G.R. No.

L-6055

June 12, 1953

THE
PEOPLE
OF
THE
vs.
WILLIAM H. QUASHA, defendant-appellant.

PHILIPPINES, plaintiff-appellee,

Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco
Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of
Manila with the crime of falsification of a public and commercial document in that, having been
entrusted with the preparation and registration of the article of incorporation of the Pacific
Airways Corporation, a domestic corporation organized for the purpose of engaging in business
as a common carrier, he caused it to appear in said article of incorporation that one Arsenio
Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the
subscribed capital stock of the corporation when in reality, as the accused well knew, such was
not the case, the truth being that the owner of the portion of the capital stock subscribed to by
Baylon and the money paid thereon were American citizen whose name did not appear in the
article of incorporation, and that the purpose for making this false statement was to circumvent
the constitutional mandate that no corporation shall be authorize to operate as a public utility in
the Philippines unless 60 per cent of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has
appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation
registered its articles of incorporation with the Securities and Exchanged Commission. The
article were prepared and the registration was effected by the accused, who was in fact the
organizer of the corporation. The article stated that the primary purpose of the corporation was to
carry on the business of a common carrier by air, land or water; that its capital stock was
P1,000,000, represented by 9,000 preferred and 100,000 common shares, each preferred share
being of the par value of p100 and entitled to 1/3 vote and each common share, of the par value
of P1 and entitled to one vote; that the amount capital stock actually subscribed was P200,000,
and the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott,
James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the
other five all Americans; that Baylon's subscription was for 1,145 preferred shares, of the total
value of P114,500, and for 6,500 common shares, of the total par value of P6,500, while the
aggregate subscriptions of the American subscribers were for 200 preferred shares, of the total
par value of P20,000, and 59,000 common shares, of the total par value of P59,000; and that
Baylon and the American subscribers had already paid 25 per cent of their respective

subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital
stock of the corporation, Baylon nevertheless did not have the controlling vote because of the
difference in voting power between the preferred shares and the common shares. Still, with the
capital structure as it was, the article of incorporation were accepted for registration and a
certificate of incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital
stock of the corporation. But it is admitted that the money paid on his subscription did not belong
to him but to the Americans subscribers to the corporate stock. In explanation, the accused
testified, without contradiction, that in the process of organization Baylon was made a trustee for
the American incorporators, and that the reason for making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135
preferred shares with a total value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of
this certified copy came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and
Anastasakas one evening. There was considerable difficulty to get them all together at one time
because they were pilots. They had difficulty in deciding what their respective share holdings
would be. Onstott had invested a certain amount of money in airplane surplus property and they
had obtained a considerable amount of money on those planes and as I recall they were desirous
of getting a corporation formed right away. And they wanted to have their respective shares
holdings resolved at a latter date. They stated that they could get together that they feel that they
had no time to settle their respective share holdings. We discussed the matter and finally it was
decided that the best way to handle the things was not to put the shares in the name of anyone of
the interested parties and to have someone act as trustee for their respective shares holdings. So
we looked around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is
there someone around whom we could get right away?" I said, "There is Arsenio. He was my boy
during the liberation and he cared for me when i was sick and i said i consider him my friend." I
said. They all knew Arsenio. He is a very kind man and that was what was done. That is how it
came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4,
of the Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister.
The penalty of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon
any public officer, employee, or notary who, taking advantage of his official position,
shall falsify a document by committing any of the following acts:
xxx

xxx

xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The
penalty of prision correccional in its medium and maximum period and a fine of not
more than 5,000 pesos shall be imposed upon:
xxx

xxx

xxx

1. Any private individual who shall commit any of the falsifications enumerated in the
next preceding article in any public or official document or letter of exchange or any
other kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised
Penal Code ( new edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil.,
341), that the perversion of truth in the narration of facts must be made with the wrongful intent
of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author
further maintains that even if such wrongful intent is proven, still the untruthful statement will
not constitute the crime of falsification if there is no legal obligation on the part of the narrator to
disclose the truth. Wrongful intent to injure a third person and obligation on the part of the
narrator to disclose the truth are thus essential to a conviction for a crime of falsification under
the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not
disclosing in the articles of incorporation that Baylon was a mere trustee ( or dummy as the
prosecution chooses to call him) of his American co-incorporators, thus giving the impression
that Baylon was the owner of the shares subscribed to by him which, as above stated, amount to
60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a
malicious perversion of the truth made with the wrongful intent circumventing section 8, Article
XIV of the Constitution, which provides that " no franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporation or other entities organized under the law of the Philippines,
sixty per centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible
though it may appear at first glance, this opinion loses validity once it is noted that it is
predicated on the erroneous assumption that the constitutional provision just quoted was meant
to prohibit the mere formation of a public utility corporation without 60 per cent of its capital
being owned by the Filipinos, a mistaken belief which has induced the lower court to that the
accused was under obligation to disclose the whole truth about the nationality of the subscribed
capital stock of the corporation by revealing that Baylon was a mere trustee or dummy of his
American co-incorporators, and that in not making such disclosure defendant's intention was to
circumvent the Constitution to the detriment of the public interests. Contrary to the lower court's
assumption, the Constitution does not prohibit the mere formation of a public utility corporation
without the required formation of Filipino capital. What it does prohibit is the granting of a
franchise or other form of authorization for the operation of a public utility to acorporation

already in existence but without the requisite proportion of Filipino capital. This is obvious from
the context, for the constitutional provision in question qualifies the terms " franchise",
"certificate", or "any other form of authorization" with the phrase "for the operation of a public
utility," thereby making it clear that the franchise meant is not the "primary franchise" that invest
a body of men with corporate existence but the "secondary franchise" or the privilege to operate
as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the
alien capital, then how can the accused be charged with having wrongfully intended to
circumvent that fundamental law by not revealing in the articles of incorporation that Baylon was
a mere trustee of his American co-incorporation and that for that reason the subscribed capital
stock of the corporation was wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not require it. Defendant was,
therefore, under no obligation to make it. In the absence of such obligation and of the allege
wrongful intent, defendant cannot be legally convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed
capital stock appearing in the name of Baylon was an indispensable preparatory step to the
subversion of the constitutional prohibition and the laws implementing the policy expressed
therein. This view is not correct. For a corporation to be entitled to operate a public utility it is
not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the
start. A corporation formed with capital that is entirely alien may subsequently change the
nationality of its capital through transfer of shares to Filipino citizens. conversely, a corporation
originally formed with Filipino capital may subsequently change the national status of said
capital through transfer of shares to foreigners. What need is there then for a corporation that
intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital
owned by Filipinos alone? That condition may anytime be attained thru the necessary transfer of
stocks. The moment for determining whether a corporation is entitled to operate as a public
utility is when it applies for a franchise, certificate, or any other form of authorization for that
purpose. And that can be done after the corporation has already come into being and not while it
is still being formed. And at that moment, the corporation must show that it has complied not
only with the requirement of the Constitution as to the nationality of its capital, but also with the
requirements of the Civil Aviation Law if it is a common carrier by air, the Revised
Administrative Code if it is a common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an
"impossible crime" under article 59 of the Revised Penal Code. It not being possible to suppose
that defendant had intended to commit a crime for the simple reason that the alleged
constitutional prohibition which he is charged for having tried to circumvent does not exist,
conviction under that article is out of the question.

The foregoing consideration can not but lead to the conclusion that the defendant can not be held
guilty of the crime charged. The majority of the court, however, are also of the opinion that, even
supposing that the act imputed to the defendant constituted falsification at the time it was
perpetrated, still with the approval of the Party Amendment to the Constitution in March, 1947,
which placed Americans on the same footing as Filipino citizens with respect to the right to
operate public utilities in the Philippines, thus doing away with the prohibition in section 8,
Article XIV of the Constitution in so far as American citizens are concerned, the said act has
ceased to be an offense within the meaning of the law, so that defendant can no longer be held
criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H.
Quasha acquitted, with costs de oficio.

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation
and
Communications,
and
EDSA
LRT
CORPORATION,
LTD., respondents.

QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from
further implementing and enforcing the "Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental
Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent
Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private
corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III),

was intended to provide a mass transit system along EDSA and alleviate the congestion and
growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by
Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a
Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project
with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and
For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the BuildOperate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or
Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project
underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91494 and 91-496, respectively creating the Prequalification Bids and Awards Committee (PBAC)
and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the
financing and implementation of the project The notice, advertising the prequalification of
bidders, was published in three newspapers of general circulation once a week for three
consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later
extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of
Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui &
Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic
corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd.
and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI
Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz &
co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria
proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100
percent, are as follows: (a) Legal aspects 10 percent; (b) Management/Organizational
capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical capability
30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991
declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements of
garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all
passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that
the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other
pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President
Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award
of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and
requesting for authority to negotiate with the said firm for the contract pursuant to paragraph
14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a
directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT
Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent
EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an
"Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms
of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested
approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in
compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the
only mode to award BOT projects, and the prequalification proceedings was not the public
bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations
of the BOT Law which authorized negotiated award of contract in addition to public bidding was
of doubtful legality; and (4) that congressional approval of the list of priority projects under the
BOT or BT Scheme provided in the law had not yet been granted at the time the contract was
awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents renegotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 4778) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the

Agreement without need of approval by the President pursuant to the provisions of Executive
Order No. 380 and that certain events [had] supervened since November 7, 1991 which
necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC,
represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a
"Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and
responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines
for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved
the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and
Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a
day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously. The
EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of
17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will
have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will
also have thirteen (13) passenger stations and one depot in 16-hectare government property at
North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58).
Target completion date is 1,080 days or approximately three years from the implementation date
of the contract inclusive of mobilization, site works, initial and final testing of the system
(Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability
thereof, private respondent shall deliver the use and possession of the completed portion to
DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated
Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a
monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an
independent and internationally accredited inspection firm to be appointed by the parties
(Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the
earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After
25 years and DOTC shall have completed payment of the rentals, ownership of the project shall
be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated
Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957,
Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the
President. The law was published in two newspapers of general circulation on May 12, 1994, and

took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme
and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE
SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS
EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE
OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE
AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR
ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS
ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS
VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA
LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED
IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW
AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR
THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE,
ARE ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the
present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of
facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the
BOT Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not apply
to private respondent;
(5) The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of
award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action.
Petitioners, however, countered that the action was filed by them in their capacity as Senators
and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered
into by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow
the same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and
the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following
reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof
is limited by the Constitution to Filipino citizens and domestic corporations, not
foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the
BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent
not through public bidding which is the only mode of awarding infrastructure
projects under the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA
LRT III was awarded by public respondent, is admittedly a foreign corporation "duly
incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no
dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over
to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA
LRT III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public
utility. While a franchise is needed to operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public utility is not their ownership but
their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551,
557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a
public utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive character or for a longer period
than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of
the facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the
rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the
Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot
be operated and used to serve the public as a public utility unless the operator has a franchise.
The operation of a rail system as a public utility includes the transportation of passengers from

one point to another point, their loading and unloading at designated places and the movement of
the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282,
180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d.
722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership
of the facilities thereof. One can own said facilities without operating them as a public utility, or
conversely, one may operate a public utility without owning the facilities used to serve the
public. The devotion of property to serve the public may be done by the owner or by the person
in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used
to serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of
owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement,
Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on
completion date, private respondent will immediately deliver possession of the LRT system by
way of lease for 25 years, during which period DOTC shall operate the same as a common
carrier and private respondent shall provide technical maintenance and repair services to DOTC
(Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical
maintenance consists of providing (1) repair and maintenance facilities for the depot and rail
lines, services for routine clearing and security; and (2) producing and distributing maintenance
manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated
operating conditions, control of operations, dealing with emergencies, collection, counting and
securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs.
2-3). Personnel of DOTC will work under the direction and control of private respondent only
during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives,
however, shall be such that upon completion of the EDSA LRT III and upon opening of normal
revenue operation, DOTC shall have in their employ personnel capable of undertaking training
of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In
other words, by the end of the three-year construction period and upon commencement of normal
revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new
personnel by itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing
cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p.
54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of
a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent
from any losses, damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death due to defects in the
EDSA LRT III on account of the defective condition of equipment or facilities or the defective
maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and
12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to demand any
services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the
case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease
between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a
collaboration or joint venture agreement prescribed under the charter of the PCSO. In the
Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities
necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to
lease the facilities and operate the same. Upon due examination of the contract, the Court found
that PGMC's participation was not confined to the construction and setting up of the on-line
lottery system. It spilled over to the actual operation thereof, becoming indispensable to the
pursuit, conduct, administration and control of the highly technical and sophisticated lottery
system. In effect, the PCSO leased out its franchise to PGMC which actually operated and
managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither
are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to
railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174
p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the
contractor undertakes the construction including financing, of a given
infrastructure facility, and the operation and maintenance thereof. The contractor
operates the facility over a fixed term during which it is allowed to charge facility
users appropriate tolls, fees, rentals and charges sufficient to enable the contractor
to recover its operating and maintenance expenses and its investment in the
project plus a reasonable rate of return thereon. The contractor transfers the
facility to the government agency or local government unit concerned at the end
of the fixed term which shall not exceed fifty (50) years. For the construction
stage, the contractor may obtain financing from foreign and/or domestic sources
and/or engage the services of a foreign and/or Filipino constructor [sic]:
Provided, That the ownership structure of the contractor of an infrastructure
facility whose operation requires a public utility franchise must be in accordance
with the Constitution: Provided, however, That in the case of corporate investors
in the build-operate-and-transfer corporation, the citizenship of each stockholder
in the corporate investors shall be the basis for the computation of Filipino equity
in the said corporation: Provided, further, That, in the case of foreign constructors
[sic], Filipino labor shall be employed or hired in the different phases of the
construction where Filipino skills are available: Provided, furthermore, that the
financing of a foreign or foreign-controlled contractor from Philippine
government financing institutions shall not exceed twenty percent (20%) of the
total cost of the infrastructure facility or project: Provided, finally, That financing
from foreign sources shall not require a guarantee by the Government or by
government-owned or controlled corporations. The build-operate-and-transfer
scheme shall include a supply-and-operate situation which is a contractual
agreement whereby the supplier of equipment and machinery for a given
infrastructure facility, if the interest of the Government so requires, operates the
facility providing in the process technology transfer and training to Filipino
nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the
contractor undertakes the construction including financing, of a given
infrastructure facility, and its turnover after completion to the government agency
or local government unit concerned which shall pay the contractor its total
investment expended on the project, plus a reasonable rate of return thereon. This
arrangement may be employed in the construction of any infrastructure project
including critical facilities which for security or strategic reasons, must be
operated directly by the government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the construction
and financing in infrastructure facility, and operates and maintains the same. The contractor
operates the facility for a fixed period during which it may recover its expenses and investment
in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the
contractor transfers the ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but
after completion, the ownership and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957,
Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility.
No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement
for the payment by the government of the project cost. The law must not be read in such a way as
to rule out or unduly restrict any variation within the context of the two schemes. Indeed, no
statute can be enacted to anticipate and provide all the fine points and details for the multifarious
and complex situations that may be encountered in enforcing the law (Director of Forestry v.
Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v.
Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made
lighter by allowing it to amortize payments out of the income from the operation of the LRT
System.
In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the
end of 25 years and when full payment shall have been made to and received by private
respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights
and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1;
Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or
use of a thing for a certain price and for a period which may be definite or indefinite but not
longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership

at the end of the lease period. But if the parties stipulate that title to the leased premises shall be
transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the
lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and
the National Economic and Development Authority as falling under the Investment Priorities
Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform
Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provisions
purports to give the obligee the right to require payment in gold or in a particular
kind of coin or currency other than Philippine currency or in an amount of money
of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such provision shall be contained
in, or made with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority
economic projects for agricultural, industrial and power development as may be
determined
by
the National Economic Council which are financed by or through foreign
funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National
Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312)
does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects
falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT
Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the
contract appears to have been rigged from the very beginning to do away with the usual open
international public bidding where qualified internationally known applicants could fairly
participate.
The records show that only one applicant passed the prequalification process. Since only one was
left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone
participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49,
61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in
relation to Presidential Decree No. 1594 allows the negotiated award of government
infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:
Bidding. Construction projects shall generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or
force account or by negotiated contract only in exceptional cases where time is of
the essence, or where there is lack of qualified bidders or contractors, or where
there is conclusive evidence that greater economy and efficiency would be
achieved through this arrangement, and in accordance with provision of laws and
acts on the matter, subject to the approval of the Minister of Public Works and
Transportation and Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be, if the project cost is less than P1 Million,
and the President of the Philippines, upon recommendation of the Minister, if the
project cost is P1 Million or more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general
law on government infrastructure contracts while the BOT Law governs particular arrangements
or schemes aimed at encouraging private sector participation in government infrastructure
projects. The two laws are not inconsistent with each other but are in pari materia and should be
read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders
why none of the competing firms ever brought the matter before the PBAC, or intervened in this
case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640
[1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer
a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a
contract from renegotiating and modifying in good faith the terms and conditions thereof so as to
meet legal, statutory and constitutional requirements. Under the circumstances, to require the
parties to go back to step one of the prequalification process would just be an idle ceremony.
Useless bureaucratic "red tape" should be eschewed because it discourages private sector
participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1),
and renders the BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project
proponent is authorized to finance and construct an infrastructure or development
facility and upon its completion turns it over to the government agency or local
government unit concerned on a lease arrangement for a fixed period after which
ownership of the facility is automatically transferred to the government unit
concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when
there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it
meets the prequalification requirements, after which it is required to submit a bid
proposal which is subsequently found by the agency/local government unit (LGU)
to be complying.
(b) If, after advertisement, more than one contractor applied for prequalification
but only one meets the prequalification requirements, after which it submits
bid/proposal which is found by the agency/local government unit (LGU) to be
complying.
(c) If, after prequalification of more than one contractor only one submits a bid
which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is
found by the agency/LGU to be complying. Provided, That, any of the
disqualified prospective bidder [sic] may appeal the decision of the implementing
agency, agency/LGUs prequalification bids and awards committee within fifteen
(15) working days to the head of the agency, in case of national projects or to the
Department of the Interior and Local Government, in case of local projects from
the date the disqualification was made known to the disqualified bidder: Provided,
furthermore, That the implementing agency/LGUs concerned should act on the
appeal within forty-five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated
by the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this
law authorizes all government infrastructure agencies, government-owned and controlled
corporations and local government units to enter into contract with any duly prequalified
proponent for the financing, construction, operation and maintenance of any financially viable
infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate),

CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operateand-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein
(Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a
climate of minimum government regulations and procedures and specific government
undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that which
before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses
private respondent and DOTC may have engendered and committed in entering into the
questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the
Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965];
Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most productive years of the
project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted,
for a period of 25 years, exclusive rights over the depot and the air space above the stations for
development into commercial premises for lease, sublease, transfer, or advertising (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights,
private respondent shall pay DOTC in Philippine currency guaranteed revenues generated
therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the
event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to
deduct any shortfalls from the monthly rent due private respondent for the construction of the
EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests
and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of
the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The
determination by the proper administrative agencies and officials who have acquired expertise,
specialized skills and knowledge in the performance of their functions should be accorded
respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy
Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA
304 [1989]).
Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the

reasonable rentals to be paid by the parties to each other. The matter of valuation is an esoteric
field which is better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government
is deprived of the profits if it engages in the business itself, is not worthy of being raised as an
issue. In all cases where a party enters into a contract with the government, he does so, not out of
charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications
systems as well as in the fast, safe, efficient and reliable postal, transportation and
communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the
Executive department, DOTC in particular that has the power, authority and technical expertise
determine whether or not a specific transportation or communication project is necessary, viable
and beneficial to the people. The discretion to award a contract is vested in the government
agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN

TRAVEL & TOURS INTERNATIONAL, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed Jewels of Europe. The package tour included the countries of
England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioners niece, Meriam Menor, was respondent
companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday
to deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full
payment for the package tour. Menor then told her to be at the Ninoy Aquino International
Airport (NAIA) on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15,
1991, to take the flight for the first leg of her journey from Manila to Hongkong. To petitioners
dismay, she discovered that the flight she was supposed to take had already departed the previous
day. She learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus
called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant
which included England, Scotland and Wales in its itinerary. For this tour package, petitioner was
asked anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60).
She gave respondent US$300 or P7,980.00 as partial payment and commenced the trip in July
1991.

Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-refundable.
[1]
Petitioner was thus constrained to file a complaint against respondent for breach of contract of
carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of
the Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to
respondents fault since it did not clearly indicate the departure date on the plane
ticket.Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the British Pageant was merely a substitute for the Jewels of
Europe tour, such that the cost of the former should be properly set-off against the sum paid for
the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco,
denied responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner
was informed of the correct departure date, which was clearly and legibly printed on the plane
ticket. The travel documents were given to petitioner two days ahead of the scheduled
trip.Petitioner had only herself to blame for missing the flight, as she did not bother to read or
confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel
Ltd., which had already billed the same even if petitioner did not join the tour. Lotus European
tour organizer, Insight International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted industry practice to
disallow refund for individuals who failed to take a booked tour.[3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package
tour that petitioner missed. This tour was independently procured by petitioner after realizing
that she made a mistake in missing her flight for Jewels of Europe. Petitioner was allowed to
make a partial payment of only US$300.00 for the second tour because her niece was then an
employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to pay
the balance of P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision, [4] the dispositive part of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty
Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos

(P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per
annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00)
Pesos as and for reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.[5]
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut
petitioners testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menors verbal
representation. The trial court thus declared that petitioner was guilty of contributory negligence
and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent because
as a lawyer and well-traveled person, she should have known better than to simply rely on what
was told to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited
her right to the Jewels of Europe tour and must therefore pay respondent the balance of the price
for the British Pageant tour. The dispositive portion of the judgment appealed from reads as
follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26,
1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring
the plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00, representing
the balance of the price of the British Pageant Package Tour, the same to earn legal interest at the
rate of SIX PERCENT (6%) per annum, to be computed from the time the counterclaim was
filed until the finality of this decision. After this decision becomes final and executory, the rate of
TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs
against the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration, [7] petitioner filed the instant petition under
Rule 45 on the following grounds:
I

It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not
entitled to a refund of the cost of unavailed Jewels of Europe tour she being equally, if not more,
negligent than the private respondent, for in the contract of carriage the common carrier is
obliged to observe utmost care and extra-ordinary diligence which is higher in degree than the
ordinary diligence required of the passenger. Thus, even if the petitioner and private respondent
were both negligent, the petitioner cannot be considered to be equally, or worse, more guilty than
the private respondent. At best, petitioners negligence is only contributory while the private
respondent [is guilty] of gross negligence making the principle of pari delicto inapplicable in the
case;
II
The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not
indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as
a result of breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the standard of care required of a
common carrier when it informed her wrongly of the flight schedule. She could not be deemed
more negligent than respondent since the latter is required by law to exercise extraordinary
diligence in the fulfillment of its obligation. If she were negligent at all, the same is merely
contributory and not the proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to
another for a fixed price.[9] Such person or association of persons are regarded as carriers and are
classified as private or special carriers and common or public carriers. [10] A common carrier is
defined under Article 1732 of the Civil Code as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water or
air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the
business of transporting either passengers or goods and is therefore, neither a private nor a
common carrier. Respondent did not undertake to transport petitioner from one place to another
since its covenant with its customers is simply to make travel arrangements in their behalf.
Respondents services as a travel agency include procuring tickets and facilitating travel permits
or visas as well as booking customers for tours.

While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most, respondent
acted merely as an agent of the airline, with whom petitioner ultimately contracted for her
carriage to Europe. Respondents obligation to petitioner in this regard was simply to see to it that
petitioner was properly booked with the airline for the appointed date and time. Her transport to
the place of destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service
of arranging and facilitating petitioners booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary one for
services and not one of carriage. Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of
the degree of care required in the performance of the latters obligation under the contract. For
reasons of public policy, a common carrier in a contract of carriage is bound by law to carry
passengers as far as human care and foresight can provide using the utmost diligence of very
cautious persons and with due regard for all the circumstances.[11] As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not bound under the law to
observe extraordinary diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil Code.
[12]
This connotes reasonable care consistent with that which an ordinarily prudent person would
have observed when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed
petitioner of the wrong day of departure. Petitioners testimony was accepted as indubitable
evidence of Menors alleged negligent act since respondent did not call Menor to the witness
stand to refute the allegation. The lower court applied the presumption under Rule 131, Section 3
(e)[14] of the Rules of Court that evidence willfully suppressed would be adverse if produced and
thus considered petitioners uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and
maintains that petitioners assertion is belied by the evidence on record. The date and time of
departure was legibly written on the plane ticket and the travel papers were delivered two days in
advance precisely so that petitioner could prepare for the trip. It performed all its obligations to
enable petitioner to join the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.

Respondents failure to present Menor as witness to rebut petitioners testimony could not
give rise to an inference unfavorable to the former. Menor was already working in France at the
time of the filing of the complaint, [15] thereby making it physically impossible for respondent to
present her as a witness. Then too, even if it were possible for respondent to secure Menors
testimony, the presumption under Rule 131, Section 3(e) would still not apply. The opportunity
and possibility for obtaining Menors testimony belonged to both parties, considering that Menor
was not just respondents employee, but also petitioners niece. It was thus error for the lower
court to invoke the presumption that respondent willfully suppressed evidence under Rule 131,
Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally
omitted but is simply unavailable, or when the same could have been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower court that Menors negligence
concurred with the negligence of petitioner and resultantly caused damage to the latter. Menors
negligence was not sufficiently proved, considering that the only evidence presented on this
score was petitioners uncorroborated narration of the events. It is well-settled that the party
alleging a fact has the burden of proving it and a mere allegation cannot take the place of
evidence.[17] If the plaintiff, upon whom rests the burden of proving his cause of action, fails to
show in a satisfactory manner facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense.[18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket[19] issued to petitioner clearly reflected the departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour itinerary, vouchers and instructions,
were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked
petitioner for the tour, prepared the necessary documents and procured the plane tickets. It
arranged petitioners hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the flight.
Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon
her to take ordinary care of her concerns. This undoubtedly would require that she at least read
the documents in order to assure herself of the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for
damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists
in his failure to exercise due care and prudence in the performance of the obligation as the nature
of the obligation so demands.[20] There is no fixed standard of diligence applicable to each and
every contractual obligation and each case must be determined upon its particular facts. The
degree of diligence required depends on the circumstances of the specific obligation and whether

one has been negligent is a question of fact that is to be determined after taking into account the
particulars of each case.[21]
The lower court declared that respondents employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are generally
conclusive upon this court, the rule is subject to certain exceptions, as when the trial court
overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance
which will affect the result of the case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must
bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court
of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay
respondent the amount of P12,901.00 representing the balance of the price of the British Pageant
Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the
time the counterclaim was filed until the finality of this Decision. After this Decision becomes
final and executory, the rate of 12% per annum shall be imposed until the obligation is fully
settled, this interim period being deemed to be by then an equivalent to a forbearance of credit.[23]
SO ORDERED.

