towards Manila the truck suddenly lost its brakes. To avoid colliding with another vehicle, he swerved to the left until he reached the center island. However, as the center island eventually came to an end, he veered farther to the left until he smashed into a Ferroza automobile, and later, into private respondent's passenger jeepney driven by one Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the passenger jeepney and left one (1) passenger dead and many others wounded. Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger, and had the Ferroza restored to good condition. He also negotiated with private respondent and offered to have the passenger jeepney repaired at his shop. Private respondent however did not accept the offer so Lim offered himP20,000.00, the assessment of the damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected; instead, private respondent demanded a brand-new jeep or the amount of P236,000.00. Lim increased his bid to P40,000.00 but private respondent was unyielding. Under the circumstances, negotiations had to be abandoned; hence, the filing of the complaint for damages by private respondent against petitioners. In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his employees. He further asserted that as the jeepney was registered in Vallartas name, it was Vallarta and not private respondent who was the real party in interest. For his part, petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control. Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained that although he wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged vehicle. The main point of contention between the parties related to the amount of damages due private respondent. Private respondent Gonzales averred that per estimate made by an automobile repair shop he would have to spend P236,000.00 to restore his jeepney to its original condition. On the other hand, petitioners insisted that they could have the vehicle repaired for P20,000.00. On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest from 22 July 1990 as compensatory damages andP30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated that as vendee and current owner of the passenger jeepney private respondent stood for all intents and purposes as the real party in interest. Even Vallarta himself supported private respondent's assertion of interest over the jeepney for, when he was called to testify, he dispossessed himself of any claim or pretension on the property. Gunnaban was found by the trial court to have caused the accident since he panicked in the face of an emergency which was rather palpable from his act of directing his vehicle to a perilous
[1] [2] [3] [4] [5]

streak down the fast lane of the superhighway then across the island and ultimately to the opposite lane where it collided with the jeepney. On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising his employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he was neither tutored nor trained to handle such task. Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In upholding the decision of the court a quo the appeals court concluded that while an operator under the kabit system could not sue without joining the registered owner of the vehicle as his principal, equity demanded that the present case be made an exception. Hence this petition. It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their opposition to the well-established doctrine that an operator of a vehicle continues to be its operator as long as he remains the operator of record. According to petitioners, to recognize an operator under the kabit system as the real party in interest and to countenance his claim for damages is utterly subversive of public policy. Petitioners further contend that inasmuch as the passenger jeepney was purchased by private respondent for only P30,000.00, an award of P236,000.00 is inconceivably large and would amount to unjust enrichment. Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the pernicious kabit system does not persuade. Their labored efforts to demonstrate how the questioned rulings of the courts a quo are diametrically opposed to the policy of the law requiring operators of public utility vehicles to secure a certificate of public convenience for their operation is quite unavailing. The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings. Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code. In the early case of Dizon v. Octavio the Court explained that one of the primary factors considered in the granting of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no property with which to respond financially for the damage done. Thus, for the safety of passengers and the public who may have been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of responsibility. Subsequent cases affirm such basic doctrine. It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom responsibility may
[6] [7] [8] [9] [10] [11]

be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at large is not deceived, much less involved. In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not exist. First, neither of the parties to the pernicious kabitsystem is being held liable for damages. Second, the case arose from the negligence of another vehicle in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny him his right. In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue should be discouraged, if not repelled. In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by putting the plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on damages that a defendant cannot be held liable in damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no more than the just and adequate compensation for the injury suffered. His recovery is, in the absence of circumstances giving rise to an allowance of punitive damages, limited to a fair compensation for the harm done. The law will not put him in a position better than where he should be in had not the wrong happened. In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award damages considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that indemnification for damages comprehends not only the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other words, indemnification for damages is not limited to damnum emergens or actual loss but extends to lucrum cessans or the amount of profit lost. Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued earning from the business in which it was engaged. Private respondent avers that he derives an average income of P300.00 per day from his passenger jeepney and this earning was included in the award of damages made by the trial court and upheld by the appeals court. The award therefore of P236,000.00 as compensatory damages is not beyond reason nor speculative as it is based on a reasonable estimate of the total damage suffered by private respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation business. Petitioners for their part did not offer any substantive evidence to refute the estimate made by the courts a quo. However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory damages legal interest should be imposed beginning 22
[12] [13]

July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof, interest at the rate of six percent (6%) per annum should be from the date the judgment of the court is made (at which time the quantification of damages may be deemed to be reasonably ascertained). In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated upon by the parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they could have the vehicle repaired easily for P20,000.00. In fine, the amount due private respondent was not a liquidated account that was already demandable and payable. One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the elements. Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. One who is injured then by the wrongful or negligent act of another should exercise reasonable care and diligence to minimize the resulting damage. Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured and for injuries incurred in attempting to prevent damage to it. However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage caused by private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only that the injured party could have mitigated his damages but also the amount thereof; failing in this regard, the amount of damages awarded cannot be proportionately reduced. WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as compensatory damages andP30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum shall be computed from the time the judgment of the lower court is made until the finality of this Decision. If the adjudged principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%) per annum computed from the time judgment becomes final and executory until it is fully satisfied. Costs against petitioners. SO ORDERED. Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
[14] [15]

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-57493 January 7, 1987 BALIWAG TRANSIT, INC., petitioner, vs. THE HON. COURT OF APPEALS AND ROMAN MARTINEZ, respondents. Sta. Maria & Associates for petitioner. Felimon A. Imazan for respondent Roman Martinez. PARAS, J.: This is a petition for review on certiorari, seeking the reversal of the decision of the Court of Appeals dated June 4, 1981, the dispositive portion of which reads:

WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case No. 3272 is hereby set aside and another one entered: ordering respondent Baliwag Transit, Inc. to remit to the Social Security Commission the premium contributions for the petitioner for the years 1958 to May 1963 and from 1967 to March 1971, inclusive, plus penalties thereon at the rate of 3% per month of delinquency. Two passenger bus lines with similar buses and similar routes were being operated by firm names "Baliwag Transit' and "Baliwag Transit, Inc." (BTI) the herein petitioner. The former was owned by the late Pascual Tuazon who continued to operate it until his death on January 26, 1972, while the latter was owned by petitioner corporation, incorporated in the year 1968 and existing until the present time. Both bus lines operate under different grants of franchises by the Public Service Commission (Brief for Petitioner, p.11), but were issued only one ID Number 03-22151 by the Social Security System (Rollo, p. 66). Private respondent claiming to be an employee of both bus lines with one ID Number, filed a petition with the Social Security Commision on August 14, 1975 which was docketed as SSC Case No. 3272 to compel BTI to remit to the Social Security private respondent's SSS Premium contributions for the years 1958 to March, 1963 and from 1967 to March 1971. He alleged that he was employed by petitioner from 1947 to 1971 as conductor and later as inspector with corresponding salary increases and that petitioner deducted from his salaries, premium contributions, but what was remitted to the SSS was only for a period covering June, 1963 to 1966, at a much lesser amount. In its answer, BTI denied having employed private respondent Ramon Martinez, the truth being that he was employed by Pascual Tuazon who since 1948 owned and operated buses under the trade name Baliwag Transit which were separate and distinct from the buses operated by petitioner company owned by Mrs. Victoria Vda. de Tengco. Both bus lines had different offices, different maintenance and repair shops, garages, books of account, and managers. The employment of private respondent lasted until 1971 when his employer Pascual Tuazon became bankrupt. It was the latter which deducted from private respondent the amount corresponding to his SSS contributions for the years in question but allegedly did not remit the same. Finally, herein petitioner BTI claims that private respondent allowed 17 years to elapse and at a time when Pascual Tuazon was already dead before filing the subject petition with the Social Security Commission. (Rollo, p. 18). After trial on the merits, the Social Security Commission on September 12, 1979, entered a resolution in SSC Case No. 3272, the dispositive portion of which reads: PREMISES CONSIDERED, this Commission finds and so holds that there existed no employer-employee relationship between the petitioner and respondent as would warrant further remittance of SSS contributions for and in behalf of petitioner Roman Martinez. Consequently, this petition is hereby dismissed for lack of merit, SO ORDERED. On appeal ,the Court of Appeals finding that the late Pascual Tuazon operated his buses under the "Kabit" System reversed and set aside the foregoing resolution as follows: WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case No. 3272 is hereby set aside and another one entered ordering respondent Baliwag Transit, Inc. to remit to the Social Security Commission the premium contributions for the petitioner for the years 1958 to May 1963 and from 1967 to March 1971, inclusive, plus penalties thereon at the rate of 3% per month of delinquency. SO ORDERED. Herein petitioner filed a Motion for Reconsideration with respondent Court of Appeals, which Motion was later denied. Hence, this petition. In the resolution of August 26, 1981 of the Second Division of this Court, respondents were required to comment (Rollo, p. 64) which was complied with on September 21, 1981 (Rollo, pp. 65-71). On October 5, 198 1, petitioner filed its Reply (Rollo, pp. 7375) in compliance with the resolution of September 30, 1981 (Rollo, p. 71). In the resolution of December 7, 1981, the petition was given due course (Rollo, p. 81). The brief for petitioner-appellant was filed on March 27, 1982 (Rollo, p. 89) while private respondent filed a manifestation and motion to be excused for not filing private respondent's brief and to be allowed to adopt as his arguments the comments he filed on September 19, 1981 and his brief with the Court of Appeals (Rollo, p. 92). Said manifestation and motion was noted in the resolution of June 23, 1982 (Rollo, p. 93) and this case was submitted for deliberation in the resolution of February 3, 1984 (Rllo, p. 94). Petitioners raised the following assignment of errors: I. THAT THE FINDINGS OF THE RESPONDENT HONORABLE COURT OF APPEALS TO THE EFFECT THAT THE VEHICLES OF THE LATE PASCUAL TUAZON WERE "ATTACHED" OR "KABIT" WITH PETITIONER, BALIWAG TRANSIT, INC. MAY NOT HAVE BEEN SUPPORTED BY SUBSTANTIAL EVIDENCE. II. GRANTING THAT THE VEHICLES OF THE LATE PASCUAL TUAZON WERE INDEED "ATTACHED" OR "KABIT" WITH PETITIONER BALIWAG TRANSIT, INC. EMPLOYER- EMPLOYEE RELATIONS MAY NOT EXTENT TC COVER OR INCLUDE THE EMPLOYEES OF THE ACTUAL OWNER OF THE VEHICLES AS EMPLOYEES ALSO OF THE HOLDER OF THE CERTIFICATE OF PUBLIC CONVENIENCE WHICH IS IN THIS CASE, PETITIONER BALIWAG TRANSIT, INC. However, the main issue in this case is whether or not the issuance by the Social Security System of one SSS-ID-Number to two bus lines necessarily indicates that one of them, operates his buses under the "Kabit System." The answer is in the negative. The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby a person who has been granted a certificate of convenience allows another person who owns motor vehicles to operate under such franchise for a fee." (Lita Enterprises, Inc. v. Second Civil Cases Division, IAC, et al., G.R. No. 64693, April 27, 1984). The determining factor, therefore, is the possession of a franchise to operate which negates the existence of the "Kabit System" and not the issuance of one SSS ID Number for both bus lines from which the existence of said system was inferred. In the instant case, the findings of the Court of Appeals are as follows:
lwphl @it lwphl@it

