G.R. No.

148496 March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL
SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming
the decision2 of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay
respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of
damaged cargo handled by petitioner, 25% thereof as attorney's fees, and the cost of the
suit.1â wphi1.nêt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a
sole proprietorship customs broker. At the time material to this case, petitioner entered into a
contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting
paper and 124 reels of kraft liner board from the Port Area in Manila to SMC's warehouse at the
Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB
General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board
"M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to
her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo
Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and
3 reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned
amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional
Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding
petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F")
with entries appearing therein, classified as "TED" and "TSN", which the claims processor, Ms.
Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the subject
damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A")
confirms the fact of the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-
4-A") in particular, which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not
liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on what precaution
[she] performed to prevent [the] said incident, hence the presumption is that the moment the
defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature
of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been
lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability." (cited
in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively by
the carrier to the consignee or to the person who has the right to receive the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts --
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on
certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE
CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND
MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT
HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by
her, would require.6 Consequently, any damage to the cargo she agrees to transport cannot be
presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is
not a common carrier but a private carrier because, as a customs broker and warehouseman, she
does not indiscriminately hold her services out to the public but only offers the same to select
parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar
contention and held the party to be a common carrier, thus -
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 . .
. 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.
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:
" x x x every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications systems, wire or
wireless broadcasting stations and other similar public services. x x x" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of
goods is an integral part of her business. To uphold petitioner's contention would be to deprive
those with whom she contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for her customers, as already noted, is part and parcel of
petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance
over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers
to render service with the greatest skill and foresight and "to use all reasonable means to ascertain
the nature and characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying vessel
"M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom
the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July
23, 1998 notwithstanding the fact that some of the containers were deformed, cracked, or
otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no
personal knowledge on whether the container vans were first stored in petitioner's warehouse
prior to their delivery to the consignee. She likewise claims that after withdrawing the container
vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to
SMC's warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where
the cargo came from. Thus, the damage to the cargo could not have taken place while these were in
her custody.11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these
were covered by clean Equipment Interchange Report (EIR) and, when petitioner's employees
withdrew the cargo from the arrastre operator, they did so without exception or protest either with
regard to the condition of container vans or their contents. The Survey Report pertinently reads --
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier
#13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered
by clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers
were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by Transorient
Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.12
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment
Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a
report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-
appellant from the arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the container vans
were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately
to the consignee or make an exception on the delivery receipt or note the same in the Warehouse
Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the
shipment in good order and condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to
the contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as
she immediately delivered the containers to SMC's compound, suffice it to say that to prove the
exercise of extraordinary diligence, petitioner must do more than merely show the possibility that
some other party could be responsible for the damage. It must prove that it used "all reasonable
means to ascertain the nature and characteristic of goods tendered for [transport] and that [it]
exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in
the container, is/are known to the carrier or his employees or apparent upon ordinary observation,
but he nevertheless accepts the same without protest or exception notwithstanding such condition,
he is not relieved of liability for damage resulting therefrom.14 In this case, petitioner accepted the
cargo without exception despite the apparent defects in some of the container vans. Hence, for
failure of petitioner to prove that she exercised extraordinary diligence in the carriage of goods in
this case or that she is exempt from liability, the presumption of negligence as provided under Art.
173515 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.1â wphi1.nêt
SO ORDERED.

G.R. No. 119528 March 26, 1997

PHILIPPINE AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS BOARD and GRAND
INTERNATIONAL AIRWAYS, INC., Respondents.
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to
prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's
Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and
set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of Grand
International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic
air transportation services, particularly the Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the
fact that GrandAir does not possess a legislative franchise authorizing it to engage in air
transportation service within the Philippines or elsewhere. Such franchise is, allegedly, a requisite
for the issuance of a Certificate of Public Convenience or Necessity by the respondent Board, as
mandated under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a
requirement for the issuance of a Certificate of Public Convenience and Necessity or a Temporary
Operating Permit, following the Court's pronouncements in the case of Albano vs. Reyes, 1 as
restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board 2 and
Silangan Airways, Inc. v. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board. 3
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience
and Necessity with the Board, which application was docketed as CAB Case No. EP-12711. 4
Accordingly, the Chief Hearing Officer of the CAB issued a Notice of Hearing setting the application
for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application
and corresponding notice to all scheduled Philippine Domestic operators. On December 14, 1994,
GrandAir filed its Compliance, and requested for the issuance of a Temporary Operating Permit.
Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an
Opposition to the application for a Certificate of Public Convenience and Necessity on December 16,
1995 on the following grounds:
A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained
a franchise to operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation of trunkline,
secondary and rural available seat kilometers (ASK) which shall always be maintained at a monthly
level at least 5% and 20% of the ASK offered into and out of the proposed base of operations for
rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected
balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure,
documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars,
maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary to Section
4(d) of R.A. 776. 5
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the
Board to hear the application because GrandAir did not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's
Opposition. Pertinent portions of the Order read:
PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has
first obtained a franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs.
CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board
possesses this specific power and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED.
Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application
for a temporary permit maintaining that:
1. The applicant does not possess the required fitness and capability of operating the services
applied for under RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for the services applied
for. 6
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a
Temporary Operating Permit in favor of Grand Air 7 for a period of three months, i.e., from
December 22, 1994 to March 22, 1994. Petitioner moved for the reconsideration of the issuance of
the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB Resolution
No. 02 (95) on February 2, 1995. 8 In the said Resolution, the Board justified its assumption of
jurisdiction over GrandAir's application.
WHEREAS , the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as
follows:
(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter,
modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own
initiative, any temporary operating permit or Certificate of Public Convenience and Necessity;
Provided, however; that in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court
held that the CAB can even on its own initiative, grant a TOP even before the presentation of
evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30,
1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a
Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the
absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175 SCRA
264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility may operate when
the law has granted certain administrative agencies the power to grant licenses for or to authorize
the operation of certain public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate
or other form of authorization for the operation of a public utility does not necessarily imply that
only Congress has the power to grant such authorization since our statute books are replete with
laws granting specified agencies in the Executive Branch the power to issue such authorization for
certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1
that a minimum of two (2) operators in each route/link shall be encouraged and that routes/links
presently serviced by only one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on
January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand
International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is hereby
DENIED, as it hereby denied, in view of the foregoing and considering that the grounds relied upon
by the movant are not indubitable.
On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a
period of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking
cognizance of GrandAir's application for the issuance of a Certificate of Public Convenience and
Necessity, and in issuing a temporary operating permit in the meantime, since GrandAir has not
been granted and does not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage in air transport
services, and a franchise may only be granted by Congress. This is the meaning given by the
petitioner upon a reading of Section 11, Article XII, 9 and Section 1, Article VI, 10 of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which
reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before the
Civil Aeronautics Board ("CAB") may issue a Certificate of Public Convenience and Necessity and/or
permit to engage in air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise, the
House Committee on Corporations and Franchises contended that under the present Constitution,
the CAB may not issue the abovestated certificate or permit, unless the individual or entity
concerned possesses a legislative franchise. You believe otherwise, however, for the reason that
under R.A. No. 776, as amended, the CAB is explicitly empowered to issue operating permits or
certificates of public convenience and necessity and that this statutory provision is not inconsistent
with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises. In an
opinion rendered in favor of your predecessor-in-office, this Department observed that, -
. . . it is useful to note the distinction between the franchise to operate and a permit to commence
operation. The former is sovereign and legislative in nature; it can be conferred only by the
lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in
character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted by
an administrative agency, such as the Public Service Commission [now Board of Transportation], in
the case of land transportation, and the Civil Aeronautics Board, in case of air services. While a
legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity
to an airline company, such franchise alone cannot constitute the authority to commence
operations, inasmuch as there are still matters relevant to such operations which are not
determined in the franchise, like rates, schedules and routes, and which matters are resolved in the
process of issuance of permit by the administrative. (Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an
authorization issued by the appropriate governmental agency for the operation of public services
for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977 Ed.,
p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a
business activity or enterprise of a public nature, whereas a certificate of public convenience and
necessity is a regulatory measure which constitutes the franchise's authority to commence
operations. It is thus logical that the grant of the former should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDONEZ
Secretary of Justice
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic
Act 776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs.
Civil Aeronautics Board, and Silangan Airways, Inc. v. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the
Certificate of Public Convenience and Necessity or Temporary Operating Permit to a prospective
domestic air transport operator who does not possess a legislative franchise to operate as such.
Relying on the Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld the
authority of the Board to issue such authority, even in the absence of a legislative franchise, which
authority is derived from Section 10 of Republic Act 776, as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary
Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., v. Civil
Aeronautics Board, promulgated on June 13, 1968. 12 The Board is expressly authorized by
Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and
Necessity, and nothing contained in the said law negates the power to issue said permit before the
completion of the applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests
the power to exercise said authority, even before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the
absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls
only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of
the legislature, since Congress is that branch of government vested with plenary powers of
legislation.
The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of
its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly
or indirectly, the act of the state. 13
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated
the authority to authorize the operation of domestic air transport services to the respondent Board,
such that Congressional mandate for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant licenses for, or to
authorize the operation of certain public utilities. With the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the approval of the practice by the courts. 14 It is generally
recognized that a franchise may be derived indirectly from the state through a duly designated
agency, and to this extent, the power to grant franchises has frequently been delegated, even to
agencies other than those of a legislative nature. 15 In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for the state constitute as much a
legislative franchise as though the grant had been made by an act of the Legislature. 16
The trend of modern legislation is to vest the Public Service Commissioner with the power to
regulate and control the operation of public services under reasonable rules and regulations, and as
a general rule, courts will not interfere with the exercise of that discretion when it is just and
reasonable and founded upon a legal right. 17
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent
issuances governing the Philippine Ports Authority, 18 proves that the PPA is empowered to
undertake by itself the operation and management of the Manila International Container Terminal,
or to authorize its operation and management by another by contract or other means, at its option.
The latter power having been delegated to the to PPA, a franchise from Congress to authorize an
entity other than the PPA to operate and manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a
Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air
transport operator, who, though not possessing a legislative franchise, meets all the other
requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an
indispensable requirement for an entity to operate as a domestic air transport operator. Although
Section 11 of Article XII recognizes Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has exclusive authority to issue the same.
Franchises issued by Congress are not required before each and every public utility may operate.
19 In many instances, Congress has seen it fit to delegate this function to government agencies,
specialized particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to
regulate the issuance of a license to operate domestic air transport services:
Sec. 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall
have the power to regulate the economic aspect of air transportation, and shall have general
supervision and regulation of, the jurisdiction and control over air carriers, general sales agents,
cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities
and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and
duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter,
modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own
initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity:
Provided however, That in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public
Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an
absolute requirement. It cites a number of authorities supporting the view that a Certificate of
Public Convenience and Necessity is issued to a public service for which a franchise is required by
law, as distinguished from a "Certificate of Public Convenience" which is an authorization issued for
the operation of public services for which no franchise, either municipal or legislative, is required
by law. 20
This submission relies on the premise that the authority to issue a certificate of public convenience
and necessity is a regulatory measure separate and distinct from the authority to grant a franchise
for the operation of the public utility subject of this particular case, which is exclusively lodged by
petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which courts and legal
writers have drafted. Some statutes use the terms "convenience and necessity" while others use
only the words "public convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together. Both words modify each
other and must be construed together. The word 'necessity' is so connected, not as an additional
requirement but to modify and qualify what might otherwise be taken as the strict significance of
the word necessity. Public convenience and necessity exists when the proposed facility will meet a
reasonable want of the public and supply a need which the existing facilities do not adequately
afford. It does not mean or require an actual physical necessity or an indispensable thing. 21
The terms "convenience" and "necessity" are to be construed together, although they are not
synonymous, and effect must be given both. The convenience of the public must not be
circumscribed by according to the word "necessity" its strict meaning or an essential requisites. 22
The use of the word "necessity", in conjunction with "public convenience" in a certificate of
authorization to a public service entity to operate, does not in any way modify the nature of such
certification, or the requirements for the issuance of the same. It is the law which determines the
requisites for the issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the operation of domestic
transport services, has delegated to the said body the authority to determine the capability and
competence of a prospective domestic air transport operator to engage in such venture. This is not
an instance of transforming the respondent Board into a mini-legislative body, with unbridled
authority to choose who should be given authority to operate domestic air transport services.
To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving
commission" that will give the delegate unlimited legislative authority. It must not be a delegation
"running riot" and "not canalized with banks that keep it from overflowing." Otherwise, the
delegation is in legal effect an abdication of legislative authority, a total surrender by the legislature
of its prerogatives in favor of the delegate. 23
Congress, in this instance, has set specific limitations on how such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
Sec. 4. Declaration of policies. In the exercise and performance of its powers and duties under this
Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the
following, among other things, as being in the public interest, and in accordance with the public
convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly adapted to the
present and future of foreign and domestic commerce of the Philippines, of the Postal Service and of
the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve the inherent
advantages of, assure the highest degree of safety in, and foster sound economic condition in, such
transportation, and to improve the relations between, and coordinate transportation by, air
carriers;
(d) The promotion of adequate, economical and efficient service by air carriers at reasonable
charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive
competitive practices;
(e) Competition between air carriers to the extent necessary to assure the sound development of an
air transportation system properly adapted to the need of the foreign and domestic commerce of
the Philippines, of the Postal Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency of a
prospective operator to engage in the public service of air transportation.
Sec. 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing
treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air
transportation shall be issued only to citizens of the Philippines 24
Sec. 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the
service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform
such service properly in conformity with the provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is required by the public convenience
and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a Certificate of Public
Convenience and Necessity had been established to ensure the weeding out of those entities that
are not deserving of public service. 25
In sum, respondent Board should now be allowed to continue hearing the application of GrandAir
for the issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to
the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant
petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to
CONTINUE hearing the application of respondent Grand International Airways, Inc. for the issuance
of a Certificate of Public Convenience and Necessity.
SO ORDERED.