G.R. No. 186312

June 29, 2010

SPOUSES
DANTE
CRUZ
vs.
SUN HOLIDAYS, INC., Respondent.

and

LEONORA

CRUZ, Petitioners,

DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 1 against
Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages
arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on
September 11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas
from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was
by virtue of a tour package-contract with respondent that included transportation to and from the
Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account
of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave
the Resort in the afternoon of September 10, 2000, but was advised to stay for another night
because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and
into the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and
the captain to step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing
the captain, Matute and the other passengers who reached the surface asked him what they could
do to save the people who were still trapped under the boat. The captain replied "Iligtas niyo na
lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa Island.
Eight passengers, including petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
Petitioners, by letter of October 26, 2000, 4 demanded indemnification from respondent for the
death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging
that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III
to sail notwithstanding storm warning bulletins issued by the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of
September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members. Nonetheless,
it claimed that it exercised the utmost diligence in ensuring the safety of its passengers; contrary
to petitioners allegation, there was no storm on September 11, 2000 as the Coast Guard in fact
cleared the voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life
jackets for its passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is
clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance
from the Resorts assistant manager.8 He added that M/B Coco Beach III met all four conditions
on September 11, 2000,9 but a subasco or squall, characterized by strong winds and big waves,
suddenly occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding, among
other things, that the trial court correctly ruled that respondent is a private carrier which is only
required to observe ordinary diligence; that respondent in fact observed extraordinary diligence

in transporting its guests on board M/B Coco Beach III; and that the proximate cause of the
incident was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of its
resort business. They inform that another division of the appellate court in fact held respondent
liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that
it is a common carrier; that the Resorts ferry services for guests cannot be considered as
ancillary to its business as no income is derived therefrom; that it exercised extraordinary
diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to sail;
that the incident was caused by a fortuitous event without any contributory negligence on its
part; and that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as a
common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on aregular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth in
the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public services . . .18 (emphasis and
underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And the
tour packages it offers, which include the ferry services, may be availed of by anyone who can
afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. The Court is aware of the
practice of beach resort operators offering tour packages to factor the transportation fee in
arriving at the tour package price. That guests who opt not to avail of respondents ferry services
pay the same amount is likewise inconsequential. These guests may only be deemed to have
overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods is
the carriers principal business, whether it is offered on a regular basis, or whether it is offered to
the general public. The intent of the law is thus to not consider such distinctions. Otherwise,
there is no telling how many other distinctions may be concocted by unscrupulous businessmen
engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities
of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. 19 They are bound to carry
the passengers safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with due regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that
the common carrier is at fault or negligent. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of
voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents
position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone
warnings for shipping on September 10 and 11, 2000 advising of tropical depressions in
Northern Luzon which would also affect the province of Mindoro. 22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under such
weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they were
their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and
(d) the obligor must have been free from any participation in the aggravation of the resulting
injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only causeof the loss. And it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows that
M/B Coco Beach III suffered engine trouble before it capsized and sank. 26 The incident was,
therefore, not completely free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of
the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29

As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living
expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his dependents
or heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to
be used by the deceased for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja34teaches that when, as in this case, there is no showing that the living expenses
constituted the smaller percentage of the gross income, the living expenses are fixed at half of
the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy =

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

2/3
x
[80
28]
2/3 x [52]

Life expectancy =

35

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

Earning = life expectancy x (gross annual income - reasonable and necessary

living
expenses).
=
35
x
(P475,200
- P237,600)
= 35 x (P237,600)

Net
Capacity

Earning

= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract
of carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206
of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary
damages, which are granted in contractual obligations if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral
damages andP100,000 as exemplary damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged against
respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit. (emphasis
supplied).

Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the rate of
12% per annum until satisfaction, in accordance with paragraph number 3 of the immediately
cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the
following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity
for Ruelitos loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys fees;
and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
computed from the finality of this decision until full payment.
SO ORDERED.

G.R. No. 200289

November 25, 2013

WESTWIND
SHIPPING
CORPORATION, Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
x-----------------------x
G.R. No. 200314
ORIENT
FREIGHT
INTERNATIONAL
INC., Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
DECISION
PERALTA, J.:
These two consolidated cases challenge, by way of petition for certiorari under Rule 45 of the
1997 Rules of Civil Procedure, September 13, 2011 Decision 1 and January 19, 2012
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 86752, which reversed and set
aside the January 27, 2006 Decision 3 of the Manila City Regional Trial Court Branch (RTC) 30.
The facts, as established by the records, are as follows:
On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197
metal containers/skids of tin-free steel for delivery to the consignee, San Miguel Corporation
(SMC). The shipment, covered by Bill of Lading No. KBMA-1074, 4 was loaded and received
clean on board M/V Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind
Shipping Corporation (Westwind).
SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc. (UCPB) for
US Dollars: One Hundred Eighty-Four Thousand Seven Hundred Ninety-Eight and NinetySeven Centavos (US$184,798.97), which, at the time, was equivalent to Philippine Pesos: Six
Million Two Hundred Nine Thousand Two Hundred Forty-Five and Twenty-Eight Centavos
(P6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and was discharged in the
custody of the arrastre operator, Asian Terminals, Inc. (ATI), formerly Marina Port Services,
Inc.5 During the unloading operation, however, six containers/skids worth Philippine Pesos: One

Hundred Seventeen Thousand Ninety-Three and Twelve Centavos (P117,093.12) sustained dents
and punctures from the forklift used by the stevedores of Ocean Terminal Services, Inc. (OTSI)
in centering and shuttling the containers/skids. As a consequence, the local ship agent of the
vessel, Baliwag Shipping Agency, Inc., issued two Bad Order Cargo Receipt dated September 1,
1993.
On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC,
withdrew from ATI the 197 containers/skids, including the six in damaged condition, and
delivered the same at SMCs warehouse in Calamba, Laguna through J.B. Limcaoco Trucking
(JBL). It was discovered upon discharge that additional nine containers/skids valued at
Philippine Pesos: One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine and SixtyEight Centavos (P175,639.68) were also damaged due to the forklift operations; thus, making the
total number of 15 containers/skids in bad order.
Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and
OFII to recover the amount corresponding to the damaged 15 containers/skids. When UCPB paid
the total sum of Philippine Pesos: Two Hundred Ninety-Two Thousand Seven Hundred ThirtyTwo and Eighty Centavos (P292,732.80), SMC signed the subrogation receipt. Thereafter, in the
exercise of its right of subrogation, UCPB instituted on August 30, 1994 a complaint for
damages against Westwind, ATI, and OFII.6
After trial, the RTC dismissed UCPBs complaint and the counterclaims of Westwind, ATI, and
OFII. It ruled that the right, if any, against ATI already prescribed based on the stipulation in the
16 Cargo Gate Passes issued, as well as the doctrine laid down in International Container
Terminal Services, Inc. v. Prudential Guarantee & Assurance Co. Inc. 7 that a claim for
reimbursement for damaged goods must be filed within 15 days from the date of consignees
knowledge. With respect to Westwind, even if the action against it is not yet barred by
prescription, conformably with Section 3 (6) of the Carriage of Goods by Sea Act (COGSA) and
Our rulings in E.E. Elser, Inc., et al. v. Court of Appeals, et al. 8 and Belgian Overseas Chartering
and Shipping N.V. v. Phil. First Insurance Co., Inc., 9 the court a quo still opined that Westwind is
not liable, since the discharging of the cargoes were done by ATI personnel using forklifts and
that there was no allegation that it (Westwind) had a hand in the conduct of the stevedoring
operations. Finally, the trial court likewise absolved OFII from any liability, reasoning that it
never undertook the operation of the forklifts which caused the dents and punctures, and that it
merely facilitated the release and delivery of the shipment as the customs broker and
representative of SMC.
On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of its September 13,
2011 Decision directed:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The Decision
dated January 27, 2006 rendered by the court a quo is REVERSED AND SET ASIDE. Appellee
Westwind Shipping Corporation is hereby ordered to pay to the appellant UCPB General

Insurance Co., Inc., the amount of One Hundred Seventeen Thousand and Ninety-Three Pesos
and Twelve Centavos (Php117,093.12), while Orient Freight International, Inc. is hereby ordered
to pay to UCPB the sum of One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine
Pesos and Sixty-Eight Centavos (Php175,639.68). Both sums shall bear interest at the rate of six
(6%) percent per annum, from the filing of the complaint on August 30, 1994 until the judgment
becomes final and executory. Thereafter, an interest rate of twelve (12%) percent per annum shall
be imposed from the time this decision becomes final and executory until full payment of said
amounts.
SO ORDERED.10
While the CA sustained the RTC judgment that the claim against ATI already prescribed, it
rendered a contrary view as regards the liability of Westwind and OFII. For the appellate court,
Westwind, not ATI, is responsible for the six damaged containers/skids at the time of its
unloading. In its rationale, which substantially followed Philippines First Insurance Co., Inc. v.
Wallem Phils. Shipping, Inc.,11 it concluded that the common carrier, not the arrastre operator, is
responsible during the unloading of the cargoes from the vessel and that it is not relieved from
liability and is still bound to exercise extraordinary diligence at the time in order to see to it that
the cargoes under its possession remain in good order and condition. The CA also considered that
OFII is liable for the additional nine damaged containers/skids, agreeing with UCPBs contention
that OFII is a common carrier bound to observe extraordinary diligence and is presumed to be at
fault or have acted negligently for such damage. Noting the testimony of OFIIs own witness that
the delivery of the shipment to the consignee is part of OFIIs job as a cargo forwarder, the
appellate court ruled that Article 1732 of the New Civil Code (NCC) does not distinguish
between one whose principal business activity is the carrying of persons or goods or both and
one who does so as an ancillary activity. The appellate court further ruled that OFII cannot
excuse itself from liability by insisting that JBL undertook the delivery of the cargoes to SMCs
warehouse. It opined that the delivery receipts signed by the inspector of SMC showed that the
containers/skids were received from OFII, not JBL. At the most, the CA said, JBL was engaged
by OFII to supply the trucks necessary to deliver the shipment, under its supervision, to SMC.
Only Westwind and OFII filed their respective motions for reconsideration, which the CA
denied; hence, they elevated the case before Us via petitions docketed as G.R. Nos. 200289 and
200314, respectively.
Westwind argues that it no longer had actual or constructive custody of the containers/skids at
the time they were damaged by ATIs forklift operator during the unloading operations. In
accordance with the stipulation of the bill of lading, which allegedly conforms to Article 1736 of
the NCC, it contends that its responsibility already ceased from the moment the cargoes were
delivered to ATI, which is reckoned from the moment the goods were taken into the latters
custody. Westwind adds that ATI, which is a completely independent entity that had the right to
receive the goods as exclusive operator of stevedoring and arrastre functions in South Harbor,

Manila, had full control over its employees and stevedores as well as the manner and procedure
of the discharging operations.
As for OFII, it maintains that it is not a common carrier, but only a customs broker whose
participation is limited to facilitating withdrawal of the shipment in the custody of ATI by
overseeing and documenting the turnover and counterchecking if the quantity of the shipments
were in tally with the shipping documents at hand, but without participating in the physical
withdrawal and loading of the shipments into the delivery trucks of JBL. Assuming that it is a
common carrier, OFII insists that there is no need to rely on the presumption of the law that, as
a common carrier, it is presumed to have been at fault or have acted negligently in case of
damaged goods considering the undisputed fact that the damages to the containers/skids were
caused by the forklift blades, and that there is no evidence presented to show that OFII and
Westwind were the owners/operators of the forklifts. It asserts that the loading to the trucks were
made by way of forklifts owned and operated by ATI and the unloading from the trucks at the
SMC warehouse was done by way of forklifts owned and operated by SMC employees. Lastly,
OFII avers that neither the undertaking to deliver nor the acknowledgment by the consignee of
the fact of delivery makes a person or entity a common carrier, since delivery alone is not the
controlling factor in order to be considered as such.
Both petitions lack merit.
The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc. 12 applies, as it
settled the query on which between a common carrier and an arrastre operator should be
responsible for damage or loss incurred by the shipment during its unloading. We elucidated at
length:
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 transported by them. Subject to
certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier 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 a right to
receive them.
For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable
for the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at
the port of loading, until he delivers it on the shore or on the discharging wharf at the port of
unloading, unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo, the Court
interpreted the ship captains liability as ultimately that of the shipowner by regarding the captain
as the representative of the shipowner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea,
the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of
such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3 (2) thereof then states that among the carriers
responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.
xxxx
On the other hand, the functions of an arrastre operator involve the handling of cargo deposited
on the wharf or between the establishment of the consignee or shipper and the ship's tackle.
Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take
good care of the goods and to turn them over to the party entitled to their possession.
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and damage to
shipments under its custody.
In Firemans Fund Insurance Co. v. Metro Port Service, Inc., the Court explained the relationship
and responsibility of an arrastre operator to a consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the goods in good condition to the
consignee. (Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Appeals with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
Thus, in this case, the appellate court is correct insofar as it ruled that an arrastre operator and a
carrier may not be held solidarily liable at all times. But the precise question is which entity had
custody of the shipment during its unloading from the vessel?
The aforementioned Section 3 (2) of the COGSA states that among the carriers responsibilities
are to properly and carefully load, care for and discharge the goods carried. The bill of lading
covering the subject shipment likewise stipulates that the carriers liability for loss or damage to
the goods ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds
a ship captain liable for the cargo from the time it is turned over to him until its delivery at the
port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M/V Farland, it was ruled that
like the duty of seaworthiness, the duty of care of the cargo is non-delegable, and the carrier is
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents. It
has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and
place it in readiness for delivery to the consignee, and there is an implied obligation that this
shall be accomplished with sound machinery, competent hands, and in such manner that no
unnecessary injury shall be done thereto. And the fact that a consignee is required to furnish
persons to assist in unloading a shipment may not relieve the carrier of its duty as to such
unloading.
xxxx
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier x x x.13
In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines),
Inc.14 and Asian Terminals, Inc. v. Philam Insurance Co., Inc., 15 the Court echoed the doctrine
that cargoes, while being unloaded, generally remain under the custody of the carrier. We cannot
agree with Westwinds disputation that "the carrier in Wallem clearly exercised supervision
during the discharge of the shipment and that is why it was faulted and held liable for the damage
incurred by the shipment during such time." What Westwind failed to realize is that the
extraordinary responsibility of the common carrier lasts until the time the goods are actually or
constructively delivered by the carrier to the consignee or to the person who has a right to
receive them. There is actual delivery in contracts for the transport of goods when possession has
been turned over to the consignee or to his duly authorized agent and a reasonable time is given
him to remove the goods.16 In this case, since the discharging of the containers/skids, which were
covered by only one bill of lading, had not yet been completed at the time the damage occurred,
there is no reason to imply that there was already delivery, actual or constructive, of the cargoes
to ATI. Indeed, the earlier case of Delsan Transport Lines, Inc. v. American Home Assurance
Corp.17 serves as a useful guide, thus:
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow
because the same had already been actually and legally delivered to Caltex at the time it entered
the shore tank holds no water. It had been settled that the subject cargo was still in the custody of
Delsan because the discharging thereof has not yet been finished when the backflow occurred.
Since the discharging of the cargo into the depot has not yet been completed at the time of the
spillage when the backflow occurred, there is no reason to imply that there was actual delivery of
the cargo to the consignee. Delsan is straining the issue by insisting that when the diesel oil
entered into the tank of Caltex on shore, there was legally, at that moment, a complete delivery
thereof to Caltex. To be sure, the extraordinary responsibility of common carrier 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 a person who has the right to receive them. The discharging of oil products to

Caltex Bulk Depot has not yet been finished, Delsan still has the duty to guard and to preserve
the cargo. The carrier still has in it the responsibility to guard and preserve the goods, a duty
incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.
The mere proof of delivery of goods in good order to the carrier, and their arrival in the place of
destination in bad order, make 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.18
The contention of OFII is likewise untenable. A customs broker has been regarded as a common
carrier because transportation of goods is an integral part of its business. 19 In Schmitz Transport
& Brokerage Corporation v. Transport Venture, Inc.,20 the Court already reiterated: It is settled
that under a given set of facts, a customs broker may be regarded as a common
carrier.1wphi1 Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
Appeals held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit, Art. 1732. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services to
the public.
xxxx
Article 1732 does not distinguish between one whose principal business activity is the carrying
of goods and one who does such carrying only as an ancillary activity. The contention, therefore,
of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of
goods is an integral part of a customs broker, the customs broker is also a common carrier. For to
declare otherwise "would be to deprive those with whom [it] contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is
part and parcel of petitioners business."21
That OFII is a common carrier is buttressed by the testimony of its own witness, Mr. Loveric
Panganiban Cueto, that part of the services it offers to clients is cargo forwarding, which includes

the delivery of the shipment to the consignee. 22 Thus, for undertaking the transport of cargoes
from ATI to SMCs warehouse in Calamba, Laguna, OFII is considered a common carrier. As
long as a person or corporation holds itself to the public for the purpose of transporting goods as
a business, it is already considered a common carrier regardless of whether it owns the vehicle to
be used or has to actually hire one.
As a common carrier, OFII is mandated to observe, under Article 1733 of the Civil
Code,23 extraordinary diligence in the vigilance over the goods 24 it transports according to the
peculiar circumstances of each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted negligently unless it proves that
it observed extraordinary diligence.25 In the case at bar it was established that except for the six
containers/skids already damaged OFII received the cargoes from ATI in good order and
condition; and that upon its delivery to SMC additional nine containers/skids were found to be in
bad order as noted in the Delivery Receipts issued by OFII and as indicated in the Report of
Cares Marine Cargo Surveyors. Instead of merely excusing itself from liability by putting the
blame to ATI and SMC it is incumbent upon OFII to prove that it actively took care of the goods
by exercising extraordinary diligence in the carriage thereof. It failed to do so. Hence its
presumed negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, premises considered the petitions of Westwind and OFII in G.R. Nos. 200289
and 200314 respectively are DENIED. The September 13 2011 Decision and January 19 2012
Resolution of the Court of Appeals in CA-G.R. CV No. 86752 which reversed and set aside the
January 27 2006 Decision of the Manila City Regional Trial Court Branch 30 are AFFIRMED.
SO ORDERED.

G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS

SHIPPING COMPANY, respondent.

DECISION

VITUG, J.:
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A.
G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of
the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages
filed by petitioner insurance corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand
(75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner Philippine American
General Insurance Company (Philamgen). The goods were loaded aboard the dumb barge Limar
I belonging to PKS Shipping. On the evening of 22 December 1988, about nine oclock,
while Limar I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a couple
of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire
cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen
promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid to
DUMC but the shipping company refused to pay, prompting Philamgen to file suit against PKS
Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have
been caused either by a fortuitous event, in which case the ship owner was not liable, or through
the negligence of the captain and crew of the vessel and that, under Article 587 of the Code of
Commerce adopting the Limited Liability Rule, the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision
of the trial court. The appellate court ruled that evidence to establish that PKS Shipping was a
common carrier at the time it undertook to transport the bags of cement was wanting because the
peculiar method of the shipping companys carrying goods for others was not generally held out
as a business but as a casual occupation. It then concluded that PKS Shipping, not being a
common carrier, was not expected to observe the stringent extraordinary diligence required of
common carriers in the care of goods. The appellate court, moreover, found that the loss of the
goods was sufficiently established as having been due to fortuitous event, negating any liability
on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent
error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of
the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does not
militate against respondents being a common carrier and that the only way by which such carrier
can be held exempt for the loss of the cargo would be if the loss were caused by natural disaster
or calamity. Petitioner avers that typhoon "APIANG" has not entered the Philippine area of
responsibility and that, even if it did, respondent would not be exempt from liability because its
employees, particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.

PKS Shipping, in its comment, urges that the petition should be denied because what
Philamgen seeks is not a review on points or errors of law but a review of the undisputed factual
findings of the RTC and the appellate court. In any event, PKS Shipping points out, the findings
and conclusions of both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the
question of whether it is a private carrier or a common carrier and, in either case, to the other
question of whether or not it has observed the proper diligence (ordinary, if a private carrier, or
extraordinary, if a common carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are
consistent with those of the trial court, may not at liberty be reviewed by this Court in a petition
for review under Rule 45 of the Rules of Court. [1] The conclusions derived from those factual
findings, however, are not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In such instances,
the conclusions made could well be raised as being appropriate issues in a petition for review
before this Court. Thus, an issue whether a carrier is private or common on the basis of the facts
found by a trial court or the appellate court can be a valid and reviewable question of law.
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.
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines public service to be
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,
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, 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 communication systems, wire or
wireless broadcasting stations and other similar public services. x x x. (Underscoring supplied).
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman
vs. Court of Appeals.[2] Applying Article 1732 of the Code, in conjunction with Section 13(b) of
the Public Service Act, this Court has held:
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as `a sideline). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on anoccasional, 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.
Much of the distinction between a common or public carrier and a private or special carrier
lies in the character of the business, such that if the undertaking is an isolated transaction, not a
part of the business or occupation, and the carrier does not hold itself out to carry the goods for
the general public or to a limited clientele, although involving the carriage of goods for a fee,
[3]
the person or corporation providing such service could very well be just a private carrier. A
typical case is that of a charter party which includes both the vessel and its crew, such as in a
bareboat or demise, where the charterer obtains the use and service of all or some part of a ship
for a period of time or a voyage or voyages[4] and gets the control of the vessel and its crew.
[5]
Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS
Shipping has engaged itself in the business of carrying goods for others, although for a limited
clientele, undertaking to carry such goods for a fee. The regularity of its activities in this area
indicates more than just a casual activity on its part. [6] Neither can the concept of a common
carrier change merely because individual contracts are executed or entered into with patrons of
the carrier. Such restrictive interpretation would make it easy for a common carrier to escape
liability by the simple expedient of entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper
diligence demanded of common carriers, Article 1733 of the Civil Code requires common
carriers to observe extraordinary diligence in the vigilance over the goods they carry. In case of
loss, destruction or deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on them. [7] The provisions of
Article 1733, notwithstanding, common carriers are exempt from liability for loss, destruction, or
deterioration of the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.[8]
The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the
barges or the tugboats crew could have prevented the sinking of Limar I. The vessel was

suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by
strong winds of 1.5 knots resulting in the entry of water into the barges hatches. The official
Certificate of Inspection of the barge issued by the Philippine Coastguard and the Coastwise
Load Line Certificate would attest to the seaworthiness of Limar I and should strengthen the
factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the
recognized exceptions from the rule - (1) when the factual findings of the Court of Appeals and
the trial court are contradictory; (2) when the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (3) when the inference made by the Court of Appeals from
its findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse
of discretion in the appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the admissions of both
appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice certain relevant facts
which, if properly considered, would justify a different conclusion; (8) when the findings of fact
are themselves conflicting; (9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are contradicted by the
evidence on record would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from
liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

G.R. No. 147246

August 19, 2003

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.
PUNO, J.:

On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and
February 21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the
Regional Trial Court of Manila which found petitioner liable to pay private respondent the
amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on board
the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling
Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4.5The shipment was insured
by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage
for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the
consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced
by Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its
destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of
an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to
Engineering Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied
down to other barges which arrived ahead of it while weathering out the storm that night. A few
days after, the barge developed a list because of a hole it sustained after hitting an unseen
protuberance underneath the water. The petitioner filed a Marine Protest on August 28, 1990.8 It
likewise secured the services of Gaspar Salvaging Corporation which refloated the barge.9 The
hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's
wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran
aground due to strong current. To avoid the complete sinking of the barge, a portion of the goods
was transferred to three other barges.10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting
in the total loss of the remaining cargo.11 A second Marine Protest was filed on September 7,
1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.13 The total proceeds from the sale of the salvaged cargo
was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.

On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the petitioner,
but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of
the amount of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with
counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant
Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee &
Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date complaint was
filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded as and for
attorney's fees. Defendant's counterclaim is hereby DISMISSED. With costs against
defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The
appellate court affirmed the decision of the trial court with modification. The dispositive portion
of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in
the sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate
court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT
A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE
APPLICABLE TO COMMON CARRIERS, "THE LOSS OF THE CARGO IS,
THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE FIVE (5)
CASES ENUMERATED."

(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER
FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS
CARE AND CUSTODY OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary
diligence in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed
and publicly known route, maintains no terminals, and issues no tickets. It points out that it is not
obliged to carry indiscriminately for any person. It is not bound to carry goods unless it consents.
In short, it does not hold out its services to the general public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article
1732 of the Civil Code makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity. We also did not distinguish between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Further, we ruled that Article 1732 does not distinguish between a carrier
offering its services to the general public, and one who offers services or solicits business only
from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage22 and it
offers its barges to the public for carrying or transporting goods by water for compensation.
Petitioner is clearly a common carrier. InDe Guzman, supra,23 we considered private respondent
Ernesto Cendaa to be a common carrier even if his principal occupation was not the carriage of
goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these
items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier
need not have fixed and publicly known routes. Neither does it have to maintain terminals or
issue tickets.

To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part of
the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted."25 In the case at bar, the
petitioner admitted that it is engaged in the business of shipping and lighterage,26 offering its
barges to the public, despite its limited clientele for carrying or transporting goods by water for
compensation.27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.28 They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated.29 To overcome the presumption of negligence in the
case of loss, destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the
Civil Code enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss
of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held
liable for the loss of the cargo. However, petitioner failed to prove that the typhoon is the
proximate and only cause of the loss of the goods, and that it has exercised due diligence before,
during and after the occurrence of the typhoon to prevent or minimize the loss.30 The evidence
show that, even before the towing bits of the barge broke, it had already previously sustained
damage when it hit a sunken object while docked at the Engineering Island. It even suffered a
hole. Clearly, this could not be solely attributed to the typhoon. The partly-submerged vessel was
refloated but its hole was patched with only clay and cement. The patch work was merely a
provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to
proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the
cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc.,
states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31

xxx
q

xxx

xxx

Can you tell us what else transpired after that incident?

a - After the first accident, through the initiative of the barge owners, they tried to
pull out the barge from the place of the accident, and bring it to the anchor terminal for
safety, then after deciding if the vessel is stabilized, they tried to pull it to the consignee's
warehouse, now while on route another accident occurred, now this time the barge totally
hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the
second accident?
a

The sinking, sir.

q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.
xxx

xxx

xxx

This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming
typhoon. During the time that the barge was heading towards the consignee's wharf on
September 5, 1990, typhoon "Loleng" has already entered the Philippine area of
responsibility.32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor of the
petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
xxx

xxx

xxx

q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge
to lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation,
the consignee) as I have said was in a hurry for their goods to be delivered at their Wharf
since they needed badly the wheat that was loaded in PSTSI-3. It was needed badly by
the consignee.
q

And this is the reason why you towed the Barge as you did?

Yes, sir.
xxx

xxx

xxx

CROSS-EXAMINATION BY ATTY. IGNACIO:34

xxx

xxx

xxx

q - And then from ISLOFF Terminal you proceeded to the premises of the GMC?
Am I correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have
stated.
q

Despite of the threats of an incoming typhoon as you testified a while ago?

a - It is already in an inner portion of Pasig River. The typhoon would be coming

and it would be dangerous if we are in the vicinity of Manila Bay.
q

But the fact is, the typhoon was incoming? Yes or no?

Yes.

q - And yet as a standard operating procedure of your Company, you have to secure
a sort of Certification to determine the weather condition, am I correct?
a

Yes, sir.

So, more or less, you had the knowledge of the incoming typhoon, right?

Yes, sir.

And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if
you are already inside the vicinity or inside Pasig entrance, it is a safe place to tow
upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to
escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon headon falls short of due diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the towing bits of the vessel
broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was
no longer affected by the typhoon. The typhoon then is not the proximate cause of the loss of the
cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CAG.R. CV No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby
AFFIRMED. Costs against petitioner.

SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.

G.R. No. 112287 December 12, 1997

NATIONAL STEEL CORPORATION, petitioner,
vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's
responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The
Court also reiterates the well-known rule that findings of facts of trial courts, when affirmed by
the Court of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. 1 The Court of Appeals modified the decision of the Regional Trial Court of Pasig,
Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the
plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay
the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully
paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED. 2
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing
the award for demurrage to P44,000.00 and deleting the award for attorney's fees and
expenses of litigation. Except as thus modified, the decision is AFFIRMED. There is no
pronouncement as to costs.
SO ORDERED. 3
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons who
enter into a special contract of charter party with its owner. It is undisputed that the ship is a
private carrier. And it is in the capacity that its owner, Vlasons Shipping, Inc., entered into a
contract of affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's vessel, the MV
"VLASONS I" to make one (1) voyage to load steel products at Iligan City and discharge
them at North Harbor, Manila, under the following terms and conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill
of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24
consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the
vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally
recognized Charter Party Agreement shall form part of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for "Freight In and Out including
Stevedoring and Trading", which means that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, "Charterers to load, stow and discharge the cargo free of risk and
expenses to owners. . . . (Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of the
vessel in which cargo is carried, fit and safe for its reception, carriage and preservation.
Owners shall not be liable for loss of or damage of the cargo arising or resulting from:

unseaworthiness unless caused by want of due diligence on the part of the owners to
make the vessel seaworthy, and to secure that the vessel is properly manned, equipped
and supplied and to make the holds and all other parts of the vessel in which cargo is
carried, fit and safe for its reception, carriage and preservation; . . . ; perils, dangers and
accidents of the sea or other navigable waters; . . . ; wastage in bulk or weight or any
other loss or damage arising from inherent defect, quality or vice of the cargo;
insufficiency of packing; . . . ; latent defects not discoverable by due diligence; any other
cause arising without the actual fault or privity of Owners or without the fault of the
agents or servants of owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire,
the MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of
1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages
with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment
was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as
agent of the vessel[,] acknowledged receipt of the cargo on board and signed the
corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,
1974. The following day, August 13, 1974, when the vessel's three (3) hatches containing
the shipment were opened by plaintiff's agents, nearly all the skids of tinplates and hot
rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and
unloaded by stevedores hired by the Charterer. Unloading was completed only on August
24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which
interrupted the unloading operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey
of the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter
to the NSC dated March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular
inspection conducted on the cargo, both while it was still on board the vessel and later at
the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and
stored. MASCO reported that it found wetting and rusting of the packages of hot rolled
sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at
various extents; that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that "rusting of the tinplates was caused by contact with SEA
WATER sustained while still on board the vessel as a consequence of the heavy weather
and rough seas encountered while en route to destination (Exhibit "F"). It was also
reported that MASCO's surveyors drew at random samples of bad order packing
materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for
analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770
(Exhibit "I") which in part, states, "The analysis of bad order samples of packing
materials . . . shows that wetting was caused by contact with SEA WATER".