... It is very obvious from the foregoing narration of facts that the late Pascual Tuazon, during the time material to this case, operated his buses under the "kabit" Syetem; that is, while actually he was the owner and operator of public utility buses, maintaining his own drivers, conductors, inspectors and other employees, his buses were not registered with the Public Service Commission (now the Bureau of Land Transportation) in his own name. Instead, his buses were absorbed and registered as owned and operated by the "Baliwag Transit," which was the firm name owned and used by his niece, Victoria Vda. de Tengco. It is well settled that the findings of facts of the Court of Appeals ... are conclusive on the parties and on this Court, unless ... (2) the inference made is manifestly mistaken; ... (4) the judgment is based on misapprehension of facts; ... (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant appellant and appellees; (7) the findings of facts of the Court of Appeals are contrary to those of the trial court; ... (Sacay v. Sandiganbayan, G.R. No. 66497-98, July 10, 1986). In the case at bar, it is undisputed that as testified to, lot only by seven (7) witnesses presented by the petitioner but also by the Social Security System witness Mangowan Macalaba, Clerk I ,of the R & A Division of the Board of Transportation, who had access to the records of said office with respect to applications and grant of franchises of public utility vehicles, that Victoria Vda. de Tengco and Pascual Tuazon were granted separate franchises to operate public utility buses, under Cases Nos. 15904, 114913, 11564, 103366, 64157 and 65894 for the former and Case No. 69-4592 and Case No. 697775 for the latter, both operating between Manila and Baliuag routes. However, the franchises of Pascual Tuazon were cancelled on December 16, 1971 and may 14, 1972 respectively (Rollo, p. 22), when the latter terminated his operation. It is thus evident that both bus lines operated under their own franchises but opted to retain the firm name "Baliwag Transit" with slight modification, by the inclusion of the word "Inc." in the case of herein petitioner, obviously to take advantage of the goodwill such firm name enjoys with the riding public. Conversely, the conclusion of the Court of Appeals that the late Pascual Tuazon, during the time material to this case operated his buses under the "Kabit System" on the ground that while he was actually the owner and operator, his buses were not registered with the Public Service Commission (now the Bureau of Land Transportation) in his own name, is not supported by the records. Much less can it be said that there is an analogy between the case at bar and the cited case of Doligosa, et al. v. Decolongon, et al. (3 CA Nos. 1135, 1142-43) to the extent that Baliwag Transit, Inc. being the ostensible operator of the buses actually owned by Pascual Tuazon, should be held liable for the contributions collected or ought to be collected from private respondent (Rollo, pp. 53-54), presumably to discourage the proliferating "Kabit System" in public utility vehicles. While it is admitted that petitioner was the one who remitted the SSS premiums of private respondent, it has also been established by testimonies of witnesses that such arrangement was done purposely to accommodate the request of the late Pascual Tuazon, the uncle of Victoria Vda. de Tengco and the money came from him. On the other hand, there is no reason why such testimonies should not be given credence as the records fail to show that said witnesses have any motive or reason to falsify or perjure their testimonies (Rollo, pp. 23-24). Moreover, the Social Security Commission after several hearings had been conducted, arrived at the following conclusion: It was established during the hearings that petitioner Roman Martinez was employed by, worked for and took orders from Pascual Tuazon and was authorized to get "vales" from the conductors of the trucks of Mr. Tuazon. This was admitted got "vales" from the buses of Pascual Tuazon (TSN. pp. 24-25, May 7, 1976 and Exhibits "3" to "49"). On the other hand, there is no evidence introducted to show that petitioner ever received salaries from respondent or from Mrs. Victoria Vda. de Tengco and neither had he been under the orders of the latter. The only basis upon which petitioner anchors his claim despite his actual employment by Pascual Tuazon was the use by the latter of the trade name, Baliwag Transit, in the operation of his (Mr. Tuazon's) own buses which the latter had every reason to do since he laboriously helped and organized said firm until it gained cognizance by the public. It is, therefore, clear that even long before the incorporation of the Baliwag Transit in 1968 petitioner was already an employee of the late Pascual Tuazon who despite having separate office, employees and buses which were operated under the line of the Baliwag Transit did not report him for coverage to the SSS. Sadly enough petitioner who claims to be an employee of the respondent did not refute, by way of submitting rebuttal evidence, the testimonies given by respondent's witnesses that he was an employee of the late Pascual Tuazon and not of said respondent or of Mrs. Victoria Tuazon and not of said respondent or of Mr. Victoria Vda. de Tengco. Indeed, there is a reasonable basis to believe that he would not attempt to do so if only to be consistent with his stand when he filed a case before the National Labor Relations Commission, a claim against both the late Pascual Tuazon and the respondent, He is now concentrating his action against the respondent in view of the death of Pascual Tuazon who during his lifetime sold his trucks and became bankrupt Exhibit "2") Resolution, September 14, 1979, pp. 29-31). (Rollo, pp. 28-30) It has been uniformly held by this Court that it is sufficient that administrative findings of fact are supported by evidence on the record, or stated negatively, it is sufficient that findings of fact are not shown to be unsupported by evidence. The Court has also held further that "in reviewing administrative decisions, the reviewin/g court cannot re-examine the sufficiency of the evidence as if originally instituted therein, and receive additional evidence that was not submitted to the administrative agency concerned. The findings of fact must be respected, so long as they are supported by substantial evidence, even if not overwhelming or preponderant." (Police Commission v. Lood, 127 SCRA 758 [1984]). Thus, the employer-employee relationship between the late Pascual Tuazon and herein private respondent, having been established, the remittance of SSS contributions of the latter, is the responsibility of his employer Tuazon, regardless of the existence or non-existence of the "Kabit System."
lwphl@it

Moreover, private respondent having allowed seventeen (17) years to elapse before filing his petition with the Social Security System, has undoubtedly slept on his rights and his cause of action has already prescribed under Article 1144(2) of the Civil Code (Central Azucarrera del Davao v. Court of Appeals, 137 SCRA 296 [1985]; applied by analogy). PREMISES CONCERNED, the decision of respondent Court of Appeals dated June 4, 1981 is hereby REVERSED and SET ASIDE, and the Resolution of the Social Security Commission dated September 12, 1979 is hereby REINSTATED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9907 June 30, 1958 LOURDES J. LARA, ET AL., plaintiffs-appellants, vs. BRIGIDO R. VALENCIA, defendant-appellant. Castillo, Cervantes, Occea, Lozano, Montana, Cunanan, Sison and Castillo and Eligio G. Lagman for defendant-appellant. Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants. BAUTISTA ANGELO, J.: This is an action for damages brought by plaintiffs against defendant in the Court of First Instance of Davao for the death of one Demetrio Lara, Sr. allegedly caused by the negligent act of defendant. Defendant denied the charge of negligence and set up certain affirmative defenses and a counterclaim. The court after hearing rendered judgment ordering defendant to pay the plaintiffs the following amount: (a) P10,000 as moral damages; (b) P3,000 as exemplary damages; and (c) P1,000 as attorney's fees, in addition to the costs of action. Both parties appealed to this Court because the damages claimed in the complaint exceed the sum of P50,000. In their appeal, plaintiffs claim that the court a quo erred in disregarding their claim of P41,400 as actual or compensatory damages and in awarding as attorneys' fees only the sum of P1,000 instead of P3,000 as agreed upon between plaintiffs and their counsel. Defendant, on the other hand, disputes the finding of the court a quo that the oath of Demetrio Lara, Sr. was due to the negligence of defendant and the portion of the judgment which orders dependant to pay to plaintiffs moral and exemplary damages as well as attorneys' fees, said defendant contending that the court should have declared that the death of Lara was due to unavoidable accident. The deceased was an inspector of the Bureau of Forestry stationed in Davao with an annual salary of P1,800. The defendant is engaged in the business of exporting logs from his lumber concession in Cotabato. Lara went to said concession upon instructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang. The work Lara of lasted for six days during which he contracted malaria fever. In the morning of January 9, 1954, Lara who then in a hurry to return to Davao asked defendant if he could take him in his pick-up as there was then no other means of transportation, to which defendant agreed, and in that same morning the pick-up left Parang bound for Davao taking along six passengers, including Lara. The pick-up has a front seat where the driver and two passengers can be accommodated and the back has a steel flooring enclosed with a steel walling of 16 to 17 inches tall on the sides and with a 19 inches tall walling at the back. Before leaving Parang, the sitting arrangement was as follows: defendant was at the wheel and seated with him in the front seat were Mrs. Valencia and Nicanor Quinain; on the back of the pick-up were two improvised benches placed on each side, and seated on the right bench were Ricardo Alojipan and Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person by the name of Leoning was seated on a box located on the left side while in the middle Lara sat on a bag. Before leaving Parang, defendant invited Lara to sit with him on the front seat but Lara declined. It was their understanding that upon reaching barrio Samoay, Cotabato, the passengers were to alight and take a bus bound for Davao, but when they arrived at that place, only Bernardo alighted and the other passengers requested defendant to allow them to ride with him up to Davao because there was then no available bus that they could take in going to that place. Defendant again accommodated the passengers. When they continued their trip, the sitting arrangement of the passengers remained the same, Lara being seated on a bag in the middle with his arms on a suitcase and his head cove red by a jacket. Upon reaching Km. 96, barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he suffered serious injuries. Valencia stopped the pick-up to see what happened to Lara. He sought the help of the residents of that place and applied water to Lara but to no avail. They brought Lara to the nearest place where they could find a doctor and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara arrived he was already dead. From there they proceeded to Davao City and immediately notified the local authorities. An investigation was made regarding the circumstances surrounding the death of Lara but no criminal action was taken against defendant. It should be noted that the deceased went to the lumber concession of defendant in Parang, Cotabato upon instructions of his chief in order to classify the logs of defendant which were then ready to be exported and to be loaded on a ship anchored in the port of Parang. It took Lara six days to do his work during which he contracted malaria fever and for that reason he evinced a desire to return immediately to Davao. At that time, there was no available bus that could take him back to Davao and so he requested the defendant if he could take him in his own pick-up. Defendant agreed and, together with Lara, other passengers tagged along, most of them were employees of the Government. Defendant merely accommodated them and did not charge them any fee for the service. It was also their understanding that upon reaching barrio Samoay, the passengers would alight and transfer to a bus that regularly makes the trip to Davao but unfortunately there was none available at the time and so the same passengers, including Lara, again requested the defendant to drive them to Davao. Defendant again accommodated them and upon reaching Km. 96, Lara accidentally fell suffering fatal injuries.