G.R. No. 128607 January 31, 2000

ALFREDO MALLARI, SR. and ALFREDO MALLARI, JR., petitioners,
vs.
COURT OF APPEALS and BULLETIN PUBLISHING CORPORATION, respondents.
BELLOSILLO, J.:
ALFREDO MALLARI SR. and ALFREDO MALLARI JR. in this petition for review on certiorari seek to
set aside the Decision of the Court of Appeals1 which reversed the court a quo and adjudged
petitioners to be liable for damages due to negligence as a common carrier resulting in the death of
a passenger.
On 14 October 1987, at about 5:00 o'clock in the morning, the passenger jeepney driven by
petitioner Alfredo Mallari Jr. and owned by his co-petitioner Alfredo Mallari Sr. collided with the
delivery van of respondent Bulletin Publishing Corp. (BULLETIN, for brevity) along the National
Highway in Barangay San Pablo, Dinalupihan, Bataan. Petitioner Mallari Jr. testified that he went to
the left lane of the highway and overtook a Fiera which had stopped on the right lane. Before he
passed by the Fiera, he saw the van of respondent BULLETIN coming from the opposite direction. It
was driven by one Felix Angeles. The sketch of the accident showed that the collision occurred after
Mallari Jr. overtook the Fiera while negotiating a curve in the highway. The points of collision were
the and the left rear portion of the passenger jeepney and the left front side of the delivery van of
BULLETIN. The two (2) right wheels of the delivery van were on the right shoulder of the road and
pieces of debris from the accident were found scattered along the shoulder of the road up to a
certain portion of the lane travelled by the passenger jeepney. The impact caused the jeepney to
turn around and fall on its left side resulting in injuries to its passengers one of whom was Israel
Reyes who eventually died due to the gravity of his injuries.1â wphi1.nêt
On 16 December 1987 Claudia G. Reyes, the widow of Israel M. Reyes, filed a complaint for damages
with the Regional Trial Court of Olongapo City against Alfredo Mallari Sr. and Alfredo Mallari Jr.,
and also against BULLETIN, its driver Felix Angeles, and the N.V. Netherlands Insurance Company.
The complaint alleged that the collision which resulted in the death of Israel Reyes was caused by
the fault and negligence of both drivers of the passenger jeepney and the Bulletin Isuzu delivery
van. The complaint also prayed that the defendants be ordered jointly and severally to pay plaintiff
P1,006,777.40 in compensatory damages, P40,000.00 for hospital and medical expenses,
P18,270.00 for burial expenses plus such amounts as may be fixed by the trial court for exemplary
damages and attorney's fees.
The trial court found that the proximate cause of the collision was the negligence of Felix Angeles,
driver of the Bulletin delivery van, considering the fact that the left front portion of the delivery
truck driven by Felix Angeles hit and bumped the left rear portion of the passenger jeepney driven
by Alfredo Mallari Jr. Hence, the trial court ordered BULLETIN and Felix Angeles to pay jointly and
severally Claudia G. Reyes, widow of the deceased victim, the sums of P42,106.93 for medical
expenses; P8,600.00 for funeral and burial expenses; P1,006,777.40 for loss of earning capacity;
P5,000.00 for moral damages and P10,000.00 for attorney's fees. The trial court also ordered N.V.
Netherlands Insurance Company to indemnify Claudia G. Reyes P12,000.00 as death indemnity and
P2,500.00 for funeral expenses which when paid should be deducted from the liabilities of
respondent BULLETIN and its driver Felix Angeles to the plaintiff. It also dismissed the complaint
against the other defendants Alfredo Mallari Sr. and Alfredo Mallari Jr.
On appeal the Court of Appeals modified the decision of the trial court and found no negligence on
the part of Angeles and consequently of his employer, respondent BULLETIN. Instead, the appellate
court ruled that the collision was caused by the sole negligence of petitioner Alfredo Mallari Jr. who
admitted that immediately before the collision and after he rounded a curve on the highway, he
overtook a Fiera which had stopped on his lane and that he had seen the van driven by Angeles
before overtaking the Fiera. The Court of Appeals ordered petitioners Mallari Jr. and Mallari Sr. to
compensate Claudia G. Reyes P1,006,777.50 for loss of earning capacity, P50,000.00 as indemnity
for death and P10,000.00 for attorney's fees. It absolved from any liability respondent BULLETIN,
Felix Angeles and N.V. Netherlands Insurance Company. Hence this petition.
Petitioners contend that there is no evidence to show that petitioner Mallari Jr. overtook a vehicle
at a curve on the road at the time of the accident and that the testimony of Angeles on the
overtaking made by Mallari Jr. was not credible and unreliable. Petitioner also submits that the trial
court was in a better position than the Court of Appeals to assess the evidence and observe the
witnesses as well as determine their credibility; hence, its finding that the proximate cause of the
collision was the negligence of respondent Angeles, driver of the delivery van owned by respondent
BULLETIN, should be given more weight and consideration.
We cannot sustain petitioners. Contrary to their allegation that there was no evidence whatsoever
that petitioner Mallari Jr. overtook a vehicle at a curve on the road at the time of or before the
accident, the same petitioner himself testified that such fact indeed did occur —
Q: And what was that accident all about?
A: Well, what happened, sir, is that at about that time 5:00 o'clock in that morning of October 14
while I was negotiating on the highway at San Pablo, Dinalupihan, Bataan, I was then following a
blue Ford Fierra and my distance behind was about twenty (20) feet and then I passed that blue
Ford Fierra. I overtook and when I was almost on the right lane of the highway towards Olongapo
City there was an oncoming delivery van of the Bulletin Publishing Corporation which bumped the
left rear portion of the jeepney which I was driving and as a result of which the jeepney . . . turned
around and fell on its left side and as a result of which some of my passengers including me were
injured, sir . . . .
Q: Before you overtook the Ford Fierra jeepney did you look . . . whether there was any vehicle
coming towards you?
A: Yes, sir.
Q: Did you see the Bulletin van or the Press van coming towards you?
A: Yes, sir.
Q: At the moment the Ford Fierra . . . stop(ped) and in overtaking the Fierra, did you not have an
option to stop and not to overtake the Ford Fierra?
A: Well, at the time when the Ford Fierra stopped in front of me I slowed down with the intention of
applying the brake, however, when I saw the oncoming vehicle which is the Press van is very far. . .
which is 100 feet distance, . . . it is sufficient to overtake the Ford Fierra so I overt(ook) it . . . .
Q: You said that you took into consideration the speed of the oncoming Press van but you also could
not estimate the speed of the press van because it was dark at that time, which of these statements
are true?
A: What I wanted to say, I took into consideration the speed of the oncoming vehicle, the Press van,
although at the moment I could not estimate the speed of the oncoming vehicle . . . .2
The Court of Appeals correctly found, based on the sketch and spot report of the police authorities
which were not disputed by petitioners, that the collision occurred immediately after petitioner
Mallari Jr. overtook a vehicle in front of it while traversing a curve on the highway.3 This act of
overtaking was in clear violation of Sec. 41, pars. (a) and (b), of RA 4136 as amended, otherwise
known as The Land Transportation and Traffic Code which provides:
Sec. 41. Restrictions on overtaking and passing. — (a) The driver of a vehicle shall not drive to the
left side of the center line of a highway in overtaking or passing another vehicle proceeding in the
same direction, unless such left side is clearly visible and is free of oncoming traffic for a sufficient
distance ahead to permit such overtaking or passing to be made in safety.
(b) The driver of a vehicle shall not overtake or pass another vehicle proceeding in the same
direction when approaching the crest of a grade, nor upon a curve in the highway, where the
driver's view along the highway is obstructed within a distance of five hundred feet ahead except
on a highway having two or more lanes for movement of traffic in one direction where the driver of
a vehicle may overtake or pass another vehicle: Provided That on a highway, within a business or
residential district, having two or more lanes for movement of traffic in one direction, the driver of
a vehicle may overtake or pass another vehicle on the right.
The rule is settled that a driver abandoning his proper lane for the purpose of overtaking another
vehicle in an ordinary situation has the duty to see to it that the road is clear and not to proceed if
he cannot do so in safety.4 When a motor vehicle is approaching or rounding a curve, there is
special necessity for keeping to the right side of the road and the driver does not have the right to
drive on the left hand side relying upon having time to turn to the right if a car approaching from
the opposite direction comes into view.5
In the instant case, by his own admission, petitioner Mallari Jr. already saw that the BULLETIN
delivery van was coming from the opposite direction and failing to consider the speed thereof since
it was still dark at 5:00 o'clock in the morning mindlessly occupied the left lane and overtook two
(2) vehicles in front of it at a curve in the highway. Clearly, the proximate cause of the collision
resulting in the death of Israel Reyes, a passenger of the jeepney, was the sole negligence of the
driver of the passenger jeepney, petitioner Alfredo Mallari Jr., who recklessly operated and drove
his jeepney in a lane where overtaking was not allowed by traffic rules. Under Art. 2185 of the Civil
Code, unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has
been negligent if at the time of the mishap he was violating a traffic regulation. As found by the
appellate court, petitioners failed to present satisfactory evidence to overcome this legal
presumption.
The negligence and recklessness of the driver of the passenger jeepney is binding against petitioner
Mallari Sr., who admittedly was the owner of the passenger jeepney engaged as a common carrier,
considering the fact that in an action based on contract of carriage, the court need not make an
express finding of fault or negligence on the part of the carrier in order to hold it responsible for the
payment of damages sought by the passenger. Under Art. 1755 of the Civil Code, a common carrier
is bound to carry the passengers safely as far as human care and foresight can provide using the
utmost diligence of very cautious persons with due regard for all the circumstances. Moreover,
under Art. 1756 of the Civil Code, in case of death or injuries to passengers, a common carrier is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence. Further, pursuant to Art. 1759 of the same Code, it is liable for the death of
or injuries to passengers through the negligence or willful acts of the former's employees. This
liability of the common carrier does not cease upon proof that it exercised all the diligence of a good
father of a family in the selection of its employees. Clearly, by the contract of carriage, the carrier
jeepney owned by Mallari Sr. assumed the express obligation to transport the passengers to their
destination safely and to observe extraordinary diligence with due regard for all the circumstances,
and any injury or death that might be suffered by its passengers is right away attributable to the
fault or negligence of the carrier.
The monetary award ordered by the appellate court to be paid by petitioners to the widow of the
deceased passenger Israel M. Reyes of P1,006,777.50 for loss of earning capacity, P50,000.00 as
civil indemnity for death, and P10,000.00 for attorney's fees, all of which were not disputed by
petitioners, is a factual matter binding and conclusive upon this Court.1â wphi1.nêt
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals dated 20 September
1995 reversing the decision of the trial court being in accord with law and evidence is AFFIRMED.
Consequently, petitioners are ordered jointly and severally to pay Claudia G. Reyes P1,006,777.50
for loss of earning capacity, P50,000.00 as civil indemnity for death, and P10,000.00 for attorney's
fees. Costs against petitioners.
SO ORDERED.

G.R. No. 122039 May 31, 2000

VICENTE CALALAS, petitioner,
vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO SALVA, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated March 31,
1991, reversing the contrary decision of the Regional Trial Court, Branch 36, Dumaguete City, and
awarding damages instead to private respondent Eliza Jujeurche Sunga as plaintiff in an action for
breach of contract of carriage.
The facts, as found by the Court of Appeals, are as follows:
At 10 o'clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G. Sunga, then a
college freshman majoring in Physical Education at the Siliman University, took a passenger
jeepney owned and operated by petitioner Vicente Calalas. As the jeepney was filled to capacity of
about 24 passengers, Sunga was given by the conductor an "extension seat," a wooden stool at the
back of the door at the rear end of the vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a passenger off. As
she was seated at the rear of the vehicle, Sunga gave way to the outgoing passenger. Just as she was
doing so, an Isuzu truck driven by Iglecerio Verena and owned by Francisco Salva bumped the left
rear portion of the jeepney. As a result, Sunga was injured. She sustained a fracture of the "distal
third of the left tibia-fibula with severe necrosis of the underlying skin." Closed reduction of the
fracture, long leg circular casting, and case wedging were done under sedation. Her confinement in
the hospital lasted from August 23 to September 7, 1989. Her attending physician, Dr. Danilo V.
Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of three months
and would have to ambulate in crutches during said period.
On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation of the
contract of carriage by the former in failing to exercise the diligence required of him as a common
carrier. Calalas, on the other hand, filed a third-party complaint against Francisco Salva, the owner
of the Isuzu truck.
The lower court rendered judgment against Salva as third-party defendant and absolved Calalas of
liability, holding that it was the driver of the Isuzu truck who was responsible for the accident. It
took cognizance of another case (Civil Case No. 3490), filed by Calalas against Salva and Verena, for
quasi-delict, in which Branch 37 of the same court held Salva and his driver Verena jointly liable to
Calalas for the damage to his jeepney.
On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground that
Sunga's cause of action was based on a contract of carriage, not quasi-delict, and that the common
carrier failed to exercise the diligence required under the Civil Code. The appellate court dismissed
the third-party complaint against Salva and adjudged Calalas liable for damages to Sunga. The
dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is
entered ordering defendant-appellee Vicente Calalas to pay plaintiff-appellant:
(1) P50,000.00 as actual and compensatory damages;
(2) P50,000.00 as moral damages;
(3) P10,000.00 as attorney's fees; and
(4) P1,000.00 as expenses of litigation; and
(5) to pay the costs.
SO ORDERED.
Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the negligence of
Verena was the proximate cause of the accident negates his liability and that to rule otherwise
would be to make the common carrier an insurer of the safety of its passengers. He contends that
the bumping of the jeepney by the truck owned by Salva was a caso fortuito. Petitioner further
assails the award of moral damages to Sunga on the ground that it is not supported by evidence.
The petition has no merit.
The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver and the
owner of the truck liable for quasi-delict ignores the fact that she was never a party to that case and,
therefore, the principle of res judicata does not apply.
Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in Civil Case
No. 3490 was whether Salva and his driver Verena were liable for quasi-delict for the damage
caused to petitioner's jeepney. On the other hand, the issue in this case is whether petitioner is
liable on his contract of carriage. The first, quasi-delict, also known as culpa aquiliana or culpa extra
contractual, has as its source the negligence of the tortfeasor. The second, breach of contract or
culpa contractual, is premised upon the negligence in the performance of a contractual obligation.
Consequently, in quasi-delict, the negligence or fault should be clearly established because it is the
basis of the action, whereas in breach of contract, the action can be prosecuted merely by proving
the existence of the contract and the fact that the obligor, in this case the common carrier, failed to
transport his passenger safely to his destination.2 In case of death or injuries to passengers, Art.
1756 of the Civil Code provides that common carriers are presumed to have been at fault or to have
acted negligently unless they prove that they observed extraordinary diligence as defined in Arts.
1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the burden of
proof.
There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding Salva and
his driver Verena liable for the damage to petitioner's jeepney, should be binding on Sunga. It is
immaterial that the proximate cause of the collision between the jeepney and the truck was the
negligence of the truck driver. The doctrine of proximate cause is applicable only in actions for
quasi-delict, not in actions involving breach of contract. The doctrine is a device for imputing
liability to a person where there is no relation between him and another party. In such a case, the
obligation is created by law itself. But, where there is a pre-existing contractual relation between
the parties, it is the parties themselves who create the obligation, and the function of the law is
merely to regulate the relation thus created. Insofar as contracts of carriage are concerned, some
aspects regulated by the Civil Code are those respecting the diligence required of common carriers
with regard to the safety of passengers as well as the presumption of negligence in cases of death or
injury to passengers. It provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1746, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers
is further set forth in articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard for all
the circumstances.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extraordinary diligence
as prescribed by articles 1733 and 1755.
In the case at bar, upon the happening of the accident, the presumption of negligence at once arose,
and it became the duty of petitioner to prove that he had to observe extraordinary diligence in the
care of his passengers.
Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could provide,
using the utmost diligence of very cautious persons, with due regard for all the circumstances" as
required by Art. 1755? We do not think so. Several factors militate against petitioner's contention.
First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion being
exposed about two meters from the broad shoulders of the highway, and facing the middle of the
highway in a diagonal angle. This is a violation of the R.A. No. 4136, as amended, or the Land
Transportation and Traffic Code, which provides:
Sec. 54. Obstruction of Traffic. — No person shall drive his motor vehicle in such a manner as to
obstruct or impede the passage of any vehicle, nor, while discharging or taking on passengers or
loading or unloading freight, obstruct the free passage of other vehicles on the highway.
Second, it is undisputed that petitioner's driver took in more passengers than the allowed seating
capacity of the jeepney, a violation of §32(a) of the same law. It provides:
Exceeding registered capacity. — No person operating any motor vehicle shall allow more
passengers or more freight or cargo in his vehicle than its registered capacity.
The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that to
which the other passengers were exposed. Therefore, not only was petitioner unable to overcome
the presumption of negligence imposed on him for the injury sustained by Sunga, but also, the
evidence shows he was actually negligent in transporting passengers.
We find it hard to give serious thought to petitioner's contention that Sunga's taking an "extension
seat" amounted to an implied assumption of risk. It is akin to arguing that the injuries to the many
victims of the tragedies in our seas should not be compensated merely because those passengers
assumed a greater risk of drowning by boarding an overloaded ferry. This is also true of petitioner's
contention that the jeepney being bumped while it was improperly parked constitutes caso fortuito.
A caso fortuito is an event which could not be foreseen, or which, though foreseen, was inevitable. 3
This requires that the following requirements be present: (a) the cause of the breach is
independent of the debtor's will; (b) the event is unforeseeable or unavoidable; (c) the event is such
as to render it impossible for the debtor to fulfill his obligation in a normal manner, and (d) the
debtor did not take part in causing the injury to the
creditor.4 Petitioner should have foreseen the danger of parking his jeepney with its body
protruding two meters into the highway.
Finally, petitioner challenges the award of moral damages alleging that it is excessive and without
basis in law. We find this contention well taken.
In awarding moral damages, the Court of Appeals stated:
Plaintiff-appellant at the time of the accident was a first-year college student in that school year
1989-1990 at the Silliman University, majoring in Physical Education. Because of the injury, she
was not able to enroll in the second semester of that school year. She testified that she had no more
intention of continuing with her schooling, because she could not walk and decided not to pursue
her degree, major in Physical Education "because of my leg which has a defect already."
Plaintiff-appellant likewise testified that even while she was under confinement, she cried in pain
because of her injured left foot. As a result of her injury, the Orthopedic Surgeon also certified that
she has "residual bowing of the fracture side." She likewise decided not to further pursue Physical
Education as her major subject, because "my left leg . . . has a defect already."
Those are her physical pains and moral sufferings, the inevitable bedfellows of the injuries that she
suffered. Under Article 2219 of the Civil Code, she is entitled to recover moral damages in the sum
of P50,000.00, which is fair, just and reasonable.
As a general rule, moral damages are not recoverable in actions for damages predicated on a breach
of contract for it is not one of the items enumerated under Art. 2219 of the Civil Code. 5 As an
exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a
passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil Code; and (2) in the cases
in which the carrier is guilty of fraud or bad faith, as provided in Art. 2220.6
In this case, there is no legal basis for awarding moral damages since there was no factual finding
by the appellate court that petitioner acted in bad faith in the performance of the contract of
carriage. Sunga's contention that petitioner's admission in open court that the driver of the jeepney
failed to assist her in going to a nearby hospital cannot be construed as an admission of bad faith.
The fact that it was the driver of the Isuzu truck who took her to the hospital does not imply that
petitioner was utterly indifferent to the plight of his injured passenger. If at all, it is merely implied
recognition by Verena that he was the one at fault for the accident.
WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its resolution, dated
September 11, 1995, are AFFIRMED, with the MODIFICATION that the award of moral damages is
DELETED.
SO ORDERED.