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed
with the defendant its claim for damages suffered due to the downgrading of the damaged
tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally
demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff
filed its complaint against defendant on April 21, 1976 which was docketed as Civil Case
No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of
P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of the
vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation all in violation of defendant's undertaking under their Contract of Voyage
Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
"VLASONS I" was seaworthy in all respects for the carriage of plaintiff's cargo; that said
vessel was not a "common carrier" inasmuch as she was under voyage charter contract
with the plaintiff as charterer under the charter party; that in the course of the voyage
from Iligan City to Manila, the MV "VLASONS I" encountered very rough seas, strong
winds and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its deck and hatch
covers, that under the Contract of Voyage Charter Hire, defendant shall not be responsible
for losses/damages except on proven willful negligence of the officers of the vessel, that
the officers of said MV "VLASONS I" exercised due diligence and proper seamanship
and were not willfully negligent; that furthermore the Voyage Charter Party provides that
loading and discharging of the cargo was on FIOST terms which means that the vessel
was free of risk and expense in connection with the loading and discharging of the cargo;
that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to
the insufficient packing thereof or to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual fault or privity of defendant and
without the fault of the agents or servants of defendant; consequently, defendant is not
liable; that the stevedores of plaintiff who discharged the cargo in Manila were negligent
and did not exercise due care in the discharge of the cargo; land that the cargo was
exposed to rain and seawater spray while on the pier or in transit from the pier to
plaintiff's warehouse after discharge from the vessel; and that plaintiff's claim was highly
speculative and grossly exaggerated and that the small stain marks or sweat marks on the
edges of the tinplates were magnified and considered total loss of the cargo. Finally,
defendant claimed that it had complied with all its duties and obligations under the
Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its
obligations under the Voyage Charter Hire Contract, plaintiff failed and
refused to pay the agreed charter hire of P75,000.00 despite demands
made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to
pay defendant the sum of P8,000.00 per day for demurrage. The vessel
was on demurrage for eleven (11) days in Manila waiting for plaintiff to
discharge its cargo from the vessel. Thus, plaintiff was liable to pay
defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff
should be ordered to pay defendant attorney's fees and all expenses of
litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in
the tramping service and is available for hire only under special contracts
of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage
Charter Hire (Exh. "1"), the MV VLASONS I" was covered by the
required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board
of Transportation (Exh. "5"); International Loadline Certificate from the
Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment
Certificate also from the Philippine Coast Guard (Exh. "7"); Ship Radio
Station License (Exh. "8"); Certificate of Inspection by the Philippine
Coast Guard (Exh. "12"); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. "9"). That being a vessel engaged
in both overseas and coastwise trade, the MV "VLASONS I" has a higher
degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by
the Contract of Voyage Charter Hire, the MV "VLASONS I" underwent
drydocking in Cebu and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessel's first voyage after the
drydocking. The evidence shows that the MV "VLASONS I" was
seaworthy and properly manned, equipped and supplied when it undertook
the voyage. It has all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the
ship. The hatch openings were covered by hatchboards which were in turn
covered by two or double tarpaulins. The hatch covers were water tight.
Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of
carriage is not supported by evidence. The provisions of the Civil Code on

common carriers pursuant to which there exists a presumption of

negligence in case of loss or damage to the cargo are not applicable. As to
the damage to the tinplates which was allegedly due to the wetting and
rusting thereof, there is unrebutted testimony of witness Vicente
Angliongto that tinplates "sweat" by themselves when packed even
without being in contract (sic) with water from outside especially when
the weather is bad or raining. The trust caused by sweat or moisture on the
tinplates may be considered as a loss or damage but then, defendant
cannot be held liable for it pursuant to Article 1734 of the Civil Case
which exempts the carrier from responsibility for loss or damage arising
from the "character of the goods . . ." All the 1,769 skids of the tinplates
could not have been damaged by water as claimed by plaintiff. It was
shown as claimed by plaintiff that the tinplates themselves were wrapped
in kraft paper lining and corrugated cardboards could not be affected by
water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates
were negligent in not closing the hatch openings of the MV "VLASONS
I" when rains occurred during the discharging of the cargo thus allowing
rainwater to enter the hatches. It was proven that the stevedores merely set
up temporary tents to cover the hatch openings in case of rain so that it
would be easy for them to resume work when the rains stopped by just
removing the tent or canvas. Because of this improper covering of the
hatches by the stevedores during the discharging and unloading operations
which were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly made part of the Contract of Voyage
Charter Hire, the loading, stowing and discharging of the cargo is the sole
responsibility of the plaintiff charterer and defendant carrier has no
liability for whatever damage may occur or maybe [sic] caused to the
cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad
weather while en route from Iligan City to Manila causing sea water to
splash on the ship's deck on account of which the master of the vessel (Mr.
Antonio C. Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh.
"15"); which can be invoked by defendant as a force majeure that would
exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph
9 of the Voyage Charter Hire contract that it was to insure the cargo
because it did not. Had plaintiff complied with the requirement, then it
could have recovered its loss or damage from the insurer. Plaintiff also
violated the charter party contract when it loaded not only "steel
products", i.e. steel bars, angular bars and the like but also tinplates and

hot rolled sheets which are high grade cargo commanding a higher freight.
Thus plaintiff was able to ship grade cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter hire
under Paragraph 4 thereof, fixed the freight at P30.00 per metric ton
payable to defendant carrier upon presentation of the bill of lading within
fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00
despite demands. The evidence also showed that the plaintiff was required
and bound under paragraph 7 of the same Voyage Charter Hire contract to
pay demurrage of P8,000.00 per day of delay in the unloading of the
cargoes. The delay amounted to eleven (11) days thereby making plaintiff
liable to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly
manned, equipped and supplied, and that there is no proof of willful negligence of the
vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSC's shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to
VSI. 4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses

of litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution 5 dated
October 20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their
respective petitions for review before this Court. On motion of VSI, the Court ordered on
February 14, 1994 the consolidation of these petitions. 6
The Issues
In its petition 7 and memorandum, 8 NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7",
"8", "9", "11" and "12") were admissible in evidence and constituted evidence of the
vessel's seaworthiness at the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from
liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for
NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted
on their own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of
NSC's tinplates.
In its separate petition, 9 VSI submits for the consideration of this Court the following alleged
errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of
P100,000 for attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: 10

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common carrier
in case of loss or damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or
as a private carrier. The resolution of this preliminary question determines the law, standard of
diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public." It has been held that
the true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee.11 A carrier which does
not qualify under the above test is deemed a private carrier. "Generally, private carriage is
undertaken by special agreement and the carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only form of private carriage, is the charter
party, a maritime contract by which the charterer, a party other than the shipowner, obtains the
use and service of all or some part of a ship for a period of time or a voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under a
"special contract of charter party." 13 As correctly concluded by the Court of Appeals, the MV
Vlasons I "was not a common but a private carrier." 14 Consequently, the rights and obligations of
VSI and NSC, including their respective liability for damage to the cargo, are determined
primarily by stipulations in their contract of private carriage or charter party. 15 Recently,

in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers
Shipping Corporation, 16 the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving
common carriers. 17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall
not be responsible for losses except on proven willful negligence of the officers of the vessel."
The NANYOZAI Charter Party, which was incorporated in the parties' contract of transportation
further provided that the shipowner shall not be liable for loss of or a damage to the cargo arising
or resulting from unseaworthiness, unless the same was caused by its lack of due diligence to
make the vessel seaworthy or to ensure that the same was "properly manned, equipped and
supplied," and to "make the holds and all other parts of the vessel in which cargo [was] carried,
fit and safe for its reception, carriage and preservation." 18 The NANYOZAI Charter Party also
provided that "[o]wners shall not be responsible for split, chafing and/or any damage unless
caused by the negligence or default of the master or crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due diligence in
making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation,
due to fortuitous event, force majeure, or the nature and inherent defect of the things,
shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on

account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him to
believe that the goods were of a class or quality different from what they really were.
Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general
rule, places the prima faciepresumption of negligence on a common carrier. It is a hornbook
doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the
goods were lost or damaged while in the carrier's custody does not put the burden of
proof on the carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a
breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the
carrier's possession does not cast on it the burden of proving proper care and diligence on
its part or that the loss occurred from an excepted cause in the contract or bill of lading.
However, in discharging the burden of proof, plaintiff is entitled to the benefit of the
presumptions and inferences by which the law aids the bailor in an action against a
bailee, and since the carrier is in a better position to know the cause of the loss and that it
was not one involving its liability, the law requires that it come forward with the
information available to it, and its failure to do so warrants an inference or presumption
of its liability. However, such inferences and presumptions, while they may affect the
burden of coming forward with evidence, do not alter the burden of proof which remains
on plaintiff, and, where the carrier comes forward with evidence explaining the loss or
damage, the burden of going forward with the evidence is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage
rests on plaintiff, and proof that the goods were lost or damaged while in the carrier's
possession does not cast on it the burden of proving seaworthiness. . . . Where the
contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy. 20
In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11),
after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiffappellant's [NSC's] interpretation of Clause 12 is not even correct), it argues that 'a careful
examination of the evidence will show that VSI miserably failed to comply with any of these
obligation's as if defendant-appellee [VSI] had the burden of
proof." 21
First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the
intended purpose under the charter party; (2) whether the damage to the cargo should be
attributed to the willful negligence of the officers and crew of the vessel or of the stevedores
hired by NSC; and (3) whether the rusting of the tinplates was caused by its own "sweat" or by
contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties' conflicting claims and to carefully weigh their respective
evidence. The findings of the trial court were subsequently affirmed by the Court of Appeals.
Where the factual findings of both the trial court and the Court of Appeals coincide, the same are
binding on this Court. 22 We stress that, subject to some exceptional instances, 23 only questions of
law not questions of fact may be raised before this Court in a petition for review under
Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find no reason to
disturb the lower court's factual findings, as indeed NSC has not successfully proven the
application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and
fit for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was
drylocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its
voyage to Manila under the contract of voyage charter hire. 24The vessel's voyage from Iligan to
Manila was the vessel's first voyage after drydocking. The Philippine Coast Guard Station in
Cebu cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo
vessel. 25 The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons
I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the
appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and
fit for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin
or canvas to cover the hatches through which the cargo was loaded into the cargo hold of the
ship. It faults the Court of Appeals for failing to consider such claim as an "uncontroverted
fact" 26 and denies that MV Vlasons I "was equipped with new canvas covers in tandem with the
old ones as indicated in the Marine Protest . . ." 27 We disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ship's hatches watertight. The foregoing are
clear from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the
deposition of the ship's boatswain, Jose Pascua. The salient portions of said marine protest read:

. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8,
1974, loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to
National Steel Corporation; that before departure, the vessel was rigged, fully equipped
and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of
the western part of Negros and Panay, we encountered very rough seas and strong winds
and Manila office was advised by telegram of the adverse weather conditions
encountered; that in the morning of August 10, 1974, the weather condition changed to
worse and strong winds and big waves continued pounding the vessel at her port side
causing sea water to overflow on deck andhatch (sic) covers and which caused the first
layer of the canvass covering to give way while the new canvass covering still holding
on;
That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the afternoon
of August 10, 1974, while entering Maricaban Passage, we were again exposed to
moderate seas and heavy rains; that while approaching Fortune Island, we encountered
again rough seas, strong winds and big waves which caused the same canvass to give way
and leaving the new canvass holding on;
xxx xxx xxx 28
And the relevant portions of Jose Pascua's deposition are as follows:
q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch
opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing
over the sides and we place[d] a flat bar over the canvas on the side of the
hatches and then we place[d] a stopper so that the canvas could not be
removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the
width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx

q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to
cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the whole
hatch opening?
a No, sir.
q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many
pieces of wood are put on top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.

q Now, on top of the hatch boards, according to you, is the canvass cover.
How many canvas covers?
a Two, sir. 29
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did
not give way and the ship's hatches and cargo holds remained waterproof. As aptly stated by the
Court of Appeals, ". . . we find no reason not to sustain the conclusion of the lower court based
on overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it undertook the
voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids
of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in
Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; . . . 30
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who
were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on
August 14 you went on board the vessel upon notice from the National
Steel Corporation in order to conduct the inspection of the cargo. During
the course of the investigation, did you chance to see the discharging
operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates
already discharged on the pier but majority of the tinplates were inside the
hall, all the hatches were opened.
Q In connection with these cargoes which were unloaded, where is the
place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:

We object, your Honor, this question was already asked. This particular
matter . . . the transcript of stenographic notes shows the same was
covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious
part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and tents
were built at the opening of the hatches.
Q You also stated that the hatches were already opened and that there were
tents constructed at the opening of the hatches to protect the cargo from
the rain. Now, will you describe [to] the Court the tents constructed.
A The tents are just a base of canvas which look like a tent of an Indian
camp raise[d] high at the middle with the whole side separated down to
the hatch, the size of the hatch and it is soaks [sic] at the middle because
of those weather and this can be used only to temporarily protect the cargo
from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents
proper?
A No, sir, at the time they were discharging the cargo, there was a typhoon
passing by and the hatch tent was not good enough to hold all of it to
prevent the water soaking through the canvass and enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact
the water enter and soak into the canvass and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores in discharging
the cargo particularly in this tent covering of the hatches?

A Yes, sir, I did the first time I saw it, I called the attention of the
stevedores but the stevedores did not mind at all, so, called the attention of
the representative of the National Steel but nothing was done, just the
same. Finally, I wrote a letter to them. 31
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores' negligence on the first day of unloading, pointing out that he
wrote his letter to petitioner only seven days later. 32 The Court is not persuaded. Angliongto's
candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSC's representative, about the
negligent and defective procedure adopted in unloading the cargo. This series of actions
constitutes a reasonable response in accord with common sense and ordinary human experience.
Vicente Angliongto could not be blamed for calling the stevedores' attention first and then the
NSC's representative on location before formally informing NSC of the negligence he had
observed, because he was not responsible for the stevedores or the unloading operations. In fact,
he was merely expressing concern for NSC which was ultimately responsible for the stevedores
it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSC's shipment. We do not
think so. Such negligence according to the trial court is evident in the stevedores hired by
[NSC], not closing the hatch of MV 'VLASONS I' when rains occurred during the
discharging of the cargo thus allowing rain water and seawater spray to enter the hatches
and to drift to and fall on the cargo. It was proven that the stevedores merely set up
temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August 20,
1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the
stevedores hired by [NSC] were discharging the cargo on rainy days and the improper
closing of the hatches which allowed continuous heavy rain water to leak through and
drip to the tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4)
days continuos rains with strong winds that the hatches be totally closed down and
covered with canvas and the hatch tents lowered. (Exh. "13"). This letter was received by
[NSC] on 22 August 1974 while discharging operations were still going on (Exhibit "13A"). 33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may
be noted that the NSC may seek indemnification, subject to the laws on prescription, from the
stevedoring company at fault in the discharge operations. "A stevedore company engaged in
discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence . . . and where the officers and members and
crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores .

. . the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ." 34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat'
by themselves when packed even without being in contact with water from outside especially
when the weather is bad or
raining . . ." 35 The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be incurred
by VSI for damage to the cargo caused by the willful negligence of the officers and the crew
of MV Vlasons I. Clearly, therefore, NSC's failure to insure the cargo will not affect its right, as
owner and real party in interest, to file an action against VSI for damages caused by the latter's
willful negligence. We do not find anything in the charter party that would make the liability of
VSI for damage to the cargo contingent on or affected in any manner by NSC's obtaining an
insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility
of the certificates of seaworthiness offered in evidence by VSI. The said certificates include the
following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs 36
NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of

public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications
or certified true copies" as required by Sections 25 and 26, Rule 132, of the Rules of Court. 37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and
12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven by one who saw the writing
executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best
evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule
per Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official
records made in the performance of a duty by a public officer of the Philippines, or by a person
in the performance of a duty specially enjoined by law, are prima facie evidence of the facts
therein stated." 38 Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu
issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I' was
drydocked . . . and PCG Inspectors were sent on board for inspection . . . After completion of
drydocking and duly inspected by PCG Inspectors, the vessel 'VLASONS I', a cargo vessel, is in
seaworthy condition, meets all requirements, fitted and equipped for trading as a cargo vessel
was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974." (sic)
NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to
discharge its duty of proving the willful negligence of VSI in making the ship seaworthy
resulting in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is
not sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39
The Court defined demurrage in its strict sense as the compensation provided for in the contract
of affreightment for the detention of the vessel beyond the laytime or that period of time agreed

on for loading and unloading of cargo.40 It is given to compensate the shipowner for the nonuse
of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is
expressed in "running days," this means days when the ship would be run continuously,
and holidays are not excepted. A qualification of "weather permitting" excepts only those
days when bad weather reasonably prevents the work contemplated. 41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. 42 The running
of laytime was thus made subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. 43Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable
weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly,
it was error for the trial court and the Court of Appeals to have found and affirmed respectively
that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August
24, 1974, the only day of unloading unhampered by unfavorable weather or rain, which was
August 22, 1974. Based on our previous discussion, such finding is a reversible error. As
mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for
demurrage, even if it reduced the amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not
justify an award of attorney's fees under Article 2208 of the Civil Code when ". . . no sufficient
showing of bad faith would be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness of his cause . . ." 44 Moreover, attorney's fees may not be awarded
to a party for the reason alone that the judgment rendered was favorable to the latter, as this is
tantamount to imposing a premium on one's right to litigate or seek judicial redress of legitimate
grievances. 45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that
such damage was brought about during the unloading process when rain and seawater seeped
through the cargo due to the fault or negligence of the stevedores employed by it. Basic is the
rule that factual findings of the trial court, when affirmed by the Court of Appeals, are binding on
the Supreme Court. Although there are settled exceptions, NSC has not satisfactorily shown that
this case is one of them. Second, the agreement between the parties the Contract of Voyage
Charter Hire placed the burden of proof for such loss or damage upon the shipper, not upon
the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties
entered into a contract of private charter, not one of common carriage. Basic too is the doctrine
that courts cannot relieve a parry from the effects of a private contract freely entered into, on the

ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal
commercial contract and its stipulations are agreed upon in consideration of many factors, not
the least of which is the transport price which is determined not only by the actual costs but also
by the risks and burdens assumed by the shipper in regard to possible loss or damage to the
cargo. In recognition of such factors, the parties even stipulated that the shipper should insure the
cargo to protect itself from the risks it undertook under the charter party. That NSC failed or
neglected to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to costs.

G.R. No. 125948 December 29, 1998

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

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor
of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code 3. The respondent City Treasurer assessed a business tax
on the petitioner amounting to P956,076.04 payable in four installments based on the gross
receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer,
the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying
tax on gross receipts under Section 133 of the Local Government Code of
1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code
does not include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized
under Section 147 of the Local Government Code. The said section limits the
imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of
regulation, inspection and licensing. The fee is already a revenue raising measure,
and not a mere regulatory imposition. 4

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City
of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e)
and 151 does not include the authority to collect such taxes on transportation contractors for, as
defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3)
the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule
that tax exemptions are to be strictly construed against the taxpayer, taxes being
the lifeblood of the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act
387. (Exhibit A) whose concession was lately renewed by the Energy Regulatory
Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec.
137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses onlycommon carriers so as not to
overburden the riding public or commuters with

taxes. Plaintiff is not a common carrier, but a

special carrier extending its services and facilities to
a single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically
enacted to give more and effective local autonomy
to local governments than the previous enactments,
to make them economically and financially viable
to serve the people and discharge their functions
with a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with this
policy even franchise grantees are taxed (Sec. 137)
and contractors are also taxed under Sec. 143 (e)
and 151 of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February
27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication. 10 On November 29, 1995, the respondent court rendered a decision 11 affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated November
11, 1996. 13Petitioner moved for a reconsideration which was granted by this Court in a
Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and must
hold himself out as ready to engage in the

transportation of goods for person generally as a

business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products,
for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all
persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. In De Guzman vs. Court of Appeals 16we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction
between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a "sideline"). Article
1732 . . . avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between
a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or
solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from
making such distinctions.
So understood, the concept of "common carrier" under Article
1732 may be seen to coincide neatly with the notion of "public
service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on
common carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, "public service" includes:
every person that now or hereafter may own,
operate. manage, or control in the Philippines, for
hire or compensation, with general or limited
clientele, whether permanent, occasional or
accidental, and done for general business purposes,
any common carrier, railroad, street railway,

traction railway, subway motor vehicle, either for

freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight
or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system gas,
electric light heat and power, water supply
andpower petroleum, sewerage system, wire or
wireless communications systems, wire or wireless
broadcasting stations and other similar public
services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In fact,
in the United States, oil pipe line operators are considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe line
shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others
for transport, and to charge without discrimination such rates as
may have been approved by the Secretary of Agriculture and
Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article
7 thereof provides:
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum, is
hereby declared to be a public utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

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

only in transporting petroleum products, it is considered a common
carrier under Republic Act No. 387 . . . . Such being the case, it is
not subject to withholding tax prescribed by Revenue Regulations
No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of
transportation contractors and
persons engaged in the transportation
of passengers or freight by hire and
common carriers by air, land or
water, except as provided in this
Code.
The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the
Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to be
exempted from the taxing powers of the local government units.
May we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in
Section 121 (now Sec. 131), line 16, paragraph 5. It states that

local government units may not impose taxes on the business of

transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of
Book II, one can see there that provinces have the power to impose
a tax on business enjoying a franchise at the rate of not more than
one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would be
subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition
of taxes by local government units on the carrier business. Local
government units may impose taxes on top of what is already
being imposed by the National Internal Revenue Code which is the
so-called "common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific
rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. .
. . 18
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the socalled "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 162467

May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:

Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 20032 Decision of the Court of Appeals and the 26 February 2004
Resolution3 of the same court denying petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a
shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into
the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and
the goods were to be transported by it to the port of Inchon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under an "open cargo policy" with
private respondent Phoenix Assurance Company of New York (Phoenix), a non-life insurance
company, and private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent
of Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail
from the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered
upon discharge that some of the cargo was in bad condition. The Marine Cargo Damage
Surveyor of Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong
Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report, it was
stated that 16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment
were so damaged that they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGees Marine Claims Insurance Adjuster evaluated the claim and recommended that payment
in the amount of $210,266.43 be made. A check for the recommended amount was sent to Del
Monte Produce; the latter then issued a subrogation receipt6 to Phoenix and McGee.
Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision dated
20 October 1999, held that the only participation of Mindanao Terminal was to load the cargoes
on board the M/V Mistrau under the direction and supervision of the ships officers, who would
not have accepted the cargoes on board the vessel and signed the foremans report unless they
were properly arranged and tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable for whatever happened to the cargoes
after it had loaded and stowed them. Moreover, citing the survey report, it was found by the RTC
that the cargoes were damaged on account of a typhoon which M/V Mistrau had encountered
during the voyage. It was further held that Phoenix and McGee had no cause of action against
Mindanao Terminal because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del Monte Produce. The
RTC dismissed the complaint and awarded the counterclaim of Mindanao Terminal in the

amount of P83,945.80 as actual damages and P100,000.00 as attorneys fees.9 The actual
damages were awarded as reimbursement for the expenses incurred by Mindanao Terminals
lawyer in attending the hearings in the case wherein he had to travel all the way from Metro
Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorneys fees of 20% of the
claim."11 It sustained Phoenixs and McGees argument that the damage in the cargoes was the
result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the
stevedore of the cargo, the duty to exercise extraordinary diligence in loading and stowing the
cargoes. It further held that even with the absence of a contractual relationship between
Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could be
based on quasi-delict under Article 2176 of the Civil Code.12
Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its
26 February 200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal
under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have
to be answered: first, whether Phoenix and McGee have a cause of action against Mindanao
Terminal; second, whether Mindanao Terminal, as a stevedoring company, is under obligation to
observe the same extraordinary degree of diligence in the conduct of its business as required by
law for common carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed
the degree of diligence required by law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and careless loading and stowing of the
cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have
only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause
of action in light of the Courts consistent ruling that the act that breaks the contract may be also
a tort.17 In fine, a liability for tort may arise even under a contract, where tort is that which
breaches the contract18 . In the present case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service but from the alleged negligent manner
by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the
absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to establish a cause of
action arising from quasi-delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected
of a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a
stevedoring company which was charged with the loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no
specific provision of law that imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and stowing of cargoes. It was
neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by
contractual stipulation to observe a higher degree of diligence than that required of a good father
of a family. We therefore conclude that following Article 1173, Mindanao Terminal was required
to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the
cargoes. The case ofSumma Insurance Corporation v. CA, which involved the issue of whether
an arrastre operator is legally liable for the loss of a shipment in its custody and the extent of its
liability, is inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned
by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila,
carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal
Corporation (Semirara) as "notify party." The shipment, including a bundle of PC 8 U blades,
was discharged from the vessel to the custody of the private respondent, the exclusive arrastre
operator at the South Harbor. Accordingly, three good-order cargo receipts were issued by
NGSC, duly signed by the ship's checker and a representative of private respondent. When
Semirara inspected the shipment at house, it discovered that the bundle of PC8U blades was
missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a warehouseman[22 ]. In
the performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman as enunciated under
Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law,
respectively.Being the custodian of the goods discharged from a vessel, an arrastre
operator's duty is to take good care of the goods and to turn them over to the party entitled
to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which
refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The responsibility of the arrastre
operator lasts until the delivery of the cargo to the consignee. The service is usually performed
by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds

of the vessel or between the ship's tackle and the holds of the vessel. The responsibility of the
stevedore ends upon the loading and stowing of the cargo in the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring function while the
private respondent in the Summa case was performing arrastre function. In the present case,
Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the
cargoes from the pier to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading
and stowing of cargoes would not have a far reaching public ramification as that of a common
carrier and a warehouseman; the public is adequately protected by our laws on contract and on
quasi-delict. The public policy considerations in legally imposing upon a common carrier or a
warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly
provides labor in loading and stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise
or there is any doubt on which side the evidence preponderates the party having the burden of
proof fails upon that issue. That is to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its existence, or if it leaves the mind in
a state of perplexity, the party holding the affirmative as to such fact must fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court
of Appeals did not make any new findings of fact when it reversed the decision of the trial court.
The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.29 It
was not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and
cardboards, used in lashing and rigging the cargoes were all provided by M/V Mistrau and these
materials meets industry standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard theM/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessels hold, prepared by Del Monte Produce and the officers
of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the
ship officers. The vessels officer would order the closing of the hatches only if the loading was
done correctly after a final inspection.32 The said ship officers would not have accepted the
cargoes on board the vessel if they were not properly arranged and tightly secured to withstand
the voyage in open seas. They would order the stevedore to rectify any error in its loading and
stowing. A foremans report, as proof of work done on board the vessel, was prepared by the
checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they
were satisfied that the cargoes were properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey
report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey

report,36 found that the cause of the damage was improper stowage37 due to the manner the
cargoes were arranged such that there were no spaces between cartons, the use of cardboards as
support system, and the use of small rope to tie the cartons together but not by the negligent
conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and
McGee in their Comment38 before us, the latter is merely a stevedoring company which was
tasked by Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte
Produce aboard the M/V Mistrau. How and where it should load and stow a shipment in a vessel
is wholly dependent on the shipper and the officers of the vessel. In other words, the work of the
stevedore was under the supervision of the shipper and officers of the vessel. Even the materials
used for stowage, such as ropes, pallets, and cardboards, are provided for by the vessel. Even the
survey report found that it was because of the boisterous stormy weather due to the typhoon
Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo
hold to collapse, shift and bruise in extensive extent.39 Even the deposition of Byeong was not
supported by the conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage occurred aboard
the carrying vessel during sea transit, being caused by ships heavy rolling and pitching under
boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October,
1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family, the
grant of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of
petitioner.lawphil.net None of the circumstances enumerated in Article 2208 of the Civil Code
exists. The present case is clearly not an unfounded civil action against the plaintiff as there is no
showing that it was instituted for the mere purpose of vexation or injury. It is not sound public
policy to set a premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages to Mindanao
Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the trial
of this case in Davao City, the lawyer of Mindanao Terminal incurred expenses for plane fare,
hotel accommodations and food, as well as other miscellaneous expenses, as he attended the
trials coming all the way from Manila. But there is no showing that Phoenix and McGee made a
false claim against Mindanao Terminal resulting in the protracted trial of the case necessitating
the incurrence of expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City, Branch

