G.R. No.

101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

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

Gonzales, Sinense, Jimenez & Associates for petitioner.

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

BELLOSILLO, J.:

Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?

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

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

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

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

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

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

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with
the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump
trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the
terms and conditions of the charter-partly (which provided for an F.I.O.S. clause). 6 The hatches remained
open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the
warehouse, the trucks were made to pass through a weighing scale where they were individually weighed
for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain portions of
the route to the warehouse were sandy and the weather was variable, raining occasionally while the
discharge was in progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI)
sheets, with an opening at the front where the dump trucks entered and unloaded the fertilizer on the
warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain
spillages of the ferilizer. 9

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

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

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

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the carrier
of the goods and to delivery by it of less than what it received. After that, the burden of
proving that the loss or damage was due to any of the causes which exempt him from
liability is shipted to the carrier, common or private he may be. Even if the provisions of
the charter-party aforequoted are deemed valid, and the defendants considered private
carriers, it was still incumbent upon them to prove that the shortage or contamination
sustained by the cargo is attributable to the fault or negligence on the part of the shipper
or consignee in the loading, stowing, trimming and discharge of the cargo. This they
failed to do. By this omission, coupled with their failure to destroy the presumption of
negligence against them, the defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability
for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance
Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun
Plum" owned by private respondent KKKK was a private carrier and not a common carrier by reason of
the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set forth a
presumption of negligence do not find application in the case at bar. Thus
 . . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to
adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in
its complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the
burden of proving his cause of action, fails to show in a satisfactory manner the facts
upon which he bases his claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing
Belen v. Belen, 13 Phil. 202).

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

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

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

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

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

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a "private or special carrier"
lies in the character of the business, such that if the undertaking is a single transaction, not a part of the
general business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case
of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On
the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the
carrier.

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

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

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

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

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

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

In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same was
in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
facie presumption of negligence.

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

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

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

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

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

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and deterioration
which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the
inherent defect of the goods, shall be for the account and risk of the shipper, and that proof of these
accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and
damage resulting from the preceding causes if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established among
careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and
the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas
Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not normally evaporate even on a long voyage,
provided that the temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr.
Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is deemed
"normal" or "tolerable." The primary cause of these spillages is the clamped shell which does not seal
very tightly. Also, the wind tends to blow away some of the materials during the unloading process.

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

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

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

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

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

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

Costs against petitioner.

SO ORDERED.

Davide, Jr. and Quiason, JJ., concur.

Cruz, J., took no part.

Grio-Aquino, J., is on leave.

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

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the
material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly lower than regular commercial rates.

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

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

On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance
of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus
damages and attorney's fees. Petitioner argued that private respondent, being a common carrier, and
having failed to exercise the extraordinary diligence required of him by the law, should be held liable for
the value of the undelivered goods.

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

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him
a common carrier; in finding that he had habitually offered trucking services to the public; in not exempting
him from liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged
in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this
Court by way of a Petition for Review assigning as errors the following conclusions of the Court of
Appeals:

1. that private respondent was not a common carrier;

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

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

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

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

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

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

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

... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. ...
(Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though
he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-
hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though
private respondent's principal occupation was not the carriage of goods for others. There is no dispute
that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here.

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

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

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

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

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

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

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

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the
instant case the hijacking of the carrier's truck does not fall within any of the five (5) categories of
exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle
must be dealt with under the provisions of Article 1735, in other words, that the private respondent as
common carrier is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should
have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk.
We do not believe, however, that in the instant case, the standard of extraordinary diligence required
private respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at
the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of extraordinary
diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5
and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;

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

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

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

In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of First
Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe
Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused were
charged with willfully and unlawfully taking and carrying away with them the second truck, driven by
Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's
store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with grave, if
not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms.
The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper,
detaining them for several days and later releasing them in another province (in Zambales). The hijacked
truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all the
accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary to
recall that even common carriers are not made absolute insurers against all risks of travel and of transport
of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided
that they shall have complied with the rigorous standard of extraordinary diligence.

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

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

SO ORDERED.

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

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

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. Article
1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." . . . The
holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the
Civil Code, it held thus: "The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguished between
a carrier offering its services to the "general public," i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general population. We think
that Article 1732 deliberately refrained from making such distinctions."