It therefore appears that the deceased, as well his companions who rode in the pick-up of defendant, were merely accommodation passengers who paid nothing for the service and so they can be considered as invited guests within the meaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes to them merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "The rule is established by the weight of authority that the owner or operator of an automobile owes the duty to an invited guest to exercise reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel. This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or reasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626627). Defendant, therefore, is only required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence as required of a common carrier by our law (Articles 1755 and 1756, new Civil Code). The question that now arises is: Is there enough evidence to show that defendant failed to observe ordinary care or diligence in transporting the deceased from Parang to Davao on the date in question? The trial court answered the question in the affirmative but in so doing it took into account only the following facts: No debe perderse de vista el hecho, que los negocios de exportacion de trozos del demandado tiene un volumen de P1,200. Lara era empleado de la Oficina de Montes, asalariado por el gobierno, no pagado por el demandado para classificar los trozos exportados; debido a los trabajos de classificacion que duro 6 dias, en su ultimo dia Lara no durmio toda la noche, al dia siguiente, Lara fue atacado de malaria, tenia inflamada la cara y cuerpo, sufria dolores de cabeza con erupciones en la cara y cuerpo; que en la manana, del dia 2 de enero de 1954, fecha en que Lara salio de Davao para Parang, en aeroplano para clasificar los trozos del demandado, el automobil de este condujo a aquel al aerodromo de Davao. xxx xxx xxx El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en malas condiciones, desnivelada, con piedras salientes y baches, que hacen del vehiculo no estable en su marcha. Lara estaba enfermo de cierta gravedad, tenia el cuerpo y cara inflamados, atacado de malaria, con dolores de cabeza y con erupciones en la cara y cuerpo. A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso llevar 5 pasajeros en la parte trasera del pick-up; particularmente, para la salud de Lara; el permitirlo, el demandado no ha tomado las precausiones, para evitar un posible accidente fatal. La negative de Lara de ocupar el asiento delantero del pick-up no constituye a juicio del Juzgado una defensa, pues el demendado conociendo el estado delicado de salud de Lara, no debio de haber permitido que aquel regrese a Davao en su pick-up; si querria prestar a aquel un favor, debio de haver provisto a Lara de un automobil para su regrese a Davao, ya que el demendado es un millionario; si no podia prestar a aquel este favor, debio de haver dejado a Lara en Samuay para coger aquel un camion de pasajero de Cotabato a Davao. Even if we admit as true the facts found by the trial court, still we find that the same are not sufficient to show that defendant has failed to take the precaution necessary to conduct his passengers safely to their place of destination for there is nothing there to indicate that defendant has acted with negligence or without taking the precaution that an ordinary prudent man would have taken under similar circumstances. It should be noted that Lara went to the lumber concession of defendant in answer to a call of duty which he was bound to perform because of the requirement of his office and he contracted the malaria fever in the course of the performance of that duty. It should also be noted that defendant was not in duty bound to take the deceased in his own pick-up to Davao because from Parang to Cotabato there was a line of transportation that regularly makes trips for the public, and if defendant agreed to take the deceased in his own car, it was only to accommodate him considering his feverish condition and his request that he be so accommodated. It should also be noted that the passengers who rode in the pick-up of defendant took their respective seats therein at their own choice and not upon indication of defendant with the particularity that defendant invited the deceased to sit with him in the front seat but which invitation the deceased declined. The reason for this can only be attributed to his desire to be at the back so that he could sit on a bag and travel in a reclining position because such was more convenient for him due to his feverish condition. All the circumstances therefore clearly indicate that defendant had done what a reasonable prudent man would have done under the circumstances. There is every reason to believe that the unfortunate happening was only due to an unforeseen accident accused by the fact that at the time the deceased was half asleep and must have fallen from the pick-up when it ran into some stones causing it to jerk considering that the road was then bumpy, rough and full of stones. The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not supported by the evidence. This is a mere surmise made by the trial court considering the time the pick-up left barrio Samoay and the time the accident occured in relation to the distance covered by the pick-up. And even if this is correct, still we say that such speed is not unreasonable considering that they were traveling on a national road and the traffic then was not heavy. We may rather attribute the incident to lack of care on the part of the deceased considering that the pick-up was open and he was then in a crouching position. Indeed, the law provides that "A passenger must observe the diligence of a good father of a family to avoid injury to himself" (Article 1761, new Civil Code), which means that if the injury to the passenger has been proximately caused by his own negligence, the carrier cannot be held liable. All things considered, we are persuaded to conclude that the accident occurred not due to the negligence of defendant but to circumstances beyond his control and so he should be exempt from liability. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Paras, C. J., Bengzon, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur. Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION G.R. No. 162267 July 4, 2008 PCI LEASING AND FINANCE, INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking a reversal of the Decision1 of the Court of Appeals (CA) dated December 12, 2003 affirming with modification the Decision of the Regional Trial Court (RTC) of Makati City which ordered petitioner and Renato Gonzaga (Gonzaga) to pay, jointly and severally, respondent the amount of P244,500.00 plus interest; and the CA Resolution2 dated February 18, 2004 denying petitioner's Motion for Reconsideration. The facts, as found by the CA, are undisputed: On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate Number PHD-206 owned by United Coconut Planters Bank was traversing the Laurel Highway, Barangay Balintawak, Lipa City. The car was insured with plantiff-appellee [UCPB General Insurance Inc.], then driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737 and Trailer Plate No. NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc. allegedly leased to and operated by defendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its employee, defendant appellant Renato Gonzaga. The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the rear part of the car. The driver and passenger suffered physical injuries. However, the driver defendant-appellant Gonzaga continued on its [sic] way to its [sic] destination and did not bother to bring his victims to the hospital. Plaintiff-appellee paid the assured UCPB the amount of P244,500.00 representing the insurance coverage of the damaged car. As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were made by plaintiffappellee for the payment of the aforesaid amounts. However, no payment was made. Thus, plaintiff-appellee filed the instant case on March 13, 1991.3 PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could not be held liable for the collision, since the driver of the truck, Gonzaga, was not its employee, but that of its co-defendant Superior Gas & Equitable Co., Inc. (SUGECO).4 In fact, it was SUGECO, and not petitioner, that was the actual operator of the truck, pursuant to a Contract of Lease signed by petitioner and SUGECO.5 Petitioner, however, admitted that it was the owner of the truck in question. 6 After trial, the RTC rendered its Decision dated April 15, 1999,7 the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff UCPB General Insurance [respondent], ordering the defendants PCI Leasing and Finance, Inc., [petitioner] and Renato Gonzaga, to pay jointly and severally the former the following amounts: the principal amount ofP244,500.00 with 12% interest as of the filing of this complaint until the same is paid; P50,000.00 as attorney's fees; and P20,000.00 as costs of suit. SO ORDERED.8 Aggrieved by the decision of the trial court, petitioner appealed to the CA. In its Decision dated December 12, 2003, the CA affirmed the RTC's decision, with certain modifications, as follows: WHEREFORE, the appealed decision dated April 15, 1999 is hereby AFFIRMED with modification that the award of attorney's fees is hereby deleted and the rate of interest shall be six percent (6%) per annum computed from the time of the filing of the complaint in the trial court until the finality of the judgment. If the adjudged principal and the interest remain unpaid thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the judgment becomes final and executory until it is fully satisfied. SO ORDERED.9 Petitioner filed a Motion for Reconsideration which the CA denied in its Resolution dated February 18, 2004. Hence, herein Petition for Review. The issues raised by petitioner are purely legal: Whether petitioner, as registered owner of a motor vehicle that figured in a quasi-delict may be held liable, jointly and severally, with the driver thereof, for the damages caused to third parties. Whether petitioner, as a financing company, is absolved from liability by the enactment of Republic Act (R.A.) No. 8556, or the Financing Company Act of 1998. Anent the first issue, the CA found petitioner liable for the damage caused by the collision since under the Public Service Act, if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in contemplation of law, the grantee continues to be responsible under the franchise in relation to the operation of the vehicle, such as damage or injury to third parties due to collisions.10 Petitioner claims that the CA's reliance on the Public Service Act is misplaced, since the said law applies only to cases involving common carriers, or those which have franchises to operate as public utilities. In contrast, the case before this Court involves a private commercial vehicle for business use, which is not offered for service to the general public. 11 Petitioner's contention has partial merit, as indeed, the vehicles involved in the case at bar are not common carriers, which makes the Public Service Act inapplicable. However, the registered owner of the vehicle driven by a negligent driver may still be held liable under applicable jurisprudence involving laws on compulsory motor vehicle registration and the liabilities of employers for quasi-delicts under the Civil Code. The principle of holding the registered owner of a vehicle liable for quasi-delicts resulting from its use is well-established in jurisprudence. Erezo v. Jepte,12 with Justice Labrador as ponente, wisely explained the reason behind this principle, thus:

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended.) The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways. "'One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him.' The purpose of the statute is thwarted, and the displayed number becomes a 'snare and delusion,' if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to place a 'middleman' between them and the public, and escape liability by the manner in which they recompense their servants." (King vs. Brenham Automobile Co., 145 S.W. 278, 279.) With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person. The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a thirdparty complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires. In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.13 The case is still good law and has been consistently cited in subsequent cases. 14 Thus, there is no good reason to depart from its tenets. For damage or injuries arising out of negligence in the operation of a motor vehicle, the registered owner may be held civilly liable with the negligent driver either 1) subsidiarily, if the aggrieved party seeks relief based on a delictor crime under Articles 100 and 103 of the Revised Penal Code; or 2) solidarily, if the complainant seeks relief based on a quasi-delict under Articles 2176 and 2180 of the Civil Code. It is the option of the plaintiff whether to waive completely the filing of the civil action, or institute it with the criminal action, or file it separately or independently of a criminal action;15 his only limitation is that he cannot recover damages twice for the same act or omission of the defendant.16 In case a separate civil action is filed, the long-standing principle is that the registered owner of a motor vehicle is primarily and directly responsible for the consequences of its operation, including the negligence of the driver, with respect to the public and all third persons.17 In contemplation of law, the registered owner of a motor vehicle is the employer of its driver, with the actual operator and employer, such as a lessee, being considered as merely the owner's agent. 18 This being the case, even if a sale has been executed before a tortious incident, the sale, if unregistered, has no effect as to the right of the public and third persons to recover from the registered owner.19The public has the right to conclusively presume that the registered owner is the real owner, and may sue accordingly.20 In the case now before the Court, there is not even a sale of the vehicle involved, but a mere lease, which remained unregistered up to the time of the occurrence of the quasi-delict that gave rise to the case. Since a lease, unlike a sale, does not even involve a transfer of title or ownership, but the mere use or enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the law, which is to protect the unwitting public and provide it with a definite person to make accountable for losses or injuries suffered in vehicular accidents.21 This is and has always been the rationale behind compulsory motor vehicle registration under the Land Transportation and Traffic Code and similar laws, which, as early as Erezo, has been guiding the courts in their disposition of cases involving motor vehicular incidents. It is also important to emphasize that such principles apply to all vehicles in general, not just those offered for public service or utility.22

The Court recognizes that the business of financing companies has a legitimate and commendable purpose. 23 In earlier cases, it considered a financial lease or financing lease a legal contract,24 though subject to the restrictions of the so-called Recto Law or Articles 1484 and 1485 of the Civil Code.25 In previous cases, the Court adopted the statutory definition of a financial lease or financing lease, as: [A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property, x x x but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract. 26 Petitioner presented a lengthy discussion of the purported trend in other jurisdictions, which apparently tends to favor absolving financing companies from liability for the consequences of quasi-delictual acts or omissions involving financially leased property.27 The petition adds that these developments have been legislated in our jurisdiction in Republic Act (R.A.) No. 8556,28 which provides: Section 12. Liability of lessors. - Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except when the motor vehicle, aircraft, vessel, equipment or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury. Petitioner's argument that the enactment of R.A. No. 8556, especially its addition of the new Sec. 12 to the old law, is deemed to have absolved petitioner from liability, fails to convince the Court. These developments, indeed, point to a seeming emancipation of financing companies from the obligation to compensate claimants for losses suffered from the operation of vehicles covered by their lease. Such, however, are not applicable to petitioner and do not exonerate it from liability in the present case. The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or repeal the law on compulsory motor vehicle registration. No part of the law expressly repeals Section 5(a) and (e) of R.A. No. 4136, as amended, otherwise known as the Land Transportation and Traffic Code, to wit: Sec. 5. Compulsory registration of motor vehicles. - (a) All motor vehicles and trailer of any type used or operated on or upon any highway of the Philippines must be registered with the Bureau of Land Transportation (now the Land Transportation Office, per Executive Order No. 125, January 30, 1987, and Executive Order No. 125-A, April 13, 1987) for the current year in accordance with the provisions of this Act. xxxx (e) Encumbrances of motor vehicles. - Mortgages, attachments, and other encumbrances of motor vehicles, in order to be valid against third parties must be recorded in the Bureau (now the Land Transportation Office). Voluntary transactions or voluntary encumbrances shall likewise be properly recorded on the face of all outstanding copies of the certificates of registration of the vehicle concerned. Cancellation or foreclosure of such mortgages, attachments, and other encumbrances shall likewise be recorded, and in the absence of such cancellation, no certificate of registration shall be issued without the corresponding notation of mortgage, attachment and/or other encumbrances. x x x x (Emphasis supplied) Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by implication is frowned upon, unless there is clear showing that the later statute is so irreconcilably inconsistent and repugnant to the existing law that they cannot be reconciled and made to stand together.29 There is nothing in R.A. No. 4136 that is inconsistent and incapable of reconciliation. Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not registered with the Land Transportation Office, still does not bind third persons who are aggrieved in tortious incidents, for the latter need only to rely on the public registration of a motor vehicle as conclusive evidence of ownership.30 A lease such as the one involved in the instant case is an encumbrance in contemplation of law, which needs to be registered in order for it to bind third parties. 31 Under this policy, the evil sought to be avoided is the exacerbation of the suffering of victims of tragic vehicular accidents in not being able to identify a guilty party. A contrary ruling will not serve the ends of justice. The failure to register a lease, sale, transfer or encumbrance, should not benefit the parties responsible, to the prejudice of innocent victims. The non-registration of the lease contract between petitioner and its lessee precludes the former from enjoying the benefits under Section 12 of R.A. No. 8556. This ruling may appear too severe and unpalatable to leasing and financing companies, but the Court believes that petitioner and other companies so situated are not entirely left without recourse. They may resort to third-party complaints against their lessees or whoever are the actual operators of their vehicles. In the case at bar, there is, in fact, a provision in the lease contract between petitioner and SUGECO to the effect that the latter shall indemnify and hold the former free and harmless from any "liabilities, damages, suits, claims or judgments" arising from the latter's use of the motor vehicle.32 Whether petitioner would act against SUGECO based on this provision is its own option. The burden of registration of the lease contract is minuscule compared to the chaos that may result if registered owners or operators of vehicles are freed from such responsibility. Petitioner pays the price for its failure to obey the law on compulsory registration of motor vehicles for registration is a pre-requisite for any person to even enjoy the privilege of putting a vehicle on public roads. WHEREFORE, the petition is DENIED. The Decision dated December 12, 2003 and Resolution dated February 18, 2004 of the Court of Appeals are AFFIRMED. Costs against petitioner.
1avv phi1

SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24219 June 13, 1968 PHILIPPINE AIR LINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD, and FILIPINAS ORIENT AIRWAYS, INC., respondents. Crispin D. Baizas, Edgardo Diaz de Rivera and Cenon S. Cervantes, Jr. for petitioner. Office of the Solicitor General for respondent Civil Aeronautics Board. Honorio Poblador and Ramon A. Pedrosa for respondent Filipinas Orient Airways, Inc. CONCEPCION, C.J.: Original petition for certiorari, to set aside and annul a resolution of the Civil Aeronautics Board hereinafter referred to as CAB granting respondent Filipinas Orient Airways Inc. hereinafter referred to as Fairways "provisional authority to operate scheduled and non-scheduled domestic air services with the use of DC-3 aircrafts", subject to specified conditions. Pursuant to Republic Act No. 4147, granting thereto "a franchise to establish, operate and maintain transport services for the carriage of passengers, mail, industrial flights and cargo by air in and between any and all points and places throughout the Philippines and other countries", on September 16, 1964, Fairways filed with CAB the corresponding application for a "certificate of public convenience and necessity", which was Docketed as economic proceedings (EP) No. 625, and was objected to by herein petitioner, Philippine Air Lines, Inc., hereinafter referred to as PAL. Subsequently, a CAB hearing officer began to receive evidence on said application. After several hearings before said officer, or on December 14, 1964, Fairways filed an "urgent petition for provisional authority to operate" under a detailed "program of implementation" attached to said petition, and for the approval of its bond therefor, as well as the provisional approval of its "tariff regulations and the conditions of carriage to be printed at the back of the passenger tickets." Despite PAL's opposition thereto, in a resolution issued on January 5, 1965, CAB granted said urgent petition of Fairways. The pertinent part of said resolution provides: Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to the Board evidence showing prima facie its fitness, willingness and ability to operate the services applied for and the public need for more air transportation service, and to encourage and develop commercial air transportation, RESOLVED, to grant, as the Board hereby grants, the said Filipinas Orient Airways, Inc., provisional authority to operate scheduled and non-scheduled domestic air services with the use of DC-3 aircraft, subject to the following conditions; 1. The term of the provisional authority herein granted shall be until such time as the main application for a certificate of public convenience and necessity is finally decided or for such period as the Board may at any time determine; xxx xxx xxx A reconsideration of this resolution having been denied, PAL filed the present civil action alleging that, in issuing said resolution, CAB had acted illegally and in excess of its jurisdiction or with grave abuse of discretion, because: (1) CAB is not empowered to grant any provisional authority to operate, prior to the submission for decision of the main application for a certificate of public convenience and necessity; (2) CAB had no evidence before it that could have justified the granting of the provisional authority complained of; (3) PAL was denied due process when CAB granted said authority before the presentation of its evidence on Fairway's main application; and (4) In granting said provisional authority, the CAB had prejudged the merits of said application. The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776, reading: (C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel suspend or revoke, in whole or in part, upon petitioner complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.... explicitly authorizes CAB to issue a "temporary operating permit," and nothing contained, either in said section, or in Chapter IV of Republic Act No. 776, negates the power to issue said "permit", before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative," strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Moreover, we perceive no cogent reason to depart, in connection with the commercial air transport service, from the policy of our public service law, which sanctions the issuance of temporary or provisional permits or certificates of public convenience and necessity, before the submission of a case for decision on the merits.1 The overriding considerations in both instances are the same, namely, that the service be required by public convenience and necessity, and, that the applicant is fit, as well as willing and able to render such service properly, in conformity with law and the pertinent rules, regulations and requirements. 2 As regards PAL's second contention, we have no more than PAL's assertion and conclusion regarding the absence of substantial evidence in support of the finding, in the order complained of, to the effect that Fairways' evidence had established " prima facie its fitness, willingness and ability to operate the services applied for and the public need for more transportation service ...". Apart from PAL's assertion being contradicted by the tenor of said order, there is the legal presumption that official duty has been duly performed.