12 in Civil Case No. 25,311.97 is herebyREINSTATED MINUS the awards of P100,000.00 as

attorneys fees and P83,945.80 as actual damages.
SO ORDERED.
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and
BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING
SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its
Resolution2 dated September 28, 2001 denying the motion for reconsideration, which affirmed
that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport),
together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent
Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable for the loss of
37 hot rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia
on board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545
hot rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little
Giant Steel Pipe Corporation (Little Giant),4 were insured against all risks with Industrial
Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority
(PPA) assigned it a place of berth at the outside breakwater at the Manila South Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to
receive the cargoes from the shipside, and to deliver them to its (the consignees) warehouse at
Cainta, Rizal,7 in turn engaged the services of TVI to send a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVIs tugboat "Lailani" towed the barge "Erika V" to
shipside.8

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal
Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement
due to an approaching storm, the unloading unto the barge of the 37 coils was
accomplished.10 No tugboat pulled the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge abandoned
it and transferred to the vessel. The barge pitched and rolled with the waves and eventually
capsized, washing the 37 coils into the sea.12 At 7:00 a.m., a tugboat finally arrived to pull the
already empty and damaged barge back to the pier.13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover
the lost cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of P5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in favor of Industrial
Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea
through its representative Inchcape (the defendants) before the RTC of Manila, for the recovery
of the amount it paid to Little Giant plus adjustment fees, attorneys fees, and litigation
expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while
typhoon signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for
unloading the cargoes outside of the breakwater notwithstanding the storm signal.18 The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
ordering the defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with
interest from the date the complaint was filed until fully satisfied, as well as the sum
of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount recoverable
from the defendants as attorneys fees plus the costs of suit. The counterclaims and cross claims
of defendants are hereby DISMISSED for lack of [m]erit.19
To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive
attorneys fees of more thanP1,000,000. And they argued that they were not motivated by gross
or evident bad faith and that the incident was caused by a fortuitous event. 20

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001,
affirmed in toto the decision of the trial court, 22 it finding that all the defendants were common
carriers Black Sea and TVI for engaging in the transport of goods and cargoes over the seas as
a regular business and not as an isolated transaction,23 and Schmitz Transport for entering into a
contract with Little Giant to transport the cargoes from ship to port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one was
essential such that without each others contributory negligence the incident would not have
happened and so much so that the person principally liable cannot be distinguished with
sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although defendants
obviously had nothing to do with the force of nature, they however had control of where to
anchor the vessel, where discharge will take place and even when the discharging will
commence."26
The defendants respective motions for reconsideration having been denied by Resolution27 of
September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present
petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal,
consignee Little Giant, hence, the transportation contract was by and between Little Giant and
TVI.28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI
were required to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and supervision
thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and
transferred them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and
TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and
all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which though foreseen, were
inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the
caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4) the
obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from creating
or entering into the cause of the mischief. When the effect is found to be in part the result of the
participation of man, whether due to his active intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the rules applicable to the acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in the form
of contributory negligence by all the defendants resulted to the loss of the cargoes,34 held that
unloading outside the breakwater, instead of inside the breakwater, while a storm signal was up
constitutes negligence.35 It thus concluded that the proximate cause of the loss was Black Seas
negligence in deciding to unload the cargoes at an unsafe place and while a typhoon was
approaching.36
From a review of the records of the case, there is no indication that there was greater risk in
loading the cargoes outside the breakwater. As the defendants proffered, the weather on October
26, 1991 remained normal with moderate sea condition such that port operations continued and
proceeded normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of
PAG-ASA and marked as a common exhibit of the parties, states that while typhoon signal No. 1
was hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of Manila
at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the
defendants were negligent in not unloading the cargoes upon the barge on October 26, 1991
inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded by
12:30 in the morning39 is, however, a material fact which the appellate court failed to properly

consider and appreciate40 the proximate cause of the loss of the cargoes. Had the barge been
towed back promptly to the pier, the deteriorating sea conditions notwithstanding, the loss could
have been avoided. But the barge was left floating in open sea until big waves set in at 5:30 a.m.,
causing it to sink along with the cargoes.41 The loss thus falls outside the "act of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are
responsible therefor?
Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner is a
common carrier. For it undertook to transport the cargoes from the shipside of "M/V Alexander
Saveliev" to the consignees warehouse at Cainta, Rizal. As the appellate court put it, "as long as
a person or corporation holds [itself] to the public for the purpose of transporting goods as [a]
business, [it] is already considered a common carrier regardless if [it] owns the vehicle to be
used or has to hire one."42 That petitioner is a common carrier, the testimony of its own VicePresident and General Manager Noel Aro that part of the services it offers to its clients as a
brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President
and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters, and all
other related functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the
Honorable Court if you came to know the company by the name Little Giant Steel Pipe
Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you
perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also incharged of the delivery of the goods to their warehouses. We also handled the clearances of their
shipment at the Bureau of Customs, Sir.
xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with
regards to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the]
cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to
perform, what equipment do (sic) you require or did you use in order to effect this unloading,
transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to
lighter, and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] incharged (sic) of the barges. Also, in BASECO compound we are leasing cranes to have the cargo
unloaded from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the
consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to
contract for the barges of Transport Ventures Incorporated in this particular operation?
A: Firstly, we dont own any barges. That is why we hired the services of another firm whom we
know [al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common
carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
xxx
Article 1732 does not distinguish between one whose principal business activity is the carrying
of goods and one who does such carrying only as an ancillary activity. The contention, therefore,
of petitioner that it is not a common carrier but a customs broker whose principal function is to

prepare the correct customs declaration and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation of
goods is an integral part of a customs broker, the customs broker is also a common carrier. For to
declare otherwise "would be to deprive those with whom [it] contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is
part and parcel of petitioners business."47
As for petitioners argument that being the agent of Little Giant, any negligence it committed
was deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In
effecting the transportation of the cargoes from the shipside and into Little Giants warehouse,
however, petitioner was discharging its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler48 to
provide the barge and the tugboat. In their Service Contract,49 while Little Giant was named as
the consignee, petitioner did not disclose that it was acting on commission and was chartering the
vessel for Little Giant.50 Little Giant did not thus automatically become a party to the Service
Contract and was not, therefore, bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it
can maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper
and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of articles
1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the
same situation exercised by TVI?52
This Court holds not.
TVIs failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A
man of ordinary prudence would not leave a heavily loaded barge floating for a considerable
number of hours, at such a precarious time, and in the open sea, knowing that the barge does not
have any power of its own and is totally defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a tugboat would be charging overtime pay
did not excuse TVI from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 173953 of the Civil
Code, prove that it exercised due diligence to prevent or minimize the loss, before, during and
after the occurrence of the storm in order that it may be exempted from liability for the loss of
the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the
operations of TVI, itfailed to take all available and reasonable precautions to avoid the loss. After
noting that TVI failed to arrange for the prompt towage of the barge despite the deteriorating sea
conditions, it should have summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the cargoes.
The following pronouncement of the Supreme Court is instructive:
The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high
diligence required of the common carrier. In the discharge of its commitment to ensure the safety
of passengers, a carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the common carrier is not
relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil
Code. x x x [O]ne might ask further, how then must the liability of the common carrier, on one
hand, and an independent contractor, on the other hand, be described? It would be solidary. A
contractual obligation can be breached by tort and when the same act or omission causes the
injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the
Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where tort
is that which breaches the contract. Stated differently, when an act which constitutes a breach of
contract would have itself constituted the source of a quasi-delictual liability had no contract

existed between the parties, the contract can be said to have been breached by tort, thereby
allowing the rules on tort to apply.57
As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until they
were delivered actually or constructively to consignee Little Giant.58
Parties to a contract of carriage may, however, agree upon a definition of delivery that extends
the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made "to the port of discharge or so near thereto as she may safely get,
always afloat."59 The delivery of the goods to the consignee was not from "pier to pier" but from
the shipside of "M/V Alexander Saveliev" and into barges, for which reason the consignee
contracted the services of petitioner. Since Black Sea had constructively delivered the cargoes to
Little Giant, through petitioner, it had discharged its duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorneys fees in an amount over P1,000,000.00 to Industrial Insurance,
for lack of factual and legal basis, this Court sets it aside. While Industrial Insurance was
compelled to litigate its rights, such fact by itself does not justify the award of attorneys fees
under Article 2208 of the Civil Code. For no sufficient showing of bad faith would be reflected
in a partys persistence in a case other than an erroneous conviction of the righteousness of his
cause.61 To award attorneys fees to a party just because the judgment is rendered in its favor
would be tantamount to imposing a premium on ones right to litigate or seek judicial redress of
legitimate grievances.62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred by
Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo.
They do not constitute actual damages.63
As for the court a quos award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that when the demand
cannot be reasonably established at the time the demand is made, the interest shall begin to run
not from the time the claim is made judicially or extrajudicially but from the date the judgment
of the court is made (at which the time the quantification of damages may be deemed to have
been reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &
Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable for the
amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per annum
of the amount due should be computed from the promulgation on November 24, 1997 of the
decision of the trial court.
Costs against petitioner.

SO ORDERED.

G.R. No. 147079

December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts Decision1 of August 10,
2000 reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati
City, in Civil Case No. 93-76B which dismissed the complaint of respondent FGU Insurance
Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal
tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to
Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were
placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed
together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in two
pallets, each of which contained 30 cartons.3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine
Risk Note No. 4995 pursuant to Marine Open Policy No. 138.4

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport
(NAIA),5 it was discharged "without exception"6 and delivered to the warehouse of the
Philippine Skylanders, Inc. (PSI) located also at the NAIA for safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, WyethSuaco engaged the services of Sanchez Brokerage which had been its licensed broker since
1984.8 As its customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes
and storage fees for the cargo and thereafter delivers it to Wyeth-Suaco.9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage,
paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No.
016992,10 was issued. On the receipt, another representative of Sanchez Brokerage, M.
Sison,11 acknowledged that he received the cargoes consisting of three pieces in good
condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which
were thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles
hired by Sanchez Brokerage.15
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a
marine and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on
behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.17 The delivery receipt, bearing No. 07037 dated July 29,
1992, indicated that the delivery consisted of one container with 144 cartons of Femenal and
Nordiol and 1 pallet containing Trinordiol.18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of
the cargoes by affixing his signature on the delivery receipt.19 Upon inspection, however, he,
together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal
and Nordiol tablets were in bad order.20 He thus placed a note above his signature on the delivery
receipt stating that 44 cartons of oral contraceptives were in bad order. The remaining 160
cartons of oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report21 dated July
31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted"
(sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an
"Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the
brokers trucks at the NAIA, they were inspected and found to be in "apparent good
condition."24 Also noted was that at the time of delivery to the warehouse of Hizon Laboratories

Inc., slight to heavy rains fell, which could account for the wetting of the 44 cartons of Femenal
and Nordiol tablets.25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that 38
x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700
blister packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of
Femenal and 3 cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories
with heavy water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and
easily attracted flies."28
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the
payment of P191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its
claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the
sealed containers were opened outside the PSI warehouse, it was discovered that some of the
loose cartons were wet,32 prompting its (Sanchez Brokerages) representative Morales to inform
the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes
but that the latter advised to still deliver them to Hizon Laboratories where an adjuster would
assess the damage.33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court
of Makati City against the Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.35
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez
Brokerage engaged not only in the business of customs brokerage but also in the transportation
and delivery of the cargo of its clients, hence, a common carrier within the context of Article
1732 of the New Civil Code.36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good
order and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate

court held that Sanchez Brokerage is presumed negligent and upon it rested the burden of
proving that it exercised extraordinary negligence not only in instances when negligence is
directly proven but also in those cases when the cause of the damage is not known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED.
The Decision of the Court a quo is REVERSED. Another Decision is hereby rendered in
favor of the Appellant and against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of
P181, 431.49, with interest thereupon at the rate of 6% per annum, from the date
of the Decision of the Court, until the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of
P20,000.00 as and by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes
to this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the context
of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole office of
a writ of certiorari is the correction of errors of jurisdiction including the commission of grave
abuse of discretion amounting to lack or excess of jurisdiction and does not include correction of
the appellate courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this
Court by filing a petition for review, which would be but a continuation of the appellate process
over the original case.40

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5,
2001. Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the
appellate courts decision had become final and executory. The filing by petitioner of a petition
for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove
not merely reversible error but also grave abuse of discretion amounting to lack or excess of
jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the
trial court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly
the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision
not the jurisdiction of the court to render said decision the same is beyond the province of a
petition for certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot be
exercised in order to review the judgment of lower courts as to its intrinsic correctness, either
upon the law or the facts of the case.42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of the
consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from
customs and finally deliver the goods to the warehouse of the importer.43

Article 1732 does not distinguish between one whose principal business activity is the carrying
of goods and one who does such carrying only as an ancillary activity.44 The contention,
therefore, of petitioner that it is not a common carrier but a customs broker whose principal
function is to prepare the correct customs declaration and proper shipping documents as required
by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 173345 of the
Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all
the circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.46
The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of
Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It
requires common carriers to render service with the greatest skill and foresight and "to
use all reasonable means to ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods
as their nature requires."48
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse
in NAIA in good order and condition;49 and that upon delivery by petitioner to Hizon
Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the Delivery
Receipt50 issued by petitioner, and as indicated in the Survey Report of Elite Surveyors51 and the
Destruction Report of Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that
they were damaged due to the fault or negligence of the shipper for failing to properly pack them
and to the inherent characteristics of the goods53; and that it should not be faulted for following
the instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information
conveyed to the latter that some of the cartons, on examination outside the PSI warehouse, were
found to be wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packing or in
the containers, the rule is that if the improper packing is known to the carrier or his employees or
is apparent upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the resulting
damage.56

If the claim of petitioner that some of the cartons were already damaged upon delivery to it were
true, then it should naturally have received the cargo under protest or with reservations duly
noted on the receipt issued by PSI. But it made no such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioners employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone
back to PSI, showed to the warehouseman the damage, and demanded then and there for Bad
Order documents or a certification confirming the damage.58 Or, petitioner would have presented,
as witness, the employees of the PSI from whom Morales and Domingo took delivery of the
cargo to prove that, indeed, part of the cargoes was already damaged when the container was
allegedly opened outside the warehouse.59
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day.
Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI
warehouse but such notwithstanding Calicdan directed Morales to proceed with the delivery to
Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29,
1992, he failed to specifically declare what time he received the call. As to whether the call was
made at the PSI warehouse when the shipment was stripped from the airport containers, or when
the cargoes were already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time it received the
cargoes, a part of it was wet, damaged or in bad condition.60
The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely then.
Sanchez himself testified that in the past, there was a similar instance when the shipment of
Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived
at the NAIA were damaged and claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco
did not claim anything against us.
ATTY. FLORES:

Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were turned
over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion
thereof was found to be in bad order, it was incumbent on petitioner to prove that it exercised
extraordinary diligence in the carriage of the goods. It did not, however. Hence, its presumed
negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

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.1wphi1.nt
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 aregular 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 narrowsegment 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
MAXU-201406-0

wood flooring we[t] and/or with signs of water soaked

-

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.1wphi1.nt
SO ORDERED.

G.R. No. 159098

October 27, 2006

SPS. HENRY and ROSARIO UY, petitioners,

vs.
HON. JUDGE ARSENIO P. ADRIANO, in his capacity as Pairing Judge of RTC, Br. 64,
Tarlac City, CITY PROSECUTOR ALIPIO C. YUMUL and PIAKAMASARAP
CORP., respondents.
DECISION
CALLEJO, SR., J.:

Challenged in this instant Petition for Review on Certiorari is the Decision1 of the Court of
Appeals (CA) in CA-G.R. SP No. 62103 which affirmed the Orders of the Regional Trial Court
(RTC) of Tarlac City2 denying the motion to quash the Information in Criminal Case Nos. 651294.
Based on a confidential information that petitioner Henry Uy had been engaged in
manufacturing, delivering, and selling "fake" Marca Pia soy sauce,3 Orlando S. Bundoc,
Intelligence Officer II of the Economic Intelligence and Investigation Bureau (EIIB), applied for
a search warrant4 for unfair competition which was granted on February 14, 1994. When the
search warrant was implemented on even date, Atty. Francisco R. Estavillo, agent of the National
Bureau of Investigation (NBI) in Tarlac, seized fifty-five (55) bottles of label Marca Pia soy
sauce.5
Consequently, a criminal complaint was filed in the Municipal Trial Court (MTC) of Tarlac City
on March 23, 1994, charging petitioner Henry Uy with violation of Article 189 (Unfair
Competition) of the Revised Penal Code.6
On November 8, 1994, private respondent Piakamasarap Corporation moved to amend the
criminal charge by including Henry's spouse, petitioner Rosario Uy.7 The court granted the
motion in its Order dated November 15, 1994 and admitted the amended criminal complaint
which reads:
The undersigned, LUIS E. GONZALES, Comptroller of PIAKAMASARAP
CORPORATION of 583 Sta. Veronica St., Novaliches, Quezon City, and by authority of
the said corporation, under oath accuses HENRY UY, ROSARIO GUTIERREZ UY and a
certain JOHN DOE of Violation of Article 189 of the Revised Penal Code, committed as
follows:
That on or about February 14, 1994, and for sometimes (sic) prior thereto, in
Municipality of Tarlac, Tarlac, Philippines, the said Rosario G. Uy accused, being then
the owner of a business establishment with principal address at Phase I, Northern Hills
Subdivision, San Vicente, Tarlac, Tarlac, and her co-accused, husband, HENRY UY, and
a certain John Doe, did then and there, willfully, unlawfully and feloniously conspire and
confederate together and help one another engaged in unfair competition with the
intention of deceiving and defrauding the public in general and the consuming public in
general and PIAKAMASARAP Corporation, the manufacturer and bottler of soy sauce
under the name "MARCA PIA," a [trademark] duly registered with the Philippine
Patent Office and sell or offer for sale soy sauce manufactured by them with the brand
name "Marca Pia" which is a bastard version of the trademark, and using the bottles of
Piakamasarap Corporation and substituted the contents thereof with those manufactured
by the accused and passing to the public that said products to be the products of
Piakamasarap Corporation which is not true, thereby inducing the public to believe that
the above-mentioned soy sauce sold or offered for sale by said accused are genuine

"MARCA PIA" soy sauce manufactured by PIAKAMASARAP CORPORATION,

and of inferior quality to the damage and prejudice of the Piakamasarap Corporation.
Contrary to law.
Tarlac, Tarlac, November 8, 1994.8
After preliminary examination of the prosecution witnesses, the court found probable cause to
indict petitioners.9 On January 30, 1995, the court issued a warrant of arrest against
petitioners.10 They were released after posting a cash bond on February 1, 1995.11 On July 10,
1995, petitioners were arraigned, assisted by counsel, and pleaded not guilty to the
charge.12 Petitioners, through counsel, waived the pre-trial conference on October 25, 1995. The
initial trial was set on November 27, 1995.13
However, it was only on February 26, 1996 that the first witness of the prosecution, Atty.
Estavillo of the NBI, testified. In the meantime, in October 1996, this Court issued
Administrative Order (A.O.) No. 104-96 providing, inter alia, that the RTC shall have exclusive
jurisdiction over violations of Articles 188 and 189 of the Revised Penal Code and Republic Act
(R.A.) No. 166, as amended, thus:
VIOLATIONS OF INTELLECTUAL PROPERTY RIGHTS SUCH AS, BUT NOT
LIMITED TO, VIOLATIONS OF ART. 188 OF THE REVISED PENAL CODE
(SUBSTITUTING AND ALTERING TRADEMARKS, TRADE NAMES, OR SERVICE
MARKS), ART. 189 OF THE REVISED PENAL CODE (UNFAIR COMPETITION,
FRAUDULENT REGISTRATION OF TRADEMARKS, TRADE NAMES, OR
SERVICE MARKS, FRAUDULENT DESIGNATION OF ORIGIN, AND FALSE
DESCRIPTION), P.D. NO. 49 (PROTECTION OF INTELLECTUAL PROPERTY
RIGHTS), P.D. NO. 87 (AN ACT CREATING THE VIDEOGRAM REGULATORY
BOARD), R.A. NO. 165, AS AMENDED (THE PATENT LAW), AND R.A. NO. 166,
AS AMENDED (THE TRADEMARK LAW) SHALL BE TRIED EXCLUSIVELY BY
THE REGIONAL TRIAL COURTS IN ACCORDANCE WITH THE ESTABLISHED
RAFFLE SCHEME EXCEPT THOSE COVERED BY ADMINISTRATIVE ORDER
NO. 113-95 DATED 2 OCTOBER 1995, IN WHICH CASE, THE DESIGNATED
REGIONAL TRIAL COURTS SHALL CONTINUE TO OBSERVE THE PROVISIONS
THEREIN.
CONSIDERING THAT JURISDICTION FOR VIOLATIONS OF INTELLECTUAL
PROPERTY RIGHTS HEREINBEFORE MENTIONED IS NOW CONFINED
EXCLUSIVELY TO THE REGIONAL TRIAL COURTS, THE DESIGNATION OF
METROPOLITAN TRIAL COURTS AND MUNICIPAL TRIAL COURTS IN CITIES
UNDER ADMINISTRATIVE ORDER NO. 113-95 IS DELETED AND WITHDRAWN.

Despite the administrative order of the Court, the MTC continued with the trial. Gloria P.
Tomboc, Analyst of the Bureau of Food and Drugs Administration (BFAD), testified on August
25, 1997. In the meantime, Articles 188 and 189 of the Revised Penal Code were amended by
R.A. No. 8293, otherwise known as the Intellectual Property Code. Two years thereafter, Alfredo
Lomboy, supervisor of Piakamasarap Corporation, testified on August 30, 1999.
On December 12, 1999, the prosecution filed its formal offer of evidence.14 In the meantime, on
October 22, 1999, Atty. Joselito L. Lim had moved to withdraw his appearance as counsel for
petitioners;15 the court had granted the motion on October 25, 1999;16 and the new counsel of
petitioners, Balbastro and Associates, had entered its appearance on November 24, 1999.17
On February 15, 2000, the court resolved to admit the documentary evidence of the prosecution
except Exhibit "E" which was rejected by the court, and Exhibits "I" and "J" which were
withdrawn.18 The prosecution rested its case.
On March 10, 2000, petitioners, through their new counsel, filed a Motion for Leave to File
Demurrer to Evidence.19The court granted the motion. In their demurrer,20 petitioners argued that
a judgment of acquittal is proper since no sufficient evidence was presented to prove beyond
reasonable doubt that they are guilty of the offense charged. The prosecution was not able to
establish that they gave their goods the general appearance of another manufacturer or dealer and
that they had the intent to defraud the public or Piakamasarap Corporation. Moreover, under
both R.A. No. 166, as amended, and its repealing law, R.A. No. 8293, the RTC had jurisdiction
over the crime charged; hence, the amended complaint should be quashed.
The prosecution opposed the demurrer to evidence, contending that it had presented proof
beyond reasonable doubt of the guilt of petitioners for the crime charged. The prosecution
maintained that, under Batas Pambansa (B.P.) Blg. 129, the MTC had jurisdiction over the crime
charged in the light of the imposable penalty for unfair competition under Article 189 of the
Revised Penal Code.21
In its Resolution dated May 16, 2000,22 the court held that there was prima facie evidence which,
if unrebutted or not contradicted, would be sufficient to warrant the conviction of petitioners.
However, the court ruled that the RTC was vested by law with the exclusive and original
jurisdiction to try and decide charges for violation of R.A. No. 166 as amended by R.A. No.
8293. Accordingly, the court denied the demurrer to evidence and ordered the records of the case
forwarded to the Office of the Provincial Prosecutor for appropriate action.
The City Prosecutor forwarded the case records to the Clerk of Court of RTC, Br. 63, Tarlac
City.23 On June 19, 2000, the RTC ordered the City Prosecutor to conduct the requisite
preliminary investigation and to file the necessary Information if he found probable cause against
petitioners.

The City Prosecutor found probable cause based on the findings of the MTC in its May 16, 2000
Resolution that there was a prima facie case against petitioners.24 He filed an Information in the
RTC on July 18, 2000 for violation of Article 189 of the Revised Penal Code.25 The Information
reads:
That on or about February 14, 1994 and sometime prior thereto, at Tarlac City, and within
the jurisdiction of this Honorable Court, the accused, being the owner of a business
establishment with principal address at Phase I, Northern Hills Subd., San Vicente, Tarlac
City, the accused, conspiring, confederating and helping one another did then and there
willfully, unlawfully and feloniously, in unfair competition with the intention of
deceiving and defrauding the public in general and the PIAKAMASARAP
CORPORATION, the name "MARCA PIA," and sell or offer for sale soy sauce
manufactured by them with the brand name "Marca Pia," which is a version of the
trademark, and using the bottles of Piakamasarap Corporation and substituted the
contents thereof with those manufactured by the accused and passing to the public the
products, thereby inducing the public to believe that the soy sauce sold or offered for sale
by the accused are genuine "MARCA PIA" soy sauce, to the damage and prejudice of
PIAKAMASARAP CORPORATION.
CONTRARY TO LAW.26
Petitioners filed a Motion to Quash the Information,27 alleging that their rights to due process and
speedy trial had been violated. Other than the notice of hearing sent by the court, they never
received a subpoena which required them to submit their evidence during a preliminary
investigation. Petitioners further averred that certain delays in the trial are permissible, especially
when such delays are due to uncontrollable circumstances or by accident. In this case, the
inordinate delay was obviously brought by the lackadaisical attitude taken by the prosecutor in
prosecuting the case. Petitioners pointed out that there was already a delay of six (6) long years
from the time the initial complaint was filed, and that they had already been prejudiced. Their
life, liberty and property, not to mention their reputation, have been at risk as there has been no
determination of the issue of whether or not to indict them. Thus, the case should be dismissed in
order to free them from further capricious and oppressive dilatory tactics of the prosecution.
Indeed, their right to a speedy trial is part of due process, both of which are guaranteed by no less
than the fundamental law itself. They insisted that they should not be made to unjustly await the
prosecution of the charges against them.
In opposition, the City Prosecutor clarified that subpoenas were sent to the parties during the
preliminary investigation. In fact, petitioner Henry Uy appeared and submitted the case for
resolution without submitting additional evidence. Also, the proceedings in the MTC were not
part of preliminary investigation but the trial on the merits.28
On September 8, 2000, the court issued an Order denying the motion to quash.29 The court ruled
that:

While there must have been a protracted trial since the case was originally filed before
the Municipal Trial Court, a period of about six (6) years, as the accused contends,
nevertheless the delay if any, is partly attributable to the accused. [They] allowed the
prosecution to rest the evidence in chief before raising the issue of lack of jurisdiction.
Had the accused immediately raised the issue of lack of jurisdiction, this case could have
been filed anew before the RTC. The accused allowed themselves to be arraigned without
raising the issue of jurisdiction. In fact, the prosecution [had] rested its evidence in chief.
The parties may[,] however[,] stipulate in the pre-trial that all the proceedings taken
before the Municipal Trial Court are automatically reproduced and are considered part of
the prosecution's evidence, so that the trial will now be with respect to the reception of
defense evidence.30
Petitioners filed a motion for reconsideration of the Order31 which the trial court denied.32 At the
same time, the court granted the oral motion of the prosecution to amend the Information to
reflect in its caption that the law violated by the accused is R.A. No. 8293 and not Article 189 of
the Revised Penal Code. On October 12, 2000, the City Prosecutor filed an amended
Information. The inculpatory portion reads:
That on or about February 14, 1994 and sometimes prior thereto, at Tarlac City, and
within the jurisdiction of this Honorable Court, the accused, being the owner of a
business establishment with principal address at Phase I, Northern Hills Subd., San
Vicente, Tarlac City, the accused, conspiring, confederating and helping one another did
then and there willfully, unlawfully and feloniously, in Violation of Sec. 168 of R.A. No.
8293with the intention of deceiving and defrauding the public in general and the
PIAKAMASARAP CORPORATION, the name "MARCA PIA," and sell or offer for
sale soy sauce manufactured by them with the brand name "Marca Pia," which is a
version of the trademark, and using the bottles of Piakamasarap Corporation and
substituted the contents thereof with those manufactured by the accused and passing to
the public the products, thereby inducing the public to believe that the soy sauce sold or
offered for sale by the accused are genuine "MARCA PIA" soy sauce, to the damage
and prejudice of PIAKAMASARAP CORPORATION.
CONTRARY TO LAW.33
Petitioners then filed before the CA a petition for certiorari with prayer for temporary restraining
order and preliminary injunction,34 on the sole ground that respondent judge committed grave
abuse of discretion in denying their motion to quash based on violation of their right to a speedy
trial. They claimed that there was no active effort on their part to delay the case as they merely
attended the scheduled hearings and participated in the preliminary investigation. On the
contrary, it is the prosecution that has the unmitigated obligation to immediately file the
Information with the proper court. The public prosecutor is supposedly knowledgeable of the
existing laws and jurisprudence since his office has the delicate task of prosecuting cases in

behalf of the State. Under the Rules on Criminal Procedure, he is the officer responsible for the
direction and control of criminal prosecutions. In the case at bar, the public prosecutor failed in
his bounden duty by neglecting to file the case in the court of competent jurisdiction. The
prosecution could not advance a single reason to justify the procedural error and instead pointed
its accusing finger to petitioners who are just ordinary citizens. Their failure to call the attention
of the prosecution is neither acquiescence nor consent on their part. While their former lawyer
was obviously lackluster in their defense, the act of the counsel should not deprive them of their
constitutional right to a speedy trial. For petitioners, the prosecution's blunder in procedure and
ignorance of existing laws and jurisprudence far outweigh whatever minimal participation, if
any, they had in the protracted proceedings.
On March 21, 2003, the CA dismissed the petition.35 The fallo of the decision reads:
WHEREFORE, premises considered, the instant petition is hereby DISMISSED for
lack of merit. The Orders dated September 8, 2000 and October 9, 2000 of the public
respondent are hereby DISMISSED.36
In dismissing the petition, the appellate court ratiocinated that:
[T]he right to a speedy disposition of a case, like the right to speedy trial, is deemed
violated only when the proceeding is attended by vexatious, capricious and oppressive
delays" (Castillo v. Sandiganbayan, 328 SCRA 69, 76); "or when unjustified
postponements of the trial are asked for and secured, or when without cause or justifiable
motive a long period of time is allowed to elapse without the party having his case tried."
(Binay v. Sandiganbayan, 316 SCRA 65, 93)
In the instant case, aside from the fact that it took almost six years for the prosecution to
complete the presentation of its evidence, petitioners failed to show that the delay, if ever
there is any, was caused solely by the prosecution. Neither did the petitioners show that
the proceedings before the Municipal Trial Court was attended by vexatious, capricious
and oppressive delays attributable to the prosecution or that unjustified postponements of
the trial were asked for and secured by the prosecution to the prejudice of the petitioners.
The fact alone that the prosecution had consumed six (6) years to complete its
presentation of evidence, without any allegation or proof that the prosecution has caused
unreasonable delays or that the proceeding was attended by vexatious, capricious and
oppressive delays, to Our minds is not sufficient for the application upon the petitioners
of their Constitutional right to speedy trial. "A mere mathematical reckoning of the time
involved, therefore, would not be sufficient. In the application of the Constitutional
guarantee of the right to speedy disposition of cases, particular regard must also be taken
of the facts and circumstances peculiar to each case." (Binay v. Sandiganbayan, supra, p.
93). In the case at bar, petitioners failed to present, for Our perusal, the circumstances
attending the trial of their case before the Municipal Trial Court.