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

PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. Common carriers are obliged to observe extraordinary diligence
in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault
or to have acted negligently if the goods are lost, destroyed or deteriorated. There are very few instances
when the presumption of negligence does not attach and these instances are enumerated in Article 1734.
In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption . . . The presumption of negligence was
raised against petitioner. It was petitioner's burden to overcome it. Thus, contrary to her assertion, private
respondent need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient
proof of extraordinary diligence made the presumption conclusive against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED
FROM LIABILITY. In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included
in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the
common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability
arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible
threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which provides: "Art.
1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy . . . (6) That the common carrier's liability for acts committed by thieves, or of robbers who do
not act with grave or irresistible threat, violences or force, is dispensed with or diminished"; In the same
case, the Supreme Court also held that: "Under Article 1745 (6) above, a common carrier is held
responsible and will not be allowed to divest or to diminish such responsibility even for acts of
strangers like thieves or robbers, except where such thieves or robbers in fact acted "with grave of
irresistible threat, violence of force," We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."

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

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

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

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

WITNESSES. While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned from the contents of the
petition. Affidavits are not considered the best evidence if the affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE.
Granting that the said evidence were not self-serving, the same were not sufficient to prove that the
contract was one of lease. It must be understood that a contract is what the law defines it to be and not
what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

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

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

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

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling
contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's
2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods
Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano,
subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal
worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton.
Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-
delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed
a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of a
contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5 which
contained the following allegations:

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

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

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

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

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of carriage since
CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE
was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo
was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was
immediately reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the
hijacked properties; that after preliminary investigation, an information for robbery and carnapping were
filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:

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

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

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

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is
DENIED for being moot and academic.
SO ORDERED." 6

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

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

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP
BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT
LEASE OF CARGO TRUCK.

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

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

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

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

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she
alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE,
was lease of the truck. She cited as evidence certain affidavits which referred to the contract as "lease".
These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus
Bascos confirmed in his testimony his statement that the contract was a lease contract. 10 She also
stated that: she was not catering to the general public. Thus, in her answer to the amended complaint,
she said that she does business under the same style of A.M. Bascos Trucking, offering her trucks for
lease to those who have cargo to move, not to the general public but to a few customers only in view of
the fact that it is only a small business. 11

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

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." 12 In this
case, petitioner herself has made the admission that she was in the trucking business, offering her trucks
to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 13
But petitioner argues that there was only a contract of lease because they offer their services only to a
select group of people and because the private respondents, plaintiffs in the lower court, did not object to
the presentation of affidavits by petitioner where the transaction was referred to as a lease contract.

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

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

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

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

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

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability
for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus,
the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability
arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible
threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which provides:

"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy;

xxx xxx xxx

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

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

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

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus Bascos'
affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court of Appeals
have concluded that these affidavits were not enough to overcome the presumption. Petitioner's affidavit
about the hijacking was based on what had been told her by Juanito Morden. It was not a first-hand
account. While it had been admitted in court for lack of objection on the part of private respondent, the
respondent Court had discretion in assigning weight to such evidence. We are bound by the conclusion of
the appellate court. In a petition for review on certiorari, We are not to determine the probative value of
evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the
hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck,
was presented as evidence in court, he himself was a witness as could be gleaned from the contents of
the petition. Affidavits are not considered the best evidence if the affiants are available as witnesses. 25
The subsequent filing of the information for carnapping and robbery against the accused named in said
affidavits did not necessarily mean that the contents of the affidavits were true because they were yet to
be determined in the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it.
Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.

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

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

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

SPOUSES DANTE CRUZ and G.R. No. 186312

LEONORA CRUZ,
Petitioners, Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
- versus - BERSAMIN,
ABAD,* and
SUN HOLIDAYS, INC., VILLARAMA, JR., JJ.
Respondent.
Promulgated:
June 29, 2010

x-------------------------------------------------x
DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 [1] against Sun
Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the
death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board
the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro
where the couple had stayed at Coco Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue
of a tour package-contract with respondent that included transportation to and from the Resort and the
point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his account of the
incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the
Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of
strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners son
and his wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind
where they boarded M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the
open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain to step
forward to the front, leaving the wheel to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the
captain, Matute and the other passengers who reached the surface asked him what they could do to save
the people who were still trapped under the boat. The captain replied Iligtas niyo na lang ang sarili
niyo (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of
18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including
petitioners son and his wife, died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from respondent for the death of
their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility for the incident which
it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount
of P10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that
respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. [6]