Such presumption is particularly strong as regards administrative agencies, like the CAB, vested with powers said to be quasijudicial in nature, in connection with the enforcement of laws affecting particular fields of activity, the proper regulation and/or promotion of which requires a technical or special training, aside from a good knowledge and grasp of the overall conditions, relevant to said field, obtaining in the nation.3 The consequent policy and practice underlying our Administrative Law is that courts of justice should respect the findings of fact of said administrative agencies, unless there is absolutely no evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial. 4 This, in turn, is but a recognition of the necessity of permitting the executive department to adjust law enforcement to changing conditions, without being unduly hampered by the rigidity and the delays often attending ordinary court proceedings or the enactment of new or amendatory legislations. In the case at bar, petitioner has not satisfactorily shown that the aforementioned findings of the CAB are lacking in the necessary evidentiary support. Needless to say, the case of Ang Tibay vs. C.I.R.5 on which petitioner relies, is not in point. Said case refers to the conditions essential to a valid decision on the merits, from the viewpoint of due process, whereas, in the case at bar, we are concerned with an interlocutory order prior to the rendition of said decision. In fact, interlocutory orders may sometimes be issued ex parte, particularly, in administrative proceedings, without previous notice and hearing, consistently with due process. 6 Again, the constitutional provision to the effect that "no decision shall be rendered by any court of record without expressing therein clearly and distinctly the facts and the law on which it is based",7 applies, not to such interlocutory orders, but to the determination of the case on the merits.8 Lastly, the provisional nature of the permit granted to Fairways refutes the assertion that it prejudges the merits of Fairways' application and PAL's opposition thereto. As stated in the questioned order, CAB's findings therein made reflect its view merely on the prima facie effect of the evidence so far introduced and do not connote a pronouncement or an advanced expression of opinion on the merits of the case. WHEREFORE, the petition herein should be, as it is hereby, dismissed, and the writ prayed for, denied, with costs against petitioner Philippine Air Lines, Inc. It is so ordered. Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur. Fernando, J., took no part.
SECOND DIVISION [G.R. No. 119528. March 26, 1997] PHILIPPINE AIRLINES, INC.,Petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC.,Respondents. DECISION TORRES, JR., J.: This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, and converse routes. The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of the Constitution. Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the Court's pronouncements in the case of Albano v. Reyes,1 as restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board2and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board.3 On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board, which application was docketed as CAB Case No. EP-12711.4 Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995 on the following grounds: "A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress. B. The petitioner's application is deficient in form and substance in that: 1. The application does not indicate a route structure including a computation of trunkline, secondary and rural available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of operations for rural and secondary, respectively. 2. It does not contain a project/feasibility study, projected profit and loss statements, projected balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure, documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars, maintenance, lot) etc. C. Approval of petitioner's application would violate the equal protection clause of the constitution. D. There is no urgent need and demand for the services applied for. E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A. 776." 5 At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the application because GrandAir did not possess a legislative franchise. On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition. Pertinent portions of the Order read: "PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to operate from Congress.
chanroble svirtual lawlib rary chanroblesvi rtua llawli bra ry

The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power and duty. In view thereof, the opposition of PAL on this ground is hereby denied. SO ORDERED." Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a temporary permit maintaining that: "1. The applicant does not possess the required fitness and capability of operating the services applied for under RA 776; and, 2. Applicant has failed to prove that there is clear and urgent public need for the services applied for." 6 On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary Operating Permit in favor of Grand Air7 for a period of three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved for the reconsideration of the issuance of the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995.8 In the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's application. "WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows: '(c) The Board shall have the following specific powers and duties: (1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however; that in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines." WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that the CAB can even on its own initiative, grant a TOP even before the presentation of evidence; WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that: a) Franchises by Congress are not required before each and every public utility may operate when the law has granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public utilities; b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other form of authorization for the operation of a public utility does not necessarily imply that only Congress has the power to grant such authorization since our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities. WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced by only one (1) operator shall be open for entry to additional operators. RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing and considering that the grounds relied upon by the movant are not indubitable." On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six (6) months or up to September 22, 1995. Hence this petition, filed on April 3, 1995. Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of GrandAirs application for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a temporary operating permit in the meantime, since GrandAir has not been granted and does not possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before anyone may engage in air transport services, and a franchise may only be granted by Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII, 9 and Section 1, Article VI,10 of the Constitution. To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads: Dr. Arturo C. Corona Executive Director Civil Aeronautics Board PPL Building, 1000 U.N. Avenue Ermita, Manila Sir: This has reference to your request for opinion on the necessity of a legislative franchise before the Civil Aeronautics Board (CAB) may issue a Certificate of Public Convenience and Necessity and/or permit to engage in air commerce or air transportation to an individual or entity. You state that during the hearing on the application of Cebu Air for a congressional franchise, the House Committee on Corporations and Franchises contended that under the present Constitution, the CAB may not issue the abovestated certificate or permit, unless the individual or entity concerned possesses a legislative franchise. You believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly empowered to issue operating permits or certificates of public convenience and necessity and that this statutory provision is not inconsistent with the current charter. We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion rendered in favor of your predecessor-in-office, this Department observed that,xxx it is useful to note the distinction between the franchise to operate and a permit to commence operation. The former is sovereign and legislative in nature; it can be conferred only by the lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in character (In re Application of Fort CrookBellevue Boulevard Line, 283 NW 223); it is granted by an administrative agency, such as the Public Service Commission [now Board of Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case of air services. While a legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity to an airline company, such franchise alone cannot constitute the authority to commence operations, inasmuch as there are still matters relevant to such operations which are not
chanroblesvi rtual lawlib rary

determined in the franchise, like rates, schedules and routes, and which matters are resolved in the process of issuance of permit by the administrative. (Secretary of Justice opn No. 45, s. 1981) Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued by the appropriate governmental agency for the operation of public services for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381). Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure which constitutes the franchises authority to commence operations. It is thus logical that the grant of the former should precede the latter. Please be guided accordingly. (SGD.) SEDFREY A. ORDOEZ Secretary of Justice" Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and Silangan Airways, Inc.v. Grand International Airways (supra). In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator who does not possess a legislative franchise to operate as such. Relying on the Court's pronouncement in Albano v. Reyes (supra), the Court of Appeals upheld the authority of the Board to issue such authority, even in the absence of a legislative franchise, which authority is derived from Section 10 of Republic Act 776, as amended by P.D. 1462.11 The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., v. Civil Aeronautics Board, promulgated on June 13, 1968.12 The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit. The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that branch of government vested with plenary powers of legislation. "The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the state."13 The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority to authorize the operation of domestic air transport services to the respondent Board, such that Congressional mandate for the approval of such authority is no longer necessary. Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts.14 It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature.15 In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.16 The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right.17 It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances governing the Philippine Ports Authority,18 proves that the PPA is empowered to undertake by itself the operation and management of the Manila International Container Terminal, or to authorize its operation and management by another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary. Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. 776. There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public utility, it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public utility may operate.19 In many instances, Congress has seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service. A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate the issuance of a license to operate domestic air transport services: SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act. In support of the Board's authority as stated above, it is given the following specific powers and duties: (C) The Board shall have the following specific powers and duties: (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines. Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an absolute requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a public service for which a franchise is required by law, as
chanroblesvi rt uallawli bra ry chanroblesvi rtua llawlib ra ry chanroblesvi rtua llawli bra ry chanroblesvi rtua llawli bra ry