G.R. No. 135645 March 8, 2002

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,
vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.
KAPUNAN, J.:
This petition for review seeks the reversal of the Decision, dated September 23, 1998, of the Court
of Appeals in CA-G.R. CV No. 43915,1 which absolved private respondents MCG Marine Services,
Inc. and Doroteo Gaerlan of any liability regarding the loss of the cargo belonging to San Miguel
Corporation due to the sinking of the M/V Peatheray Patrick-G owned by Gaerlan with MCG Marine
Services, Inc. as agent.
On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate
value of P5,836,222.80 with petitioner Philippine American General Insurance Company.2 The
cargo were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to
Bislig, Surigao del Sur.
After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the
port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the
vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit
Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel
Corporation was lost.
Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.
Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the Manila
Adjusters and Surveyors Co., went to Taganauan Island, Cortes, Surigao del Sur where the vessel
was cast ashore, to investigate the circumstances surrounding the loss of the cargo. In his report,
Mr. Sayo stated that the vessel was structurally sound and that he did not see any damage or crack
thereon. He concluded that the proximate cause of the listing and subsequent sinking of the vessel
was the shifting of ballast water from starboard to portside. The said shifting of ballast water
allegedly affected the stability of the M/V Peatheray Patrick-G.
Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80 pursuant to
the terms of their insurance contract.1â wphi1.nêt
On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the Regional
Trial Court (RTC) of Makati City a case for collection against private respondents to recover the
amount it paid to San Miguel Corporation for the loss of the latter's cargo.
Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking of the M/V
Peatheray Patrick-G to determine whether or not the captain and crew of the vessel should be held
responsible for the incident.3 On May 11, 1989, the Board rendered its decision exonerating the
captain and crew of the ill-fated vessel for any administrative liability. It found that the cause of the
sinking of the vessel was the existence of strong winds and enormous waves in Surigao del Sur, a
fortuitous event that could not have been for seen at the time the M/V Peatheray Patrick-G left the
port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate
and only cause of the vessel's sinking.
On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision finding private
respondents solidarily liable for the loss of San Miguel Corporation's cargo and ordering them to
pay petitioner the full amount of the lost cargo plus legal interest, attorney's fees and costs of suit.4
Private respondents appealed the trial court's decision to the Court of Appeals. On September 23,
1998, the appellate court issued the assailed Decision, which reversed the ruling of the RTC. It held
that private respondents could not be held liable for the loss of San Miguel Corporation's cargo
because said loss occurred as a consequence of a fortuitous event, and that such fortuitous event
was the proximate and only cause of the loss.5
Petitioner thus filed the present petition, contending that:
(A)
IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF MAKATI CITY ON THE
BASIS OF THE FINDINGS OF THE BOARD OF MARINE INQUIRY, APPELLATE COURT DECIDED THE
CASE AT BAR NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE
HONORABLE COURT;
(B)
IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE COURT GRAVELY ERRED IN
CONTRADICTING AND IN DISTURBING THE FINDINGS OF THE FORMER;
(C)
THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE DECISION OF THE TRIAL COURT
AND IN DISMISSING THE COMPLAINT.6
Common carriers, from the nature of their business and for reasons of public policy, are mandated
to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them.7 Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or negligent if the goods transported
by them are lost, destroyed or if the same deteriorated.8
However, this presumption of fault or negligence does not arise in the cases enumerated under
Article 1734 of the Civil Code:
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In order that a common carrier may be absolved from liability where the loss, destruction or
deterioration of the goods is due to a natural disaster or calamity, it must further be shown that the
such natural disaster or calamity was the proximate and only cause of the loss;9 there must be "an
entire exclusion of human agency from the cause of the injury of the loss."10
Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a
common carrier is still required to exercise due diligence to prevent or minimize loss before, during
and after the occurrence of the natural disaster, for it to be exempt from liability under the law for
the loss of the goods.11 If a common carrier fails to exercise due diligence--or that ordinary care
which the circumstances of the particular case demand12 -- to preserve and protect the goods
carried by it on the occasion of a natural disaster, it will be deemed to have been negligent, and the
loss will not be considered as having been due to a natural disaster under Article 1734 (1).
In the case at bar, the issues may be narrowed down to whether the loss of the cargo was due to the
occurrence of a natural disaster, and if so, whether such natural disaster was the sole and
proximate cause of the loss or whether private respondents were partly to blame for failing to
exercise due diligence to prevent the loss of the cargo.
The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel
encountered strong winds and huge waves ranging from six to ten feet in height. The vessel listed at
the port side and eventually sunk at Cawit Point, Cortes, Surigao del Sur.
The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case
against the vessel's crew (BMI--646-87), found that the loss of the cargo was due solely to the
existence of a fortuitous event, particularly the presence of strong winds and huge waves at Cortes,
Surigao del Sur on March 3, 1987:
xxx
III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?
Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe, Cebu for Bislig,
Surigao del Sur on March 2, 1987 the Captain had observed the fair atmospheric condition of the
area of the pier and confirmed this good weather condition with the Coast Guard Detachment of
Mandawe City. However, on March 3, 1987 at about 10:00 o'clock in the evening, when the vessel
had already passed Surigao Strait. the vessel started to experience waves as high as 6 to 7 feet and
that the Northeasterly wind was blowing at about five (5) knot velocity. At about 11:00 o'clock P.M.
when the vessel was already about 4.5 miles off Cawit Point, Cortes, Surigao del Sur, the vessel was
discovered to be listing 15 degrees to port side and that the strength of the wind had increased to
15 knots and the waves were about ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately
thereafter, emergency measures were taken by the crew. The officers had suspected that a leak or
crack might had developed at the bottom hull particularly below one or two of the empty wing
tanks at port side serving as buoyancy tanks resulting in ingress of sea water in the tanks was
confirmed when the Captain ordered to use the cargo pump. The suction valves to the said tanks of
port side were opened in order to suck or draw out any amount of water that entered into the
tanks. The suction pressure of the pump had drawn out sea water in large quantity indicating
therefore, that a leak or crack had developed in the hull as the vessel was continuously batted and
pounded by the huge waves. Bailing out of the water through the pump was done continuously in
an effort of the crew to prevent the vessel from sinking. but then efforts were in vain. The vessel
still continued to list even more despite the continuous pumping and discharging of sea water from
the wing tanks indicating that the amount of the ingress of sea water was greater in volume that
that was being discharged by the pump. Considering therefore, the location of the suspected source
of the ingress of sea water which was a crack or hole at the bottom hull below the buoyancy tank's
port side which was not accessible (sic) for the crew to check or control the flow of sea water into
the said tank. The accumulation of sea water aggravated by the continuous pounding, rolling and
pitching of the vessel against huge waves and strong northeasterly wind, the Captain then had no
other recourse except to order abandonship to save their lives.13
The presence of a crack in the ill-fated vessel through which water seeped in was confirmed by the
Greutzman Divers who were commissioned by the private respondents to conduct an underwater
survey and inspection of the vessel to determine the cause and circumstances of its sinking. In its
report, Greutzman Divers stated that "along the port side platings, a small hole and two separate
cracks were found at about midship."14
The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge
waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3,
1987 was indeed fortuitous. A fortuitous event has been defined as one which could not be
foreseen, or which though foreseen, is inevitable.15 An event is considered fortuitous if the
following elements concur:
xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligations, must be independent of human will; (b) it must be impossible to
foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor. xxx16
In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of
Mandaue City, the Captain confirmed with the Coast Guard that the weather condition would
permit the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not be expected to have
foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It
was the presence of the strong winds and enormous waves which caused the vessel to list, keel
over, and consequently lose the cargo contained therein. The appellate court likewise found that
there was no negligence on the part of the crew of the M/V Peatheray Patrick-G, citing the following
portion of the decision of the Board of Marine Inquiry:
I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE PORT OF MANDAWE,
CEBU AND AT THE TIME OF SINKING?
Evidence clearly shows that the vessel was propelled with three (3) diesel engines of 250 BHP each
or a total of 750 BHP. It had three (3) propellers which were operating satisfactorily from the time
the vessel left the port of Mandawe up to the time when the hull on the double bottom tank was
heavily floaded (sic) by uncontrollable entry of sea water resulting in the stoppage of engines. The
vessel was also equipped with operating generator pumps for emergency cases. This equipment
was also operating satisfactorily up to the time when the engine room was heavily floaded (sic)
with sea water. Further, the vessel had undergone emergency drydocking and repair before the
accident occurred (sic) on November 9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by
the billing for the Drydocking and Repair and certificate of Inspection No. 2588-86 issued by the
Philippine coast Guard on December 5, 1986 which expired on November 8, 1987.
LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and experienced
licensed Major Patron who had been in command of the vessel for more than three (3) years from
July 1984 up to the time of sinking March 3, 1987. His Chief Mate Mr. Mariano Alalin also a licensed
Major Patron had been the Chief Mate of " LCT Peatheray Patrick-G" for one year and three months
at the time of the accident. Further Chief Mate Alalin had commanded a tanker vessel named M/T
Mercedes of MGM Corporation for almost two (2) years from 1983-1985 (Alalin TSN-4-13-88 pp.
32-33).
That the vessel was granted SOLAS clearance by the Philippine Coast Guard on March 1, 1987 to
depart from Mandawe City for Bislig, Surigao del Sur as evidenced by a certification issued to D.C.
Gaerlan Oil Products by Coast Guard Station Cebu dated December 23, 1987.1â wphi1.nêt
Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be considered seaworthy
vessel at the time she undertook that fateful voyage on March 2, 1987.
To be seaworthy, a vessel must not only be staunch and fit in the hull for the voyage to be
undertaken but also must be properly equipped and for that purpose there is a duty upon the
owner to provide a competent master and a crew adequate in number and competent for their duty
and equals in disposition and seamanship to the ordinary in that calling. (Ralph 299 F-52, 1924
AMC 942). American President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9 CAL 1924).17
Overloading was also eliminated as a possible cause of the sinking of the vessel, as the evidence
showed that its freeboard clearance was substantially greater than the authorized freeboard
clearance.18
Although the Board of Marine Inquiry ruled only on the administrative liability of the captain and
crew of the M/V Peatheray Patrick-G, it had to conduct a thorough investigation of the
circumstances surrounding the sinking of the vessel and the loss of its cargo in order to determine
their responsibility, if any. The results of its investigation as embodied in its decision on the
administrative case clearly indicate that the loss of the cargo was due solely to the attendance of
strong winds and huge waves which caused the vessel accumulate water, tilt to the port side and to
eventually keel over. There was thus no error on the part of the Court of Appeals in relying on the
factual findings of the Board of Marine Inquiry, for such factual findings, being supported by
substantial evidence are persuasive, considering that said administrative body is an expert in
matters concerning marine casualties.19
Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3,
1987 was shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G
and the loss of the cargo belonging to San Miguel Corporation, private respondents cannot be held
liable for the said loss.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED and the petition is
hereby DENIED.
SO ORDERED.

G.R. No. 98243 July 1, 1992

ALEJANDRO ARADA, doing business under the name and style "SOUTH NEGROS ENTERPRISES",
petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
PARAS, J.:
This is a petition for review on certiorari which seeks to annul and set aside the decision * of the
Court of Appeals dated April 8, 1991 in CA-G.R. CV No. 20597 entitled "San Miguel Corporation v.
Alejandro Arada, doing business under the name and style "South Negros Enterprises", reversing
the decision of the RTC, Seventh Judicial Region, Branch XII, Cebu City, ordering petitioner to pay
the private respondent tho amount of P172,284.80 representing the value of the cargo lost on
board the ill-fated, M/L Maya with interest thereon at the legal rate from the date of the filing of the
complaint on March 25, 1983 until fully paid, and the costs.
The undisputed facts of the case are as follows: Alejandro Arada, herein petitioner, is the proprietor
and operator of the firm South Negros Enterprises which has been organized and established for
more than ten (10) years. It is engaged in the business of small scale shipping as a common carrier,
servicing the hauling of cargoes of different corporations and companies with the five (5) vessels it
was operating (Rollo, p. 121).
On March 24, 1982. petitioner entered into a contract with private respondent to safely transport
as a common carrier, cargoes of the latter from San Carlos City, Negros Occidental to Mandaue City
using one of petitioner's vessels, M/L Maya. The cargoes of private respondent consisted of 9,824
cases of beer empties valued at P176,824.80, were itemized as follows:

NO. OF CASES CARGO VALUE

7,515 CS PPW STENIE MTS P136.773.00
1,542 CS PLW GRANDE MTS 23,438.40
58 CS G.E. PLASTIC MTS 1,276.00
24 CS PLP MTS 456.00
37 CS CS WOODEN MTS 673.40
8 CS LAGERLITE PLASTIC MTS 128.00
640 CS STENEI PLASTIC MTS 14,080.00
9,824 CS P176,824.80
On March 24, 1982, petitioner thru its crew master, Mr. Vivencio Babao, applied for a clearance
with the Philippine Coast Guard for M/L Maya to leave the port of San Carlos City, but due to a
typhoon, it was denied clearance by SNI Antonio Prestado PN who was then assigned at San Carlos
City Coast Guard Detachment (Rollo, p. 122).
On March 25, 1982 M/L Maya was given clearance as there was no storm and the sea was calm.
Hence, said vessel left for Mandaue City. While it was navigating towards Cebu, a typhoon
developed and said vessel was buffeted on all its sides by big waves. Its rudder was destroyed and it
drifted for sixteen (16) hours although its engine was running.
On March 27, 1982 at about 4:00 a.m., the vessel sank with whatever was left of its cargoes. The
crew was rescued by a passing pump boat and was brought to Calanggaman Island. Later in the
afternoon, they were brought to Palompon, Leyte, where Vivencio Babao filed a marine protest
(Rollo, p. 10).
On the basis of such marine protest, the Board of Marine Inquiry conducted a hearing of the sinking
of M/L Maya wherein private respondent was duly represented. Said Board made its findings and
recommendation dated November 7, 1983, the dispositive portion of which reads as:
WHEREFORE, premises considered, this Board recommends as it is hereby recommended that the
owner/operator, officers and crew of M/L Maya be exonerated or absolved from any administrative
liability on account of this incident (Exh. 1).
The Board's report containing its findings and recommendation was then forwarded to the
headquarters of the Philippine Coast Guard for appropriate action. On the basis of such report, the
Commandant of the Philippine Coast Guard rendered a decision dated December 21, 1984 in SBMI
Adm. Case No. 88-82 exonerating the owner/operator officers and crew of the ill-fated M/L Maya
from any administrative liability on account of said incident (Exh. 2).
On March 25, 1983, Private respondent filed a complaint in the Regional Trial Court its first cause of
action being for the recovery of the value of the cargoes anchored on breach of contract of carriage.
After due hearing, said court rendered a decision dated July 18, 1988, the dispositive portion of
which reads
WHEREFORE, judgment is hereby rendered as follows:
(1) With respect to the first cause of action, claim of plaintiff is hereby dismissed;
(2) Under the second cause of action, defendant must pay plaintiff the sum of P2,000.00;
(3) In the third cause of action, the defendant must pay plaintiff the sum of P2,849.20;
(4) Since the plaintiff has withheld the payment of P12,997.47 due the defendynt, the plaintiff
should deduct the amount of P4,849.20 from the P12,997.47 and the balance of P8,148.27 must be
paid to the defendant; and
(5) Defendant's counterclaim not having been substantiated by evidence is likewise dismissed. NO
COSTS. (Orig. Record, pp. 193-195).
Thereafter, private respondent appealed said decision to the Court of Appeals claiming that the trial
court erred in —
(1) holding that nothing was shown that the defendant, or any of his employees who manned the
M/L Maya was negligent in any way nor did they fail to observe extraordinary diligence over the
cargoes of the plaintiff; and
(2) holding that the sinking of said vessel was caused by the storm, consequently, dismissing the
claim of plaintiff in its first cause of action for breach of contract of carriage of goods (Rollo, pp. 33-
34; Decision, pp. 3-4).
In its decision Promulgated on April 8, 1991, the Court of Appeals reversed the decision of the court
a quo, the dispositive portion and the dispositive part of its decision reads as:
WHEREFORE, that part of the Judgment appeal6d from is REVERSED and the appellee Aleiandro
Arada, doing business by the name and style, "South Negros Enterprises", ordered (sic) to pay unto
the appellant San Miguel Corporation the amount of P176,824.80 representing the value of the
cargo lost on board the ill-fated vessel, M/L Maya, with interest thereon at the legal rate from date
of the filing of the complaint on March 25, 1983, until fully paid, and the costs. (Rollo, p. 37)
The Court of Appeals ruled that "in view of his failure to observe extraordinary diligence over the
cargo in question and his negligence previous to the sinking of the carrying vessel, as above shown,
the appellee is liable to the appellant for the value of the lost cargo.
Hence the present recourse.
On November 20, 1991, this Court gave due course to the petition. The pivotal issue to be resolved
is whether or not petitioner is liable for the value of the lost cargoes.
Petitioner contends that it was not in the exercise of its function as a common carrier when it
entered into a contract with private respondent,but was then acting as a private carrier not bound
by the requirement of extraordinary diligence (Rollo, p. 15) and that the factual findings of the
Board of Marine Inquiry and the Special Board of Marine Inquiry are binding and conclusive on the
Court (Rollo, pp. 16-17).
Private respondent counters that M/L Maya was in the exercise of its function as a common carrier
and its failure to observe the extraordinary diligence required of it in the vigilance over their
cargoes makes Petitioner liable for the value of said cargoes.
The petition is devoid of merit.
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 (Art. 1732 of the New Civil Code).
In the case at bar, there is no doubt that petitioner was exercising its function as a common carrier
when it entered into a contract with private respondent to carry and transport the latter's cargoes.
This fact is best supported by the admission of petitioner's son, Mr. Eric Arada, who testified as the
officer-in-charge for operations of South Negros Enterprises in Cebu City. In substance his
testimony on January 14, 1985 is as follows:
Q. How many vessels are you operating?
A. There were all in all around five (5).
Q. And you were entering to service hauling of cargoes to different companies, is that correct?
A. Yes, sir.
Q. In one word, the South Negros Enterprises is engaged in the business of common carriers, is that
correct?
A. Yes, sir,
Q. And in fact, at the time of the hauling of the San Miguel Beer, it was also in the same category as a
common carrier?
A. Yes, sir,
(TSN. pp. 3-4, Jan. 29, 1985)
A common carrier, both from the nature of its business and for insistent reasons of public policy is
burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety
of passengers, but in caring for the goods transported by it. The loss or destruction or deterioration
of goods turned over to the common carrier for the conveyance to a designated destination raises
instantly a presumption of fault or negligence on the part of the carrier, save only where such loss,
destruction or damage arises from extreme circumstances such as a natural disaster or calamity ...
(Benedicto v. IAC, G.R. No. 70876, July 19, 1990, 187 SCRA 547) (Emphasis supplied).
In order that the common carrier may be exempted from responsibility, the natural disaster must
have been the proximate and only cause of the loss. However, the common carrier must exercise
due diligence to prevent or minimize the loss before, during and after the occurrence of flood,
storm or other natural disaster in order that the common carrier may be exempted from liability for
the destruction or deterioration of the goods (Article 1739, New Civil Code).
In the instant case, the appellate court was correct in finding that petitioner failed to observe the
extraordinary diligence over the cargo in question and he or the master in his employ was negligent
previous to the sinking of the carrying vessel. In substance, the decision reads:
... VIVENCIO BABAO, the master of the carrying vessel, knew that there was a typboon coming
before his departure but did not check where it was.
xxx xxx xxx
If only for the fact that he was first denied clearance to depart on March 24, 1982, obviously
because of a typhoon coming, Babao, as master of the vessel, should have verified first where the
typhoon was before departing on March 25, 1982. True, the sea was calm at departure time. But
that might be the calm before the storm. Prudence dictates that he should have ascertained first
where the storm was before departing as it might be on his path. (Rollo, pp. 35-36)
Respondent court's conclusion as to the negligence of petitioner is supported by evidence. It will be
noted that Vivencio Babao knew of the impending typhoon on March 24, 1982 when the Philippine
Coast Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since
the time of the denial of said clearance and the time a clearance to sail was finally issued on March
25, 1982. Records will show that Babao did not ascertain where the typhoon was headed by the use
of his vessel's barometer and radio (Rorlo, p. 142). Neither did the captain of the vessel monitor
and record the weather conditions everyday as required by Art, 612 of the Code of Commerce
(Rollo, pp. 142-143). Had he done so while navigating for 31 hours, he could have anticipated the
strong winds and big waves and taken shelter (Rollo, pp- 36; 145). His testimony on May 4, 1982 is
as follows:
Q. Did you not check on your own where the typhoon was?
A. No. sir. (TSN, May 4, 1982, pp. 58-59)
Noteworthy is the fact that as Per official records of the Climatological Division of the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA for brevity) issued
by its Chief of Climatological Division, Primitivo G. Ballan, Jr. as to the weather and sea conditions
that prevailed in the vicinity of Catmon, Cebu during the period March 25-27, 1982, the sea
conditions on March 25, 1982 were slight to rough and the weather conditions then prevailing
during those times were cloudy skies with rainshowers and the small waves grew larger and larger,
to wit:
 SPEED WAVE HT. SEA WEATHER
KNOTS (METERS) CONDITIONS
March 25
8 AM 15 1-2 slight cloudy skies
w/ rainshowers
2 PM 20-25 2.0-3.0 moderate overcast skies
to rough w/ some rains
8 PM 30 3.7 rough sea heaps up
white foam from
breaking waves
begin to be
blown
in streaks along
the direction of
the wind;
Spindrift begins
2 AM 30 3.7 rough sea heaps up
white foam from
breaking waves
begin to be
blown
in streaks along
the direction of
the wind;
Spindrift begins
(Exh. 3)
A common carrier is obliged to observe extraordinary diligence and the failure of Babao to
ascertain the direction of the storm and the weather condition of the path they would be traversing,
constitute lack of foresight and minimum vigilance over its cargoes taking into account the
surrounding circumstances of the case.
While the goods are in the possession of the carrier, it is but fair that it exercises extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was
due to the carrier's fault or negligence; that is necessary to protect the interest of the shipper which
is at the mercy of the carrier (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of
Appeals, G.R. No. 89757, Aug. 6, 1990, 188 SCRA 387).
Furthermore, the records show that the crew of M/L Maya did not have the required qualifications
provided for in P.D. No. 97 or the Philippine Merchant Marine Officers Law, all of whom were
unlicensed. While it is true that they were given special permit to man the vessel, such permit was
issued at the risk and responsibility of the owner (Rollo, p. 36).
Finally, petitioner claims that the factual findings of the Special Board of Marine Inquiry
exonerating the owner/operator, crew officers of the ill-fated vessel M/L Maya from any
administrative liability is binding on the court.
In rejecting petitioner's claim, respondent court was correct in ruling that "such exoneration was
but with respect to the administrative liability of the owner/operator, officers and crew of the ill-
fated" vessel. It could not have meant exoneration of appellee from liability as a common carrier for
his failure to observe extraordinary diligence in the vigilance over the goods it was transporting
and for the negligent acts or omissions of his employees. Such is the function of the Court, not the
Special Board of Marine Inquiry." (Rollo, P. 37, Annex A, p. 7)
The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled
"Marine Investigation and Suspension and Revocation Proceedings" prescribes the Rules governing
maritime casualties or accidents, the rules and Procedures in administrative investigation of all
maritime cases within the jurisdiction or cognizance of the Philippine Coast Guard and the grounds
for suspension and revocation of licenses/certificates of marine officers and seamen (1601 —
SCOPE); clearly, limiting the jurisdiction of the Board of Marine Inquiry and Special Board of Marine
Inquiry to the administrative aspect of marine casualties in so far as it involves the shipowners and
officers.
PREMISES CONSIDERED, the appealed decision is AFFIRMED.
SO ORDERED.