In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not available to the
general public as they only ferry Resort guests and crew members.Nonetheless, it claimed that it
exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners allegation,
there was no storm on September 11, 2000as the Coast Guard in fact cleared the voyage; and M/B Coco
Beach III was not filled to capacity and had sufficient life jackets for its passengers. By way of
Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and litigation expenses
amounting to not less than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance from
the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the Resorts
assistant manager.[8] He added that M/B Coco Beach III met all four conditions on September 11, 2000,
[9]
but a subasco or squall, characterized by strong winds and big waves, suddenly occurred, causing the
boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed petitioners Complaint and
respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2, 2005,[12] they
appealed to the Court of Appeals.

By Decision of August 19, 2008,[13] the appellate court denied petitioners appeal, holding, among
other things, that the trial court correctly ruled that respondent is a private carrier which is only required to
observe ordinary diligence; that respondent in fact observed extraordinary diligence in transporting its
guests on board M/B Coco Beach III; and that the proximate cause of the incident was a squall, a
fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution dated January 16, 2009,[14] they
filed the present Petition for Review.[15]

Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of its resort
business. They inform that another division of the appellate court in fact held respondent liable for
damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a
common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to its
business as no income is derived therefrom; that it exercised extraordinary diligence as shown by the
conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was caused by a
fortuitous event without any contributory negligence on its part; and that the other case wherein the
appellate court held it liable for damages involved different plaintiffs, issues and evidence. [16]

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals [17] in characterizing respondent as a common
carrier.

The Civil Code defines common carriers in the following terms:

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

The above article makes no distinction between one whose principal

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

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

. . . every person that now or hereafter may own, operate, manage, or

control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and done
for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public
services . . .[18] (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry services in its
resort operations is underscored by its having its own Coco Beach boats. And the tour packages it offers,
which include the ferry services, may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice
of beach resort operators offering tour packages to factor the transportation fee in arriving at the tour
package price. That guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers has deliberately
refrained from making distinctions on whether the carrying of persons or goods is the carriers principal
business, whether it is offered on a regular basis, or whether it is offered to the general public. The intent
of the law is thus to not consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the carrying of persons or
goods in order to avoid the legal obligations and liabilities of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence for the safety of the passengers transported by them,
according to all the circumstances of each case. [19] They are bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.[20]

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that
the common carrier is at fault or negligent. In fact, there is even no need for the court to make an express
finding of fault or negligence on the part of the common carrier. This statutory presumption may only be
overcome by evidence that the carrier exercised extraordinary diligence. [21]

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage
before it allowed M/B Coco Beach III to sail on September 11, 2000.Respondents position does not
impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings
for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which
would also affect the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising weather
specialist of PAGASA, squalls are to be expected under such weather condition. [23]

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put
other peoples lives at risk. The extraordinary diligence required of common carriers demands that they
take care of the goods or lives entrusted to their hands as if they were their own. This respondent failed to
do.

Respondents insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or
the failure of the debtors to comply with their obligations, must have been independent of human will; (b)
the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to
fulfill their obligation in a normal manner; and (d) the obligor must have been free from any participation in
the aggravation of the resulting injury to the creditor. [24]

To fully free a common carrier from any liability, the fortuitous event must have been the proximate and
only cause of the loss. And it should have exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the fortuitous event. [25]

Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned M/B
Coco Beach III. As reflected above, however, the occurrence of squalls was expected under the weather
condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach III suffered engine
trouble before it capsized and sank.[26]The incident was, therefore, not completely free from human
intervention.

The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for
death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.[29]

As for damages representing unearned income, the formula for its computation is:

Net Earning Capacity = life expectancy x (gross annual income - reasonable and
necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death] [30]

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of
Mortality.[31]
 The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or income and
less living and other incidental expenses. [32] The loss is not equivalent to the entire earnings of the
deceased, but only such portion as he would have used to support his dependents or heirs. Hence, to be
deducted from his gross earnings are the necessary expenses supposed to be used by the deceased for
his own needs.[33]

In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja[34] teaches that when, as in this case, there is no showing that the living expenses
constituted the smaller percentage of the gross income, the living expenses are fixed at half of the gross
income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]

2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 [35] which,
when converted to Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,
[36]
amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract
of carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the Civil
Code, petitioners are entitled to moral damages.
 Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary damages,
which are granted in contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.[37]

Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral
damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged against
respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
(emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the present
petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per annum
until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline in Easter
Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the following:
(1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos loss of
earning capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5) 10% of the
total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed
from the finality of this decision until full payment.