The only controversy of the instant case lies in the fact that the Municipal Trial Court
which heard the case has no jurisdiction over the said case. While it may be conceded that
the prosecution erred in not filing the information against the petitioners to a proper
court, still, petitioners are not blameless in this regard. Petitioners, through their counsel,
had actively participated in the proceedings before the Municipal Trial Court. Petitioners
had to wait for almost six (6) years to elapse before they brought to the attention of the
Municipal Trial Court that it had no jurisdiction to hear the case against the petitioners.
Petitioners have, by reason of their participation in the proceedings before the Municipal
Trial Court and also by reason of their silence and inaction, allowed the Municipal Trial
Court to proceed with a case for six (6) years despite absence of jurisdiction of such court
to hear the case. We cannot allow the petitioners to reap from their acts or omissions. "A
litigation is not a game of technicalities in which one, more deeply schooled and skilled
in the subtle art of movement and position, entraps and destroys the other." (Fortune
Corporation v. Court of Appeals, 229 SCRA 355, 364)
"The constitutional privilege was never intended as furnishing a technical means for
escaping trial." (Esguerra v. Court of First Instance of Manila, et al., 95 Phil. 609, 611612) "The right of an accused to a speedy trial is guaranteed to him by the Constitution,
but the same shall not be utilized to deprive the State of a reasonable opportunity of fairly
indicting criminals. It secures rights to an accused, but it does not preclude the rights of
public justice. (Domingo v. Sandiganbayan, 322 SCRA 655, 667)37
Petitioners filed a motion for reconsideration, which the appellate court denied.38
Petitioners sought relief from this Court on a petition for review, alleging that:
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
AFFIRMED THE COURT A QUO'S DENIAL OF PETITIONERS' MOTION TO
QUASH, BASED ON VIOLATION OF THEIR RIGHT TO SPEEDY TRIAL (SEC. 16,
ART. 3, 1987 CONSTITUTION).39
Petitioners reiterate their arguments in the CA to support the present petition. They aver that:
In this case, the prosecution took six (6) long and grueling years before it filed an
Information with a competent court, despite the fact that jurisdiction of the Regional Trial
Courts over trademark cases remained unchanged since the birth of the Trademark Law.
Surely, this inordinate delay can be considered a "vexatious, capricious and oppressive
delay" which is constitutionally impermissible in this jurisdiction pursuant to the right of
the accused to speedy trial.
Indeed, petitioners have been prejudiced. Their lives, liberty and property, not to mention
their reputation have all been put at risk for so long.

The public prosecutor failed to explain the reason for the delay. Truth to tell, even at this
last stage, the public prosecutor chooses to remain silent why it had unjustifiably taken
him too long to file this case before a competent court. Unfortunately, the Court of
Appeals deliberately ignored this glaring flaw committed by the public prosecutor and
instead focused on petitioners' alleged negligence in not raising the issue of jurisdiction
earlier. It further ruled that due to this fact, petitioners are thus not entirely blameless for
the delay of the trial.
Truth to tell, these findings of the Court of Appeals are palpably erroneous.
Firstly, it is elementary that jurisdiction over the subject matter may be raised at any stage
of the proceedings. This is because no amount of waiver can confer jurisdiction on a
court over an offense for which such jurisdiction has not been conferred by law in the
first place.
Secondly, even assuming that petitioners failed to raise the issue of jurisdiction earlier,
still, they could not be estopped from invoking their right to speedy trial. The delay to be
considered "partly attributable" to the accused (which could work against him in invoking
the right to speedy trial) presupposes an active effort of the defendant to delay the case
(Manabat v. Timbang, 74 Phil. 295). There is no violation of the right to speedy trial
where the delay is imputable to the accused (Solis v. Agloro, 63 SCRA 370). Here, it was
the prosecution that had the unmitigated obligation to file the Information with the
correct court, within a reasonable time. It did not. Such blunder was fatal to its cause.
To emphasize, petitioners need not even call the attention of the prosecution that it had
failed to file the case with the proper court, contrary to the opinion of the Court of
Appeals. x x x40
xxxx
Although petitioners agree with the Court of Appeals that mere mathematical reckoning
of time would not be sufficient for the application of the right to speedy trial, still, the
public prosecutor's blunder should already be considered "vexatious, capricious and
oppressive" warranting the dismissal of the case.
Indeed, to condone the public prosecutor's manner of having directed this case, just like
what the Court of Appeals did, might give rise to a disturbing precedent where the
constitutional right of the accused could very well be set aside to justify the mishandling
of the prosecution by officers of the State.41
Section 1(h), Rule 115 of the Revised Rules of Criminal Procedure provides that the accused is
entitled to a speedy, impartial and public trial. Section 2, Rule 119 of the said Rules provides that
trial, once commenced, shall be continuous until terminated:

Sec. 2. Continuous trial until terminated; postponements. Trial, once commenced, shall
continue from day to day as far as practicable until terminated. It may be postponed for a
reasonable period of time for good cause.
The court shall, after consultation with the prosecutor and defense counsel, set the case
for continuous trial on a weekly or other short-term trial calendar at the earliest possible
time so as to ensure speedy trial. In no case shall the entire trial period exceed one
hundred eighty (180) days from the first day of trial, except as otherwise authorized by
the Supreme Court.
The time limitations provided under this section and the preceding section shall not apply
where special laws or circulars of the Supreme Court provide for a shorter period of trial.
However, any period of delay resulting from a continuance granted by the court motu proprio, or
on motion of either the accused or his counsel, or the prosecution, if the court granted the
continuance on the basis of its findings set forth in the order that the ends of justice is served by
taking such action outweigh the best interest of the public and the accused on a speedy trial, shall
be deducted.
The trial court may grant continuance, taking into account the following factors:
(a) Whether or not the failure to grant a continuance in the proceeding would likely make
a continuation of such proceeding impossible or result in a miscarriage of justice; and
(b) Whether or not the case taken as a whole is so novel, unusual and complex, due to the
number of accused or the nature of the prosecution, or that it is unreasonable to expect
adequate preparation within the periods of time established therein.
In addition, no continuance under section 3(f) of this Rule shall be granted because of
congestion of the court's calendar or lack of diligent preparation or failure to obtain
available witnesses on the part of the prosecutor.42
Under the Constitution and Section 1(7) of Rule 115 of the Revised Rules of Criminal Procedure,
the accused shall be entitled to have a speedy and impartial trial. "Speedy trial" is a relative term
and necessarily a flexible concept.43In determining whether the right of the accused to a speedy
trial was violated, the delay should be considered, in view of the entirety of the
proceedings.44 Indeed, mere mathematical reckoning of the time involved would not suffice45 as
the realities of everyday life must be regarded in judicial proceedings which, after all, do not
exist in a vacuum.46
Apart from the constitutional provision and Section 115, Section 1(i) of the Rules of Criminal
Procedure, A.O. No. 113-95 of the Court provides that:

The trial of cases for violation of Intellectual Property Rights covered by this
Administrative Order shall be immediately commenced and shall continue from day to
day to be terminated as far as practicable within sixty (60) days from initial trial.
Judgment thereon shall be rendered within thirty (30) days from date of submission for
decision.
More than a decade after the 1972 leading U.S. case of Barker v. Wingo47 was promulgated, this
Court, in Martin v. Ver,48 began adopting the "balancing test" to determine whether a defendant's
right to a speedy trial has been violated. As this test necessarily compels the courts to approach
speedy trial cases on an ad hoc basis, the conduct of both the prosecution and defendant are
weighed apropos the four-fold factors, to wit: (1) length of the delay; (2) reason for the delay; (3)
defendant's assertion or non-assertion of his right; and (4) prejudice to defendant resulting from
the delay.49 None of these elements, however, is either a necessary or sufficient condition; they
are related and must be considered together with other relevant circumstances. These factors
have no talismanic qualities as courts must still engage in a difficult and sensitive balancing
process.50
A. Length of the Delay
The length of delay is to some extent a "triggering mechanism." Until there is some delay, which
is presumptively prejudicial, there is no necessity to inquire into the other three factors.
Nevertheless, due to the imprecision of the right to a speedy trial, the length of delay that will
provoke such an inquiry is necessarily dependent upon the peculiar circumstances of the case.51
B. Reason for the Delay
Under Section 9, Rule 119 of the Revised Rules of Criminal Procedure, the accused have the
burden to prove the factual basis of the motion to quash the Information on the ground of denial
of their right to a speedy trial.52 They must demonstrate that the delay in the proceedings is
vexatious, capricious, and oppressive; or is caused by unjustified postponements that were asked
for and secured; or that without cause or justifiable motive, a long period of time is allowed to
elapse without the case being tried.53 On the other hand, the prosecution is required to present
evidence establishing that the delay was reasonably attributed to the ordinary processes of
justice, and that petitioners suffered no serious prejudice beyond that which ensued after an
inevitable and ordinary delay.54
The records bear out the contention of petitioners that there had been a considerable delay in the
trial in the MTC. Upon motion/agreement of petitioners and the prosecution, or because of the
joint absences, the trial of the case was delayed for more than 11 months.55 In its own instance,
the MTC also reset some of the trial dates in order to correct mistakes in scheduling or because
the witnesses were not duly notified,56 thus, delaying the trial of the case for an additional seven
months. Even petitioners contributed to the delay of more than five months they or their former
counsel were either absent or moved for postponements to attend another pending case or due to

health concerns.57 The delay of about 21 months, covering 15 re-settings, can be attributed to the
prosecution. However, except in five instances, when the trial was reset because the private
prosecutor had to attend to some professional58 and personal matters,59 the delays were brought
about because of the recent engagement of legal service,60 absence of the public prosecutor,61 and
unavailability of documents62 and witnesses.63
Not only the petitioners but the State as well were prejudiced by the inordinate delay in the trial
of the case. It took the prosecution more than four years to rest its case after presenting only
three witnesses. Had the prosecution, petitioner and the trial court been assiduous in avoiding
any inordinate delay in the trial, the prosecution could have rested its case much earlier. The
court even failed to order the absent counsel/prosecutor/witnesses to explain/justify their
absences or cite them for contempt. The speedy trial mandated by the Constitution and the
Revised Rules of Criminal Procedure is as much the responsibility of the prosecution, the trial
court and petitioners to the extent that the trial is inordinately delayed, and to that extent the
interest of justice is prejudiced.
The case before the RTC should not be dismissed simply because the public prosecution did not
move for the dismissal of the case in the MTC based on A.O. No. 104-96 declaring that the RTC
has exclusive jurisdiction over cases under Articles 188 and 189 of the Revised Penal Code; or
for failure of the MTC to motu proprio dismiss the case on that ground. The City Prosecutor then
believed in good faith, albeit erroneously, that under R.A. No. 7691 which amended B.P. Blg.
129, the MTC had jurisdiction over the crime charged.
The mistake of the City Prosecutor and the failure of the MTC to dismiss the case motu proprio
should not prejudice the interest of the State to prosecute criminal offenses and, more
importantly, defeat the right of the offended party to redress for its grievance. Significantly,
petitioners do not attribute to the prosecution or to the MTC any malice aforethought or
conscious disregard of their right to a speedy trial; nor have substantially proven the same by
clear and convincing evidence. Hence, absent showing of bad faith or gross negligence, delay
caused by the lapse of the prosecution is not in itself violative of the right to a speedy trial.
Different weights should be assigned to various reasons by which the prosecution justifies the
delay. A deliberate attempt to delay the trial in order to hamper the defense should be weighed
heavily against the prosecution. A more neutral reason such as negligence or overcrowded courts
should be weighed less heavily but nevertheless should be considered since the ultimate
responsibility for such circumstances must rest with the government rather than with defendant.64
In Corpuz v. Sandiganbayan,65 the Court had carefully balanced the societal interest in the case,
which involved the so-called "tax credit certificates scam," and the need to give substance to the
defendants' constitutional rights. In said suit, we upheld the decision of the Sandiganbayan
(Special Fourth Division) that the dismissal of the cases was too drastic, precipitate and
unwarranted. While the Court recognized that defendants were prejudiced by the delay in the
reinvestigation of the cases and the submission of a complete report by the Ombudsman/Special

Prosecutor to the Sandiganbayan, we underscored that the State should not be prejudiced and
deprived of its right to prosecute cases simply because of the ineptitude or nonchalance of the
Ombudsman/Special Prosecutor. "An overzealous or precipitate dismissal of a case may enable
defendant, who may be guilty, to go free without having been tried, thereby infringing the
societal interest in trying people accused of crimes by granting them immunization because of
legal error."66
The same observation was made in Valencia v. Sandiganbayan.67 Here, the Court noted the
haphazard manner by which the prosecutor handled the litigation for the State when he rested the
case without adducing evidence for the prosecution and simply relying on the Joint Stipulation of
Facts, which the accused did not even sign before its submission to the Sandiganbayan. In
allowing the prosecution to present additional evidence and in dismissing the claim of the
accused that his constitutional right to a speedy trial had been violated, we ruled:
As significant as the right of an accused to a speedy trial is the right of the State to
prosecute people who violate its penal laws. The right to a speedy trial is deemed violated
only when the proceeding is attended by vexatious, capricious and oppressive delays x x
x [T]o erroneously put premium on the right to speedy trial in the instant case and deny
the prosecution's prayer to adduce additional evidence would logically result in the
dismissal of the case for the State. There is no difference between an order outrightly
dismissing the case and an order allowing the eventual dismissal thereof. Both would set
a dangerous precedent which enables the accused, who may be guilty, to go free without
having been validly tried, thereby infringing the interest of the society.68
Certainly, the right to speedy trial cannot be invoked where to sustain the same would result in a
clear denial of due process to the prosecution. It should not operate in depriving the State of its
inherent prerogative to prosecute criminal cases or generally in seeing to it that all those who
approach the bar of justice is afforded fair opportunity to present their side.69 For it is not only
the State; more so, the offended party who is entitled to due process in criminal cases.70 In
essence, the right to a speedy trial does not preclude the people's equally important right to
public justice.71 Thus, as succinctly decreed in State v. McTague:72
The constitutional and statutory provisions for a speedy trial are for the protection of the
defendant, but that does not mean that the state is the only one that may initiate action.
There is really no reason for the courts to free an accused simply because a dilatory
prosecutor has 'gone to sleep at the switch' while the defendant and his counsel rest in
silence. These solicitous provisions are not to be used as offensive weapons, but are for
the benefit of defendants who claim their protection. They are a shield, and they 'must not
be left hanging on the wall of the armory.' It is for the protection of personal rights, not to
embarrass the administration of the criminal law nor to defeat public justice.
Be that as it may, the conduct of the City Prosecutor and the MTC must not pass without
admonition. This Court must emphasize that the State, through the court and the public

prosecutor, has the absolute duty to insure that the criminal justice system is consistent with due
process and the constitutional rights of the accused. Society has a particular interest in bringing
swift prosecutions, and the society's representatives are the ones who should protect that interest.
The trial court and the prosecution are not without responsibility for the expeditious trial of
criminal cases. The burden for trial promptness is not solely upon the defense. The right to a
speedy trial is constitutionally guaranteed and, as such, is not to be honored only for the vigilant
and the knowledgeable.73
C. Petitioners' Assertion of the Right
The assertion of the right to a speedy trial is entitled to strong evidentiary weight in determining
whether defendant is being deprived thereof. Failure to claim the right will make it difficult to
prove that there was a denial of a speedy trial.74
Except in only one instance in this case,75 the records are bereft of any evidence that petitioners,
through counsel, have bothered to raise their objection to the several re-setting of the trial dates.
This is not unexpected since, as already shown, the reasons for the delay are not in themselves
totally inexcusable or unreasonable. Moreover, petitioners actively participated in the trial when
the prosecution presented its evidence, as they scrutinized the documentary evidence and crossexamined the witnesses. Until the filing of the motion to quash in the RTC, they never contested
the prosecutorial proceedings nor timely challenged the pendency of the case in the MTC.
While it is true that lack of jurisdiction may be assailed at any stage of the proceedings, such
defense must be seasonably raised at the earliest possible opportunity. Otherwise, active
participation in the trial would estop a party from later challenging such want of jurisdiction.76
In the same vein, one's failure to timely question the delay in the trial of a case would be an
implied acceptance of such delay and a waiver of the right to question the same. Except when
otherwise expressly so provided, the speedy trial right, like any other right conferred by the
Constitution or statute, may be waived when not positively asserted.77 A party's silence may
amount to laches.78 The right to a speedy trial is a privilege of the accused. If he does not claim
it, he should not complain. R.A. No. 8493 (Speedy Trial Act of 1998) is a means of enforcing
Section 14(2), Article III of the Constitution.79 The spirit of the law is that the accused must go
on record in the attitude of demanding a trial or resisting delay. If he does not do this, he must be
held, in law, to have waived the privilege.
This Court cannot subscribe to petitioners' untiring argument that, being "ordinary citizens," they
should not be made to suffer from the "lackluster" performance of their former counsel who
failed to recognize the MTC's want of jurisdiction. Too often we have held that a client is bound
by the acts, mistakes or negligence of his counsel.80 This is, as it should be, since a counsel has
the implied authority to do all acts which are necessary or, at least, incidental to the prosecution
and management of the suit in behalf of his client. Any act performed within the scope of his
general and implied authority is, in the eyes of the law, regarded as the act of the client.81 If the

rule were otherwise, there would be no end to litigation so long as a new counsel could be
employed who would allege and show that the prior counsel had not been sufficiently diligent,
experienced, or learned.82 It would enable every party to render inutile an adverse order or
decision through the simple expedient of alleging gross negligence on the part of the
counsel.83 Every shortcoming of a counsel could be the subject of challenge by his client through
another counsel who, if he is also found wanting, would likewise be disowned by the same client
through another counsel, and so on ad infinitum.84 Proceedings would then be indefinite, tentative
and at times, subject to reopening by the simple subterfuge of replacing counsel.85
While the rule admits of certain exceptions,86 we find none present in this case. Other than his
obvious failure to assert lack of jurisdiction, Atty. Lim undeniably represented the cause of his
clients in the MTC proceedings. Interestingly, their new counsel, wittingly or unwittingly, raised
the issue of jurisdiction only four months after it entered its appearance,87 thus, adding to the
delay.
D. Prejudice to the Petitioners
In the Barker case,88 the different interests of a defendant which may be affected by the violation
of the right to a speedy trial were identified. It was held that prejudice should be assessed in the
light of the interests of a defendant which the speedy trial right was designed to protect, namely:
(1) to prevent oppressive pretrial incarceration; (2) to minimize anxiety and concern of the
accused; and (3) to limit the possibility that the defense will be impaired. Of these, the most
serious is the last, because the inability of a defendant to adequately prepare his case skews the
fairness of the entire system. If witnesses die or disappear during a delay, the prejudice is
obvious. There is also prejudice if defense witnesses are unable to recall accurately events of the
distant past. Loss of memory, however, is not always reflected in the record because what has
been forgotten can rarely be shown. Even if an accused is not incarcerated prior to trial, he is still
disadvantaged by restraints on his liberty and by living under a cloud of anxiety, suspicion, and
often hostility.89 After all, arrest is a public act that may seriously interfere with the defendant's
liberty, whether he is free on bail or not, and that may disrupt his employment, drain his financial
resources, curtail his associations, subject him to public obloquy, and create anxiety in him, his
family and friends.90
Again, a perusal of the records failed to reveal that the delay in bringing petitioners to trial in a
court of competent jurisdiction caused them any prejudice tantamount to deprivation of their
right to a speedy trial. Petitioners in this case were not subjected to pretrial incarceration,
oppressive or otherwise, thus eliminating the first Barker consideration bearing on prejudice.
As to the minimization of anxiety and concern of the accused, there is no showing that
petitioners suffered undue pressures in this respect. Mere reference to a general asseveration that
their "life, liberty and property, not to mention reputation" have been prejudiced is not enough.
There must be conclusive factual basis, as this Court cannot rely on pure speculation or
guesswork. Surely, a pending criminal case may cause trepidation but, as stressed in Barker, the

standard here is minimization, not necessarily elimination of the natural consequences of an

indictment. While this is not to be brushed off lightly, it is not by itself sufficient to support a
claim of denial of the right to a speedy trial.
There is no factual basis for the claim of petitioners that we are not supplied with any specific
allegation in the record, nor witnesses or evidence may become unavailable because of the
delays in this case. To repeat, the claim of impairment of defense because of delay must be
specific and not by mere conjecture. Vague assertions of faded memory will not suffice. Failure
to claim that particular evidence had been lost or had disappeared defeats speedy trial claim.
As neither the specific types of prejudice mentioned in Barker nor any others have been brought
to the Court's attention, we are constrained to dismiss petitioners' claim. The passage of time
alone, without a significant deprivation of liberty or impairment of the ability to properly defend
oneself, is not absolute evidence of prejudice. The right to a speedy trial is not primarily intended
to prevent prejudice to the defense caused by the passage of time; that interest is protected
primarily by the due process clause and the statutes of limitations.91In several cases where it is
manifest that due process of law or other rights guaranteed by the Constitution or statutes has
been denied, this Court has not faltered to accord the so-called "radical relief" to keep accused
from enduring the rigors and expense of a full-blown trial.92 In this case, however, there appears
no persuasive, much less compelling, ground to allow the same relief for absence of clear and
convincing showing that the delay was unreasonable or arbitrary and was seasonably objected to
by petitioners.
IN LIGHT OF ALL THE FOREGOING, the instant petition is DENIED for lack of merit.
The March 21, 2003 Decision and July 17, 2003 Resolution of the Court of Appeals
are AFFIRMED. The Regional Trial Court, Branch 64, Tarlac City, is directed to proceed with
the trial on the merits of the criminal case with all reasonable and judicious dispatch consistent
with the right of petitioners to a speedy trial. No costs.
G.R. No. 150403

January 25, 2007

CEBU SALVAGE CORPORATION, Petitioner,

vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?
This is the issue presented for the Courts resolution in this petition for review on
certiorari1 assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the

Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27, 1989
decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc.8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric tons
of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day.9 The shipment never reached its destination, however, because the M/T Espiritu Santo sank
in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the
total loss of the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12Thereafter, it filed a case in the RTC13 against petitioner for
reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and costs
of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of affreightment
wherein the ship was leased for a single voyage for the conveyance of goods, in consideration of
the payment of freight.14 Under a voyage charter, the shipowner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of the space in the vessel
in return for his payment of freight.15 An owner who retains possession of the ship remains liable
as carrier and must answer for loss or non-delivery of the goods received for transportation.16
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage.17 It insists that the agreement was merely a
contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have control and
supervision over the vessel, its master and crew.19 Thus, it could not be held liable for the loss of
the shipment caused by the sinking of a ship it did not own.
We disagree.

Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down.20
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it
was engaged in the business of carrying and transporting goods by water, for compensation, and
offered its services to the public.21
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport according to the circumstances of
each case.22 In the event of loss of the goods, common carriers are responsible, unless they can
prove that this was brought about by the causes specified in Article 1734 of the Civil Code.23 In
all other cases, common carriers are presumed to be at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had control
over what vessel it would use. All throughout its dealings with MCCII, it represented itself as a
common carrier. The fact that it did not own the vessel it decided to use to consummate the
contract of carriage did not negate its character and duties as a common carrier. The MCCII
(respondents subrogor) could not be reasonably expected to inquire about the ownership of the
vessels which petitioner carrier offered to utilize. As a practical matter, it is very difficult and
often impossible for the general public to enforce its rights of action under a contract of carriage
if it should be required to know who the actual owner of the vessel is.25 In fact, in this case, the
voyage charter itself denominated petitioner as the "owner/operator" of the vessel.26
Petitioner next contends that if there was a contract of carriage, then it was between MCCII and
ALS as evidenced by the bill of lading ALS issued.27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed by
the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract directly
with ALS. While it is true that a bill of lading may serve as the contract of carriage between the
parties,29 it cannot prevail over the express provision of the voyage charter that MCCII and
petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard a
vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill of
lading operates as the receipt for the goods, and as document of title passing the property of the
goods, but not as varying the contract between the charterer and the shipowner." The Bill of

Lading becomes, therefore, only a receipt and not the contract of carriage in a charter of the
entire vessel, for the contract is the Charter Party, and is the law between the parties who are
bound by its terms and condition provided that these are not contrary to law, morals, good
customs, public order and public policy. 30
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account.31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods insured.
It could not exculpate the carrier from liability for the breach of its contract of carriage. The law,
in fact, prohibits it and condemns it as unjust and contrary to public policy.32
To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on board
the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove that it
exercised extraordinary diligence to prevent such loss or that it was due to some casualty or force
majeure. The voyage charter here being a contract of affreightment, the carrier was answerable
for the loss of the goods received for transportation.33
The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does not
own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists that
MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common carrier to
escape its responsibility for the goods it agreed to transport (by the expedient of alleging nonownership of the vessel it employed) would radically derogate from the carrier's duty of
extraordinary diligence. It would also open the door to collusion between the carrier and the
supposed owner and to the possible shifting of liability from the carrier to one without any
financial capability to answer for the resulting damages.34
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.