distinguished from a "Certificate of Public Convenience" which is an authorization issued for the operation of public services for which no franchise, either municipal or legislative, is required by law.20 This submission relies on the premise that the authority to issue a certificate of public convenience and necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the operation of the public utility subject of this particular case, which is exclusively lodged by petitioner in Congress. We do not agree with the petitioner. Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other and must be construed together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable thing.21 "The terms 'convenience' and 'necessity' are to be construed together, although they are not synonymous, and effect must be given both. The convenience of the public must not be circumscribed by according to the word 'necessity' its strict meaning or an essential requisites."22 The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a public service entity to operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not the title indicating the certificate. Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport services, has delegated to the said body the authority to determine the capability and competence of a prospective domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to choose who should be given authority to operate domestic air transport services. "To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission" that will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not canalized with banks that keep it from overflowing." Otherwise, the delegation is in legal effect an abdication of legislative authority, a total surrender by the legislature of its prerogatives in favor of the delegate."23 Congress, in this instance, has set specific limitations on how such authority should be exercised. Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies: "SECTION 4. Declaration of policies. In the exercise and performance of its powers and duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other things, as being in the public interest, and in accordance with the public convenience and necessity: (a) The development and utilization of the air potential of the Philippines; (b) The encouragement and development of an air transportation system properly adapted to the present and future of foreign and domestic commerce of the Philippines, of the Postal Service and of the National Defense; (c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve the relations between, and coordinate transportation by, air carriers; (d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices; (e) Competition between air carriers to the extent necessary to assure the sound development of an air transportation system properly adapted to the need of the foreign and domestic commerce of the Philippines, of the Postal Service, and of the National Defense; (f) To promote safety of flight in air commerce in the Philippines; and, (g) The encouragement and development of civil aeronautics. More importantly, the said law has enumerated the requirements to determine the competency of a prospective operator to engage in the public service of air transportation. SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation shall be issued only to citizens of the Philippines.24 SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such service properly in conformity with the provisions of this Act and the rules, regulations, and requirements issued thereunder; and (2) that such service is required by the public convenience and necessity; otherwise the application shall be denied. Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and Necessity had been established to ensure the weeding out of those entities that are not deserving of public service. 25 In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its jurisdiction. ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity. SO ORDERED. Regalado (Chairman), and Puno, JJ., concur. Romero, J., no part. Related to counsel. Mendoza, J., no part. Relative in management of party.
chanroblesvi rtua llawli bra ry chanroblesvi rt uallawl ibra ry chanroblesvi rtua llawli bra ry chanroblesv irt uallawl ibra ry chanrob lesvi rtual lawlib rary chanroble svi rtual lawlib rary

SECOND DIVISION KUWAIT AIRWAYS, CORPORATION, G.R. No. 156087

Petitioner,

Present: CARPIO MORALES, J.,* Acting Chairperson, TINGA, VELASCO, LEONARDO-DE CASTRO,** and BRION, JJ.

- versus -

PHILIPPINE AIRLINES, INC., Respondent.

Promulgated: May 8, 2009

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

DECISION
TINGA, J.: This petition for review[1] filed by the duly designated air carrier of the Kuwait Government assails a decision[2] dated 25 October 2002 of the Makati Regional Trial Court (RTC), Branch 60, ordering Kuwait Airways to pay respondent Philippine Airlines the amount of US$1,092,690.00, plus interest, attorneys fees, and cost of suit. [3] The principal liability represents the share to Philippine Airlines in the revenues the foreign carrier had earned for the uplift of passengers and cargo in its flights to and from Kuwait and Manila which the foreign carrier committed to remit as a contractual obligation. On 21 October 1981, Kuwait Airways and Philippine Airlines entered into a Commercial Agreement,[4] annexed to which was a Joint Services Agreement[5]between the two airlines. The Commercial Agreement covered a twice weekly Kuwait Airways flight on the route Kuwait-Bangkok-Manila and vice versa.[6] The agreement stipulated that only 3rd and 4th freedom traffic rights between Kuwait and Manila and vice versa will be exercised. No 5th freedom traffic rights will be exercised between Manila on the one hand and Bangkok on the other.[7] The freedom traffic rights referred to in the Agreement are the so -called five freedoms contained in the International Air Transport Agreement (IATA) sign ed in Chicago on 7 December 1944. Under the IATA, each contracting State agreed to grant to the other contracting states, five freedoms of air. Among these freedoms were [t]he privilege to put down passengers, mail and cargo taken on in

the territory of the State whose nationality the aircraft possesses (Third Freedom); [t]he privilege to take on passengers, mail or cargo destined for the territory of the State whose nationality the aircraft possesses (Fourth Freedom); and the right to carry p assengers from one's own country to a second country, and from that country to a third country (Fifth Freedom). In essence, the Kuwait Airways flight was authorized to board passengers in Kuwait and deplane them in Manila, as well as to board passengers in Manila and deplane them in Kuwait. At the same time, with the limitation in the exercise of Fifth Freedom traffic rights, the flight was barred from boarding passengers in Bangkok and deplaning them in Manila, or boarding passengers in Manila and deplaning them in Bangkok. The Commercial Agreement likewise adverted to the annexed Joint Services Agreement covering the Kuwait-Manila (and vice versa) route, which both airlines had entered into [i]n order to reflect the high level of friendly relationships between [Kuwait Airways] and [Philippine Airlines] and to assist each other to develop traffic on the route. [8] The Agreement likewise stipulated that [u]ntil such time as [Philippine Airlines] commences its operations to or via Kuwait, the Joint Services shall be operated with the use of [Kuwait Airways] aircraft and crew.[9] By virtue of the Joint Services Agreement, Philippine Airlines was entitled to seat allocations on specified

Kuwait Airways sectors, special prorates for use by Philippine Airlines to specified Kuwait Airways sectors, joint advertising by both carriers in each others timetables and other general advertising, and mutual assistance to each other with respect to the development of traffic on the route.[10] Most pertinently for our purposes, under Article 2.1 of the Commercial Agreement, Kuwait Airways obligated itself to share with Philippine Airlines revenue earned from the uplift of passengers between Kuwait and Manila and vice versa.[11] The succeeding paragraphs of Article 2 stipulated the basis for the shared revenue earned from the uplift of passengers. The Commercial Agreement and the annexed Joint Services Agreement was subsequently amended by the parties six times between 1981 and 1994. At one point, in 1988, the agreement was amended to authorize Philippine Airlines to operate provisional services, referred to as ad hoc joint services, on the Manila-Kuwait (and vice versa) route for the period between April to June 1988.[12] In 1989, another amendment was agreed to by the parties, subjecting the uplift of cargo between Kuwait and Manila to the same revenue sharing arrangement as the uplift of passengers.[13] From 1981 until when the present incidents arose in 1995, there seems to have been no serious disagreements relating to the contract. In April of 1995, delegations from the Philippines and Kuwait (Philippine Panel and Kuwait Panel) met in Kuwait. The talks culminated in a Confidential Memorandum of Understanding (CMU) entered into in Kuwait on 12 April 1995. Among the members of the Philippine Panel were officials of the Civil Aeronautics Board (CAB), the Department of Foreign Affairs (DFA), and four officials of Philippine Airlines: namely its Vice-President for Marketing, Director for International Relations, Legal Counsel, and a Senior International Relations Specialist. Dr. Victor S. Linlingan, the Head of the Delegation and Executive Director of the CAB, signed the CMU in behalf of the Government of the Republic of the Philippines. The present controversy stems from the fourth paragraph of the CMU, which read:
4. The two delegations agreed that the unilateral operation and the exercise of third and fourth freedom traffic rights shall not be subject to any royalty payment or commercial arrangements, as from the date of signing of this [CMU]. The aeronautical authorities of the two Contracting Parties will bless and encourage any cooperation between the two designated airlines. The designated airlines shall enter into commercial arrangements for the unilateral exercise of fifth freedom traffic rights. Such arrangements will be subject to the approval of the aeronautical authorities of both contracting parties.[14]

On 15 May 1995, Philippine Airlines received a letter from Dawoud M. Al-Dawoud, the Deputy Marketing & Sales Director for International Affairs ofKuwait Airways, addressed to Ms. Socorro Gonzaga, the Director for International Relations of Philippine Airlines.[15] Both Al-Dawoud and Gonzaga were members of their countrys respective delegations that had met in Kuwait the previous month. The letter stated in part:
Regarding the [Kuwait Airways/Philippine Airlines] Commercial Agreement, pursuant to item 4 of the new MOU[,] we will advise our Finance Department that the Agreement concerning royalty for 3rd/4th freedom traffic will be terminated effective April 12, 1995. Although the royalty agreement will no longer be valid, we are very keen on seeing that [Philippine Airlines] continues to enjoy direct participation in the Kuwait/Philippines market through the Block Space Agreement and to that extent we would like to maintain the Jt. Venture (Block Space) Agreement, although with some minor modifications.[16]

To this, Gonzaga replied to Kuwait Airways in behalf of Philippine Airlines in a letter dated 22 June 1995.[17] Philippine Airlines called attention to Section 6.5 of the Commercial Agreement, which read:

This agreement may be terminated by either party by giving ninety (90) days notice in writing to the other party. However, any termination date must be the last day of any traffic period, e.g.[,] 31st March or 31st October.[18]

Pursuant to this clause, Philippine Airlines acknowledged the 15 May 1995 letter as the requisite notice of termination. However, it also pointed out that the agreement could only be effectively terminated on 31 October 1995, or the last day of the then current traffic period. Thus, Philippine Airlines insisted that the provisions of the Commercial Agreement shall continue to be enforced until such date.[19] Subsequently, Philippine Airlines insisted that Kuwait Airways pay it the principal sum of US$1,092,690.00 as revenue for the uplift of passengers and cargo for the period 13 April 1995 until 28 October 1995.[20] When Kuwait Airways refused to pay, Philippine Airlines filed a Complaint[21] against the foreign airline with the Regional Trial Court (RTC) of Makati City, seeking the payment of the aforementioned sum with interest, attorneys fees, and costs of suit. In its Answer,[22] Kuwait Airways invoked the CMU and argued that its obligations under the Commercial Agreement were terminated as of the effectivity date of the CMU, or on 12 April 1995. Philippine Airlines countered in its Reply that it was not privy to the [CMU], [23] though it would eventually concede the existence of the CMU.[24] An exhaustive trial on the merits was had. On 25 October 2002, the RTC rendered a Decision in favor of Philippine Airlines. The RTC noted that the only issue to resolve in this case is a legal one, particularly whether Philippine Airlines is entitled to the sums claimed under the terms of the Commercial Agreement. The RTC also considered as a corollary issue whether Kuwait Airways validly terminated the Commercial Agreement x x x, plaintiffs contention being that [Kuwait Airways] had not complied with the terms of termination provided for in the Commercial Agreement. The bulk of the RTCs discussion centered on the Philippine Airlines claim that the execution of the CMU could not prejudice its existing rights under the Commercial Agreement, and that the CMU could only be deemed effective only after 31 October 1995, the purported effectivity date of termination under the Commercial Agreement. The rationale for this position of Philippine Airlines was that the execution of the CMU could not divest its proprietary rights under the Commercial Agreement. On this crucial point, the RTC agreed with Philippine Airlines. It asserted the obligatory force of contracts between contracting parties as the source of vested rights which may not be modified or impaired. After recasting Kuwait Airways arguments on this point as being that the Confidential Memorandum of Understanding is superior to the Commercial Agreement[,] the same having been supposedly executed by virtue of the states sovereign power, the RTC rejected the argument, holding that [t]he fact that the [CMU] may have been executed by a