SO ORDERED.

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,

HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in
her official capacity as City Treasurer of Batangas, respondents.

DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29,
1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City,
Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund
imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 [1] and
renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of
Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code.[3] The respondent City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped
at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.
 On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the
pertinent portion of which reads:

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

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

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

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under Section
133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint [6] for tax
refund with prayer for a writ of preliminary injunction against respondents City of Batangas and Adoracion
Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the
imposition and collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of
"contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax paid. [7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under
Section 133 (j) of the Local Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and common carriers by air, land and
water." Respondents assert that pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the
term "common carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:

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

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

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A) whose
concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax
Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:

1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so
as not to overburden the riding public or commuters with taxes. Plaintiff is not a
common carrier, but a special carrier extending its services and facilities to a
single specific or "special customer" under a "special contract."

2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make them
economically and financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain devolution of powers, x
x x So, consistent with this policy even franchise grantees are taxed (Sec. 137)
and contractors are also taxed under Sec. 143 (e) and 151 of the Code." [9]

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27,
1995, we referred the case to the respondent Court of Appeals for consideration and adjudication. [10]On
November 29, 1995, the respondent court rendered a decision [11] affirming the trial court's dismissal of
petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996. [12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11,
1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a Resolution [14]of
January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a
common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear
under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged
in the business of transporting persons or property from place to place, for compensation, offering his
services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:

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

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his
established roads; and

4. The transportation must be for hire.[15]

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

"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the general
community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1877 deliberately refrained from
making such distinctions.

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

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

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local
Government Code refers only to common carriers transporting goods and passengers through moving
vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no
distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the
transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil
pipe line operators are considered common carriers. [17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common
carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to
utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the
remaining transportation capacity pro rata for the transportation of such other petroleum as may be
offered by others for transport, and to charge without discrimination such rates as may have been
approved by the Secretary of Agriculture and Natural Resources."

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

"that everything relating to the exploration for and exploitation of petroleum x x and everything relating to
the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby
declared to be a public utility." (Underscoring Supplied)
 The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling
No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum
products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is
not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended."

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

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following :

xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code."

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

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

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local Government Units." x x x

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

Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of
those being deemed to be exempted from the taxing powers of the local government units. May we know
the reason why the transportation business is being excluded from the taxing powers of the local
government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not impose taxes on the business of transportation,
except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than
one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr. Speaker.

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

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
 It is clear that the legislative intent in excluding from the taxing power of the local government unit
the imposition of business tax against common carriers is to prevent a duplication of the so-called
"common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code. [19] To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals
dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

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

DECISION

BERSAMIN, J.:

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to observe
extraordinary diligence in the conduct of his business. He is presumed to be negligent when death occurs
to a passenger. His liability may include indemnity for loss of earning capacity even if the deceased
passenger may only be an unemployed high school student at the time of the accident.

The Case

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

Antecedents

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

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

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

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

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

A. FACTS:

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

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

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

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

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

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

(7) The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;
 (8) The site commonly used for railroad crossing by motorists was not in fact intended by the
railroad operator for railroad crossing at the time of the vehicular collision;

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

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

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

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

B. ISSUES

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

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

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

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

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

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

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

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

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

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

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2
The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe transport
of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.

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

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

Ruling of the RTC

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

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

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

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

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

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

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

(6) Attorneys fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

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

The CAs Ruling

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

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and severally liable
together with defendant-appellants spouses Teodorico and Nanette Perea and defendant-
appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and damages.
 2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendants-appellants
Philippine National Railways.

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

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

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

The trial court erred in awarding excessive damages and attorneys fees.

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

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

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

SO ORDERED.

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

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

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

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

Issues

In this appeal, the Pereas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim against
the latter.

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

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

Ruling

The petition has no merit.

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

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

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

We concur with the CA.