G.R. No. 131621 September 28, 1999

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

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside
the following: (a) the 30 January 1997 decision1 of the Court of Appeals in CA-G.R. CV No.
36401, which affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila
Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of
the compliant until fully paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its
resolution of 19 November 1997, 3 denying LOADSTAR's motion for reconsideration of said
decision.
The facts are undisputed.1wphi1.nt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the
vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against
various risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel,
in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million.
On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the
vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its
shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As
the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter
executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the
sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It
also prayed that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly
to MIC, said amount to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed
that sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC
had no cause of action against it, LOADSTAR being the party insured. In any event, PGAI was
later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the court of Appeals, which, however, agreed with the trial
court and affirmed its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:

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

ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship,
but LOADSTAR retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil
Code, which should be applied in determining the rights and
liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on
the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The
vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably
due to the "convergence of the winds," as stated by a PAGASA
expert, was not duly proven at the trial. The "limited liability" rule,
therefore, is not applicable considering that, in this case, there was
an actual finding of negligence on the part of the carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of
Lading do not apply because said provisions bind only the
shipper/consignee and the carrier. When MIC paid the shipper for
the goods insured, it was subrogated to the latter's rights as against
the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's
defense of "diligence of a good father of a family" in the training
and selection of its crew is unavailing because this is not a proper
or complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially
construed to mean that when goods are delivered on board a ship in
good order and condition, and the shipowner delivers them to the
shipper in bad order and condition, it then devolves upon the
shipowner to both allege and prove that the goods were damaged
by reason of some fact which legally exempts him from liability."
Transportation of the merchandise at the risk and venture of the
shipper means that the latter bears the risk of loss or deterioration
of his goods arising from fortuitous events, force majeure, or the
inherent nature and defects of the goods, but not those caused by
the presumed negligence or fault of the carrier, unless otherwise
proved. 7
The errors assigned by LOADSTAR boil down to a determination of the following issues:

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

(2) Did LOADSTAR observe due and/or ordinary diligence in
these premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it
was not issued certificate of public convenience, it did not have a regular trip or schedule nor a
fixed route, and there was only "one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not
timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board
only the cargo of wood products for delivery to one consignee, it was also carrying passengers as
part of its regular business. Moreover, the bills of lading in this case made no mention of any
charter party but only a statement that the vessel was a "general cargo carrier." Neither was there
any "special arrangement" between LOADSTAR and the shipper regarding the shipment of the
cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is
not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed
to have been negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19
November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was
duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that
the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and
unquestionably competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel's
seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being
due to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19
November 1984, the weather was fine until the next day when the vessel sank due to strong
waves. MCI's witness, Gracelia Tapel, fully established the existence of two typhoons,
"WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on 20
November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa
Island. Tapel also testified that the convergence of winds brought about by these two typhoons
strengthened wind velocity in the area, naturally producing strong waves and winds, in turn,
causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability,
such as what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier,
and not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling
in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire
Insurance Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been
instituted beyond the period stated in the bills of lading for instituting the same suits based
upon claims arising from shortage, damage, or non-delivery of shipment shall be instituted
within sixty days from the accrual of the right of action. The vessel sank on 20 November 1984;
yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the
cargo was due toforce majeure, because the same concurred with LOADSTAR's fault or
negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR
was at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the
voyage notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary
that the carrier be issued a certificate of public convenience, and this public character is not
altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or
unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting
special cargo or chartering the vessel to a special person becomes a private carrier that is not
subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its agent is void only if the strict policy
governing common carriers is upheld. Such policy has no force where the public at is not
involved, as in the case of a ship totally chartered for the use of a single party. LOADSTAR also
cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals 12 and National Steel
Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason
that the factual settings are different. The records do not disclose that the M/V "Cherokee," on
the date in question, undertook to carry a special cargo or was chartered to a special person only.
There was no charter party. The bills of lading failed to show any special arrangement, but only a
general provision to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further,
the bare fact that the vessel was carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to convert the vessel from a common to a
private carrier, especially where, as in this case, it was shown that the vessel was also carrying
passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a
common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of

Appeals, 15 the Court juxtaposed the statutory definition of "common carriers" with the peculiar
circumstances of that case, viz.:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as ancillary activity (in local idiom, as "a sideline". Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on anoccasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think
that Article 1733 deliberately refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations
and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has
not secured the necessary certificate of public convenience, would be offensive to
sound public policy; that would be to reward private respondent precisely for
failing to comply with applicable statutory requirements The business of a
common carrier impinges directly and intimately upon the safety and well being
and property of those members of the general community who happen to deal
with such carrier. The law imposes duties and liabilities upon common carriers for

the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy
when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently
manned at the time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage
and manned with a sufficient number of competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be
applied in this case. The doctrine of limited liability does not apply where there was negligence
on the part of the vessel owner or agent. 17LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that may be deemed
as force majeure, inasmuch as the wind condition in the performance of its duties, LOADSTAR
cannot hide behind the "limited liability" doctrine to escape responsibility for the loss of the
vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the
goods, in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v.
Macondray & Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It
was ruled in these two cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can
recover only the amount that may, in turn, be recovered by the latter. Since the right of the
assured in case of loss or damage to the goods is limited or restricted by the provisions in the
bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and
restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a
limitation on the carrier's liability to an amount fixed in the bill of lading which the parties may
enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the
other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for
the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745),
that is, the carrier is not liable for any loss or damage to shipments made at "owner's risk." Such
stipulation is obviously null and void for being contrary to public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by
its own negligence. The second is one providing for an unqualified limitation of
such liability to an agreed valuation. And the third is one limiting the liability of
the carrier to an agreed valuation unless the shipper declares a higher value and
pays a higher rate of. freight. According to an almost uniform weight of authority,
the first and second kinds of stipulations are invalid as being contrary to public
policy, but the third is valid and enforceable.21

Since the stipulation in question is null and void, it follows that when MIC paid the
shipper, it was subrogated to all the rights which the latter has against the common
carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription.
MIC's cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither
the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of limitation
on claims for loss of, or damage to, cargoes sustained during transit may be applied
suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the
goods. 22In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a
stipulation reducing the one-year period is null and void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997
of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against
petitioner.1wphi1.nt
SO ORDERED.

G.R. No. 135377

October 7, 2003

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners,

vs.
FEDERAL PHOENIX ASSURANCE CO., INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari1 assailing the Decision2 dated June 5, 1998 of the
Court of Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial
Court (RTC), Manila City, Branch 16, in Civil Case No. 94-69699, "Federal Phoenix Assurance
Company, Inc. vs. DSR-Senator Lines and C.F. Sharp & Co., Inc.," for damages arising from the
loss of cargo while in transit.
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and
Company, Inc. (C.F. Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping
corporation, for transportation and delivery to the consignee, Al-Mohr International Group, in
Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of Lading No. SENU MNL-265483 for
the cargo with an invoice value of $34,579.60. Under the Bill of Lading, the port of discharge for
the cargo was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi Arabia, via
Port Dammam. The cargo was loaded in M/S "Arabian Senator."
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against
all risks in the amount of P941,429.61.4
On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia with the
cargo on board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board
DSR-Senator Lines feeder vessel, M/V "Kapitan Sakharov," bound for Port Dammam, Saudi
Arabia. However, while in transit, the vessel and all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan Sakharov" with
its cargo was gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F.
Sharp issued a certification to that effect.
Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the
amount of insurance for the cargo. In turn Berde Plants executed in its favor a "Subrogation
Receipt"5 dated January 17, 1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment
of P941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the
ground that such liability was extinguished when the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a
complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be
ordered to pay actual damages ofP941,429.61, compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the
dispositive portion of which reads:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and
against the defendants who are hereby ordered jointly and severally to pay plaintiff:

I. The amount of P941,439.61 (should be P941,429.616) with legal interest of 6% per

annum from the date of the letter of demand of February 8, 1993 (EXH. L) and 12% per
annum from the date the judgment becomes final and executory until its satisfaction
(Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412, July 12, 1994);
II. The amount of P15,000.00 by way of reasonable attorneys fees; and
III. To pay costs.
"The counterclaim of defendants is DISMISSED.
"SO ORDERED."7
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC
Decision, thus:
"In the present recourse, the appellant carrier was presumed to have acted negligently for the fire
that gutted the feeder vessel and the consequent loss or destruction of the cargo. Hence, the
appellant carrier is liable for appellees claim under the New Civil Code of the Philippines.
"Contrary to C.F. Sharp and Co., Inc.s pose, its liability as ship agent continued and remained
until the cargo was delivered to the consignee. The status of the appellant as ship agent subsisted
and its liability as a ship agent was co-terminous with and subsisted as long as the cargo was not
delivered to the consignee under the terms of the Bill of Lading.
"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The
Decision appealed from is affirmed. With costs against the appellants.
"SO ORDERED."8
On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSRSenator Lines and C.F. Sharp, prompting them to file with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."
Fire is not one of those enumerated under the above provision which exempts a carrier from
liability for loss or destruction of the cargo.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,9 we ruled that since the peril of
fire is not comprehended within the exceptions in Article 1734, then the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed
the extraordinary diligence required by law.
Even if fire were to be considered a natural disaster within the purview of Article 1734, it is
required under Article 173910 of the same Code that the natural disaster must have been the
proximate and only cause of the loss, and that the carrier has exercised due diligence to prevent
or minimize the loss before, during or after the occurrence of the disaster.
We have held that a common carriers duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to or until the lapse
of a reasonable time for their acceptance by the person entitled to receive them. When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of
its failure to observe that diligence, and there need not be an express finding of negligence to
hold it liable.111awphi1.nts
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are enumerated in Article 1734. In
those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.12
Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners.
However, they failed to overcome it by sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals
dated June 5, 1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.
G.R. No. 181163

July 24, 2013

ASIAN TERMINALS, INC., Petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Respondent.
x-----------------------x
G.R. No. 181262
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN TERMINALS, INC., Respondents.
x-----------------------x
G.R. No. 181319
WESTWIND SHIPPING CORPORATION, Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.) and ASIAN
TERMINALS, INC.,Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on certiorari assailing the Decision1 dated
October 15, 2007 and the Resolution2 dated January 11, 2008 of the Court of Appeals (CA)
which affirmed with modification the Decision3 of the Regional Trial Court (RTC) of Makati
City, Branch 148, in Civil Case No. 96-062. The RTC had ordered Westwind Shipping
Corporation (Westwind) and Asian Terminals, Inc. (ATI) to pay, jointly and severally, Philam
Insurance Co., Inc. (Philam) the sum of P633,957.15, with interest at 12% per annum from the
date of judicial demand and P158,989.28 as attorneys fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal
Motors) 219 packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2
model, without engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to
Manila. The shipment, which had a declared value of US$81,368 or P29,400,000, was insured
with Philam against all risks under Marine Policy No. 708-8006717-4.4
The carrying vessel arrived at the port of Manila on April 20, 1995, and when the shipment was
unloaded by the staff of ATI, it was found that the package marked as 03-245-42K/1 was in bad
order.5 The Turn Over Survey of Bad Order Cargoes6 dated April 21, 1995 identified two

packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being dented and broken. Thereafter, the
cargoes were stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the
authorized broker of Universal Motors, and delivered to the latters warehouse in Mandaluyong
City. Upon the request7 of Universal Motors, a bad order survey was conducted on the cargoes
and it was found that one Frame Axle Sub without LWR was deeply dented on the buffle plate
while six Frame Assembly with Bush were deformed and misaligned.8 Owing to the extent of the
damage to said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the amount
of P643,963.84 against Westwind,9 ATI10 and R.F. Revilla Customs Brokerage, Inc.11 When
Universal Motors demands remained unheeded, it sought reparation from and was compensated
in the sum of P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation
Receipt12 dated November 15, 1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint13 for damages
against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City,
Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered Westwind
and ATI to pay Philam, jointly and severally, the sum of P633,957.15 with interest at the rate of
12% per annum, P158,989.28 by way of attorneys fees and expenses of litigation.
The court a quo ruled that there was sufficient evidence to establish the respective participation
of Westwind and ATI in the discharge of and consequent damage to the shipment. It found that
the subject cargoes were compressed while being hoisted using a cable that was too short and
taut.
The trial court observed that while the staff of ATI undertook the physical unloading of the
cargoes from the carrying vessel, Westwinds duty officer exercised full supervision and control
throughout the process. It held Westwind vicariously liable for failing to prove that it exercised
extraordinary diligence in the supervision of the ATI stevedores who unloaded the cargoes from
the vessel. However, the court absolved R.F. Revilla Customs Brokerage, Inc. from liability in
light of its finding that the cargoes had been damaged before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and Universal Motors on the
strength of the Subrogation Receipt dated November 15, 1995. It likewise upheld Philams claim
for the value of the alleged damaged vehicle parts contained in Case Nos. 03-245-42K/1 and 03245-51K or specifically for "7 pieces of Frame Axle Sub Without Lower and Frame Assembly
with Bush."14
Westwind filed a Motion for Reconsideration15 which was, however, denied in an Order16 dated
October 26, 2000.

On appeal, the CA affirmed with modification the ruling of the RTC. In a Decision dated October
15, 2007, the appellate court directed Westwind and ATI to pay Philam, jointly and severally, the
amount of P190,684.48 with interest at the rate of 12% per annum until fully paid, attorneys fees
of P47,671 and litigation expenses.
The CA stressed that Philam may not modify its allegations by claiming in its Appellees
Brief17 that the six pieces of Frame Assembly with Bush, which were purportedly damaged, were
also inside Case No. 03-245-42K/1. The CA noted that in its Complaint, Philam alleged that "one
(1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 was completely deformed
and misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03245-51K were likewise completely deformed and misaligned."18
The appellate court accordingly affirmed Westwind and ATIs joint and solidary liability for the
damage to only one (1) unit of Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It
also noted that when said cargo sustained damage, it was not yet in the custody of the consignee
or the person who had the right to receive it. The CA pointed out that Westwinds duty to observe
extraordinary diligence in the care of the cargoes subsisted during unloading thereof by ATIs
personnel since the former exercised full control and supervision over the discharging operation.
Similarly, the appellate court held ATI liable for the negligence of its employees who carried out
the offloading of cargoes from the ship to the pier. As regards the extent of ATIs liability, the CA
ruled that ATI cannot limit its liability to P5,000 per damaged package. It explained that Section
7.0119 of the Contract for Cargo Handling Services20does not apply in this case since ATI was not
yet in custody and control of the cargoes when the Frame Axle Sub without Lower suffered
damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co.,
Inc.,21 the appellate court also held that Philams action for damages had not prescribed
notwithstanding the absence of a notice of claim.
All the parties moved for reconsideration, but their motions were denied in a Resolution dated
January 11, 2008. Thus, they each filed a petition for review on certiorari which were
consolidated together by this Court considering that all three petitions assail the same CA
decision and resolution and involve the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner Philam in G.R. No.
181262 and petitioner Westwind in G.R. No. 181319 can be summed up into and resolved by
addressing three questions: (1) Has Philams action for damages prescribed? (2) Who between
Westwind and ATI should be held liable for the damaged cargoes? and (3) What is the extent of
their liability?
Petitioners Arguments
G.R. No. 181163

Petitioner ATI disowns liability for the damage to the Frame Axle Sub without Lower inside
Case No. 03-245-42K/1. It shifts the blame to Westwind, whom it charges with negligence in the
supervision of the stevedores who unloaded the cargoes. ATI admits that the damage could have
been averted had Westwind observed extraordinary diligence in handling the goods. Even so, ATI
suspects that Case No. 03-245-42K/1 is "weak and defective"22 considering that it alone
sustained damage out of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held liable to pay only P5,000 per
package pursuant to its Contract for Cargo Handling Services. ATI maintains that it was not
properly notified of the actual value of the cargoes prior to their discharge from the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI liable for the deformed and
misaligned Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It, however, faults the
appellate court for disallowing its claim for the value of six Chassis Frame Assembly which were
likewise supposedly inside Case Nos. 03-245-51K and 03-245-42K/1. As to the latter container,
Philam anchors its claim on the results of the Inspection/Survey Report23 of Chartered Adjusters,
Inc., which the court received without objection from Westwind and ATI. Petitioner believes that
with the offer and consequent admission of evidence to the effect that Case No. 03-245-42K/1
contains six pieces of dented Chassis Frame Assembly, Philams claim thereon should be treated,
in all respects, as if it has been raised in the pleadings. Thus, Philam insists on the reinstatement
of the trial courts award in its favor for the payment of P633,957.15 plus legal
interest, P158,989.28 as attorneys fees and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the deformed Frame Axle Sub
without Lower in Case No. 03-245-42K/1. Westwind argues that the evidence shows that ATI
was already in actual custody of said case when the Frame Axle Sub without Lower inside it was
misaligned from being compressed by the tight cable used to unload it. Accordingly, Westwind
ceased to have responsibility over the cargoes as provided in paragraph 4 of the Bill of Lading
which provides that the responsibility of the carrier shall cease when the goods are taken into the
custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since it was the latters
stevedores who operated the ships gear to unload the cargoes. Westwind reasons that ATI is an
independent company, over whose employees and operations it does not exercise control.
Moreover, it was ATIs employees who selected and used the wrong cable to lift the box
containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the goods in good order
despite a finding that Case No. 03-245-42K/1 was partly torn and crumpled on one side.

Westwind also notes that the discovery that a piece of Frame Axle Sub without Lower was
completely deformed and misaligned came only on May 12, 1995 or 22 days after the cargoes
were turned over to ATI and after the same had been hauled by R.F. Revilla Customs Brokerage,
Inc.
Westwind further argues that the CA erred in holding it liable considering that Philams cause of
action has prescribed since the latter filed a formal claim with it only on August 17, 1995 or four
months after the cargoes arrived on April 20, 1995. Westwind stresses that according to the
provisions of clause 20, paragraph 224 of the Bill of Lading as well as Article 36625 of the Code of
Commerce, the consignee had until April 20, 1995 within which to make a claim considering the
readily apparent nature of the damage, or until April 27, 1995 at the latest, if it is assumed that
the damage is not readily apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on the award of damages to
Philam reckoned from the time of extrajudicial demand. Westwind asserts that, at most, it can
only be charged with 6% interest since the damages claimed by Philam does not constitute a loan
or forbearance of money.
The Courts Ruling
The three consolidated petitions before us call for a determination of who between ATI and
Westwind is liable for the damage suffered by the subject cargo and to what extent. However, the
resolution of the issues raised by the present petitions is predicated on the appreciation of factual
issues which is beyond the scope of a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended. It is settled that in petitions for review on certiorari, only
questions of law may be put in issue. Questions of fact cannot be entertained.26
There is a question of law if the issue raised is capable of being resolved without need of
reviewing the probative value of the evidence. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. If the query requires a reevaluation of the credibility of witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, the issue in that query is factual.27
In the present petitions, the resolution of the question as to who between Westwind and ATI
should be liable for the damages to the cargo and to what extent would have this Court pass upon
the evidence on record. But while it is not our duty to review, examine and evaluate or weigh all
over again the probative value of the evidence presented,28the Court may nonetheless resolve
questions of fact when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when
the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the

findings of fact are conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.29
In the cases at bar, the fifth and seventh exceptions apply. While the CA affirmed the joint
liability of ATI and Westwind, it held them liable only for the value of one unit of Frame Axle
Sub without Lower inside Case No. 03-245-42K/1. The appellate court disallowed the award of
damages for the six pieces of Frame Assembly with Bush, which petitioner Philam alleged, for
the first time in its Appellees Brief, to be likewise inside Case No. 03-245-42K/1. Lastly, the CA
reduced the award of attorneys fees to P47,671.
Foremost, the Court holds that petitioner Philam has adequately established the basis of its claim
against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the
latter in favor of the former. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.30 Petitioner Philams action finds support in Article
2207 of the Civil Code, which provides as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. x x x.
In their respective comments31 to Philams Formal Offer of Evidence,32 petitioners ATI and
Westwind objected to the admission of Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt as documentary exhibits "B" and "P," respectively. Petitioner Westwind
objects to the admission of both documents for being hearsay as they were not authenticated by
the persons who executed them. For the same reason, petitioner ATI assails the admissibility of
the Subrogation Receipt. As regards Marine Certificate No. 708-8006717-4, ATI makes issue of
the fact that the same was issued only on April 27, 1995 or 12 days after the shipment was loaded
on and transported via S/S "Calayan Iris."
The nature of documents as either public or private determines how the documents may be
presented as evidence in court. Public documents, as enumerated under Section 19,33 Rule 132 of
the Rules of Court, are self-authenticating and require no further authentication in order to be
presented as evidence in court.34
In contrast, a private document is any other writing, deed or instrument executed by a private
person without the intervention of a notary or other person legally authorized by which some

disposition or agreement is proved or set forth. Lacking the official or sovereign character of a
public document, or the solemnities prescribed by law, a private document requires
authentication35 in the manner prescribed under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document. Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The requirement of authentication of a private document is excused only in four instances,
specifically: (a) when the document is an ancient one within the context of Section 21,36 Rule
132 of the Rules; (b) when the genuineness and authenticity of the actionable document have not
been specifically denied under oath by the adverse party; (c) when the genuineness and
authenticity of the document have been admitted; or (d) when the document is not being offered
as genuine.37
Indubitably, Marine Certificate No. 708-8006717-4 and the Subrogation Receipt are private
documents which Philam and the consignee, respectively, issue in the pursuit of their business.
Since none of the exceptions to the requirement of authentication of a private document obtains
in these cases, said documents may not be admitted in evidence for Philam without being
properly authenticated.
Contrary to the contention of petitioners ATI and Westwind, however, Philam presented its
claims officer, Ricardo Ongchangco, Jr. to testify on the execution of the Subrogation Receipt, as
follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to consignee and have them receive the said
check.
Q I see. Therefore, what you are saying is that you personally delivered the claim check of
Universal Motors Corporation to that company and you have the subrogation receipt signed by
them personally?
A Yes, sir.
Q And it was signed in your presence?

A Yes, sir.38
Indeed, all that the Rules require to establish the authenticity of a document is the testimony of a
person who saw the document executed or written. Thus, the trial court did not err in admitting
the Subrogation Receipt in evidence despite petitioners ATI and Westwinds objections that it
was not authenticated by the person who signed it.
However, the same cannot be said about Marine Certificate No. 708-8006717-4 which
Ongchangcho, Jr. merely identified in court. There is nothing in Ongchangco, Jr.s testimony
which indicates that he saw Philams authorized representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine certificate 708-8006717-4 issued by Philam
Insurance Company, Inc. to Universal Motors Corporation on April 15, 1995. Will you tell us
what relation does it have to that policy risk claim mentioned in that letter?
A This is a photocopy of the said policy issued by the consignee Universal Motors Corporation.
ATTY. PALACIOS
I see. May I request, if Your Honor please, that this marine risk policy of the plaintiff as
submitted by claimant Universal Motors Corporation be marked as Exhibit B.
COURT
Mark it.39
As regards the issuance of Marine Certificate No. 708-8006717-4 after the fact of loss occurred,
suffice it to say that said document simply certifies the existence of an open insurance policy in
favor of the consignee. Hence, the reference to an "Open Policy Number 9595093" in said
certificate. The Court finds it completely absurd to suppose that any insurance company, of
sound business practice, would assume a loss that has already been realized, when the
profitability of its business rests precisely on the non-happening of the risk insured against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the Subrogation Receipt,
on its own, is adequate proof that petitioner Philam paid the consignees claim on the damaged
goods. Petitioners ATI and Westwind failed to offer any evidence to controvert the same. In
Malayan Insurance Co., Inc. v. Alberto,40 the Court explained the effect of payment by the insurer
of the insurance claim in this wise:
We have held that payment by the insurer to the insured operates as an equitable assignment to
the insurer of all the remedies that the insured may have against the third party whose negligence
or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow

out of, any privity of contract. It accrues simply upon payment by the insurance company of the
insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and
accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt
by one who, in justice, equity, and good conscience, ought to pay.41
Neither do we find support in petitioner Westwinds contention that Philams right of action has
prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress,
was accepted to be made applicable to all contracts for the carriage of goods by sea to and from
Philippine ports in foreign trade by virtue of Commonwealth Act (C.A.) No. 65.42 Section 1 of
C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the
Seventy-fourth Congress of the United States, approved on April sixteenth, nineteen hundred and
thirty-six, be accepted, as it is hereby accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in
the Act shall be construed as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of the goods under the COGSA
is found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge before or at the time of the removal of
the goods into the custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person
taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt
been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, That if a notice of loss or damage, either apparent
or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the delivery of the goods or the date when
the goods should have been delivered.

In the Bill of Lading43 dated April 15, 1995, Rizal Commercial Banking Corporation (RCBC) is
indicated as the consignee while Universal Motors is listed as the notify party. These
designations are in line with the subject shipment being covered by Letter of Credit No. I501054,
which RCBC issued upon the request of Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe
mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller,
who refuses to part with his goods before he is paid, and a buyer, who wants to have control of
his goods before paying.44 However, letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of
the parties to the original transaction,45 in these cases, Nichimen Corporation as the seller and
Universal Motors as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be
regarded as the person entitled to delivery of the goods. Accordingly, for purposes of reckoning
when notice of loss or damage should be given to the carrier or its agent, the date of delivery to
Universal Motors is controlling.
S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the subject cargoes were
discharged to the custody of ATI the next day. The goods were then withdrawn from the CFS
Warehouse on May 11, 1995 and the last of the packages delivered to Universal Motors on May
17, 1995. Prior to this, the latter filed a Request for Bad Order Survey46 on May 12,1995
following a joint inspection where it was discovered that six pieces of Chassis Frame Assembly
from two bundles were deformed and one Front Axle Sub without Lower from a steel case was
dented. Yet, it was not until August 4, 1995 that Universal Motors filed a formal claim for
damages against petitioner Westwind.
Even so, we have held in Insurance Company of North America v. Asian Terminals, Inc. that a
request for, and the result of a bad order examination, done within the reglementary period for
furnishing notice of loss or damage to the carrier or its agent, serves the purpose of a claim. A
claim is required to be filed within the reglementary period to afford the carrier or depositary
reasonable opportunity and facilities to check the validity of the claims while facts are still fresh
in the minds of the persons who took part in the transaction and documents are still
available.47 Here, Universal Motors filed a request for bad order survey on May 12, 1995, even
before all the packages could be unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that failure to comply with the
notice requirement shall not affect or prejudice the right of the shipper to bring suit within one
year after delivery of the goods. Petitioner Philam, as subrogee of Universal Motors, filed the
Complaint for damages on January 18, 1996, just eight months after all the packages were
delivered to its possession on May 17, 1995. Evidently, petitioner Philams action against
petitioners Westwind and ATI was seasonably filed.
This brings us to the question that must be resolved in these consolidated petitions. Who between
Westwind and ATI should be liable for the damage to the cargo?

It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and crumpled on one side
while it was being unloaded from the carrying vessel. The damage to said container was noted in
the Bad Order Cargo Receipt48dated April 20, 1995 and Turn Over Survey of Bad Order Cargoes
dated April 21, 1995. The Turn Over Survey of Bad Order Cargoes indicates that said steel case
was not opened at the time of survey and was accepted by the arrastre in good order. Meanwhile,
the Bad Order Cargo Receipt bore a notation "B.O. not yet t/over to ATI." On the basis of these
documents, petitioner ATI claims that the contents of Steel Case No. 03-245-42K/1 were
damaged while in the custody of petitioner Westwind.
We agree.
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 transported by them. Subject to
certain exceptions enumerated under Article 173449 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier 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 a right to
receive them.50
The court a quo, however, found both petitioners Westwind and ATI, jointly and severally, liable
for the damage to the cargo. It observed that while the staff of ATI undertook the physical
unloading of the cargoes from the carrying vessel, Westwinds duty officer exercised full
supervision and control over the entire process. The appellate court affirmed the solidary liability
of Westwind and ATI, but only for the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to deviate from the finding that
petitioners Westwind and ATI are concurrently accountable for the damage to the content of Steel
Case No. 03-245-42K/1.
Section 251 of the COGSA provides that under every contract of carriage of goods by the sea, the
carrier in relation to the loading, handling, stowage, carriage, custody, care and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3 (2)52 thereof then states that among the carriers
responsibilities are to properly load, handle, stow, carry, keep, care for and discharge the goods
carried.53
At the trial, Westwinds Operation Assistant, Menandro G. Ramirez, testified on the presence of a
ship officer to supervise the unloading of the subject cargoes.
ATTY. LLAMAS
Q Having been present during the entire discharging operation, do you remember who else were
present at that time?

A Our surveyor and our checker the foreman of ATI.

Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that time.54
xxxx
Q Who selected the cable slink to be used?
A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the storage plan informing the ATI of what
type of cargo and equipment will be utilitized in discharging the cargo.55
xxxx
Q You testified that it was the ATI foremen who select the cable slink to be used in discharging,
is that correct?
A Yes sir, because they are the one who select the slink and they know the kind of cargoes
because they inspected it before the discharge of said cargo.
Q Are you aware that the ship captain is consulted in the selection of the cable sling?
A Because the ship captain knows for a fact the equipment being utilized in the discharge of the
cargoes because before the ship leave the port of Japan the crew already utilized the proper
equipment fitted to the cargo.56(Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier.57 The Damage Survey Report58 of the survey conducted by Phil.
Navtech Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-42K/1 was damaged
by ATI stevedores due to overtightening of a cable sling hold during discharge from the vessels
hatch to the pier. Since the damage to the cargo was incurred during the discharge of the
shipment and while under the supervision of the carrier, the latter is liable for the damage caused
to the cargo.
This is not to say, however, that petitioner ATI is without liability for the damaged cargo.
The functions of an arrastre operator involve the handling of cargo deposited on the wharf or
between the establishment of the consignee or shipper and the ships tackle. Being the custodian

of the goods discharged from a vessel, an arrastre operators duty is to take good care of the
goods and to turn them over to the party entitled to their possession.59
Handling cargo is mainly the arrastre operators principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and damage to
shipments under its custody.60
While it is true that an arrastre operator and a carrier may not be held solidarily liable at all
times,61 the facts of these cases show that apart from ATIs stevedores being directly in charge of
the physical unloading of the cargo, its foreman picked the cable sling that was used to hoist the
packages for transfer to the dock. Moreover, the fact that 218 of the 219 packages were unloaded
with the same sling unharmed is telling of the inadequate care with which ATIs stevedore
handled and discharged Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwinds liability, we agree with the CA that the same
should be confined to the value of the one piece Frame Axle Sub without Lower.
In the Bad Order Inspection Report62 prepared by Universal Motors, the latter referred to Case
No. 03-245-42K/1 as the source of said Frame Axle Sub without Lower which suffered a deep
dent on its buffle plate. Yet, it identified Case No. 03-245-51K as the container which bore the
six pieces Frame Assembly with Bush. Thus, in Philams Complaint, it alleged that "the entire
shipment showed one (1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 was
completely deformed and misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH
BUSH from Case No. 03-245-51K were likewise completely deformed and
misaligned."63 Philam later claimed in its Appellees Brief that the six pieces of Frame Assembly
with Bush were also inside the damaged Case No. 03-245-42K/1.
However, there is nothing in the records to show conclusively that the six Frame Assembly with
Bush were likewise contained in and damaged inside Case No. 03-245-42K/1. In the Inspection
Survey Report of Chartered Adjusters, Inc., it mentioned six pieces of chassis frame assembly
with deformed body mounting bracket. However, it merely noted the same as coming from two
bundles with no identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred in imposing an interest rate of 12%
on the award of damages. Under Article 2209 of the Civil Code, 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.64 In the
similar case of Belgian Overseas Chartering and Shipping NV v. Philippine First Insurance Co.,
lnc.,65 the Court reduced the rate of interest on the damages awarded to the carrier therein to 6%
from the time of the filing of the complaint until the finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated October 15,2007
and the Resolution dated January 11, 2008 of the Court of Appeals in CA-G.R. CV No. 69284 in

that the interest rate on the award ofP190,684.48 is reduced to 6% per annum from the date of
extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319, respectively.
SO ORDERED.

GR.104685 March 14, 1996

SABENA BELGIAN WORLD AIRLINES, petitioner,
vs.
HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.

VITUG, J.:p
The appeal before the Court involves the issue of an airline's liability for lost luggage. The
petition for review assails the decision of the Court of Appeals, 1 dated 27 February 1992,
affirming an award of damages made by the trial court in a complaint filed by private respondent
against petitioner.
The factual background of the case, narrated by the trial court and reproduced at length by the
appellate court, is hereunder quoted:
On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of
defendant airline originating from Casablanca to Brussels, Belgium on her way
back to Manila. Plaintiff checked in her luggage which contained her valuables,

namely: jewelries valued at $2,350.00; clothes $1,500.00 shoes/bag $150;

accessories $75; luggage itself $10.00; or a total of $4,265.00, for which she was
issued Tag No. 71423. She stayed overnight in Brussels and her luggage was left
on board Flight SN 284.
Plaintiff arrived at Manila International Airport on September 2, 1987 and
immediately submitted her Tag No. 71423 to facilitate the release of her luggage
but the luggage was missing. She was advised to accomplish and submit a
property Irregularity Report which she submitted and filed on the same day.
She followed up her claim on September 14, 1987 but the luggage remained to be
missing.
On September 15, 1987, she filed her formal complaint with the office of Ferge
Massed, defendant's Local Manager, demanding immediate attention (Exh. "A").
On September 30, 1987, on the occasion of plaintiffs following up of her luggage
claim, she was furnished copies of defendant's telexes with an information that the
Burssel's Office of defendant found the luggage and that they have broken the
locks for identification (Exhibit "B"). Plaintiff was assured by the defendant that it
has notified its Manila Office that the luggage will be shipped to Manila on
October 27, 1987. But unfortunately plaintiff was informed that the luggage was
lost for the second time (Exhibits "C" and "C-1").
At the time of the filing of the complaint, the luggage with its content has not
been found.
Plaintiff demanded from the defendant the money value of the luggage and its
contents amounting to $4,265.00 or its exchange value, but defendant refused to
settle the claim.
Defendant asserts in its Answer and its evidence tend to show that while it admits
that the plaintiff was a passenger on board Flight No. SN 284 with a piece of
checked in luggage bearing Tag No. 71423, the loss of the luggage was due to
plaintiff's sole if not contributory negligence; that she did not declare the valuable
items in her checked in luggage at the flight counter when she checked in for her
flight from Casablanca to Brussels so that either the representative of the
defendant at the counter would have advised her to secure an insurance on the
alleged valuable items and required her to pay additional charges, or would have
refused acceptance of her baggage as required by the generally accepted practices
of international carriers; that Section 9(a), Article IX of General Conditions of
carriage requiring passengers to collect their checked baggage at the place of stop
over, plaintiff neglected to claim her baggage at the Brussels Airport; that plaintiff
should have retrieved her undeclared valuables from her baggage at the Brussels
Airport since her flight from Brussels to Manila will still have to visit for
confirmation inasmuch as only her flight from Casablanca to Brussels was

confirmed; that defendant incorporated in all Sabena Plane Tickets, including

Sabena Ticket No. 082422-72502241 issued to plaintiff in Manila on August 21,
1987, a warning that "Items of value should be carried on your person" and that
some carriers assume no liability for fragile, valuable or perishable articles and
that further information may be obtained from the carrier for guidance;' that
granting without conceding that defendant is liable, its liability is limited only to
US $20.00 per kilo due to plaintiffs failure to declare a higher value on the
contents of her checked in luggage and pay additional charges thereon. 2
The trial court rendered judgment ordering petitioner Sabena Belgian World Airlines to pay
private respondent Ma. Paula San Agustin
(a) . . . US $4,265.00 or its legal exchange in Philippine pesos;
(b) . . . P30,000.00 as moral damages;
(c) . . . P10,000.00 as exemplary damages;
(d) . . . P10,000.00 as attorney's fees; and
(e) (t)he costs of the suit. 3
Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate
court, in its decision of 27 February 1992, affirmed in toto the trial court's judgment.
Petitioner airline company, in contending that the alleged negligence of private respondent
should be considered the primary cause for the loss of her luggage, avers that, despite her
awareness that the flight ticket had been confirmed only for Casablanca and Brussels, and that
her flight from Brussels to Manila had yet to be confirmed, she did not retrieve the luggage upon
arrival in Brussels. Petitioner insists that private respondent, being a seasoned international
traveler, must have likewise been familiar with the standard provisions contained in her flight
ticket that items of value are required to be hand-carried by the passenger and that the liability of
the airline for loss, delay or damage to baggage would be limited, in any event, to only US
$20.00 per kilo unless a higher value is declared in advance and corresponding additional
charges are paid thereon. At the Casablanca International Airport, private respondent, in checking
in her luggage, evidently did not declare its contents or value. Petitioner cites Section 5(c),
Article IX, of the General Conditions of Carriage, signed at Warsaw, Poland, on 02 October
1929, as amended by the Hague Protocol of 1955, generally observed by International carriers,
stating, among other things, that:
Passengers shall not include in his checked baggage, and the carrier may refuse to
carry as checked baggage, fragile or perishable articles, money, jewelry, precious
metals, negotiable papers, securities or other valuable. 4
Fault or negligence consists in the omission of that diligence which is demanded by the nature of
an obligation and corresponds with the circumstances of the person, of the time, and of the place.

When the source of an obligation is derived from a contract, the mere breach or non-fulfillment
of the prestation gives rise to the presumption of fault on the part of the obligor. This rule is no
different in the case of common carriers in the carriage of goods which, indeed, are bound to
observe not just the due diligence of a good father of a family but that of "extraordinary" care in
the vigilance over the goods. The appellate court has aptly observed:
. . . Art. 1733 of the [Civil] Code provides that from the very nature of their
business and by reasons of public policy, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. This
extraordinary responsibility, according to Art. 1736, lasts from the time the goods
are unconditionally placed in the possession of and received by the carrier until
they are delivered actually or constructively to the consignee or person who has
the right to receive them. Art. 1737 states that the common carrier's duty to
observe extraordinary diligence in the vigilance over the goods transported by
them remains in full force and effect even when they are temporarily unloaded or
stored in transit. And Art. 1735 establishes the presumption that if the goods are
lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they had observed
extraordinary diligence as required in Article 1733.
The only exceptions to the foregoing extraordinary responsibility of the common
carrier is when the loss, destruction, or deterioration of the goods is due to any of
the following causes:
(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.
Not one of the above excepted causes obtains in this case. 5
The above rules remain basically unchanged even when the contract is breached by
tort 6 although noncontradictory principles on quasi-delict may then be assimilated as also
forming part of the governing law. Petitioner is not thus entirely off track when it has likewise
raised in its defense the tort doctrine of proximate cause. Unfortunately for petitioner, however,
the doctrine cannot, in this particular instance, support its case. Proximate cause is that which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces injury
and without which the result would not have occurred. The exemplification by the Court in one
case 7 is simple and explicit; viz:

(T)he proximate legal cause is that acting first and producing the injury, either
immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its
immediate predecessor, the final event in the chain immediately affecting the
injury as a natural and probable result of the cause which first acted, under such
circumstances that the person responsible for the first event should, as an
ordinarily prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result
therefrom.
It remained undisputed that private respondent's luggage was lost while it was in the custody of
petitioner. It was supposed to arrive on the same flight that private respondent took in returning
to Manila on 02 September 1987. When she discovered that the luggage was missing, she
promptly accomplished and filed a Property Irregularity Report. She followed up her claim on 14
September 1987, and filed, on the following day, a formal letter-complaint with petitioner. She
felt relieved when, on 23 October 1987, she was advised that her luggage had finally been found,
with its contents intact when examined, and that she could expect it to arrive on 27 October
1987. She then waited anxiously only to be told later that her luggage had been lost for the
second time. Thus, the appellate court, given all the facts before it, sustained the trial court in
finding petitioner ultimately guilty of "gross negligence" in the handling of private respondent's
luggage. The "loss of said baggage not only once but twice, said the appellate court,
"underscores the wanton negligence and lack of care" on the part of the carrier.
The above findings, which certainly cannot be said to be without basis, foreclose whatever rights
petitioner might have had to the possible limitation of liabilities enjoyed by international air
carriers under the Warsaw Convention (Convention for the Unification of Certain Rules Relating
to International Carriage by Air, as amended by the Hague Protocol of 1955, the Montreal
Agreement of 1966, the Guatemala Protocol of 1971 and the Montreal Protocols of 1975).
In Alitalia vs. Intermediate Appellate Court, 8 now Chief Justice Andres R. Narvasa, speaking for
the Court, has explained it well; he said:
The Warsaw Convention however denies to the carrier availment of the provisions
which exclude or limit his liability, if the damage is caused by his wilful
misconduct or by such default on his part as, in accordance with the law of the
court seized of the case, is considered to be equivalent to wilful misconduct, or if
the damage is (similarly) caused . . . by any agent of the carrier acting within the
scope of his employment. The Hague Protocol amended the Warsaw Convention
by removing the provision that if the airline took all necessary steps to avoid the
damage, it could exculpate itself completely, and declaring the stated limits of
liability not applicable if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or
recklessly and with knowledge that damage would probably result. The same
deletion was effected by the Montreal Agreement of 1966, with the result that a
passenger could recover unlimited damages upon proof of wilful misconduct.

The Convention does not thus operate as an exclusive enumeration of the

instances of an airline's liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the Convention, as
this Court has now, and at an earlier time, pointed out. Moreover, slight reflection
readily leads to the conclusion that it should be deemed a limit of liability only in
those cases where the cause of the death or injury to person, or destruction, loss or
damage to property or delay in its transport is not attributable to or attended by
any wilful misconduct, bad faith, recklessness, or otherwise improper conduct on
the part of any official or employee for which the carrier is responsible, and there
is otherwise no special or extraordinary form of resulting injury. The Convention's
provisions, in short, do not regulate or exclude liability for other breaches of
contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. Otherwise, an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in bad
faith, to comply with a contract of carriage, which is absurd. Nor may it for a
moment be supposed that if a member of the aircraft complement should inflict
some physical injury on a passenger, or maliciously destroy or damage the latter's
property, the Convention might successfully be pleaded as the sole gauge to
determine the carrier's liability to the passenger. Neither may the Convention be
invoked to justify the disregard of some extraordinary sort of damage resulting to
a passenger and preclude recovery therefor beyond the limits set by said
Convention. It is in this sense that the Convention has been applied, or ignored,
depending on the peculiar facts presented by each case.
The Court thus sees no error in the preponderant application to the instant case by the appellate
court, as well as by the trial court, of the usual rules on the extent of recoverable damages
beyond the Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the
country of destination), the attendance of gross negligence (given the equivalent of fraud or bad
faith) holds the common carrier liable for all damages which can be reasonably attributed,
although unforeseen, to the non-performance of the obligation, 9 including moral and exemplary
damages. 10
WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 168151

September 4, 2009

REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING

AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.

DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional Container
Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set aside
the decision1 and resolution2 of the Court of Appeals (CA) dated May 26, 2004 and May 10,
2005, respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its
agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws.
Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is
likewise a domestic corporation engaged in the marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped
from Singapore to Manila for Temic Telefunken Microelectronics Philippines (Temic). U-Freight
Singapore PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in Singapore, contracted
the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The
cargo was packed, stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660
with Seal No. 13223. As the cargo was highly perishable, the inside of the container had to be
kept at a temperature of 0 Celsius. Pacific Eagle then loaded the refrigerated container on board
the M/V Piya Bhum, a vessel owned by RCL, with which Pacific Eagle had a slot charter
agreement. RCL duly issued its own Bill of Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open Policy
in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to
cover all losses/damages to the shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel
Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied
by two surveyors, conducted a protective survey of the cargo. They found that based on the
temperature chart, the temperature reading was constant from October 18, 1995 to October 25,
1995 at 0 Celsius. However, at midnight of October 25, 1995 when the cargo had already been
unloaded from the ship the temperature fluctuated with a reading of 33 Celsius. Rocha
believed the fluctuation was caused by the burnt condenser fan motor of the refrigerated
container.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged.
Temic filed a claim for cargo loss against Netherlands Insurance, with supporting claims

documents. The Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms of
the Marine Open Policy. Temic then executed a loss and subrogation receipt in favor of
Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5,
Manila, against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the
latter thought to be the local agent of M/V Piya Bhums unknown owner.4 The complaint was
docketed as Civil Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping,
RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (UOcean), as additional defendants. A third amended complaint was later made, impleading Pacific
Eagle in substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise
filed an answer with compulsory counterclaim and cross-claim. During the pendency of the case,
U-Ocean, jointly with U-Freight Singapore, filed another answer with compulsory counterclaim.
Only Pacific Eagle and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons
why Netherland Insurances claims must be rejected. Specifically, RCL and EDSA Shipping
denied negligence in the transport of the cargo; they attributed any negligence that may have
caused the loss of the shipment to their co-defendants. They likewise asserted that no valid
subrogation exists, as the payment made by Netherlands Insurance to the consignee was invalid.
By way of affirmative defenses, RCL and EDSA Shipping averred that the Netherlands Insurance
has no cause of action, and is not the real party-in-interest, and that the claim is barred by
laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants including
RCL and EDSA Shipping sought leave of court to file their respective motions to dismiss based
on demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to
prove any valid subrogation, and (2) failed to establish that any negligence on their part or that
the loss was sustained while the cargo was in their custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants
could not be held liable for the loss or damage, as their respective liabilities ended at the time of
the discharge of the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.

On May 26, 2004, the CA disposed of the appeal as follows:

WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants
Regional Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET
ASIDE. The dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to
Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines
and EDSA Shipping Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to
reimburse plaintiff in the sum of P1,036,497.00 with interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]
The CA dismissed Netherland Insurances complaint against the other defendants after finding
that the claim had already been barred by prescription.5
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion
for reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable
as common carriers under the theory of presumption of negligence.
THE COURTS RULING
The present case is governed by the following provisions of the Civil Code:
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 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles1755 and 1756.
ART. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act of 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.
ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed, or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation
until the sane 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 articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of destination, until
the consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common
carrier must exercise due diligence to forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North America,6 we reiterated the
rules for the liability of a common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common
carriers are responsible, unless they can prove that such loss, destruction, or deterioration
was brought about by, among others, "flood, storm, earthquake, lightning, or other natural
disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage
to the goods in question. They contend that the cause of the damage to the cargo was the
"fluctuation of the temperature in the reefer van," which fluctuation occurred after the cargo had
already been discharged from the vessel; no fluctuation, they point out, arose when the cargo was
still on board M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same
was already discharged from the vessel and was under the custody of the arrastre operator

(International Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that
the presumption of negligence provided in Article 1735 of the Civil Code should not apply. What
applies in this case is Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the
carrier from liability for loss or damage to the cargo when it is caused either by an act or
omission of the shipper or by the character of the goods or defects in the packing or in the
containers. Thus, RCL and EDSA Shipping seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.8 When the goods shipped are either lost or
arrived in damaged condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold it liable.91avvphi1
To overcome the presumption of negligence, the common carrier must establish by adequate
proof that it exercised extraordinary diligence over the goods. It must do more than merely show
that some other party could be responsible for the damage.10
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of
diligence required by law over the goods they transported. Indeed, there is sufficient evidence
showing that the fluctuation of the temperature in the refrigerated container van, as recorded in
the temperature chart, occurred after the cargo had been discharged from the vessel and was
already under the custody of the arrastre operator, ICTSI. This evidence, however, does not
disprove that the condenser fan which caused the fluctuation of the temperature in the
refrigerated container was not damaged while the cargo was being unloaded from the ship. It is
settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier;11 RCL and EDSA Shipping failed to dispute this.1avvphi1
RCL and EDSA Shipping could have offered evidence before the trial court to show that the
damage to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were
in the act of discharging it from the vessel; or (3) while they were delivering it actually or
constructively to the consignee. They could have presented proof to show that they exercised
extraordinary care and diligence in the handling of the goods, but they opted to file a demurrer to
evidence. As the order granting their demurrer was reversed on appeal, the CA correctly ruled
that they are deemed to have waived their right to present evidence,12 and the presumption of
negligence must stand.
It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or damage
to the cargo was caused by a defect in the packing or in the containers. To exculpate itself from
liability for the loss/damage to the cargo under any of the causes, the common carrier is burdened
to prove any of the causes in Article 1734 of the Civil Code claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the
carrier is negligent.13 RCL and EDSA Shipping, however, failed to satisfy this standard of

evidence and in fact offered no evidence at all on this point; a reversal of a dismissal based on a
demurrer to evidence bars the defendant from presenting evidence supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container
Lines of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May
26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
G.R. No. 196112

February 26, 2014

GMA NETWORK, INC., Petitioner,

vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated October 12, 2010 and a
Resolution3 dated March 9, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112437 which
affirmed the Orders dated May 25, 20094 and January 8, 20105 of respondent National
Telecommunications Commission in BMC Case No. 93-538, imposing a fine against petitioner
GMA Network, Inc. for operating a radio station with an expired provisional authority.
The Facts
Petitioner GMA Network, Inc. (GMA), formerly known as Republic Broadcasting System, Inc.,
is a Filipino-owned domestic corporation engaged in the business of radio and television
broadcasting, which has been granted a legislative franchise to construct, install, operate and
maintain radio and television broadcasting stations in the Philippines for a period of 25 years
under Republic Act No. (RA) 7252,6 enacted on March 20, 1992.7
On the other hand, respondent National Telecommunications Commission (NTC) is a
government agency which, under Executive Order No. (EO) 5468 dated July 23, 1979, has been
authorized to, inter alia, (a) "[i]ssue Certificate[s] of Public Convenience for the operation of
communications utilities and services, radio communications systems, wire or wireless telephone
or telegraph systems, radio and television broadcasting system and other similar public utilities,"
and (b) "[g]rant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio and
television broadcasting systems."9
GMA, by virtue of its legislative franchise, filed with the NTC an application for the issuance of
a Certificate of Public Convenience (CPC) to install, operate and maintain a 5-kilowatt amplitude

modulation (AM) radio station in Puerto Princesa City, Palawan, docketed as BMC Case No. 93538. Pending approval, the NTC issued an Order10 dated January 14, 1997, provisionally
authorizing GMA to install, operate and maintain said radio station. The provisional authority
(PA) was valid for 18 months from date, or until July 14, 1998, and expressly stated that it may
be "subject to amendment, alteration, suspension, revocation or cancellation when public
welfare, morals and national security so requires or when grantee operates beyond its
authorization granted." As manifested in its Compliance11 dated January 27, 1997, GMA
accepted the terms and conditions stated in the PA.
GMA failed to renew its PA upon its expiration on July 14, 1998. Nevertheless, it continued its
broadcast operations on the basis of temporary permits issued by the NTC, the first of which,
numbered BSD-0356-98, was issued on April 14, 1998 for the period April 2, 1998 to April 1,
2001,12 and the second, numbered BSD-0195-2001, on May 21, 2001 for the period April 2, 2001
to April 1, 2004.13
On September 13, 2002, some four (4) years after the expiration of its PA, GMA filed with the
NTC an Ex-Parte Motion for Issuance of Certificate of Public Convenience14 (Ex-Parte Motion),
claiming: (a) full compliance with the terms and conditions of its PA; and (b) its current
operation of said radio station by virtue of temporary permit number BSD-0195-2001.
Meanwhile, GMA continued to operate its radio station on the strength of NTC-issued temporary
permits, the third of which, numbered BSD-0302-2004, was issued on June 23, 2004 for the
period April 2, 2004 to April 1, 2007,15 and the fourth, numbered BSD-0197-2007, on March 27,
2007 for the period April 2, 2007 to April 1, 2010.16
In an Order17 dated February 26, 2009, the NTC set the Ex-Parte Motion for clarificatory hearing
and also directed GMA to submit a written explanation (within 10 days from receipt) why it
should not be administratively sanctioned for the motions late filing and for operating its radio
station with an expired PA.
In its Compliance18 dated March 12, 2009, GMA explained that its failure to timely renew its PA
was without deliberate intent but by mere inadvertence caused by the confusion in the turn-over
of the custody of its documents from its previous lawyer, and that it immediately filed the ExParte Motion upon discovering its omission. Further, it alleged that notwithstanding the nonrenewal of its PA, it had fully complied with the terms and conditions thereof, and that its
continued operation was actually authorized by the NTC by virtue of the four (4) temporary
permits covering the period 1998 to 2010. Finally, invoking the 60-day prescriptive period under
Section 28 of Commonwealth Act No. 146,19 as amended, otherwise known as the "Public
Service Act" (Public Service Act), it argued that the NTC could no longer sanction the late filing
of its Ex-Parte Motion considering the lapse of more than six (6) years from its filing on
September 13, 2002.20
In an Order21 dated May 25, 2009, the NTC renewed GMAs PA for three (3) years, or until July
14, 2012, but, pursuant to Section 21 of the Public Service Act, imposed upon it a fine

of P152,100.00 for operating its radio station with an expired PA from July 14, 1998 to
September 13, 2002, or for 1521 days (the fine having been pegged at the rate of P100 per day).
Consequently, GMA filed a Motion for Partial Reconsideration22 from the imposition of the
aforesaid fine, but the NTC, in an Order23 dated January 8, 2010, merely reduced its amount
to P76,050.00. Dissatisfied, GMA elevated the matter to the CA,24 contending that: (a) the 60-day
prescriptive period provided under Section 28 of the Public Service Act already barred the NTC
from imposing said fine; (b) the fine imposed amounts to more than P25,000.00 and, hence,
contrary to the policy embodied in Section 23 of the Public Service Act; and (c) the imposition of
said fine was improper considering that the NTC had already authorized it to operate its radio
station through temporary permits
The CA Ruling
In a Decision25 dated October 12, 2010, the CA dismissed the appeal, finding no merit in GMAs
contention that the violation committed had already prescribed pursuant to Section 28 of the
Public Service Act. Citing the 1962 case of Sambrano v. PSC and Phil. Rabbit Bus Lines,
Inc.26 (Sambrano), it held that the abovementioned 60-day prescriptive period is only available as
a defense in criminal proceedings, and not to those which are administrative in
character.27 Hence, since the assailed fine was imposed by the NTC to administratively sanction
GMA for its non-compliance with the conditions of its PA pursuant to Section 21 of the Public
Service Act,28 the 60-day prescriptive period cannot be raised by GMA as a defense.
Further, the CA found that the NTCs imposition of the assailed fine at the reduced rate of P50.00
per day was well within the limit of Section 21 of the Public Service Act, noting too that the fine
was, at best, minimal and conservative in light of the duration of GMA violation.29 It appears
though that the CA did not address GMAs argument anent the fact that its continued operation
was based on temporary permits issued by the NTC.
Feeling aggrieved, GMA moved for reconsideration which was, however, denied in a
Resolution30 dated March 9, 2011, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA erred in upholding the P76,050.00 fine
imposed by the NTC upon GMA.
The Courts Ruling
The petition lacks merit.
A. Prescriptibility

While it was clearly established that GMA violated the terms and conditions of its PA when it
continued to operate its radio station despite the PAs expiration,31 it, however, invokes the 60day prescriptive period under Section 28 of the Public Service Act which states that:
Section 28. Violations of the orders, decisions, and regulations of the Commission and the terms
and conditions of any certificates issued by the Commission shall prescribe after sixty days and
violations of the provisions of this Act shall prescribe after one hundred and eighty days.
(Emphasis and underscoring supplied)
It asseverates that the NTCs attempt to penalize it for supposedly operating with an expired PA
should be deemed barred by the afore-cited limitation since the NTCs action came only after the
lapse of almost 10 years from the time its alleged violation took place that is, after the subject
PA expired on July 14, 1998.32
The Court disagrees.
The NTCs authority to impose fines for a public service utilitys violation or failure to comply
with the terms and conditions of any certificate/s issued by it is expressly sanctioned under
Section 21 of the Public Service Act which reads as follows:
Section 21. Every public service violating or failing to comply with the terms and conditions of
any certificate or any orders, decisions or regulations of the Commission shall be subject to a
fine of not exceeding two hundred pesos per day for every day during which such default or
violation continues; and the Commission is hereby authorized or empowered to impose such
fine, after due notice and hearing.
The fines so imposed shall be paid to the Government of the Philippines through the
Commission, and failure to pay the fine in any case within the time specified in the order or
decision of the Commission shall be deemed good and sufficient reason for the suspension of the
certificate of said public service until payment shall be made. The remedy provided in this
section shall not be a bar to, or affect any other remedy provided in this Act but shall be
cumulative and additional to such remedy or remedies. (Emphasis supplied)
In Globe Telecom, Inc. v. NTC,33 the Court intimated that the NTCs imposition of a fine
pursuant to Section 21 of the Public Service Act is made in an administrative proceeding, and
thus, must comply with the requirements of notice and hearing. Also, in the same case, the Court
classified the fine imposed under the same provision to be one which is regulatory and punitive
in character, viz.:34
Section 21 requires notice and hearing because fine is a sanction, regulatory and even punitive in
character. Indeed, the requirement is the essence of due process. Notice and hearing are the
bulwark of administrative due process, the right to which is among the primary rights that must
be respected even in administrative proceedings. The right is guaranteed by the Constitution

itself and does not need legislative enactment. The statutory affirmation of the requirement
serves merely to enhance the fundamental precept. The right to notice and hearing is essential to
due process and its non-observance will, as a rule, invalidate the administrative proceedings.
In citing Section 21 as the basis of the fine, NTC effectively concedes the necessity of prior
notice and hearing. Yet the agency contends that the sanction was justified by arguing that when
it took cognizance of Smarts complaint for interconnection, "it may very well look into the issue
of whether the parties had the requisite authority to operate such services." As a result, both
parties were sufficiently notified that this was a matter that NTC could look into in the course of
the proceedings. The parties subsequently attended at least five hearings presided by NTC.
That particular argument of the NTC has been previously disposed of. But it is essential to
emphasize the need for a hearing before a fine may be imposed, as it is clearly a punitive
measure undertaken by an administrative agency in the exercise of its quasi-judicial functions.
Inherently, notice and hearing are indispensable for the valid exercise by an administrative
agency of its quasi-judicial functions. (Emphases and underscoring supplied; citations omitted)
In this relation, the Court, in Sambrano, ruled that the 60-day prescriptive period provided under
Section 28 of the Public Service Act can be availed of as defenses only in criminal proceedings
filed under Chapter IV thereof, and not in proceedings that pertain to the regulatory or
administrative aspects of a public service utilitys observance of the terms and conditions of his
permit to operate, viz.:35
This Court has already held, in Collector of Internal Revenue et al. vs. Buan, G. R. L-11438; and
Sambrano v. Public Service Commission, G.R. L-11439 and L-11542, decided on July 31, 1958,
that the 60-day prescriptive period fixed by section 28 of the Public Service Law is available as a
defense only in criminal or penal proceedings filed under Chapter IV of the Act. Consequently,
the Public Service Commission is not barred from receiving evidence of the prescribed violations
for the purpose of determining whether an operator has or has not faithfully kept the conditions
of his certificate of permit, whether he failed or not to render the services he is required to
furnish to the customers, and whether or not the infractions are sufficient cause to cancel or
modify the certificate. Proceedings of this kind are held primarily to ensure adequate and
efficient service as well as to protect the public against the operators malfeasances or abuses;
they are not penal in character. True, the cancellation of the certificate may mean for an operator
actual financial hardship; yet the latter is merely incidental to the protection of the traveling
public. Hence, in refusing to admit evidence of prescribed violations as part of the complainants
case against the Philippine Rabbit Lines for a modification or cancellation of the latters permit,
we hold that the Commission committed error.
xxxx