G.R. No. L-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,
vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court
of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant
Philippine Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of a
fire which gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the
appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following
cargoes, to wit:
Clara Uy Bico —
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando —
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were
discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about
2:00 in the afternoon of the same day, said warehouse was razed by a fire of unknown origin,
destroying appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take delivery
of 907 cavans of rice 2 Appellees' claims for the value of said goods were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of
which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the
aggregate sum of P1,070.50 with legal interest thereon from the date of the filing of the complaint
until fully paid, and to pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate
sum of P16,625.00 with legal interest thereon from the date of the filing of the complaint until fully
paid, and to pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary
diligence from the moment the goods are unconditionally placed in their possession "until the same
are delivered, actually or constructively, by the carrier to the consignee or to the person who has a
right to receive them, without prejudice to the provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau
of Customs is not the delivery contemplated by Article 1736; and since the burning of the
warehouse occurred before actual or constructive delivery of the goods to the appellees, the loss is
chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the
parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to
the shipment by inserting therein the following stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk'
unless such loss or damage is due to negligence of carrier. Nor shall carrier be responsible for loss
or damage caused by force majeure, dangers or accidents of the sea or other waters; war; public
enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to law,
morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was printed in
fine letters on the back-of the bills of lading; and that they did not sign the same. This argument
overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29,
1979, 3 where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless
bound by the provisions thereof. 'Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation'. It is what is known as a contract of 'adhesion', in regards which it has been
said that contracts of adhesion wherein one party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent."
(Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan.
31, 1951, p. 49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic
principle of law written in Article 1174 of the Civil Code:
Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174
of the Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have
been foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck, violence of
robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a
legal sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the following
essential characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the
failure of the debtor to comply with his obligation, must be independent of the human will; (2) it
must be impossible to foresee the event which constitutes the 'caso fortuito', or if it can be foreseen,
it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor." In the case at bar, the
burning of the customs warehouse was an extraordinary event which happened independently of
the will of the appellant. The latter could not have foreseen the event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the performance
of its obligation. It appears that appellant had not only notified appellees of the arrival of their
shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand,
appellee Uy Bico had taken delivery of 907 cavans of rice before the burning of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the goods in the
Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with
their knowledge and consent. Since the warehouse belonged to and was maintained by the
government, it would be unfair to impute negligence to the appellant, the latter having no control
whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where
this Court held the defendant liable for damages arising from a fire caused by the negligence of the
defendant's employees while loading cases of gasoline and petroleon products. But unlike in the
said case, there is not a shred of proof in the present case that the cause of the fire that broke out in
the Custom's warehouse was in any way attributable to the negligence of the appellant or its
employees. Under the circumstances, the appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.

G.R. No. 110581 September 21, 1994

TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner,
vs.
THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO., INC.,
respondents.
Juan, Luces, Luna and Associates for petitioner.
Bito, Lozada, Ortega & Castillo for private respondents.

MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514,
affirming with modification the decision of the Regional Trial Court in a case for specific
performance brought by petitioner.
Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing
business in the Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a
member of the Far East Conference, the body which fixes rates by agreement of its member-
shipowners. The conference is registered with the U.S. Federal Maritime Commission. 2
On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-
Line for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The
shipment was consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of
affreightment was embodied in Bill of Lading No. 602 issued by the carrier to the shipper. The
expenses of loading and unloading were for the account of the consignee.
The shipment was packed in 12 container vans and loaded on board the carrier's vessel, SS
Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten
container vans were loaded on the SS Far East Friendship, while two were loaded on the SS
Hangang Glory.
Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the
bill of lading, consular invoice and packing list, as well as notice of the estimated time of arrival of
the cargo.
On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular
advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels,
petitioner was notified in writing of the ship's arrival, together with information that container
demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot
per day after the 5th day would be charged unless the consignee took delivery of the cargo within
ten days.
On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived
and was discharged of its contents the next day. On the same day the shipping agent Smith, Bell &
Co. released the Delivery Permit for twelve (12) containers to the broker upon payment of freight
charges on the bill of lading.
The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the
shipping documents to the Customs Marine Division of the Bureau of Customs. But the latter
refused to act on them because the manifest of the SS Far East Friendship covered only 10
containers, whereas the bill of lading covered 12 containers.
The broker, therefore, sent back the manifest to the shipping agent with the request that the
manifest be amended. Smith, Bell & Co. refused on the ground that an amendment, as requested,
would violate §1005 of the Tariff and Customs Code relating to unmanifested cargo. Later, however,
it agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to
complete the shipment of twelve containers under the bill of lading."
On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an
employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release
on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been
delayed by the error in the manifest.
On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private
respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for
removing the containers from the container yard had expired on June 26, 1979, in the case of the SS
Far East Friendship, and on July 9, in the case of the SS Hangang Glory, 3 and that demurrage
charges had begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East
Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the SS Hangang
Glory.
On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the
containers, but it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release
of two containers and on
July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because
of the breakdown of the arrastre's equipment at the container yard.
This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In
addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith, Bell & Co.,
requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the
goods was due to the alleged late arrival of the shipping documents, the delay caused by the
amendment of the manifest, and the fact that two of the containers arrived separately from the
other ten containers.
On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July
14-19, 1979 to secure the release of its cargo, but still petitioner was unable to get any cargo from
the remaining nine container vans. It was only the next day, July 20, 1979, that it was able to have
two more containers released from the container yard, bringing to five the total number of
containers whose contents had been delivered to it.
Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was
agreement for their payment in the bill of lading and that the delay in the release of the cargo was
not due to its fault but to the breakdown of the equipment at the container yard. In all, petitioner
had paid demurrage charges from June 27 to July 19, 1979, in the total amount of P67,840.00,
computed as follows:
A. Container demurrage paid on July 13, 1979
1. Far East Friendship (Exh. H-1) June 27 — July 13 (17 days)
1st 5 days @ P4/day/foot
5 days x P40 ft. x 10 ctrns. P 8,000.00
Next 12 days @ P8/day/foot
12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00
—————
P 46,400.00
2. Hangang Glory (Exh. H) July 10 — July 13 (4 days)
1st 4 days:
4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00
—————
TOTAL PAID ON JULY 13 P 47,680.00
(Exh. H-2)
B. Container demurrage paid on July 19, 1979
1. Far East Friendship
a. on 2 containers released July 16
3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00
(Exh. L-2)
b. on 1 container released July 17
4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00
(Exh. L-3)
c. remaining 7 containers as of July 19
6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00
(Exh. L-1)
2. Hangang Glory
a. 5th day (July 14)
1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00
b. July 15-19:
5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00
(Exh. L)
—————
TOTAL P 20,160.00
(Exh. L-4)
—————
OVERALL TOTAL P 67,840.00
=========
On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but
private respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not
modify the rules or authorize refunds of the stipulated tariffs.
Petitioner, therefore, filed this suit in the RTC for specific performance to compel private
respondent carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans
consigned to it free of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees
and other expenses of litigation. Petitioner also asked for the issuance of a writ of preliminary
injunction to restrain private respondents from charging additional demurrage.
In their amended answer, private respondents claimed that collection of container charges was
authorized by §§ 2, 23 and 29 of the bill of lading and that they were not free to waive these charges
because under the United States Shipping Act of 1916 it was unlawful for any common carrier
engaged in transportation involving the foreign commerce of the United States to charge or collect a
greater or lesser compensation that the rates and charges specified in its tariffs on file with the
Federal Maritime Commission.
Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far
East Conference rules and that the publication of the notice of reimposition of container demurrage
charges published in the shipping section of the Bulletin Today and Businessday newspapers from
February 19 — February 25, 1979 was binding upon petitioner. They contended further that the
collection of container demurrage was an international practice which is widely accepted in ports
all over the world and that it was in conformity with Republic Act No. 1407, otherwise known as the
Philippine Overseas Shipping Act of 1955.
Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container
vans were released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's
complaint. It cited the bill of lading which provided:
23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for all freight,
dead freight, demurrage, damages, loss, charges, expenses and any other sums whatsoever payable
or chargeable to or for the account of the Merchant under this bill of lading . . . .
It likewise invoked clause 29 of the bill of lading which provided:
29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering intermodal
transportation on file with the Federal Maritime Commission and the Interstate Commission or any
other regulatory body which governs a portion of the carriage of goods, are incorporated herein.
Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to
above, provides:
(D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines.
Note: Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody
of the Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery
to the consignee.
xxx xxx xxx
Demurrage charges on Containers with CY Cargo.
1. Free time will commence at 8:00 a.m. on the first working calendar day following completion of
discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the tenth working calendar day,
excluding Saturdays, Sundays and holidays.
Work stoppage at a terminal due to labor dispute or other force majeure as defined by the
conference preventing delivery of cargo or containers shall be excluded from the calculation of the
free time for the period of the work stoppage.
2. Demurrage charges are incurred before the container leaves the carrier's designated CY, and
shall be applicable on the container commencing the next working calendar day following
expiration of the allowable free time until the consignee has taken delivery of the container or has
fully striped the container of its contents in the carrier's designated CY.
Demurrage charges shall be assessed hereunder:
Ordinary containers — P4.00 per linear foot of the container per day for the first five days; P8.00
per linear foot of the container per day, thereafter.
The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner
was liable for demurrage charges. It rejected petitioner's claim of force majeure. It held:
This Court cannot also accord faith and credit on the plaintiff's claim that the delay in the delivery
of the containers was caused by the breaking down of the equipment of the arrastre operator. Such
claim was not supported with competent evidence. Let us assume the fact that the arrastre
operator's equipment broke down still plaintiff has to pay the corresponding demurrage charges.
The possibility that the equipment would break down was not only foreseeable, but actually,
foreseen, and was not caso fortuito. 4
The RTC, therefore, ordered:
WHEREFORE, finding the preponderance of evidence in favor of the defendants and against the
plaintiff, judgment is hereby rendered dismissing the complaint with costs against it. Plaintiff is
hereby ordered to pay defendants the sum of P36,480.00 representing demurrage charges for the
detention of the seven (7) forty-footer container vans from July 20 to August 7, 1979, with legal
interest commencing on August 7, 1979 until fully paid. And plaintiff has to pay the sum of
P10,000.00, by way of attorney's fees.
SO ORDERED.
On appeal, the case was affirmed with modification by the Court of Appeals as follows:
WHEREFORE, modified as indicated above deleting the award of attorney's fees, the decision
appealed from is hereby AFFIRMED in all other respects.
Costs against plaintiff-appellant.
SO ORDERED. 5
Hence, this petition for review in which it is contended:
1 that no demurrage lies in the absence of any showing that the vessels had been improperly
detained or that loss or damage had been incurred as a consequence of improper detention;
2 that respondent Court's finding that private respondent Smith Bell had promptly and on the same
day amended the defective manifest is contrary to the evidence of record.
3 that respondent Court manifestly over-looked undisputed evidence presented by petitioner
showing that the breakdown in the facilities and equipment of the arrastre operator further
delayed petitioner's withdrawal of the cargo. 6
Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the
demurrage charges paid by it, with interest, as well as to pay attorney's fees and expenses of
litigation.
Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for
delay in removing its cargo from the containers but only for the period July 3 to 13, 1979 with
respect to ten containers and from July 10 to July 13, 1979, in respect of two other containers.
First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of
lading does not provide for the payment of container demurrage, as Clause 23 of the bill of lading
only says "demurrage," i.e., damages for the detention of vessels, and here there is no detention of
vessels. Petitioner invokes the ruling in Magellan Manufacturing Marketing Corp. v. Court of
Appeals 7, where we defined "demurrage" as follows:
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in [its
broader sense, damages in the] nature of demurrage are recoverable for a breach of the implied
obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping contract.
Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in
clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule
21 of the Far East Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for
the payment by the consignee of demurrage for the detention of containers and other equipment
after the so-called "free time."
Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee. What we said in one case mutatis mutandis
applies to this case:
A bill of lading operates both as a receipt and a contract . . . As a contract, it names the contracting
parties which include the consignee, fixes the route, destination, freight rate or charges, and
stipulates the right and obligations assumed by the parties . . . . By receiving the bill of lading, Davao
Parts and Services, Inc. assented to the terms of the consignment contained therein, and became
bound thereby, so far as the conditions named are reasonable in the eyes of the law. Since neither
appellant nor appellee alleges that any provision therein is contrary to law, morals, good customs,
public policy or public order — and indeed we found none — the validity of the Bill of Lading must
be sustained and the provisions therein properly applies to resolve the conflict between the parties.
8
As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far
East Conference and the Federal Maritime Commission is in accordance with Republic Act No. 1407,
§1 of which declares that the Philippines, in common with other maritime nations, recognizes the
international character of shipping in foreign trade and existing international practices in maritime
transportation and that it is part of the national policy to cooperate with other friendly nations in
the maintenance and improvement of such practices.
Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a
contract of adhesion, whose terms as set forth at the back are in small prints and are hardly
readable, is without merit. As we held in Servando v. Philippine Steam Navigation: 9
While it may be true that petitioner had not signed the plane ticket (Exh. 12), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation". It is what is known as a contract of "adhesion," in regards to which it has
been said that contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
(Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice JBL Reyes, Lawyer's Journal, Jan.
31, 1951, p. 49).
Second. With respect to the period of petitioner's liability, private respondent's position is that the
"free time" expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to
10 containers which were unloaded from the SS Far East Friendship, while with respect to the 2
containers which were unloaded from the SS Hangang Glory, the free time expired on July 9, 1979
and demurrage began to run on July 10, 1979.
This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27,
1979 on the 10 containers which arrived on the SS Far East Friendship because the delay in
obtaining release of the goods was not due to its fault. The evidence shows that because the
manifest issued by the respondent K-Line, through the Smith, Bell & Co., stated only 10 containers,
whereas the bill of lading also issued by the K-Line showed there were 12 containers, the Bureau of
Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker, the IBC,
had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not
immediately do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the
manifest, but it refused to do so on the ground that this would violate the law. It was only on June
29, 1979 that it thought of adding instead a footnote to indicate that two other container vans — to
account for a total of 12 container vans consigned to petitioner — had been loaded on the other
vessel
SS Hangang Glory.
It is not true that the necessary correction was made on June 22, 1979, the same day the manifest
was presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to
support the appellate court's finding that the footnote, explaining the apparent discrepancy
between the bill of lading and the manifest, was added on June 22, 1979 but that petitioner's
representative did not return to pick up the manifest until June 29, 1979. To the contrary, it is
more probable to believe the petitioner's claim that the manifest was corrected only on June 29,
1979 (by which time the "free time" had already expired), because Smith, Bell & Co. did not
immediately know what to do as it insisted it could not amend the manifest and only thought of
adding a footnote on June 29, 1979 upon the suggestion of the IBC.
Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the
Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was
approved. It was, therefore, only from this date (July 3, 1979) that petitioner could have claimed its
cargo and charged for any delay in removing its cargo from the containers. With respect to the
other two containers which arrived on the SS Hangang Glory, demurrage was properly considered
to have accrued on July 10, 1979 since the "free time" expired on July 9.
The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13,
1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the
container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be
blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust
to charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to
the fault of the petitioner.
Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage
charges due on July 13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it
was only because respondents would not release the goods. Even then petitioner was able to obtain
the release of cargo from five container vans. Its trucks were unable to load anymore cargo and
returned to petitioner's premises empty.
In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979
and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the
amount of P28,480.00 computed as follows;
A. 10 containers ex Far East Friendship (July 3-13, 1979)
1. 1st 5 days @ P4.00/day/foot
5 days x P4 x 40 ft. x 10 ctnrs. P 8,000
2. Next 6 days @ P8.00/day/foot
6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200
————
B. 2 containers ex Hangang Glory (July 10-13, 1979)
1st 4 days @ P4.00/day/foot
4 days x P4 x 40 ft. x 10 cntrs. P 1,280
————
TOTAL DEMURRAGE DUE P 28,480
=======
LESS: TOTAL PAID (P 67,840)
OVERPAYMENT (P 39,360)
As shown above there is an overpayment of P39,360.00 which should be refunded to petitioner.
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED, ORDERING
the private respondents to pay to petitioner the sum of P39,360.00 by way of refund, with legal
interest.
SO ORDERED.