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

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

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

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

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

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

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

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

x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientle, whether permanent or occasional, and done for the
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or
wireless broadcasting stations and other similar public services. x x x. 17

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

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

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

The common carriers standard of care and vigilance as to the safety of the passengers is defined by law.
Given the nature of the business and for reasons of public policy, the common carrier is bound "to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case." 22 Article 1755 of the Civil Code
specifies that the common carrier should "carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or injury to a passenger, the
common carrier must prove his or its observance of that extraordinary diligence; otherwise, the legal
presumption that he or it was at fault or acted negligently would stand. 23 No device, whether by
stipulation, posting of notices, statements on tickets, or otherwise, may dispense with or lessen the
responsibility of the common carrier as defined under Article 1755 of the Civil Code. 24

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

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

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

The Pereas were liable for the death of Aaron despite the fact that their driver might have acted beyond
the scope of his authority or even in violation of the orders of the common carrier. 27 In this connection, the
records showed their drivers actual negligence. There was a showing, to begin with, that their driver
traversed the railroad tracks at a point at which the PNR did not permit motorists going into the Makati
area to cross the railroad tracks. Although that point had been used by motorists as a shortcut into the
Makati area, that fact alone did not excuse their driver into taking that route. On the other hand, with his
familiarity with that shortcut, their driver was fully aware of the risks to his passengers but he still
disregarded the risks. Compounding his lack of care was that loud music was playing inside the air-
conditioned van at the time of the accident. The loudness most probably reduced his ability to hear the
warning horns of the oncoming train to allow him to correctly appreciate the lurking dangers on the
railroad tracks. Also, he sought to overtake a passenger bus on the left side as both vehicles traversed
the railroad tracks. In so doing, he lost his view of the train that was then coming from the opposite side of
the passenger bus, leading him to miscalculate his chances of beating the bus in their race, and of getting
clear of the train. As a result, the bus avoided a collision with the train but the van got slammed at its rear,
causing the fatality. Lastly, he did not slow down or go to a full stop before traversing the railroad tracks
despite knowing that his slackening of speed and going to a full stop were in observance of the right of
way at railroad tracks as defined by the traffic laws and regulations. 28 He thereby violated a specific traffic
regulation on right of way, by virtue of which he was immediately presumed to be negligent. 29
The omissions of care on the part of the van driver constituted negligence, 30 which, according to Layugan
v. Intermediate Appellate Court, 31 is "the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do, 32 or as Judge Cooley defines it, (t)he
failure to observe for the protection of the interests of another person, that degree of care, precaution, and
vigilance which the circumstances justly demand, whereby such other person suffers injury." 33

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

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

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

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

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

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

2.
Was the indemnity for loss of
Aarons earning capacity proper?

The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the RTC on the
liability, the CA modified the amount. Both lower courts took into consideration that Aaron, while only a
high school student, had been enrolled in one of the reputable schools in the Philippines and that he had
been a normal and able-bodied child prior to his death. The basis for the computation of Aarons earning
capacity was not what he would have become or what he would have wanted to be if not for his untimely
death, but the minimum wage in effect at the time of his death. Moreover, the RTCs computation of
Aarons life expectancy rate was not reckoned from his age of 15 years at the time of his death, but on 21
years, his age when he would have graduated from college.

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

Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1wphi1 They cited People v. Teehankee, Jr., 37 where the Court deleted the indemnity for
victim Jussi Leinos loss of earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before the shooting, and was at the
time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his ambition to
become a professional pilot. That meant, according to the Court, that he was for all intents and purposes
only a high school graduate.

We reject the Pereas submission.

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

And, secondly, the fact that Aaron was then without a history of earnings should not be taken against his
parents and in favor of the defendants whose negligence not only cost Aaron his life and his right to work
and earn money, but also deprived his parents of their right to his presence and his services as well. Our
law itself states that the loss of the earning capacity of the deceased shall be the liability of the guilty party
in favor of the heirs of the deceased, and shall in every case be assessed and awarded by the court
"unless the deceased on account of permanent physical disability not caused by the defendant, had no
earning capacity at the time of his death." 38 Accordingly, we emphatically hold in favor of the
indemnification for Aarons loss of earning capacity despite him having been unemployed, because
compensation of this nature is awarded not for loss of time or earnings but for loss of the deceaseds
power or ability to earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna Tayabas Bus
Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriagas earning
capacity, although he survived the accident but his injuries rendered him permanently incapacitated, was
computed to be that of the physician that he dreamed to become. The Court considered his scholastic
record sufficient to justify the assumption that he could have finished the medical course and would have
passed the medical board examinations in due time, and that he could have possibly earned a modest
income as a medical practitioner. Also, in People v. Sanchez, 41 the Court opined that murder and rape
victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed good-paying jobs had
they graduated in due time, and that their jobs would probably pay them high monthly salaries
from P 10,000.00 to P 15,000.00 upon their graduation. Their earning capacities were computed at rates
higher than the minimum wage at the time of their deaths due to their being already senior agriculture
students of the University of the Philippines in Los Baos, the countrys leading educational institution in
agriculture.