Philippine Panel consisting of representative [sic] of CAB, DFA, etc. does not necessarily give rise to the conclusion that the [CMU] is a superior contract[,] for the exercise of the States sovereign power cannot be arbitrarily and indiscriminately utilized specifically to impair contractual vested rights.[25] Instead, the RTC held that [t]he Commercial Agreement and its specific provisions on revenue sharing having been freely and voluntarily agreed upon by the affected parties x x x has the force of law between the parties and they are bound to the fulfillment of what has been expressly stipulated therein.[26] Accordingly, the provision of the [CMU] must be applied in such a manner that it does not impair the vested rights of the parties.

From this Decision, Kuwait Airways directly filed with this Court the present Petition for Review, raising pure questions of law. Kuwait Airways poses three questions of law for resolution: whether the designated air carrier of the Republic of the Philippines can have better rights than the government itself; whether the bilateral agreement between the Republic of the Philippines and the State of Kuwait is superior to the Commercial Agreement; and whether the enforcement of the CMU violates the non-impairment clause of the Constitution. Let us review the factual backdrop to appreciate the underlying context behind the Commercial Agreement and the CMU. The Commercial Agreement was entered into in 1981 at a time when Philippine Airlines had not provided a route to Kuwait while Kuwait Airways had a route to Manila. The Commercial Agreement established a joint commercial arrangement whereby Philippine Airlines and Kuwait Airways were to jointly operate the Manila-Kuwait (and vice versa) route, utilizing the planes and services of Kuwait Airways. Based on the preambular paragraphs of the Joint Services Agreement, as of 1981, Kuwait Airways was interested in establishing a second frequency (or an increase of its Manila flights to two) and that as a result of cordial and frank discussions the concept of a joint service emerged as the most desirable alternative option.[27]

As a result, the revenue-sharing agreement was reached between the two airlines, an agreement which stood as an alternative to both carriers offering competing flights servicing the Manila-Kuwait route. An apparent concession though by Philippine Airlines was the preclusion of the exercise of one of the fundamental air traffic rights, the Fifth Freedom traffic rights with respect to the Manila-Bangkok-Kuwait, thereby precluding the deplaning of passengers from Manila in Bangkokand the boarding in Bangkok of passengers bound for Manila. The CMU effectively sought to end the 1981 agreement between Philippine Airlines and Kuwait Airways, by precluding any commercial arrangements in the exercise of the Third and Fourth freedom traffic rights. As a result, both Kuwait and the Philippines had the respective right to board passengers from their respective countries and deplane them in the other country,

without having to share any revenue or enter into any commercial arrangements to exercise such rights. In exchange, the designated airline or airlines of each country was entitled to operate six frequencies per week in each direction. In addition, the designated airlines were allowed to enter into commercial arrangements for the unilateral exercise of the Fifth Freedom traffic rights. Another notable point, one not touched upon by the parties or the trial court. It is well known that at the time of the execution of the 1981 agreements, Philippine Airlines was controlled by the Philippine government, with the Government Service Insurance System (GSIS) holding the majority of shares. However, in 1992, Philippine Airlines was privatized, with a private consortium acquiring 67% of the shares of the carrier.[28] Thus, at the time of the signing of the CMU, Philippine Airlines was a private corporation no longer controlled by the Government. This fact is significant. Had Philippine Airlines remained a government owned or controlled corporation at the time the CMU was executed in 1995, its status as such would have bound Philippine Airlines to the commitments made in the document by no less than the Philippine government. However, since Philippine Airlines had already become a private corporation at that juncture, the question of impairment of private rights may come into consideration. In this regard, we observe that the RTC appears to have been under the impression that the CMU was brought about by machinations of the Philippine Panel and the Kuwait Panel of which Philippine Airlines was not aware or in which it had a part. This impression is not exactly borne by the record since no less than four of the nine members of the Philippine Panel were officials of Philippine Airlines. It should be noted though that one of these officials, Senior International Relations Specialist Arnel Vibar, testified for Philippine Airlines that the airline voiced its opposition to the withdrawal of the commercial agreements under the CMU even months before the signing of the CMU, but the objections were overruled. Now, the arguments raised in the petition. One line of argument raised by Kuwait Airways can be dismissed outright. Kuwait Airways points out that the third Whereas clause of the 1981 Commercial Agreement stated: NOW, it is hereby agreed, subject to and without prejudice to any existing or fut ure agreements between the Government Authorities of the Contracting Parties hereto That clause, it is argued, evinces acknowledgement that from the beginning Philippine Airlines had known fully well that its rights under the Commercial Agreement would be limited by whatever agreements the Philippine and Kuwait governments may enter into later. But can a perambulatory clause, which is what the adverted Whereas clause is, impose a binding obligation or limitation on the contracting parties? In the case of statutes, while a preamble manifests the reasons for the passage of the statute and aids in the interpretation of any ambiguities within the statute to which it is prefixed, it nonetheless is not an essential part of an act, and it neither enlarges nor confers powers.[29] Philippine Airlines submits that the same holds true as to the preambular whereas clauses of a contract.

What was the intention of the parties in forging the Whereas clause and the contexts the parties understood it in 1981? In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered,[30] and in doing so, the courts may consider the relations existing between the parties and the purpose of the contract.[31] In 1981, Philippine Airlines was still owned by the Philippine government. In that context, it is evident that the Philippine government, as owner Philippine Airlines, could enter into agreements with the Kuwait government that would supersede the Commercial Agreement entered into by one of its GOCCs, a scenario that changed once Philippine Airlines fell to private ownership. Philippine Airlines argues before us that the cited preambular stipulation is in fact superfluous, and we can agree in the sense that as of the time of the execution of the Commercial Agreement, it was evident, without need of stipulation, that the Philippine government could enter into an agreement with the Kuwait government that would prejudice the terms of the commercial arrangements between the two airlines. After all, Philippine Airlines then would not have been in a position to challenge the wishes of its then majority stockholder the Philippine government. Yet by the time ownership of Philippine Airlines was transferred into private hands, the controverted Whereas clause had taken on a different complexion, for it was newly evident that an act of the Philippine government negating the commercial arrangement between the two airlines would infringe the vested rights of a private individual. The original intention of the Whereas clause was to reflect what was then a given fact relative to the nationalized status of Philippine Airlines. With the change of ownership of Philippine Airlines, the Whereas clause had ceased to be reflective of the current situation as it now stands as a seeming invitation to the Philippine government to erode private vested rights. We would have no problem according the interpretation preferred by Kuwait Airways of the Whereas clause had it been still reflective of the original intent to waive vested rights of private persons, rather than the rights in favor of the government by a GOCC. That is not the case, and we are not inclined to give effect to the Whereas clause in a manner that does not reflect the original intention of the contracting parties. Thusly, the proper focus of our deliberation should be whether the execution of the CMU between the Philippine and Kuwait governments could have automatically terminated the Commercial Agreement, as well as the Joint Services Agreement between Philippine Airlines and Kuwait Airways. Philippine Airlines is the grantee of a legislative franchise authorizing it to provide domestic and international air services.[32] Its initial franchise was granted in 1935 through Act No. 4271, which underwent substantial amendments in 1959 through Republic Act No. 2360.[33] It was granted a new franchise in 1979 through Presidential Decree No. 1590, wherein statutory recognition was accorded to Philippine Airlines as the national flag carrier. P.D. No. 1590 also recognized that the ownership, control, and management of Philippine Airlines had been reacquired by the Government. Section 19 of P.D. No. 1590 authorized Philippine Airlines

to contract loans, credits and indebtedness from foreign sources, including foreign governments, with the unconditional guarantee of the Republic of thePhilippines. At the same time, Section 8 of P.D. No. 1590 subjects Philippine Airlines to the laws of the Philippines now existing or hereafter enacted. After pointing to this provision, Kuwait Airways correlates it to Republic Act (R.A.) No. 776, or the Civil Aeronautics Act of the Philippines, which grants the Civil Aeronautics Board (CAB) the power to regulate the economic aspect of air transportation, [its] general supervision and regulation of, and jurisdiction and control over, air carriers as well as their property, property rights, equipment, facilities, and franchise. R.A. No. 776 also mandates that the CAB shall take into consideration the obligation assumed by the Republic of the Philippines in any treaty, convention or agreement with foreign countries on matters affecting civil aviation. There is no doubt that Philippine Airlines forebears under several regulatory perspectives. First, its authority to operate air services in the Philippines derives from its legislative franchise and is accordingly bound by whatever limitations that are presently in place or may be subsequently incorporated in its franchise. Second, Philippine Airlines is subject to the other laws of the Philippines, including R.A. No. 776, which grants regulatory power to the CAB over the economic aspect of air transportation. Third, there is a very significant public interest in state regulation of air travel in view of considerations of public safety, domestic and international commerce, as well as the fact that air travel necessitates steady traversal of international boundaries, the amity between nations. At the same time, especially since Philippine Airlines was already under private ownership at the time the CMU was entered into, we cannot presume that any and all commitments made by the Philippine government are unilaterally binding on the carrier even if this comes at the expense of diplomatic embarrassment. While it may have been, prior to the privatization of Philippine Airlines, that the Philippine Government had the authority to bind the airline in its capacity as owner of the airline, under the post-privatization era, however, whatever authority of the Philippine Government to bind Philippine Airlines can only come in its capacity as regulator. As with all regulatory subjects of the government, infringement of property rights can only avail with due process of law. Legislative regulation of public utilities must not have the effect of depriving an owner of his property without due process of law, nor of confiscating or appropriating private property without due process of law, nor of confiscating or appropriating private property without just compensation, nor of limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise. The power to regulate is subject to these constitutional limits.[34] We can deem that the CAB has ample power under its organizing charter, to compel Philippine Airlines to terminate whatever commercial agreements the carrier may have. After all, Section 10 of R.A. No. 776 grants to the CAB the general supervision a nd regulation of, and jurisdiction and control over, air carriers as well as their property, property rights,