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

HOME INSURANCE COMPANY, plaintiff-appellee,
vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1
and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home
Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 — the
insurance value of the loss, as full settlement of the claim. Having been refused reimbursement by
both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of
First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's
fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the
goods and that as a mere forwarding agent, it was not responsible for losses or damages to the
cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in
the same condition and quality, and ordered American Steamship Agencies to pay plaintiff
P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract is not
tenable because Article 587 of the Code of Commerce makes the ship agent also civilly liable for
damages in favor of third persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public
policy under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or
negligent under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they
cannot by contract exempt themselves from liability resulting from their negligence or that of their
servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at the
place of destination, the carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that
the bills of lading shall be governed by and subject to the terms and conditions of the charter party,
if any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter
party dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-versa,5
loading, stowing and discharging at its risk and expense.6 Accordingly, the charter party contract is
one of affreightment over the whole vessel rather than a demise. As such, the liability of the
shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article
587 of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of
the Civil Code under which a stipulation between the common carrier and the shipper or owner
limiting the liability of the former for loss or destruction of the goods to a degree less than
extraordinary diligence is valid provided it be reasonable, just and not contrary to public policy.
The release from liability in this case was held unreasonable and contrary to the public policy on
common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy,9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void
only if the strict public policy governing common carriers is applied. Such policy has no force where
the public at large is not involved, as in the case of a ship totally chartered for the use of a single
party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not
a contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.

G.R. No. L-105190 December 16, 1993

BA FINANCE CORPORATION, Petitioner, vs. HONORABLE COURT OF APPEALS, RUPERTO TORRES,
ET AL., Respondents.
Agbayani, Leal, Ebarle & Venturanza for petitioner.
Jose Dario Magno for Ruperto Torres, Jr.
VITUG, J.:
The instant petition for certiorari seeks a review of the decision of the Court of Appeals in CA-G.R.
No. 23507-CV entitled, "BA Finance Corporation vs. Ruperto Torres, Jr., et al.," affirming that of the
Regional Trial Court of Manila, Branch 53, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing plaintiff's complaint and ordering the
plaintiff to pay to the defendant the said amount of P1,649.31 with interest thereon at the legal rate
from the date of the filing of defendant's answer until the same is fully paid, attorney's fees in the
amount of P5,000.00 plus the costs of suit.
SO ORDERED.
The facts, found by the trial court, not being in dispute, are hereunder quoted, viz:
From the admissions in the pleadings of the parties, and the evidence, testimonial and
documentary, adduced by them during the trial, it has been established that on June 20, 1977, the
defendant entered into a purported contract of lease (Exh. A; Exh. 1) with the plaintiff, wherein the
latter purportedly leased to the former one (1) unit motor vehicle; Make-Holden Premier; Type-4
DR. Sedan; Model 1975; Motor No. 19S-1172902; Serial No. 8 H69YFF-200875P, for a purported
monthly rental of P1,689.48, payable in advance on the 20th day of each month, commencing on
June 20, 1987, without the necessity of any previous demand or notice; that rentals in arrears shall
bear interest at the rate of 14% per annum; that upon the signing of said contract, the defendant
gave the plaintiff a guaranty deposit of P20,800.00 to serve, among others, as security for the
prompt and faithful performance of his obligation (par. 2 complaint; par. 2, Answer); that the
defendant defaulted in complying with the terms and conditions of their agreement by failing to pay
several monthly installments stipulated therein (par. 3, Complaint; par. 3, Answer); that because of
such failure of the defendant to pay the said monthly installments, the plaintiff sent a letter of
demand to the defendant, dated May 25, 1978, inviting his attention to his outstanding balance of
P6,889.64 including interest thereon, as of May 25, 1978, with warning that plaintiff would be filing
the complaint against him on May 30, 1978 if by that time his account still remains unpaid or the
personal property involved is not returned to plaintiff in substantially the same condition as when
he received it (Exh. C); that, subsequently, another similar letter of demand was sent to the
defendant who received it on January 1, 1979, for payment of his outstanding balance of
P34,415.09, including interest thereon as of January 2, 1979 (Exh. C-1); that, an earlier written
letter of demand, dated April 3, 1978, was also sent to and received by, the latter, inviting his failure
to pay his monthly installments for February and March, 1978, for which reason the plaintiff was
canceling their contract, making a final demand for the payment of P3,448.02 representing arrears
in installment payments plus interest, and the return of said automobile not later that April 5, 1978
(Exhs. D, D-1-a); that a similar letter of demand and notice of cancellation of the contract for
defendant's failure to pay his monthly installments for December 1978, and January, 1979, was also
earlier served on, and received by defendant on February 28, 1978 (Exhs. D-1, D-1-b); that
defendant failed to pay various installments on the date the same were due and demandable,
compelling the plaintiff to file this case against him. 2chanrobles virtual law library
On the basis of the above findings, the trial court ruled in favor of herein private respondent,
prompting the petitioner to elevate the case to the Court of Appeals. The respondent appellate
court, on 28 April 1992, affirmed the assailed decision of the trial court. Still feeling aggrieved, the
petitioner brought the matter to us to review.chanroblesvirtualawlibrarychanrobles virtual law
library
The transaction involved in the present case admittedly is one of a "financial leasing," where a
financing company would, in effect, initially purchase a mobile equipment and turn around to lease
it to a client who gets, in addition, an option to purchase the property at the expiry of the lease
period. A financial lease is a species of secured financing which is fairly new. It is considered a
legitimate contract, and it has been accorded statutory and administrative recognition." 3Section 1,
paragraph 1, of the Revised Rules and Regulations, implementing the provisions of the Financing
Company Act, as amended (infra), adopted jointly by the Securities and Exchange Commission and
the Monetary Board of the Central Bank of the Philippines (now the Central Monetary Authority),
defines leasing, as follows:
"LEASING" shall refer to financial leasing which is a mode of extending credit through a non-
cancelable contract under which the lessor purchases or acquires at the instance of the lesser heavy
equipment, motor vehicles, industrial machinery, appliance, business and office machines, and
other movable property in consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least 70% of the purchase price or acquisition cost, including any
incidental expenses and a margin or profit, over the lease period. The contract shall extend over an
obligatory period during which the lesser has the right to hold and use the leased property and
shall bear the cost of repairs, maintenance, insurance and preservation thereof but with no
obligation or option on the part of the lessee to purchase the leased property at the end of the lease
contract.
The pertinent provisions of Republic Act 5980, thus implemented, read:
"Financing companies," hereinafter called companies, are corporations, or partnerships, except
those regulated by the Central Bank of the Philippines, the Insurance Commissioner and the
Cooperatives Administration Office, which are primarily organized for the purpose of extending
credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by
discounting or factoring commercial papers or accounts receivables, or by buying and selling
contracts, leases, chattel mortgages, or other evidences of indebtness, or by leasing of motor
vehicles, heavy equipment and industrial machinery, business and office machines and equipment,
appliances and other movable property. 4
"Credit" shall mean any loan, mortgage, deed of trust, advance, or discount; any conditional sales
contract, or sale or contract of sale of property or service, either for present or future delivery
under which part or all of the price is payable subsequent to the making of such sale or contract;
any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money,
any purchase, or other acquisition of or any credit upon the security of, any obligation or claim
arising out of the foregoing; and any transaction or series of transactions having a similar purpose
or effect; 5chanrobles virtual law library
The foregoing provisions indicate no less than a mere financing scheme extended by a financing
company to a client in acquiring a motor vehicle and allowing the latter to obtain the immediate
possession and use thereof pending full payment of the financial accommodation that is
given.chanroblesvirtualawlibrarychanrobles virtual law library
In the case at bench, the contract was executed over a motor vehicle, with the petitioner, as lessor,
and the private respondent, as lessee. The term of the contract was for thirty-six (36) months at a
"monthly rental" of one thousand six hundred eighty nine pesos and forty centavos (P1,689.40), or
for a total amount of P60,821.28. The contract also contained the following clause:
5. GUARANTY DEPOSIT. Upon the signing of this Contract the LESSEE shall give to the LESSOR a
guaranty deposit in the amount of twenty thousand eight hundred pesos (P20,800.00) to serve as
security for the prompt and faithful performance of the obligations of the LESSEE. The deposit shall
be refunded to the LESSEE upon the satisfactory termination of the Contract and shall not be
applied to the rentals that may be due during the entire period of this contract. 6chanrobles virtual
law library
After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of
P20,800.00, he stopped further payments. Putting the two sums together, the financing company
had in its hands the amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or an
excess of P1,649.31.chanroblesvirtualawlibrarychanrobles virtual law library
The respondent appellate court considered it only just and equitable for the guaranty deposit made
by the private respondent to be applied in his arrearages and thereafter to hold the contract
terminated. Adopting the ratiocination of the court a quo, the appellate court said:
It appears, however, from the defendant's evidence that out of the beginning balance of P60,821.28
(see Exh. b; Exhs. 2, 2-a), he had already paid as of July 8, 1979, by way of installment payments, the
total amount of P41,670.59, starting with the amount of P1, 689.48 which was paid upon the
execution and signing of said contract on June 20, 1977
(Exh. 1; Exh. 1); and subsequent payments in various amounts, as evidenced by several checks
and/or receipts to wit: Exh. 3-b for P1,664.48; Exh. 3-c for P1,664.48; Exhs. 3-d and 3-e for
P1,689.48; Exh. 3-f for P1,700.00; Exhs. 3-g and 3-h for P1,200.00; Exhs. 3-j and 3-k for P1,500.00;
Exh. 3-l for P7,120.00; Exh. 3-m for P1,400.00; Exh. 3-n for P3,000.00; Exh. 3-o and 3-p for
P2,000.00; Exhs. 3-q and 3-r for P1,200.00; Exhs. 3-s and 3-t for P2,000.00; Exh. 3-u and 3-v for
P2,500.00; Exhs. 3-w and 3-x for P5,000.00; Exh. 3-z for P1,500.00 and Exh. 3-aa for P1,500 (See
also Exh. 3-y); and the additional amounts of P1,689.40, admitted by the plaintiff to have been paid
on October 3, 1977, and P,653.27, admitted by the plaintiff to have been paid on December 15, 1977
(Exh. B; Exh. a); leaving a balance of P19,150.69. (See also the testimony of Ruperto P. Torres, Jr.,
July 19, 1983)chanrobles virtual law library
It further appears that at the time of the execution of the contract on June 20, 1977, the defendant
also delivered to the plaintiff a guaranty deposit of P20,800.00 "to serve as security for the prompt
and faithful performance of the obligations of the LESSEE. The deposit shall be refunded to the
LESSEE upon the satisfactory termination of the Contract and shall not be applied to the rentals
that may be due during the entire period of the contract. The LESSOR'S determination of the
LESSEE'S liability or liabilities to be charged against said deposit upon the expiration of the period
of this Contract shall be final and conclusive for all legal intents and purposes. So far, the plaintiff
has not proven during the trial "the LESSEE'S liability or liabilities to be charged against said
deposit" which did not even bear any interest. In fact, plaintiff's sole witness Pedro M. Fabien, Jr.,
was not even sure of the meaning and scope of the term "guaranty deposit" (Testimony on cross-
examination, June 16, 1983). In view thereof, the guaranty deposit of P20,800 made by the
defendant should and must be credited in his favor, in the interest of fairness, justice, and equity.
The plaintiff should not be allowed to unduly enrich itself at the expense of the defendant. (See also
Article 19 and 22, New Civil Code). This is even more compelling in this case where although the
transaction, on its face, appear ostensibly, to be a contract of lease, it is actually a financing
agreement, with the plaintiff financing the purchase of defendant's automobile from the Automart
Corporation. The Court is constrained, in the interest of truth and justice, to go into this aspect of
the transaction between the plaintiff and the defendant in view of the delivery receipt, dated
November 4, 1975, presented in evidence by the plaintiff in support of its complaint as its Exhibit
"E", the probative value of which has been submitted for the court's determination, together with
all the facts and circumstances existing in this case, and which the court must consider in deciding
the case, if it is to decide the case according to all the facts. For justice can be only truly
administered if it is based on the truth. It is the Court's perception that the plaintiff purchased the
automobile involved herein for the sum of P54,000.00 from the Automart Corporation which
delivered the same to him on November 4, 1975 (Exh. E). On June 20, 1977, the plaintiff and the
defendant signed the purported contract of lease, using the printed financing form of the plaintiff,
but which transaction, according to the existing facts and circumstances, was, actually, a financing
scheme, with the plaintiff as the financier, advancing the payment of defendant's automobile,
whereby the defendant on his part, agreed to pay to the plaintiff a monthly installment of
P1,689.48, the same to commence "from the date of delivery of the Equipment to the LESSEE" up to
the 36th month from said delivery, which delivery of said car by the plaintiff to the defendant,
purportedly took place on June 20, 1977, for purposes of the financing scheme for agreement, even
as it appears from plaintiff's Exhibit "E" that the automobile involved herein was actually already
delivered by Automart Corporation to the defendant who acknowledged receipt thereof way back
on November 4, 1975.chanroblesvirtualawlibrarychanrobles virtual law library
Considering that out of the said beginning balance of P60,821.28, the defendant had already paid to
the plaintiff, in installments, the total amount of P41,670.59 as of July 8, 1979, which amount, if
added to the aforementioned guaranty deposit of P20,800.00 made by the defendant at the
inception of the contract on June 20, 1977, would make a total payment of P62,470.59, it would
appear that there is even an overpayment of P1,649.31 made by the defendant, which the plaintiff
should refund to him. 7chanrobles virtual law library
Considering the factual findings of both the court a quo and the appellate court, the only logical
conclusion is that the private respondent did opt, as he has claimed, to acquire the motor vehicle,
justifying then the application of the guarantee deposit to the balance still due and obligating the
petitioner to recognize it as an exercise of the option by the private respondent. The result would
thereby entitle said respondent to the ownership and possession of the vehicle as the buyer thereof.
We, therefore, see no reversible error in the ultimate judgment of the appellate
court.chanroblesvirtualawlibrarychanrobles virtual law library
The award, however, of attorney's fees in favor of herein private respondent has no legal basis. The
record shows that petitioner sent several demands upon the private respondent to pay the rentals
in arrears but the latter did not even bother to reply thereto, compelling the petitioner to file the
complaint against private respondent. Clearly, the action was filed in good faith and gives no reason
for an award of attorney's fees.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the decision appealed from is AFFIRMED WITH MODIFICATION by deleting
therefrom the award for attorney's fees. No costs.chanroblesvirtualawlibrarychanrobles virtual law
library
SO ORDERED.