3.
Were the amounts of damages excessive?

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

The plea is unwarranted.

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

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

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

SO ORDERED.

LUCAS P. BERSAMIN

G.R. No. L-55347 October 4, 1985

PHILIPPINE NATIONAL RAILWAYS, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and ROSARIO TUPANG, respondents.
Arturo Samaniego for private respondent.

ESCOLIN, J.:

Invoking the principle of state immunity from suit, the Philippine National Railways, PNR for short,
instituted this petition for review on certiorari to set aside the decision of the respondent Appellate Court
which held petitioner PNR liable for damages for the death of Winifredo Tupang, a paying passenger who
fell off a train operated by the petitioner.

The pertinent facts are summarized by the respondent court as follows:

The facts show that on September 10, 1972, at about 9:00 o'clock in the evening,
Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded 'Train No. 516 of
appellant at Libmanan, Camarines Sur, as a paying passenger bound for Manila. Due to
some mechanical defect, the train stopped at Sipocot, Camarines Sur, for repairs, taking
some two hours before the train could resume its trip to Manila. Unfortunately, upon
passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the train resulting in
his death.The train did not stop despite the alarm raised by the other passengers that
somebody fell from the train. Instead, the train conductor Perfecto Abrazado, called the
station agent at Candelaria, Quezon, and requested for verification of the information.
Police authorities of Lucena City were dispatched to the Iyam Bridge where they found
the lifeless body of Winifredo Tupang.

As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due
to massive cerebral hemorrhage due to traumatic injury [Exhibits B and C, Folder of
Exhibits],Tupang was later buried in the public cemetery of Lucena City by the local
police authorities. [Rollo, pp. 91-92]

Upon complaint filed by the deceased's widow, Rosario Tupang, the then Court of First Instance of Rizal,
after trial, held the petitioner PNR liable for damages for breach of contract of carriage and ordered "to
pay the plaintiff the sum of P12,000,00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his
earning capacity and the further sum of P10,000.00 as moral damages, and P2,000.00 as attorney's fees,
and costs. 1

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the
utmost diligence required by law of a common carrier. It further increased the amount adjudicated by the
trial court by ordering PNR to pay the plaintiff an additional sum of P5,000.00 as exemplary damages.

Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the
doctrine of state immunity from suit. It alleged that it is a mere agency of the Philippine government
without distinct or separate personality of its own, and that its funds are governmental in character and,
therefore, not subject to garnishment or execution. The motion was denied; the respondent court ruled
that the ground advanced could not be raised for the first time on appeal.

Hence, this petition for review.

The petition is devoid of merit. The PNR was created under Rep. Act 4156, as amended. Section 4 of the
said Act provides:

The Philippine national Railways shall have the following powers:

 a. To do all such other things and to transact all such business directly or indirectly
necessary, incidental or conducive to the attainment of the purpose of the corporation;
and

b. Generally, to exercise all powers of a corporation under the Corporation Law.

Under the foregoing section, the PNR has all the powers, the characteristics and attributes of a
corporation under the Corporation Law. There can be no question then that the PNR may sue and be
sued and may be subjected to court processes just like any other corporation. 2

The petitioner's contention that the funds of the PNR are not subject to garnishment or execution hardly
raises a question of first impression. In Philippine National Railways v. Union de Maquinistas, et al., 3 then
Justice Fernando, later Chief Justice, said. "The main issue posed in this certiorari proceeding, whether
or not the funds of the Philippine National Railways, could be garnished or levied upon on execution was
resolved in two recent decisions, the Philippine National Bank v. Court of Industrial Relations [81 SCRA
314] and Philippine National Bank v. Hon. Judge Pabalan [83 SCRA 595]. This Court in both cases
answered the question in the affirmative. There was no legal bar to garnishment or execution. The
argument based on non-suability of a state allegedly because the funds are governmental in character
was unavailing.So it must be again."