equipment, facilities and franchise, and this power correlates to Section 4(c) of the same law, which mandates that the Board consider in the exe rcise of its functions the regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve the relations between, and coordinate transportation by air carriers. We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to compel Philippine Airlines to immediately terminate its Commercial Agreement with Kuwait Airways pursuant to the CMU. Considering that it is the Philippine government that has the sole authority to charter air policy and negotiate with foreign governments with respect to air traffic rights, the government through the CAB has the indispensable authority to compel local air carriers to comply with government determined policies, even at the expense of economic rights. The airline industry is a sector where government abjuration is least desired. However, this is not a case where the CAB had duly exercised its regulatory authority over a local airline in order to implement or further government air policy. What happened instead was an officer of the CAB, acting in behalf not of the Board but of the Philippine government, had committed to a foreign nation the immediate abrogation of Philippine Airliness commercial agreement with Kuwait Airways. And while we do not question that ability of that member of the CAB to represent the Philippine government in signing the CMU, we do question whether such member could have bound Philippine Airlines in a manner that can be accorded legal recognition by our courts. Imagine if the President of the Philippines, or one of his alter egos, acceded to the demands of a foreign counterpart and agreed to shut down a particular Filipino business or enterprise, going as far as to co-sign a document averring that the business will be shut down immediately. Granting that there is basis in Philippine law for the closure of such business, could the mere declaration of the President have the legal effect of immediately rendering business operations illegal? We, as magistrates in a functioning democratic State with a fully fleshed Bill of Rights and a Constitution that emphatically rejects letat cest moi as the governing philosophy, think not. There is nothing to prevent the Philippine government from utilizing all the proper channels under law to enforce such closure, but unless and until due process is observed, it does not have legal effect in this jurisdiction. Even granting that the agreement between the two governments or their representatives creates a binding obligation under international law, it remains incumbent for each contracting party to adhere to its own internal law in the process of complying with its obligations. The promises made by a Philippine president or his alter egos to a foreign monarch are not transubstantiated by divine right so as to ipso facto render legal rights of private persons obviated. Had Philippine Airlines remained a government-owned or controlled corporation, it would have been bound, as part of the executive branch, to comply with the dictates of the President or his alter egos since the President has executive control and supervision over the components of the executive branch. Yet Philippine Airlines has become, by this time, a private corporation one that may have labored under the conditions of its legislative franchise that

allowed it to conduct air services, but private in character nonetheless. The President or his alter egos do not have the legal capacity to dictate insuperable commands to private persons. And that undesirable trait would be refuted on the Pres ident had petitioners position prevailed, since it is imbued with the presumption that the commitment made to a foreign government becomes operative without complying with the internal processes for the divestiture of private rights. Herein, we do not see why the Philippine government could not have observed due process of law, should it have desired to see the Commercial Agreement immediately terminated in order to adhere to its apparent commitment to the Kuwait government. The CAB, with its ample regulatory power over the economic affairs of local airliners, could have been called upon to exercise its jurisdiction to make it so. A remedy even exists in civil lawthe judicial annulment or reformation of contractswhich could have been availed of to effect the immediate termination of the Commercial Agreement. No such remedy was attempted by the government. Nor can we presume, simply because Dr. Linlingan, Executive Director of the CAB had signed the CMU in behalf of the Philippine Panel, that he could have done so bearing the authority of the Board, in the exercise of regulatory jurisdiction over Philippine Airlines. For one, the CAB is a collegial body composed of five members, [35] and no one membereven the chairmancan act in behalf of the entire Board. The Board is disabled from performing as such without a quorum. For another, the Executive Director of the CAB is not even a member of the Board, per R.A. No. 776, as amended. Even granting that the police power of the State, as given flesh in the various laws governing the regulation of the airline industry in the Philippines, may be exercised to impair the vested rights of privately-owned airlines, the deprivation of property still requires due process of law. In order to validate petitioners position, we will have to concede that the right to due process may be extinguished by executive command. While we sympathize with petitioner, who reasonably could rely on the commitment made to it by the Philippine government, we still have to respect the segregate identity of the government and that of a private corporation and give due meaning to that segregation, vital as it is to the very notion of democracy. WHEREFORE, the petition is DENIED. No pronouncement as to costs. SO ORDERED.
Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 115381 December 23, 1994 KILUSANG MAYO UNO LABOR CENTER, petitioner, vs. HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents. Potenciano A. Flores for petitioner.

Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent. Jose F. Miravite for movants. KAPUNAN, J.: Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he has thus created. 1 An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well. The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process. The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b) DOTC Department Order No. 92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112. The relevant antecedents are as follows: On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in full: One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the MediumTerm Philippine Development Plan (MTPDP) 1987 1992) is the liberalization of regulations in the transport sector. Along this line, the Government intends to move away gradually from regulatory policies and make progress towards greater reliance on free market forces. Based on several surveys and observations, bus companies are already charging passenger rates above and below the official fare declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is to be tested on a pilot basis. In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country (except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year. Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service. The implementation of the said fare range scheme shall start on 6 August 1990. For compliance. (Emphasis ours.) Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit: With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those operating within Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration: 1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates (a) the rates to be approved should be proposed by public service operators; (b) there should be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6 without complying with the requirements of the Public Service Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered by the untimely motu propio implementation of the proposal by the mere expedient of publicizing the fare range scheme without calling a public hearing, which scheme many as early as during the Secretary's predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired. 3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc caused by the recent earthquake. 4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider measures and reforms in the industry that will be socially uplifting, especially for the people in the areas devastated by the recent earthquake. In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare range scheme this year be further studied and evaluated. On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought. On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel. The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates. On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following schedule of fares on a straight computation method, viz: AUTHORIZED FARES

LUZON MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37 STUDENT P1.15 P0.28 VISAYAS/MINDANAO REGULAR P1.60 P0.375 STUDENT P1.20 P0.285 FIRST CLASS (PER KM.) LUZON P0.385 VISAYAS/ MINDANAO P0.395 PREMIERE CLASS (PER KM.) LUZON P0.395 VISAYAS/ MINDANAO P0.405

AIRCON (PER KM.) P0.415. 4 On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued Department Order No. 92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in view of the importance of the provisions contained therein: WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the primary policy, planning, regulating and implementing agency on transportation; WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction; WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and bring the transport sector nearer to a balanced longer term regulatory framework; NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic regulation of land, air, and water transportation services are hereby adopted: 1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route.

The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding public. In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s). In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchise application and not as a limit to the services offered. Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of demand management measures in conformity with market principles may be considered. The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services. 2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15% above and below the indicative or reference rate. Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the level of competition. For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the public and the government, following public bids for the services. The advisability of bidding out the services or using other kinds of incentives on such routes shall be studied by the government. 3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation warrants government intervention shall programs of this type be considered. Existing programs shall be phased out gradually. The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study. For the compliance of all concerned. (Emphasis ours) On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5 On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the following challenged portions: xxx xxx xxx IV. Policy Guidelines on the Issuance of Certificate of Public Convenience. The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s). xxx xxx xxx V. Rate and Fare Setting The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing. A. On the General Structure of Rates 1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range. 2. Fare systems for aircon buses are liberalized to cover first class and premier services. xxx xxx xxx (Emphasis ours). Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994. On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion reads: PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitled under existing laws.

SO ORDERED. 6 Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order. The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs. Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court. In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for. In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificates of public convenience. We find the instant petition impressed with merit. At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue. The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides: xxx xxx xxx Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standiof a party litigant. One who is directly affected by and whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8 In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored. Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz: . . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)]. xxx xxx xxx In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or

instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmea v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]). Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]). In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent." Now on the merits of the case. On the fare range scheme. Section 16(c) of the Public Service Act, as amended, reads: Sec. 16. Proceedings of the Commission, upon notice and hearing. The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary: xxx xxx xxx (c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours). xxx xxx xxx Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles." Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and delicate matters as route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate

legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service. In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this Court categorically declared that: In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to its advantage to do so. The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not authorized the Public Service Commission to delegate that power to a common carrier or other public service. The rates of public services like the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such rates must be authorized or approved by the Public Service Commission after they have been shown to be just and reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public Service Commission, and the Public Service Commission itself cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission. The commission must approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change them every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it would be to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13 (Emphasis ours). One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bank interest rates. Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the following: Year** LTFRB authorized Fare Range Fare to be rate*** collected per kilometer 1990 P0.37 15% (P0.05) P0.42 1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56 1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73 2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94 Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the

investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services. Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government must not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should the requisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase. The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved. To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will undermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to public interest. On the presumption of public need. A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC. While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states: The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. (Emphasis ours). The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail. By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence or non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators. Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which he has undertaken to render. 18 And all this will be possible only if a public hearing were conducted for that purpose. Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19 Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to exercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilities themselves. While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between administrative officers. WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular

No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decrease the duly prescribed transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for a certificate of public convenience and placing the burden of proving that there is no need for the proposed service to the oppositor. The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid. No pronouncement as to costs. SO ORDERED. Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.