[G.R. No. 125290. August 9, 2000.]

MARIO BASCO y SALAO, Petitioner, v. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
Respondents.

RESOLUTION

KAPUNAN, J.:
This petition for review on certiorari
Resolutions dated 29 September 1995
petition for relief from judgment under
reconsideration filed therein for
before us seeks the reversal of the Court of Appeals’
and 7 June 1996, which respectively denied petitioner’s
Rule 38 of the Revised Rules of Court and the motion for
lack of merit.chanrob1es virtua1 1aw 1ibrary

The antecedents leading to the present controversy are as follows:chanrob1es virtual 1aw library
On 24 August 1992, petitioner was charged with Qualified Illegal Possession of Firearm and Illegal
Possession of Firearm before the Regional Trial Court of Manila (Branch XLI) under the following
informations:chanrob1es virtual 1aw library

INFORMATION

The undersigned accuses MARIO BASCO y SALAO of the crime of Qualified Illegal Possession of
Firearm, committed as follows:chanrob1es virtual 1aw library

That on or about May 3, 1992, in the City of Manila, Philippines, the said accused, not being allowed
or authorized by law to keep, possess and carry a firearm, did then and there willfully, unlawfully
and knowingly have in his possession, control and custody a firearm, to wit:chanrob1es virtual 1aw
library

one (1) cal. .38 revolver, Squire Bingham bearing Serial No. 183110 loaded with one (1) live
ammunition and five (5) spent shells

without first obtaining the necessary license and/or permit to carry and possess the same and in
connection and by reason of such possession, did then and there willfully, unlawfully and
feloniously, with intent to kill, fire and shoot one Rolando Buenaventura y Manuel, thus inflicting
upon the latter mortal gunshot wounds and injuries which caused the death of the latter as a
consequence.

Contrary to law. 1

INFORMATION

The undersigned accuses MARIO BASCO y SALAO of violation of Section 261(q), B.P. 881 in relation
to Section 31, RA 7166, committed as follows:chanrob1es virtual 1aw library

That on or about May 3, 1992, in the City of Manila, Philippines, the said accused, did then and there
wilfully, unlawfully and knowingly have in his possession and under his custody and control a cal. .
38 revolver "Squire Bingham" bearing Serial Number 183110 by then and there carrying the same
along Cabangis Street, Tondo, this City, which is a public place on the aforesaid date which is
covered by an Election period, without first securing the written authority from the COMELEC, as
provided for by Section 261(q), B.P. 881 in relation to Section 31, RA 7166.chanrob1es virtua1 1aw
1ibrary

Contrary to law. 2

On 9 September 1992, upon arraignment, petitioner pleaded not guilty and the trial on the merits
ensued.

On 15 March 1993, the trial court rendered its decision finding petitioner guilty as charged and
sentenced him as follows:chanrob1es virtual 1aw library
WHEREFORE, judgment is hereby rendered as follows:chanrob1es virtual 1aw library

1. In Criminal Case No. 92-109511, finding the accused MARIO BASCO y SALAO guilty beyond
reasonable doubt for the crime of Illegal Possession of Firearm which he used to kill Rolando
Buenaventura, Sr. alias Olay and hereby sentences him to suffer the penalty of Reclusion Perpetua.
With costs against the accused.

2. In Criminal Case No. 92-109512, finding the accused MARIO BASCO Y SALAO guilty beyond
reasonable doubt for the violation of Section 261 (q) of Batas Pambansa Blg. 881, in relation to
Section 5 of Republic Act No. 7166 and hereby sentences the accused to suffer an indeterminate
sentence ranging from one (1) year as minimum to three (3) years as maximum. Costs against the
accused.

SO ORDERED. 3

Petitioner received a copy of the trial court’s decision on 22 March 1993. Thereafter, on 6 April
1993, petitioner’s counsel filed a Motion for Reconsideration of the said decision. However, in the
notice of hearing, petitioner’s counsel failed to indicate the date and time of the motion’s hearing as
explicitly required by Sections 4 and 5, Rule 15 of the Rules of Court.

When petitioner’s counsel realized his error, he submitted a Notification and Manifestation on 14
April 1993, which reads, thus:chanrob1es virtua1 1aw 1ibrary

NOTIFICATION AND MANIFESTATION

FISCAL ZENAIDA LAGUILLES

Trial Prosecutor

Manila

BRANCH CLERK OF COURT

Branch XLI

Manila

GREETINGS:chanrob1es virtual 1aw library

Accused intended to submit for this Court’s consideration and approval on Friday, 23 April 1993 at
8:30 in the morning the Motion for Reconsideration dated 5 April 1993. However, due to
inadvertence brought about by the need to rush the finalization of this motion, which has been
delayed by the spate of prolonged power outages, this setting was omitted.

Accused therefore serves notice that he is submitting the Motion for Reconsideration dated 5 April
1993 for this Court’s consideration and approval on Friday, 23 April 1993 at 8:30 a.m.

Makati, for Manila, 13 April 1993. 4

On 28 April 1993, the trial court issued the following order:chanrob1es virtual 1aw library

ORDER

The record shows that the judgment in this case was promulgated last March 22, 1993. In other
words, Accused had up to April 6, 1993 within which to perfect an appeal.

Last April 5, 1993, the accused through a new counsel filed a Motion for Reconsideration without
the notice required under Secs. 4 and 5 of Rule 15 of the Rules of Court.

Considering that a motion that does not contain a notice of hearing is but a mere scrap of paper, it
presents no question which merits the attention and consideration of the Court, it is not even a
motion for it does not comply with the rules and hence the Clerk has no right to receive it; the Court
did not act on the motion.chanrob1es virtua1 1aw 1ibrary

Last April 14, 1993, Accused through counsel filed with the Court a Notification and Manifestation
whereby it prayed that the Motion for Reconsideration be set for hearing today. Considering that
the motion above adverted did not suspend the running of the period to appeal; that the judgment
in this case has become final and executory, the Motion for Reconsideration and the Notification
and Manifestation filed by the accused are hereby denied.

SO ORDERED. 5

In response thereto, petitioner on 4 May 1993 filed a petition for relief from judgment with the
Regional Trial Court pursuant to Rule 38 of the Rules of Court. He contended that his inadvertence
was due to the perennial brownouts being experienced across the country during that time and
should, thus, be considered as a mistake or excusable negligence. Technical rules of procedure, he
further asserted, should not be applied strictly when to do so would result in manifest injustice. 6

On 12 July 1993, the trial court issued an order denying the petition for relief for lack of merit. Said
order is hereunder reproduced in part:chanrob1es virtual 1aw library

x x x

As can be readily seen, Accused had up to April 6, 1993 within which to file his Motion for
Reconsideration or Appeal.

While it is true that judgments or orders may be set aside due to fraud, accident, mistake, or
excusable negligence (Sec. 2, Rule 38), "a motion which does not meet the requirements of Sections
4 and 5 of Rule 15 of the Revised Rules of Court is a worthless piece of paper which the clerks have
no right to receive and the respondent court a quo has no authority to act upon." (Lucila B. Vda. de
Azarias, Petitioner, v. The Honorable Manolo L. Madela, Et Al., 38 SCRA 35.)chanrob1es virtua1 1aw
1ibrary

The failure or defect in the notice of hearing in said motion cannot be cured by subsequent action of
the court, for as held in Andrada, Et. Al. v. The Honorable Court of Appeals, Et Al., 60 SCRA 379, the
Supreme Court said:jgc:chanrobles.com.ph

"This Court has repeatedly made it clear not only that a notice addressed to the Clerk of Court
requesting him to ‘set the foregoing motion for the consideration and approval of this Honorable
Court immediately upon receipt hereof’ does not comply with the requirements of Section 5 of Rule
15 but also that subsequent action of the court thereon does not cure the flaw, for a motion with a
notice fatally defective is a ‘useless piece of paper." ‘

The notice of hearing in the motion for reconsideration addressed to the Branch Clerk of Court
states: "Please submit the foregoing Motion to the Honorable Court for its consideration and
approval immediately upon receipt hereof." The same is patently a defective and fatal notice.

The subsequent filing of the Notification and Manifestation that said Motion would be submitted for
consideration and approval on Friday, 23 April 1993 at 8:30 o’clock in the morning did not cure the
defect in the notice of hearing in the motion. As already stated, the last day for accused to file an
appeal was April 6, 1993. As of April 7, 1993, the period to file an appeal already lapsed so that,
curing the defective notice of hearing on April 14, 1993, granting that the subsequent notification
cured the defect, was no longer possible.

WHEREFORE, premises considered, finding the Petition for Relief from Order of 28 April 1993 to be
without merit, the same is hereby DENIED and let accused be committed to the Director of Prisons,
Muntinlupa, Metro-Manila.

SO ORDERED. 7

Petitioner appealed the aforequoted order to the Court of Appeals on 30 July 1993. On 29
September 1995, the Court of Appeals dismissed petitioner’s appeal on the ground of lack of
jurisdiction through the following resolution:chanrob1es virtua1 1aw 1ibrary

RESOLUTION

This "Appeal on Certiorari" purporting to be an appeal of a special action is actually an appeal from
the March 15, 1993 decision of Branch 41 of the Regional Trial Court of Manila convicting accused-
appellant, Mario Basco, in Criminal Cases Nos. 92-109511 and 92-109512, for Qualified Illegal
Possession of Firearms and Violation of Section 261 (9) of Batas Pambansa Blg. 881 in relation to
Section 31, and for violation of Republic Act 7166, respectively.

A perusal of the records of the case discloses that no special civil action was filed with the court a
quo that may be made the subject of this appeal. The only incidents submitted to it for resolution
were the Motion for Reconsideration of the March 15, 1993 decision and Petition for Relief from
Order which were both denied.

Since accused appellant was found guilty beyond reasonable doubt of the crimes charged and was
sentenced to suffer the penalty of reclusion perpetua in Criminal Case No. 92-109511, and
imprisonment of One (1) Year to Three (3) Years in Criminal Case No. 92-109512, his appeal falls
under the exclusive appellate jurisdiction of the Supreme Court (Article VIII, Section 5, par. 2[d],
Constitution).

We are thus constrained to dismiss this appeal on the ground of lack of jurisdiction.

We cannot certify the appeal to the High Tribunal as it is not a case contemplated by Section 13 of
Rule 124 of the Revised Rules of Court and to do so, would contravene the guidelines set forth in
Supreme Court Circular No. 2-90.

(d) No transfer of appeals erroneously taken — No transfers of appeals taken to the Supreme Court
or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction
will be allowed, continued ignorance of willful disregard of the law on appeals will not be tolerated.
(Paragraph [d], Sub-Head 4 of Circular No. 2-90),

which circular is based from the High Tribunal’s March 1, 1990 minute resolution in the case of
Anacleto Murillo v. Rodolfo Consul, (UDK-9748, 183 SCRA xi, xvii, xviii) where it emphatically
declared that:chanrob1es virtua1 1aw 1ibrary

There is no longer any justification for allowing transfers of erroneous appeals from one court to
another, much less for tolerating continued ignorance of the law on appeals. It thus behooves every
attorney seeking review and reversal of a judgment or order promulgated against his client, to
determine clearly the errors he believes may be ascribed to the judgment or order, whether of fact
or of law, then to ascertain which court properly has appellate jurisdiction; and finally, to observe
scrupulously the requisites for appeal prescribed by law, with keen awareness that any error or
imprecision in compliance therewith may well be fatal to his client’s cause.

WHEREFORE, the appeal is hereby DISMISSED.

SO ORDERED. 8

Petitioner’s motion for reconsideration was, likewise, denied by the Court of Appeals in its
resolution dated 7 June 1996. The Court of Appeals ruled, thus:chanrob1es virtual 1aw library

x x x
Accused-appellant moors his motion upon the ground that his appeal was not from the judgment of
conviction but rather from the court a quo’s order denying his petition for relief from judgment.

We find this argument to be untenable. A Petition for Relief from Judgment is an extraordinary
remedy.

Relief from judgment or order is premised on equity and it is granted only in exceptional
circumstances, as when a judgment or order is entered, or any other proceeding is taken through
fraud, accident, mistake or excusable negligence. (Director of Lands v. Rommaban, 131 SCRA 431,
437 [1984]).

Appellant has cited us to no ground to enable him to avail of this remedy. What is evident is that
accused-appellant resorted to this remedy only to retrieve his lost appeal.

WHEREFORE, the Motion for Reconsideration is hereby DENIED for lack of merit.chanrob1es
virtua1 1aw 1ibrary

SO ORDERED. 9

Hence, this petition for review on certiorari.

Petitioner raises three issues for the Court’s resolution:chanrob1es virtual 1aw library

A. WHETHER OR NOT THE PROSECUTION HAS PROVED THE GUILT OF THE PETITIONER BEYOND
REASONABLE DOUBT.

B. WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT PETITIONER’S APPEAL
FROM THE DENIAL OF HIS PETITION FOR RELIEF SHOULD HAVE BEEN LODGED WITH THIS
HONORABLE COURT.

C. WHETHER OR NOT THE PETITIONER HAS SUCCEEDED IN SHOWING HIS ENTITLEMENT TO

RELIEF. 10

The core issue in this case is whether or not petitioner’s plea for annulment of judgment under Rule
38 of the Rules of Court is meritorious.

At the outset, it bears stressing that the instant controversy does not concern an appeal from the
judgment of conviction itself. The Court of Appeals evidently erred in dismissing petitioner’s appeal
on the ground of lack of jurisdiction. It ruled that since petitioner was meted the sentence of
reclusion perpetua, his appeal falls under the Supreme Court’s exclusive appellate jurisdiction in
accordance with Article VIII, Section 5 (2)[d] of the 1987 Constitution of the Philippines." 11

The case brought to the Court of Appeals involved an appeal from the trial court’s denial of
petitioner’s petition for relief from judgment. When the Court of Appeals dismissed the appeal on
29 September 1995, the applicable provision was Section 2, Rule 41 of the Rules of Court 12
governing appeals from the Regional Trial Courts to the Court of Appeals. Said provision specifically
stated that:chanrob1es virtua1 1aw 1ibrary

SECTION 2. Judgments or orders subject to appeal. — . . .

A judgment denying relief under Rule 38 is subject to appeal, and in the course thereof, a party may
also assail the judgment on the merits, upon the ground that it is not supported by the evidence or
it is contrary to law.

In Service Specialists, Inc. v. Sheriff of Manila, 13 the Court confirmed that "a judgment or order
denying relief under Rule 38 is final and appealable, unlike an order granting such relief which is
interlocutory." Hence, jurisdiction then properly belonged to the Court of Appeals.

The issue of jurisdiction aside, the Court has emphasized that petition for relief from judgment is a
unique remedy in the sense that it is based on the principle of equity and constitutes the
petitioner’s final chance to prosecute or defend his cause. Being an act of grace, a petition for relief
from judgment is usually not regarded with favor and thus, is allowed only in exceptional cases
where there are no other adequate and available remedies. 14

The Court, in Samoso v. CA, 15 further elucidates:chanrob1es virtual 1aw library

Relief from judgment under Rule 38 of the Rules of Court is a remedy provided by law to any
person against whom a decision or order is entered into through fraud, accident, mistake or
excusable negligence. It is of equitable character, allowed only in exceptional cases as when there is
no other available or adequate remedy. When a party has another adequate remedy available to
him, which was either a motion for new trial or appeal from adverse decisions of the lower court,
and he was not prevented by fraud, accident, mistake or excusable negligence from filing such
motion or taking the appeal he cannot avail himself of the relief provided in Rule 38 (Rizal
Commercial Banking Corporation v. Lood, 110 SCRA 205 [1981]; Ibabao v. Intermediate Appellate
Court, 150 SCRA 76 [1987]).