In support of the above conclusion, Justice Fernando cited the Court's holding in Philippine National Bank
v. Court of Industrial Relations, to wit: "The premise that the funds could be spoken of as public in
character may be accepted in the sense that the People's Homesite and Housing Corporation was a
government-owned entity. It does not follow though that they were exempt from garnishment. National
Shipyard and Steel Corporation v. Court of Industrial Relations is squarely in point. As was explicitly
stated in the opinion of then Justice, later Chief Justice, Concepcion: "The allegation to the effect that the
funds of the NASSCO are public funds of the government, and that, as such, the same may not be
garnished, attached or levied upon, is untenable for, as a government- owned and controlled corporation,
the NASSCO has a personality of its own, distinct and separate from that of the Government. It has-
pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 * * *, pursuant to which the
NASSCO has been established- 'all the powers of a corporation under the Corporation Law * * *. 4

As far back as 1941, this Court in the case of Manila Hotel Employees Association v. Manila Hotel
Co., 5 laid down the rule that "when the government enters into commercial business, it abandons its
sovereign capacity and is to be treated like any other corporation. [Bank of the U.S. v. Planters' Bank, 9
Waitch 904, 6 L. ed. 244]. By engaging in a particular business through the instrumentality of a
corporation the government divests itself pro hac vice of its sovereign character, so as to render the
corporation subject to the rules of law governing private corporations. 6 Of Similar import is the
pronouncement in Prisco v. CIR,' that "when the government engages in business, it abdicates part of its
sovereign prerogatives and descends to the level of a citizen, ... . " In fine, the petitioner PNR cannot
legally set up the doctrine of non-suability as a bar to the plaintiff's suit for damages.

The appellate court found, the petitioner does not deny, that the train boarded by the deceased Winifredo
Tupang was so over-crowded that he and many other passengers had no choice but to sit on the open
platforms between the coaches of the train. It is likewise undisputed that the train did not even slow down
when it approached the Iyam Bridge which was under repair at the time, Neither did the train stop, despite
the alarm raised by other passengers that a person had fallen off the train at lyam Bridge. 7

The petitioner has the obligation to transport its passengers to their destinations and to observe
extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the
presumption that it was negligent in the performance of its obligation under the contract of carriage. Thus,
as correctly ruled by the respondent court, the petitioner failed to overthrow such presumption of
negligence with clear and convincing evidence.
But while petitioner failed to exercise extraordinary diligence as required by law, 8 it appears that the
deceased was chargeable with contributory negligence. Since he opted to sit on the open platform
between the coaches of the train, he should have held tightly and tenaciously on the upright metal bar
found at the side of said platform to avoid falling off from the speeding train. Such contributory negligence,
while not exempting the PNR from liability, nevertheless justified the deletion of the amount adjudicated
as moral damages. By the same token, the award of exemplary damages must be set aside. Exemplary
damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 9 There being no evidence of fraud, malice or bad faith on the part of
petitioner, the grant of exemplary damages should be discarded.

WHEREFORE, the decision of the respondent appellate court is hereby modified by eliminating therefrom
the amounts of P10,000.00 and P5,000.00 adjudicated as moral and exemplary damages, respectively.
No costs.

SO ORDERED.

Concepcion, Jr., Cuevas, and Alampay, JJ., concur.

Separate Opinions

AQUINO, J., concurring:

The case of Malong vs. PNR, L-49930, Aug. 7, 1985 (en banc) hold that the PNR is not immune from suit
and is liable as a common carrier for the negligent acts of its employeees. It is expressly liable for moral
damages for the death of a passanger under arts. 1764 and 2206 of the Civil Code.

ABAD SANTOS, J., concurring:

I concur with the admonition that government owned and/or controlled corporations should desist from
invoking the baseless immunity from suit.

Separate Opinions

AQUINO, J., concurring:

The case of Malong vs. PNR, L-49930, Aug. 7, 1985 (en banc) hold that the PNR is not immune from suit
and is liable as a common carrier for the negligent acts of its employeees. It is expressly liable for moral
damages for the death of a passanger under arts. 1764 and 2206 of the Civil Code.

ABAD SANTOS, J., concurring:

I concur with the admonition that government owned and/or controlled corporations should desist from
invoking the baseless immunity from suit.