Petitioner, however, implores the Court to be liberal in the application of technical rules of
procedure (which in this instance refer to the requisites of a prior notice of hearing) and cites a
plethora of cases 16 in support thereof. He reasons out that the defective notice of hearing in his
motion for reconsideration was due to the day-long brown-outs that plagued the metropolis and
which caused his counsel to have the above pleading prepared outside the law office. In view of this
peculiar circumstance, he submits that his counsel’s failure to specify the date and time for the
hearing of his motion for reconsideration should rightly be deemed excusable negligence.

Petitioner claims that whatever defect there was in his motion was cured by the notification and
manifestation which he filed even before the trial court issued its order denying the motion for
reconsideration for being a mere scrap of paper.

Finally, petitioner points that his conviction carries a prison term for life which, standing alone, is a
circumstance exceptional enough to allow him opportunity to challenge the judgment of conviction
against him for reasons of equity and substantial justice. 17
We are acutely aware of the judicial mandate that:chanrob1es virtual 1aw library

Rules of court prescribing the time within which certain acts must be done, or certain proceedings
taken, are absolutely indispensable to the prevention of needless delays and the orderly and speedy
discharge of judicial business. Strict compliance with such rules is mandatory and imperative. 18

With respect to notices of hearing of motions, this has been more often than not the Court’s guiding
principle. We have time and again given warning that a notice of hearing which does not comply
with the requirements of Sections 4, 5 and 6, Rule 15 of the Rules of Court, 19 is a worthless piece of
paper and would not merit any consideration from the courts. Recently, this rule was reiterated and
upheld in People of the Philippines v. CA, Et. Al. 20 Thus:chanrob1es virtual 1aw library

Under Section 4 of Rule 15 of the Rules of Court, the applicable law during the pendency of the case
before the trial court, every written motion must be set for hearing by the applicant and served
together with the notice of hearing thereof, in such a manner as to ensure receipt by the other party
at least three days before the date of hearing, unless the court, for good cause, sets the hearing on
shorter notice. Under Sections 5 and 6 thereof, the notice of hearing shall be addressed to the
parties concerned and shall specify the time and date of the hearing of the motion; no motion shall
be acted upon by the court without proof of service of the notice thereof, except when the court is
satisfied that the rights of the adverse party are not affected.chanrob1es virtua1 1aw 1ibrary

A motion without a notice of hearing is pro forma, a mere scrap of paper that does not toll the
period to appeal, and upon expiration of the 15-day period, the questioned order or decision
becomes final and executory. The rationale behind this rule is plain: unless the movant sets the time
and place of hearing, the court will be unable to determine whether the adverse party agrees or
objects to the motion, and if he objects, to hear him on his objection, since the rules themselves do
not fix any period within which he may file his reply or opposition.

A supplemental pleading subsequently filed to remedy the previous absence of notice will not cure
the defect nor interrupt the tolling of the prescribed period within which to appeal. In Cledera v.
Sarmiento, citing Manila Surety v. Bath, this Court ruled:chanrob1es virtual 1aw library

We are not impressed by the argument that the supplement filed by the appellants on May 30
should be deemed retroactive as of the date the motion for reconsideration was filed and, therefore,
cured the defect therein. To so consider it would be to put a premium on negligence and subject the
finality of judgments to the forgetfulness or whims of parties-litigants and their lawyers. This of
course would be intolerable in a well-ordered judicial system.

[A]ppellants were or should have been alerted to the fact that their motion for reconsideration of
May 12 did not interrupt the period for appeal when they received the court’s order of May 21,
1959, wherein it was stated that what appellants had filed was not even a motion and presented no
question which the court could decide.

Nonetheless, procedural rules were conceived to aid the attainment of justice. If a stringent
application of the rules would hinder rather than serve the demands of substantial justice, the
former must yield to the latter. Recognizing this, Section 2, Rule 1 of the Rules of Court specifically
provides that:chanrob1es virtua1 1aw 1ibrary

SECTION 2. Construction. — These rules shall be liberally construed in order to promote their
object and to assist the parties in obtaining just, speedy, and inexpensive determination of every
action and proceeding. (Emphasis ours.)

The liberal construction of the rules on notice of hearing is exemplified in Goldloop Properties, Inc.
v. CA: 21

Admittedly, the filing of respondent-spouses’ motion for reconsideration did not stop the running of
the period of appeal because of the absence of a notice of hearing required in Secs. 3, 4 and 5, Rule
15, of the Rules of Court. As we have repeatedly held, a motion that does not contain a notice of
hearing is a mere scrap of paper; it presents no question which merits the attention of the court.
Being a mere scrap of paper, the trial court had no alternative but to disregard it. Such being the
case, it was as if no motion for reconsideration was filed and, therefore, the reglementary period
within which respondent-spouses should have filed an appeal expired on 23 November 1989.

But, where a rigid application of that rule will result in a manifest failure or miscarriage of justice,
then the rule may be relaxed, especially if a party successfully shows that the alleged defect in the
questioned final and executory judgment is not apparent on its face or from the recitals contained
therein. Technicalities may thus be disregarded in order to resolve the case. After all, no party can
even claim a vested right in technicalities. Litigations should, as much as possible, be decided on the
merits and not on technicalities.

Hence, this Court should not easily allow a party to lose title and ownership over a party worth
P4,000,000.00 for a measly P650,000.00 without affording him ample opportunity to prove his
claim that the transaction entered into was not in fact an absolute sale but one of mortgage. Such
grave injustice must not be permitted to prevail on the anvil of technicalities.chanrob1es virtua1
1aw 1ibrary

Likewise, in Samoso v. CA, 22 the Court ruled:chanrob1es virtual 1aw library

But time and again, the Court has stressed that the rules of procedure are not to be applied in a very
strict and technical sense. The rules of procedure are used only to help secure not override
substantial justice (National Waterworks & Sewerage System v. Municipality of Libmanan, 97 SCRA
138 [1980]; Gregorio v. Court of Appeals, 72 SCRA 120 [1976]). The right to appeal should not be
lightly disregarded by a stringent application of rules of procedure especially where the appeal is
on its face meritorious and the interests of substantial justice would be served by permitting the
appeal (Siguenza v. Court of Appeals, 137 SCRA 570 [1985]; Pacific Asia Overseas Shipping
Corporation v. National Labor Relations Commission, Et Al., G.R. No. 76595, May 6, 1998). . . .

In the instant case, it is petitioner’s life and liberty that is at stake. The trial court has sentenced him
to suffer the penalty of reclusion perpetua and his conviction attained finality on the basis of mere
technicality. It is but just, therefore, that petitioner be given the opportunity to defend himself and
pursue his appeal. To do otherwise would be tantamount to grave injustice. A relaxation of the
procedural rules, considering the particular circumstances herein, is justified.
Considering that there is sufficient evidence before the Court to enable it to resolve the
fundamental issues, we will dispense with the regular procedure of remanding the case to the lower
court, in order to avoid further delays in the resolution of the case. 23

WHEREFORE, premises considered, the petition is given DUE COURSE. The 12 July 1993 Order of
the trial court denying the petition for relief from judgment and the Court of Appeals’ Resolution
dated 29 September 1995 and 7 June 1996 dismissing petitioner’s appeal from said 12 July 1993
Order are hereby REVERSED and SET ASIDE. Petitioner and the Solicitor General are required to
file with this Court their respective briefs in support of their positions within the period prescribed
in the rules.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

G.R. No. L-82619 September 15, 1993

PHILIPPINE AIRLINES, INC., Petitioner, vs. COURT OF APPEALS and PEDRO ZAPATOS,
Respondents.
Leighton R. Liazon for petitioner.chanrobles virtual law library
Balmes L. Ocampo for private respondent.
BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and set aside the decision of the then
Intermediate Appellant Court, 1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV No.
69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of first
Instance, now Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages for breach
of contract.chanroblesvirtualawlibrarychanrobles virtual law library
On 25 November 1976, private respondent filed a complaint for damages for breach of contract of
carriage 2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now
Regional Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, he
was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for
Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about
fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message that the
airport was closed due to heavy rains and inclement weather and that he should proceed to
Cotabato City instead.chanroblesvirtualawlibrarychanrobles virtual law library
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to
return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take
the next flight to Cebu the following day, or remain at Cotabato and take the next available flight to
Ozamiz City on 5 August 1975. 3 The Station Agent likewise informed them that Flight 560 bound
for Manila would make a stop-over at Cebu to bring some of the diverted passengers; that there
were only six (6) seats available as there were already confirmed passengers for Manila; and, that
the basis for priority would be the check-in sequence at Cebu. chanroblesvirtualawlibrarychanrobles virtual law library
Private respondent chose to return to Cebu but was not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in
the accommodation, but the Station Agent refused private respondent's demand explaining that the
latter's predicament was not due to PAL's own doing but to be a force majeure. 4chanrobles virtual law library
Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid
of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private respondent
a free ticket to Iligan city, which the latter received under protest. 5 Private respondent was left at
the airport and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. 6 PAL
neither provided private respondent with transportation from the airport to the city proper nor
food and accommodation for his stay in Cotabato City. chanroblesvirtualawlibrarychanrobles virtual law library
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL
personnel that he would not use the free ticket because he was filing a case against PAL. 7 In Iligan
City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching
Ozamiz City by crossing the bay in a launch. 8 His personal effects including the camera, which were
valued at P2,000.00 were no longer recovered.chanroblesvirtualawlibrarychanrobles virtual law library
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate
private respondent. 9 It alleged that there was simply no more seat for private respondent on Flight
560 since there were only six (6) seats available and the priority of accommodation on Flight 560
was based on the check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477
chose to take Flight 560; that its Station Agent explained in a courteous and polite manner to all
passengers the reason for PAL's inability to transport all of them back to Cebu; that the stranded
passengers agreed to avail of the options and had their respective tickets exchanged for their
onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that pieces
of checked-in baggage and had carried items of the Ozamiz City passengers were removed from the
aircraft; that the reason for their pilot's inability to land at Ozamis City airport was because the
runway was wet due to rains thus posing a threat to the safety of both passengers and aircraft; and,
that such reason of force majeure was a valid justification for the pilot to bypass Ozamiz City and
proceed directly to Cotabato City.chanroblesvirtualawlibrarychanrobles virtual law library
On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
Philippine AirLines, Inc. ordering the latter to pay: chanrobles virtual law library
(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's expenses
for transportation, food and accommodation during his stranded stay at Cotabato City; the sum of
Forty-Eight Pesos (P48.00) representing his flight fare from Cotabato City to Iligan city; the sum of
Five Hundred Pesos (P500.00) representing plaintiff's transportation expenses from Iligan City to
Ozamiz City; and the sum of Five Thousand Pesos (P5,000.00) as loss of business opportunities
during his stranded stay in Cotabato City;chanrobles virtual law library
(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt feelings,
serious anxiety, mental anguish and unkind and discourteous treatment perpetrated by defendant's
employees during his stay as stranded passenger in Cotabato City; chanrobles virtual law library
(3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a precedent to the
defendant airline that it shall provide means to give comfort and convenience to stranded
passengers;chanrobles virtual law library
(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees; chanrobles virtual law library
(5) To pay the costs of this suit.
PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error,
affirmed the judgment of the court a quo. 11chanrobles virtual law library
PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the
following issues: (1) Can the Court of Appeals render a decision finding petitioner (then defendant-
appellant in the court below) negligent and, consequently, liable for damages on a question of
substance which was neither raised on a question nor proved at the trial? (2) Can the Court of
Appeals award actual and moral damages contrary to the evidence and established jurisprudence?
13
chanrobles virtual law library

An assiduous examination of the records yields no valid reason for reversal of the judgment on
appeal; only a modification of its disposition. chanroblesvirtualawlibrarychanrobles virtual law library
In its petition, PAL vigorously maintains that private respondent's principal cause of action was its
alleged denial of private respondent's demand for priority over the confirmed passengers on Flight
560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to attend
to the needs of the diverted passengers; and, that the question of negligence was not and never put
in issue by the pleadings or proved at the trial.chanroblesvirtualawlibrarychanrobles virtual law library
Contrary to the above arguments, private respondent's amended complaint touched on PAL's
indifference and inattention to his predicament. The pertinent portion of the amended complaint 14
reads:
10. That by virtue of the refusal of the defendant through its agent in Cotabato to accommodate
(sic) and allow the plaintiff to take and board the plane back to Cebu, and by accomodating ( sic) and
allowing passengers from Cotabato for Cebu in his stead and place, thus forcing the plaintiff against
his will, to be left and stranded in Cotabato, exposed to the peril and danger of muslim rebels
plundering at the time, the plaintiff, as a consequence, (have) suffered mental anguish, mental
torture, social humiliation, bismirched reputation and wounded feeling, all amounting to a
conservative amount of thirty thousand (P30,000.00) Pesos.
To substantiate this aspect of apathy, private respondent testified 15
A I did not even notice that I was I think the last passenger or the last person out of the PAL
employees and army personnel that were left there. I did not notice that when I was already outside
of the building after our conversation. chanroblesvirtualawlibrarychanrobles virtual law library
Q What did you do next?chanrobles virtual law library
A I banished (sic) because it seems that there was a war not far from the airport. The sound of guns
and the soldiers were plenty.chanroblesvirtualawlibrarychanrobles virtual law library
Q After that what did you do?chanrobles virtual law library
A I tried to look for a transportation that could bring me down to the City of
Cotabato.chanroblesvirtualawlibrarychanrobles virtual law library
Q Were you able to go there?chanrobles virtual law library
A I was at about 7:00 o'clock in the evening more or less and it was a private jeep that I boarded. I
was even questioned why I and who am (sic) I then. Then I explained my side that I am (sic)
stranded passenger. Then they brought me downtown at Cotabato. chanroblesvirtualawlibrarychanrobles virtual law library
Q During your conversation with the Manager were you not offered any vehicle or transportation to
Cotabato airport downtown?chanrobles virtual law library
A In fact I told him (Manager) now I am by-passed passenger here which is not my destination what
can you offer me. Then they answered, "it is not my fault. Let us forget that." chanrobles virtual law library
Q In other words when the Manager told you that offer was there a vehicle ready? chanrobles virtual law library
A Not yet. Not long after that the Ford Fiera loaded with PAL personnel was passing by going to the
City of Cotabato and I stopped it to take me a ride because there was no more available
transportation but I was not accommodated.
Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest
or objection against the admission of evidence should be presented at the time the evidence is
offered, and that the proper time to make protest or objection to the admissibility of evidence is
when the question is presented to the witness or at the time the answer thereto is given. 16 There
being no objection, such evidence becomes property of the case and all the parties are amenable to
any favorable or unfavorable effects resulting from the evidence. 17chanrobles virtual law library
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate
its counter allegation for want of concrete proof 18 -
Atty. Rubin O. Rivera - PAL's counsel:chanrobles virtual law library
Q You said PAL refused to help you when you were in Cotabato, is that right? chanrobles virtual law library
Private respondent:chanrobles virtual law library
A Yes.chanroblesvirtualawlibrarychanrobles virtual law library
Q Did you ask them to help you regarding any offer of transportation or of any other matter asked
of them?chanrobles virtual law library
A Yes, he (PAL PERSONNEL) said what is? It is not our fault. chanroblesvirtualawlibrarychanrobles virtual law library
Q Are you not aware that one fellow passenger even claimed that he was given Hotel
accommodation because they have no money?
xxx xxx xxx
A No, sir, that was never offered to me. I said, I tried to stop them but they were already riding that
PAL pick-up jeep, and I was not accommodated.
Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL
cannot now turn around and feign surprise at the outcome of the case. When issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. 19chanrobles virtual law library
With regard to the award of damages affirmed by the appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with the task of looking after the passengers'
comfort and convenience because the diversion of the flight was due to a fortuitous event, and that
if made liable, an added burden is given to PAL which is over and beyond its duties under the
contract of carriage. It submits that granting arguendo that negligence exists, PAL cannot be liable
in damages in the absence of fraud or bad faith; that private respondent failed to apprise PAL of the
nature of his trip and possible business losses; and, that private respondent himself is to be blamed
for unreasonably refusing to use the free ticket which PAL issued. chanroblesvirtualawlibrarychanrobles virtual law library
The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all the circumstances. 20 In
Air France v. Carrascoso, 21 we held that -
A contract to transport passengers is quite different in kind and degree from any other contractual
relation. And this, because of the relation which an air carrier sustains with the public. Its business
is mainly with the travelling public. It invites people to avail of the comforts and advantages it offers.
The contract of air carriage, therefore, generates a relation attended with a public duty . . . .
( emphasis supplied).
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a
fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is
deemed equipped to deal with situations as in the case at bar. What we said in one case once again
must be stressed, i.e., the relation of carrier and passenger continues until the latter has been
landed at the port of destination and has left the carrier's premises. 22 Hence, PAL necessarily would
still have to exercise extraordinary diligence in safeguarding the comfort, convenience and safety of
its stranded passengers until they have reached their final destination. On this score, PAL grossly
failed considering the then ongoing battle between government forces and Muslim rebels in
Cotabato City and the fact that the private respondent was a stranger to the place. As the appellate
court correctly ruled -
While the failure of plaintiff in the first instance to reach his destination at Ozamis City in
accordance with the contract of carriage was due to the closure of the airport on account of rain and
inclement weather which was radioed to defendant 15 minutes before landing, it has not been
disputed by defendant airline that Ozamis City has no all-weather airport and has to cancel its flight
to Ozamis City or by-pass it in the event of inclement weather. Knowing this fact, it becomes the
duty of defendant to provide all means of comfort and convenience to its passengers when they
would have to be left in a strange place in case of such by-passing. The steps taken by defendant
airline company towards this end has not been put in evidence, especially for those 7 others who
were not accommodated in the return trip to Cebu, only 6 of the 21 having been so accommodated.
It appears that plaintiff had to leave on the next flight 2 days later. If the cause of non-fulfillment of
the contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755 CC., Art. 1733
C.C.) Since part of the failure to comply with the obligation of common carrier to deliver its
passengers safely to their destination lay in the defendant's failure to provide comfort and
convenience to its stranded passengers using extra-ordinary diligence, the cause of non-fulfillment
is not solely and exclusively due to fortuitous event, but due to something which defendant airline
could have prevented, defendant becomes liable to plaintiff. 23chanrobles virtual law library
While we find PAL remiss in its duty of extending utmost care to private respondent while being
stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him
about his non-accommodation on Flight 560, or that it was inattentive to his queries relative
thereto.chanroblesvirtualawlibrarychanrobles virtual law library
On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that -
3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax opted to
take F442 August 03. The remaining ten (10) including subject requested that they be instead
accommodated (sic) on F446 CBO-IGN the following day where they intended to take the surface
transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and boiceterous (sic) at the
counter and we tactfully managed to steer him inside the Station Agent's office. Mr. Pedro Zapatos
then adamantly insisted that all the diverted passengers should have been given priority over the
originating passengers of F560 whether confirmed or otherwise. We explained our policies and
after awhile he seemed pacified and thereafter took his ticket (in-lieued (sic) to CBO-IGN, COCON
basis), at the counter in the presence of five other passengers who were waiting for their tickets
too. The rest of the diverted pax had left earlier after being assured their tickets will be ready the
following day. 24chanrobles virtual law library
Aforesaid Report being an entry in the course of business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony, did not offer any controverting evidence. If
indeed PAL omitted to give information about the options available to its diverted passengers, it
would have been deluged with complaints. But, only private respondent complained -
Atty. Rivera (for PAL)chanrobles virtual law library
Q I understand from you Mr. Zapatos that at the time you were waiting at Cotabato Airport for the
decision of PAL, you were not informed of the decision until after the airplane left is that correct?
chanrobles virtual law library

A Yes.chanroblesvirtualawlibrarychanrobles virtual law library

COURT:chanrobles virtual law library
Q What do you mean by "yes"? You meant you were not informed? chanrobles virtual law library
A Yes, I was not informed of their decision, that they will only accommodate few
passengers.chanroblesvirtualawlibrarychanrobles virtual law library
Q Aside from you there were many other stranded passengers? chanrobles virtual law library
A I believed, yes.chanroblesvirtualawlibrarychanrobles virtual law library
Q And you want us to believe that PAL did not explain (to) any of these passengers about the
decision regarding those who will board the aircraft back to Cebu? chanrobles virtual law library
A No, Sir.chanroblesvirtualawlibrarychanrobles virtual law library
Q Despite these facts Mr. Zapatos did any of the other passengers complained (sic) regarding that
incident?
xxx xxx xxx
A There were plenty of argument and I was one of those talking about my case. chanroblesvirtualawlibrarychanrobles
virtual law library

Q Did you hear anybody complained (sic) that he has not been informed of the decision before the
plane left for Cebu?chanrobles virtual law library
A No. 25
Admittedly, private respondent's insistence on being given priority in accommodation was
unreasonable considering the fortuitous event and that there was a sequence to be observed in the
booking, i.e., in the order the passengers checked-in at their port of origin. His intransigence in fact
was the main cause for his having to stay at the airport longer than was necessary.
Atty. Rivera:chanrobles virtual law library
Q And, you were saying that despite the fact that according to your testimony there were at least 16
passengers who were stranded there in Cotabato airport according to your testimony, and later you
said that there were no other people left there at that time, is that correct? chanrobles virtual law library
A Yes, I did not see anyone there around. I think I was the only civilian who was left
there.chanroblesvirtualawlibrarychanrobles virtual law library
Q Why is it that it took you long time to leave that place? chanrobles virtual law library
A Because I was arguing with the PAL personnel. 26
Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent,
the records are bereft of evidence to support the same. Thus, the ruling of respondent Court of
Appeals in this regard is without basis. 27 On the contrary, private respondent was attended to not
only by the personnel of PAL but also by its Manager." 28chanrobles virtual law library
In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos
(P50,000.00) unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos
(P10,000.00). Conformably herewith, the award of exemplary damages is also reduced to five
Thousand Pesos (5,000.00). Moral damages are not intended to enrich the private respondent. They
are awarded only to enable the injured party to obtain means, diversion or amusements that will
serve to alleviate the moral suffering he has undergone by reason of the defendant's culpable
action. 29chanrobles virtual law library
With regard to the award of actual damages in the amount of P5,000.00 representing private
respondent's alleged business losses occasioned by his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he had a scheduled business "transaction of
shark liver oil supposedly to have been consummated on August 3, 1975 in the morning" and that
"since (private respondent) was out for nearly two weeks I missed to buy about 10 barrels of shark
liver oil," 30 are purely speculative. Actual or compensatory damages cannot be presumed but must
be duly proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture
or guesswork as to the fact and amount of damages, but must depend upon competent proof that
they have suffered and on evidence of the actual amount thereof. 31chanrobles virtual law library
WHEREFORE the decision appealed from is AFFIRMED with modification however that the award
of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos
(P10,000.00) while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to
Five Thousand Pesos (P5,000.00). The award of actual damages in the amount Five Thousand Pesos
(P5,000.00) representing business losses occasioned by private respondent's being stranded in
Cotabato City is deleted.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.

[G.R. NO. 159636 : November 25, 2004]

VICTORY LINER, INC., Petitioner, v. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO
P. GAMMAD and DIANA FRANCES P. GAMMAD, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review on Certiorari is the April 11, 2003 decision 1 of the Court of Appeals in
CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision 2 of the Regional
Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of
contract of carriage in Civil Case No. 5023.

The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie
Grace Pagulayan-Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao,
Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine
somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace and
physical injuries to other passengers.4

On May 14, 1996, respondent heirs of the deceased filed a complaint 5 for damages arising from culpa
contractual against petitioner. In its answer, 6 the petitioner claimed that the incident was purely
accidental and that it has always exercised extraordinary diligence in its 50 years of operation.

After several re-settings,7 pre-trial was set on April 10, 1997. 8 For failure to appear on the said date,
petitioner was declared as in default.9 However, on petitioner's motion10 to lift the order of default, the
same was granted by the trial court.11

At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the
deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued
Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioner's proposal to pay
P50,000.00.12
After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled
for November 17, 199713 but moved to December 8, 1997, 14 because the parties and the counsel failed to
appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed to
have waived right to cross-examine respondent Rosalito.15

Petitioner's motion to reset the presentation of its evidence to March 25, 1998 16 was granted. However,
on March 24, 1998, the counsel of petitioner sent the court a telegram 17 requesting postponement but
the telegram was received by the trial court on March 25, 1998, after it had issued an order considering
the case submitted for decision for failure of petitioner and counsel to appear. 18

On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive
portion of which reads:

WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of
the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the
following:

1. Actual Damages - - - - - - - - - - - - - - - - - - - - P 122,000.00

2. Death Indemnity - - - - - - - - - - - - - - - - - - - - - 50,000.00

3. Exemplary and Moral Damages - - - - - 400,000.00

4. Compensatory Damages - - - - - - - - - - 1,500,000.00

5. Attorney's Fees - - - - - - - - - - - - - - - - - - - - - 10% of the total amount granted

6. Cost of the Suit.

SO ORDERED.19

On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as
follows:

[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby
adjudged in favor of plaintiffs-appellees:

1. Actual Damages in the amount of P88,270.00;

2. Compensatory Damages in the amount of P1,135,536,10;

3. Moral and Exemplary Damages in the amount of P400,000.00; andcralawlibrary

4. Attorney's fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary
damages herein adjudged.

The court a quo's judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.

SO ORDERED.20

Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying
that the case be remanded to the trial court for cross - examination of respondents' witness and for the
presentation of its evidence; or in the alternative, dismiss the respondents' complaint. 21 Invoking APEX
Mining, Inc. v. Court of Appeals, 22 petitioner argues, inter alia, that the decision of the trial court should
be set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear
at the scheduled hearings and move for reconsideration of the orders declaring petitioner to have
waived the right to cross-examine respondents' witness and right to present evidence, deprived
petitioner of its day in court.

On August 21, 2003, the Court of Appeals denied petitioner's motion for reconsideration. 23

Hence, this Petition for Review principally based on the fact that the mistake or gross negligence of its
counsel deprived petitioner of due process of law. Petitioner also argues that the trial court's award of
damages were without basis and should be deleted.

The issues for resolution are: (1) whether petitioner's counsel was guilty of gross negligence; (2)
whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award of
damages was proper.

It is settled that the negligence of counsel binds the client. This is based on the rule that any act
performed by a counsel within the scope of his general or implied authority is regarded as an act of his
client. Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable
judgment against the client. However, the application of the general rule to a given case should be
looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the
foregoing have been recognized by the court in cases where reckless or gross negligence of counsel
deprives the client of due process of law, or when its application will result in outright deprivation of the
client's liberty or property or where the interests of justice so require, and accord relief to the client who
suffered by reason of the lawyer's gross or palpable mistake or negligence.24

The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an
Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan
successfully moved for the setting aside of the order of default. In fact, petitioner was represented by
Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan
failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to
cross-examine respondents' witness and to present evidence, he nevertheless, filed a timely appeal with
the Court of Appeals assailing the decision of the trial court. Hence, petitioner's claim that it was denied
due process lacks basis.

Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not
appearing at the pre-trial, three notices (dated October 23, 1996, 25 January 30, 1997,26 and March 26,
1997,27 ) requiring attendance at the pre-trial were sent and duly received by petitioner. However, it was
only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to appear at
the pre-trial when petitioner, through its finance and administrative manager, executed a special power
of attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner at the
pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault cannot be imputed solely
on previous counsel.

The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the
negligent counsel not only allowed the adverse decision against his client to become final and executory,
but deliberately misrepresented in the progress report that the case was still pending with the Court of
Appeals when the same was dismissed 16 months ago. 29 These circumstances are absent in this case
because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the Court of
Appeals.

In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not
the client should bear the adverse consequences of its counsel's negligence. In that case, Gold Line
Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was declared
as in default. After the plaintiff's presentation of evidence ex parte, the trial court rendered decision
ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final and
executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not denied due
process of law and is thus bound by the negligence of its lawyer, the Court held as follows '

This leads us to the question of whether the negligence of counsel was so gross and reckless that
petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that
the requirements of due process were observed in the instant case. Petitioner was never deprived of its
day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices
were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an answer
to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its opportunity
to participate in the trial of the case and to adduce evidence in its behalf because of negligence.

In the application of the principle of due process, what is sought to be safeguarded against is not the lack
of previous notice but the denial of the opportunity to be heard. The question is not whether petitioner
succeeded in defending its rights and interests, but simply, whether it had the opportunity to present its
side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it should, as far
as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea that it was
deprived of due process echoes on hollow ground and certainly cannot elicit approval nor sympathy.

To cater to petitioner's arguments and reinstate its petition for relief from judgment would put a
premium on the negligence of its former counsel and encourage the non-termination of this case by
reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsel's
act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter be
heard to complain that the result might have been different had his counsel proceeded differently. The
rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new counsel could be hired every time
it is shown that the prior counsel had not been sufficiently diligent, experienced or learned. 31

Similarly, in Macalalag v. Ombudsman, 32 a Philippine Postal Corporation employee charged with

dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis of
complainant's evidence and was dismissed with forfeiture of all benefits and disqualification from
government service. Challenging the decision of the Ombudsman, the employee contended that the gross
negligence of his counsel deprived him of due process of law. In debunking his contention, the Court said
'

Neither can he claim that he is not bound by his lawyer's actions; it is only in case of gross or palpable
negligence of counsel when the courts can step in and accord relief to a client who would have suffered
thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal
knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no
end to controversy. Fundamental to our judicial system is the principle that every litigation must come
to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there
must be a limit to it.

Viewed vis - Ã -vis the foregoing jurisprudence, to sustain petitioner's argument that it was denied due
process of law due to negligence of its counsel would set a dangerous precedent. It would enable every
party to render inutile any adverse order or decision through the simple expedient of alleging gross
negligence on the part of its counsel. The Court will not countenance such a farce which contradicts
long-settled doctrines of trial and procedure.33

Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a
contract of carriage, it is presumed that the common carrier was at fault or was negligent when a
passenger dies or is injured. Unless the presumption is rebutted, the court need not even 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.34

In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of
Marie Grace's death was the negligence of petitioner. Hence, the courts below correctly ruled that
petitioner was guilty of breach of contract of carriage.

Nevertheless, the award of damages should be modified.

Article 176435 in relation to Article 2206 36 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.

In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie
Grace which under current jurisprudence is fixed at P50,000.00.37

The award of compensatory damages for the loss of the deceased's earning capacity should be deleted
for lack of basis. As a rule, documentary evidence should be presented to substantiate the claim for
damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when (1) the deceased is self-employed earning
less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that
in the deceased's line of work no documentary evidence is available; or (2) the deceased is employed as
a daily wage worker earning less than the minimum wage under current labor laws. 38

In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning
capacity was the bare testimony of the deceased's wife that her husband was earning P8,000.00 monthly
as a legal researcher of a private corporation. Finding that the deceased was neither self-employed nor
employed as a daily-wage worker earning less than the minimum wage under the labor laws existing at
the time of his death, the Court held that testimonial evidence alone is insufficient to justify an award for
loss of earning capacity.

Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the
circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the
testimony of their wives, no documentary proof about their income was presented by the prosecution.
Thus '

The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not
self-employed or employed as daily-wage workers earning less than the minimum wage under the labor
laws existing at the time of their death. Placido Agustin was a Social Security System employee who
received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and Allied
Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr. was
a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500.
Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be
given despite lack of documentary evidence. Therefore, for lack of documentary proof, no indemnity for
loss of earning capacity can be given in these cases. (Emphasis supplied)cralawlibrary

Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of
earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39
years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a
salary of P83,088.00 per annum when she died. 41 No other evidence was presented. The award is clearly
erroneous because the deceased's earnings does not fall within the exceptions.

However, the fact of loss having been established, temperate damages in the amount of P500,000.00
should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be recovered when
the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the
case, be proved with certainty.

In Pleno v. Court of Appeals, 42 the Court sustained the trial court's award of P200,000.00 as temperate
damages in lieu of actual damages for loss of earning capacity because the income of the victim was not
sufficiently proven, thus'

The trial court based the amounts of damages awarded to the petitioner on the following circumstances:

...

"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and
the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an
industrious and resourceful person with several projects in line, and were it not for the incident, might
have pushed them through. On the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income
however has not been sufficiently established so that this Court cannot award actual damages, but, an
award of temperate or moderate damages may still be made on loss or impairment of earning capacity.
That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from
double vision in his left eye is also established. Because of this, he suffers from some inferiority complex
and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila
Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta,
et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given."

...

We rule that the lower court's awards of damages are more consonant with the factual circumstances of
the instant case. The trial court's findings of facts are clear and well-developed. Each item of damages is
adequately supported by evidence on record.

Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh 43 and People v.
Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning capacity
which was not substantiated by the required documentary proof.

Anent the award of moral damages, the same cannot be lumped with exemplary damages because they
are based on different jural foundations. 45 These damages are different in nature and require separate
determination.46 In culpa contractual or breach of contract, moral damages may be recovered when the
defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton
disregard of contractual obligations and, as in this case, when the act of breach of contract itself
constitutes the tort that results in physical injuries. By special rule in Article 1764 in relation to Article
2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger results
from a breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered in contractual obligations if the defendant
acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.48
Respondents in the instant case should be awarded moral damages to compensate for the grief caused
by the death of the deceased resulting from the petitioner's breach of contract of carriage. Furthermore,
the petitioner failed to prove that it exercised the extraordinary diligence required for common carriers,
it is presumed to have acted recklessly. 49 Thus, the award of exemplary damages is proper. Under the
circumstances, we find it reasonable to award respondents the amount of P100,000.00 as moral
damages and P100,000.00 as exemplary damages. These amounts are not excessive.50

The actual damages awarded by the trial court reduced by the Court of Appeals should be further
reduced. In People v. Duban,51 it was held that only substantiated and proven expenses or those that
appear to have been genuinely incurred in connection with the death, wake or burial of the victim will
be recognized. A list of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the tomb
(Exhibit "F")53 in this case, cannot be considered competent proof and cannot replace the official receipts
necessary to justify the award. Hence, actual damages should be further reduced to P78,160.00, 54 which
was the amount supported by official receipts.

Pursuant to Article 220855 of the Civil Code, attorney's fees may also be recovered in the case at bar
where exemplary damages are awarded. The Court finds the award of attorney's fees equivalent to 10%
of the total amount adjudged against petitioner reasonable.

Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals, 56 it was held 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).

In the instant case, petitioner should be held liable for payment of interest as damages for breach of
contract of carriage. Considering that the amounts payable by petitioner has been determined with
certainty only in the instant petition, the interest due shall be computed upon the finality of this decision
at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule. 57
WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of
the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of
Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner
Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 as indemnity for the
death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as
exemplary damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10%
of the total amount as attorneys fees; and the costs of suit.

Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per
annum computed from the finality of this decision until fully paid.

SO ORDERED.