The order appealed from is modified in the sense that the respondent Commission shall admit
evidence of violations committed by the respondent Philippine Rabbit Bus Lines, Inc., even if no
complaint against such violations were filed within 60 days from their commission. x x x.
(Emphasis supplied)
It is well to note that the criminal proceedings under Chapter IV of the Public Service Act, as
mentioned in the Sambrano ruling, pertain to those found under Sections 23, 24, 25, and
2636 thereof as these provisions pertain to fines imposed "in the discretion of the court" which
means they are imposed in criminal court proceedings as contradistinguished from Section 21
which may be imposed by the NTC (then, by the Public Service Commission), after due notice
and hearing,
In view of the foregoing, the Court thus finds GMAs reliance on the 60-day prescriptive period
under Section 28 of the Public Service Act to be misplaced considering that the fine it assails was
imposed in an administrative and not a criminal proceeding. Akin to the action taken by the
Public Service Commission in the Sambrano case, the fine imposed by the NTC was made in
line with its authority to enforce the rules and regulations concerning the conduct and operation
of GMA as a public service utility, which was particularly meted out to ensure its compliance
with the terms and conditions of its PA. There being no cogent reason to depart from established
jurisprudence on the matter, the Court therefore holds that the NTCs action in this case had not
been barred under the parameters of Section 28 of the Public Service Act.
B. Unconscionability
Granting that the NTC was not time-barred to impose the fine, GMA asserts that the amount so
imposed (i.e.,P76,050.00 in total, at the reduced rate of P50.00 per day for 1,521 days) is
unconscionable as it contravenes Section 23 of the Public Service Act which states that:
Section 23. Any public service corporation that shall perform, commit or do any act or thing
forbidden or prohibited or shall neglect, fail or omit to do or perform any act or thing herein to be
done or performed, shall be punished by a fine not exceeding twenty-five thousand pesos, or by
imprisonment not exceeding five years, or both, in the discretion of the court.
The argument is untenable.
The applicable provision is Section 21 of the Public Service Act as it specifically governs the
NTCs imposition of a fine not exceeding P200.00 per day for every day during which the public
service utilitys violation or non-compliance with the terms and conditions of the certificate/s
issued by the NTC continues. On the other hand, Section 23 of the Public Service Act deals with
a public service corporations performance, commission or doing of any forbidden or prohibited
act under the same law, as well as its neglect, failure or omission to do or perform an act or thing
required thereunder. As earlier mentioned, the proceedings under Section 23 pertain to criminal
proceedings conducted in court, whereby the fine imposed, if so determined, is made in the

courts discretion, whereas Section 21 pertains to administrative proceedings conducted by the

NTC on the grounds stated thereunder. As the present case evidently involves the latter violation,
Section 21 and not Section 23 of the Public Service Act applies. Thus, finding that the fine
imposed by the NTC at the reduced rate of P50.00 per day is consistent with the P200.00 per day
limitation under Section 21 of the Public Service Act, the fine of P76,500.00 for GMAs failure
to comply with the terms and conditions of its PA for a period of 1,521 days was proper. The
conscionability of the amount imposed should not be at issue as it is the law itself which had
provided the allowable threshold for the amount therefor.
C. Effect of Temporary Permits
Lastly, GMA avers that it cannot be said to have operated its radio station illegally and without
authority from the NTC because the latter had successively issued temporary permits which
encompass the period during which GMA allegedly operated the same station on an expired PA.
The temporary permits expressly state:
REPUBLIC BROADCASTING SYSTEM, INC. is hereby granted a Temporary Permit to
operate a BROADCASTING STATION located at Brgy. San Pedro, Puerto Princesa, Palawan.
GMA argues, therefore, that having been authorized to operate by the NTC itself through the
latters continued issuance of temporary permits, the imposition of the fine becomes highly
iniquitous if not legally unfounded.37
The Court finds no merit in this contention.
GMA cannot rely on the temporary permits to justify its continued operation on an expired PA.
As the NTC itself discloses, a temporary permit is not intended to be a substitute for a PA which
must be constantly renewed despite the issuance of a temporary permit. As clarified by the NTC
itself in its Comment:38
[A] P.A. refers to an authority given to an entity qualified to operate a public utility for a limited
period during the pendency of its application for, or before the issuance of its Certificate of
Public Convenience (CPC). It has a general scope because it is akin to a provisional CPC in that
it gives a public utility provider power to operate as such and be bound by the laws and rules
governing public utilities, pending the issuance of its actual CPC.
On the other hand, a [t]emporary [p]ermit is a document containing the call sign, authorized
power, frequency/channel, class station, hours of operation, points of communication and
equipment particulars granted to an authorized public utility. Its scope is more specific than a
P.A. because it contains details and specifications under which a public utility x x x should
operate x x x pursuant to a previously updated P.A. (Emphases and underscoring supplied)

As may be gleaned from the NTCs statement, the operational validity of a temporary permit
flows only from "a previously updated PA." This means that there should be an effective PA
before a temporary permit is issued. The latter is a specific issuance which proceeds from a prerequisite PA. While GMA may have been able to secure the successive issuance of temporary
permits from the NTC to cover even the PAs expired period, this does not detract from the
apparent irregularity of the procedure. The fact remains that GMA operated its radio station
between the time that its PA expired on July 14, 1998 and the application for its renewal was
filed on April 13, 2002. Without an updated PA therefor, GMA should not have been issued
temporary permits.
GMA must be reminded that the NTC, insofar as the regulation of the telecommunications
industry is concerned, has exclusive jurisdiction to "establish and prescribe rules, regulations,
standards and specifications in all cases related to the issued Certificate of Public Convenience
and administer and enforce the same."39 As such, and considering further its expertise on the
matter, its interpretation of the rules and regulations it itself promulgates are traditionally
accorded by the Court with great weight and respect. As enunciated in Eastern
Telecommunications Phils., Inc. v. International Communication Corporation:40
The NTC, being the government agency entrusted with the regulation of activities coming under
its special and technical forte, and possessing the necessary rule-making power to implement its
objectives, is in the best position to interpret its own rules, regulations and guidelines. The Court
has consistently yielded and accorded great respect to the interpretation by administrative
agencies of their own rules unless there is an error of law, abuse of power, lack of jurisdiction or
grave abuse of discretion clearly conflicting with the letter and spirit of the law. (Emphases and
underscoring supplied)
Equally significant is the principle that the State cannot be put in estoppel by the mistakes or
errors of its officials or agents.41 Hence, whatever irregularity had attended the issuance of the
temporary permits in this case does not render correct what appears to be erroneous procedure.
The NTC itself recognizes this when it stated in its Comment that:42
Technically speaking, [GMA] should not have been issued a Temporary Permit.1wphi1 The
Temporary Permits relied upon by [GMA] were issued to it on the assumption that its P.A. was
up to date. Had [NTC] known that [GMA] had an expired P.A., it would not have granted
[GMA] a Temporary Permit to operate its subject radio broadcasting station.
Before [GMA] could legally operate its subject radio station, it should have both an updated P.A.
and a Temporary Permit for such purpose.
Verily, the Court agrees with the NTC's submission that although GMA was granted numerous
temporary permits, it does not remove the fact that it was operating on an expired PA, which
infraction is subject to the penalty of fine under Section 21 of the Public Service Act.43 The
Court, however, expresses that the NTC should be more circumspect with the enforcement of its

internal procedures if only to prevent any future incident similar to the present case. The ideal of
public accountability befittingly demands that administrative agencies, such as the NTC, devise
appropriate governance systems to ensure that its rules and regulations are followed and
complied, and deviations therefrom deterred and quelled. Truth be told, it is through an honest
and effective bureaucracy that the government gains the people's trust and deference.
All told, the fine against GMA in the amount of P76,500.00 for its failure to comply with the
terms and conditions of its PA stands, without prejudice to any separate administrative
proceeding which may be initiated against any public officer responsible for the aforementioned
irregularity.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 182976

January 14, 2013

MANILA ELECTRIC COMPANY (MERALCO), Petitioner,

vs.
ATTY. PABLITO M. CASTILLO, doing business under the trade name and style of
PERMANENT LIGHT MANUFACTURING ENTERPRISES and GUIA S.
CASTILLO, Respondents.
DECISION
VILLARAMA, JR., J.:
Before us is a petition1 for review on certiorari seeking to set aside the Decision2 dated May 21,
2008 of the Court of Appeals in CA-G.R. CV No. 80572. The Court of Appeals had affirmed
with modification the Decision3dated July 9, 2003 of the Regional Trial Court (RTC) of Pasig
City, Branch 168, in Civil Case No. 65224. The appellate court deleted the award to petitioner
Manila Electric Company (Meralco) of the amount of P1, 138,898.86, representing overpaid
electric bills, and ordered petitioner to pay temperate damages to respondents in the amount of
P500,000.
The facts follow.
Respondents Pablito M. Castillo and Guia S. Castillo are spouses engaged in the business of
manufacturing and selling fluorescent fixtures, office steel cabinets and related metal fabrications
under the name and style of Permanent Light Manufacturing Enterprises (Permanent Light).
On March 2, 1994, the Board of Trustees of the Government Service Insurance System (GSIS)
approved the award to Permanent Light of a contract for the supply and installation of 1,200
units of lateral steel filing cabinets worth P7,636,800.4 Immediately, Permanent Light began

production of the steel cabinets so that it can obtain the award for the supply of 500 additional
units.
In the afternoon of April 19, 1994, Joselito Ignacio and Peter Legaspi, Fully Phased Inspectors of
petitioner Meralco, sought permission to inspect Permanent Lights electric meter. Said
inspection was carried out in the presence of Mike Malikay, an employee of respondents.
The results of the inspection, which are contained in a Special Investigation Report,5 show that
the terminal seal of Permanent Lights meter was deformed, its meter seal was covered with fake
lead, and the 100th dial pointer was misaligned. On the basis of these findings, Ignacio
concluded that the meter was tampered with and electric supply to Permanent Light was
immediately disconnected. The questioned meter was then taken to Meralcos laboratory for
verification.
By petitioner Meralcos claim, it sustained losses in the amount of P126,319.92 over a 24-month
period,6 on account of Permanent Lights tampered meter. The next day, in order to secure the
reconnection of electricity to Permanent Light, respondents paid P50,000 as down payment on
the differential bill to be rendered by Meralco.7
Thereafter, Meralco performed a Polyphase Meter Test on the disputed meter and made the
following findings:
1. The ST-5 seal#A217447 padlock type was tampered by forcibly pulling out the sealing hasp
while the lead cover seals (ERB#1 (1989) and Meralco#21) were found fake.
2. The meshing adjustment between the 1st driven gear and the rotating disc was found altered
causing the said gear to [disengage] totally from the driving gear of the same disc. Under this
condition, the meter failed to register, hence, had not been registering the energy (KWhrs) and
kw demand used by the customer.
3. The 100th dial pointer of the register was found out of alignment which indicates that the
meter had been opened to manipulate said dial pointer and set manually to the desired reading.8
Petitioner Meralco billed Permanent Light the amount of P61,709.11, representing the latters
unregistered electric consumption for the period of September 20, 1993 to March 22, 1994.
Meralco, however, credited the initial payment of P50,000 made by respondents. It assessed
respondents a balance of P11,709.11, but later reduced said amount to P5,538.20 after petitioner
allowed respondents a 10% discount on their total bill. Then, petitioner received the amount of
P5,538.20 as full settlement of the remaining balance.
Subsequently, respondents received an electric bill in the amount of P38,693.53 for the period of
March 22, 1994 to April 21, 1994. This was followed by another bill for P192,009.64 covering
the period from November 19, 1993 to April 21, 1994. Respondents contested both assessments

in a Letter dated October 12, 1994.9 They likewise complained of a significant increase in their
electric bills since petitioner installed the replacement meter on April 20, 1994.
In a Letter dated December 7, 1994,10 petitioner Meralco explained that the bill for P38,693.53
was already a "corrected bill." According to petitioner, the bill for P192,009.64 was adjusted on
August 25, 1994 to reflect respondents payment of P61,709.11 as settlement of Permanent
Lights electric bills from September 20, 1993 to March 22, 1994. It assured respondents that
Permanent Lights meter has been tested on November 29, 1994 and was found to be in order. In
the same letter, petitioner informed respondents that said meter was replaced anew on December
1, 1994 after it sustained a crack during testing. While respondents continued to pay, allegedly
under protest, the succeeding bills of Permanent Light, they refused to pay the bill for
P38,693.53.
On August 2, 1995, respondents filed against Meralco a Petition11 for Injunction, Recovery of a
Sum of Money and Damages with Prayer for the Issuance of a Temporary Restraining Order
(TRO) and Writ of Preliminary Injunction. The case was raffled to Branch 162 of the Pasig RTC,
which was presided over by Judge Manuel S. Padolina, and docketed as Civil Case No. 65224.
Mainly, respondents prayed for the issuance of a permanent injunction to enjoin petitioner from
cutting power supply to Permanent Light, refrain from charging them unrecorded electric
consumption and demanding payment of P38,693.53, representing their bill for March 22, 1994
to April 21, 1994. Corollary to this, respondents sought reimbursement of the P55,538.20 that
they had paid as the estimated electric bill of Permanent Light from September 20, 1993 to
March 22, 1994. They likewise prayed for the reinstatement of their old meter, which
respondents believe accurately records Permanent Lights electric consumption.
In an Order12 dated August 29, 1995, the RTC directed the issuance of a TRO to restrain
petitioner Meralco from disconnecting electricity to Permanent Light. Later, in an Order13 dated
September 8, 1995, the RTC directed the issuance of a writ of preliminary injunction upon the
posting of a bond in the amount of P95,000.
While trial was pending, respondents reiterated their request for a replacement meter. According
to them, the meters installed by Meralco ran faster than the one it confiscated following the
disconnection on April 19, 1994.
In 1997, Judge Manuel S. Padolina retired. Thus, the case was heard by Pairing Judge Aurelio C.
Trampe until the parties had presented all their witnesses. On October 30, 1998, respondents
rested their case and submitted a Written Offer of Exhibits.14 Meanwhile, petitioner filed a
Formal Offer of Evidence15 on September 22, 1999. By then, a regular presiding judge had been
appointed to Branch 162 in the person of Hon. Erlinda Piera Uy. However, on November 8,
1999, respondents filed an Urgent Motion to Inhibit Ad Cautelam.16 Judge Uy voluntarily
recused herself from hearing the case by Order17 dated November 10, 1999. Eventually, the case
was raffled to Branch 168 of the Pasig RTC presided by Judge Leticia Querubin Ulibarri.

On November 28, 2001, Meralco installed a new electric meter at the premises of Permanent
Light. Following this, on January 29, 2002, respondents filed an Urgent Motion to Proffer and
Mark the Latest Meralco Bill of P9,318.65 which was Reflected in the 3rd Meralco Electric
Meter
Recently Installed by Defendant Meralco.18 Despite petitioners opposition, the RTC admitted
said bill into evidence.
On July 9, 2003, the Pasig RTC, Branch 168, rendered judgment in favor of respondents. The
fallo of said Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioners and
against the respondent ordering the latter to pay the former the following:
1. P1,138,898.86 representing overpayments made by the petitioners from May 1994 to
November 2001;
2. P200,000.00 as and for moral damages;
3. P100,000.00 as and for exemplary damages;
4. P100,000.00 as and for attorneys fees; and
5. the costs of this suit.
On the other hand, petitioners are hereby ordered to pay to the respondent the amount of
P38,693.53 representing the billing differential.
The Preliminary Injunction issued by the Court is hereby made PERMANENT.
SO ORDERED.19
The trial court ruled that petitioner failed to observe due process when it disconnected electricity
to Permanent Light. It explained that under Section 4 of Republic Act No. 783220 (RA 7832), in
order that a tampered meter may constitute prima facie evidence of illegal use of electricity by
the person benefited thereby, the discovery thereof must have been witnessed by an officer of the
law or an authorized representative of the Energy Regulatory Board (ERB). In this case,
however, the RTC noted that no officer of the law or authorized ERB representative was present
when the tampered meter was discovered. Moreover, the trial court found no direct evidence to
prove that respondents were responsible for tampering with said meter.
On the basis of the proffered bill dated December 29, 2001,21 the RTC concluded that the
replacement meter installed by Meralco did not accurately register Permanent Lights electric
consumption. Consequently, it ordered petitioner to reimburse respondents in the amount of

P1,138,898.86, representing the supposed overpayment from April 1994 to November 2001. For
failure to observe due process in disconnecting electricity to Permanent Light, the trial court
likewise imposed upon petitioner Meralco moral and exemplary damages in the amount of
P200,000 and P100,000, respectively.
In the assailed Decision dated May 21, 2008, the Court of Appeals affirmed with modification
the Decision of the RTC. It deleted the award of P1,138,898.86 in favor of respondents and
instead ordered petitioner to pay temperate damages in the amount of P500,000.
The Court of Appeals held that petitioner abused its right when it disconnected the electricity of
Permanent Light. The appellate court upheld the validity of the provision in petitioners service
contract which allows the utility company to disconnect service upon a customers failure to pay
the differential billing. It however stressed that under Section 9722 of Revised Order No. 1 of the
Public Service Commission, the right of a public utility to discontinue its service to a customer is
subject to the requirement of a 48-hour written notice of disconnection. Petitioners failure in this
regard, according to the appellate court, justifies the award of moral and exemplary damages to
respondents.
The Court of Appeals ordered petitioner to reimburse respondents for overpayment on their
electric bills. It sustained the finding of the trial court that the electric meter installed by
petitioner in Permanent Lights premises on April 20, 1994 was registering a higher reading than
usual. The appellate court based its conclusion on the marked difference between Permanent
Lights net billing from 1985 to 2001 compared to its consumption after the new meter was
installed, and the consequent decrease after said meter was replaced on November 28, 2001.
However, instead of actual damages, the Court of Appeals awarded respondents temperate
damages in the amount of P500,000.
Hence, this petition.
Petitioner submits the following assignment of errors:
I.
THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF
DISCRETION IN AFFIRMING THE AWARD OF MORAL AND EXEMPLARY DAMAGES
IN FAVOR OF THE RESPONDENTS;23
II.
THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF
DISCRETION IN AWARDING P500,000.00 FOR AND AS TEMPERATE DAMAGES IN
FAVOR OF THE RESPONDENTS.24

Amplified, the issues for our resolution are two-fold: (1) Are respondents entitled to claim
damages for petitioners act of disconnecting electricity to Permanent Light on April 19, 1994?
and (2) Are respondents entitled to actual damages for the supposed overbilling by petitioner
Meralco of their electric consumption from April 20, 1994 to November 28, 2001?
Petitioner faults the Court of Appeals for affirming the award of moral and exemplary damages
to respondents. It argues that respondents failed to establish how the disconnection of electricity
to Permanent Light for one day compromised its production. Petitioner cites respondents
admission that soon after the power went out, they used generators to keep the operations of
Permanent Light on track.
Petitioner further negates bad faith in discontinuing service to Permanent Light without notice to
respondents. It contends that the 48-hour notice requirement in Section 97 of Revised General
Order No. 1 applies only to a customer who fails to pay the regular bill. Petitioner insists that the
discovery by its Fully Phased Inspectors of Permanent Lights tampered meter justified
disconnection of electricity to the latter.
Also, petitioner challenges the award of temperate damages to respondents for the alleged
overbilling. It objects to the admission into evidence of Permanent Lights December 29, 2001
electric bill, which respondents proffered two years after the case was submitted for decision by
the court a quo. Petitioner disputes the finding of the RTC and the Court of Appeals that
respondents overpaid on Permanent Lights electric bill. It reasons that the volume of business of
any establishment varies from season to season such that it cannot be expected to constantly
register the same electric consumption. Lastly, petitioner protests the award of P500,000 in
temperate damages as excessive and unconscionable.
In a Memorandum dated May 27, 2009, respondents denied any involvement in the tampering of
Permanent Lights electric meter. Respondents reiterate that petitioner violated their right to due
process when it disconnected electricity to Permanent Light without apprising them of their
violation and affording them an opportunity to pay the differential bill within the 10-day grace
period provided by law. Respondents claim that such disconnection imperiled the prompt
completion of Permanent Lights contract with GSIS, thereby causing them anxiety. They believe
that the "embarrassment, humiliation and pain" brought about by such disconnection justify the
award of moral damages in their favor. Respondents invoke Article 2425 of the Civil Code on
parens patriae against the alleged abuse by petitioner Meralco of its monopoly as an electric
service provider.
Respondents also rely on the testimony of Enrique Katipunan, Meralco Billing Expert, to prove
that the sudden increase in Permanent Lights electric consumption was caused by the "highspeed" replacement meter installed by petitioner. They reiterate their claim for actual damages,
arguing that absolute certainty as to its amount need not be shown since the loss has been
established.

Upon a careful consideration of the circumstances of this case, the Court resolves to deny the
petition.
The pertinent law relative to the immediate disconnection of electricity is Section 4, RA 7832,
which reads:
SEC. 4. Prima Facie Evidence.(a) The presence of any of the following circumstances shall
constitute prima facie evidence of illegal use of electricity, as defined in this Act, by the person
benefitted thereby, and shall be the basis for: (1) the immediate disconnection by the electric
utility to such person after due notice, x x x
(iv) The presence of a tampered, broken, or fake seal on the meter, or mutilated, altered, or
tampered meter recording chart or graph, or computerized chart, graph, or log;
xxxx
(viii) x x x Provided, however, That the discovery of any of the foregoing circumstances, in order
to constitute prima facie evidence, must be personally witnessed and attested to by an officer of
the law or a duly authorized representative of the Energy Regulatory Board (ERB).
Thus, in order for the discovery of a tampered, broken or fake seal on the meter to constitute
prima facie evidence of illegal use of electricity by the person who benefits from such illegal use,
the discovery thereof must have been personally witnessed and attested to by an officer of the
law or a duly authorized representative of the ERB.
Citing Quisumbing v. Manila Electric Company,26 we reiterated the significance of this
requirement in Manila Electric Company (MERALCO) v. Chua,27 thus:
The presence of government agents who may authorize immediate disconnections go into the
essence of due process. Indeed, we cannot allow respondent to act virtually as prosecutor and
judge in imposing the penalty of disconnection due to alleged meter tampering. That would not
sit well in a democratic country. After all, Meralco is a monopoly that derives its power from the
government. Clothing it with unilateral authority to disconnect would be equivalent to giving it a
license to tyrannize its hapless customers.
On cross-examination, Meralcos Fully Phased Inspector, Joselito M. Ignacio, recounted who
were present during the inspection:
Q. Mr. Ignacio, let us reconstruct the evidence on April 19, 1994. Before you came across the
Meralco meter of the plaintiffs, where did you come from?
A. We were inspecting other meters within that vicinity.

Q. So you mean to tell us that you were cruising in the vicinity of Cubao, Quezon City on April
19?
A. Yes, sir.
Q. And were you alone?
A. No, sir, we were two.
Q. Who was with you?
A. Mr. Peter Legaspi, sir.28
On further cross-examination by Atty. Pablito M. Castillo, Ignacio confirmed that only he and
another Fully Phased Inspector were present when they discovered Permanent Lights tampered
meter:
Q. Who was with you when you entered the compound of the plaintiffs?
ATTY. BONA: Already answered, Mr. Legaspi.
ATTY. CASTILLO: No. They were both on board but the question now is more particular.
ATTY. BONA: At what particular time?
WITNESS:
A. Mr. Legaspi.
COURT: Only?
WITNESS: Yes, sir.29
Absent any showing that an officer of the law or a duly authorized representative of the ERB
personally witnessed and attested to the discovery of Permanent Lights tampered electric meter,
such discovery did not constitute prima facie evidence of illegal use of electricity that justifies
immediate disconnection of electric service.
Besides, even if there is prima facie evidence of illegal use of electricity, Section 4, RA 7832
requires due notice to the person benefited before disconnection of electricity can be effected.
Specifically, Section 6 of RA 7832 calls for prior written notice or warning, thus:
SEC. 6. Disconnection of Electric Service. - The private electric utility or rural electric
cooperative concerned shall have the right and authority to disconnect immediately the electric

service after serving a written notice or warning to that effect, without the need of a court or
administrative order, and deny restoration of the same, when the owner of the house or
establishment concerned or someone acting in his behalf shall have been caught in flagrante
delicto doing any of the acts enumerated in Section 4(a) hereof, or when any of the
circumstances so enumerated shall have been discovered for the second time: Provided, That in
the second case, a written notice or warning shall have been issued upon the first discovery: x x x
(Emphasis supplied)
Thus, even when the consumer, or someone acting in his behalf, is caught in flagrante delicto or
in the act of doing any of the acts enumerated in Section 4 of RA 7832, petitioner may not
immediately disconnect electricity without serving a written notice or warning to the owner of
the house or establishment concerned.
Petitioner Meralco submitted a memorandum with Control No. 6033-9430 dated April 19, 1994 to
prove that respondents were duly notified of the disconnection. Notwithstanding, petitioner
maintains that the 48-hour notice of disconnection does not apply in this case since Section 97 of
Revised Order No. 1 of the Public Service Commission pertains to nonpayment of bills while the
cause for discontinuing service to Permanent Light was the discovery of the tampered meter.
We do not agree.
On February 9, 1987, the Bureau of Energy approved31 the Revised Terms and Conditions of
Service and Revised Standard Rules and Regulations of Meralcos Electric Service Contract.
Pertinent to this case, the provision on Discontinuance of Service under the Revised Terms and
Conditions of Service states:
DISCONTINUANCE OF SERVICE:
The Company reserves the right to discontinue service in case the Customer is in arrears in the
payment of bills or for failure to pay the adjusted bills in those cases where the meter stopped or
failed to register the correct amount of energy consumed, or for failure to comply with any of
these terms and conditions, or in case of or to prevent fraud upon the Company. Before
disconnection is made in case of or to prevent fraud, the Company may adjust the bill of said
Customer accordingly and if the adjusted bill is not paid, the Company may disconnect the same.
In case of disconnection, the provisions of Revised Order No. 1 of the former Public Service
Commission (now the Board of Energy) shall be observed. Any such suspension of service shall
not terminate the contract between the Company and the Customer.32 (Emphasis supplied)
On August 3, 1995, the ERB passed Resolution No. 95-21 or the Standard Rules and Regulations
Governing the Operation of Electrical Power Services which superseded and revoked Revised
Order No. 1, which the Public Service Commission adopted on November 27, 1941. The relevant
provision on disconnection of service is found in Section 48 of ERB Resolution No. 95-21,
which reads:

SEC. 48. Refusal or Discontinuance of Service. An electric utility shall not refuse or
discontinue service to an applicant, or customer, who is not in arrears to the electric utility, even
though there are unpaid charges due from the premises occupied by the applicant, or customer,
on account of unpaid bill of a prior tenant, unless there is evidence of conspiracy between them
to defraud the electric utility.
Service may be discontinued for the nonpayment of bills as provided for in Section 43 hereof,
provided that a forty eight (48)-hour written notice of such disconnection has been given the
customer; Provided, however, that disconnections of service shall not be made on Fridays,
Saturdays, Sundays and official holidays; Provided, further, that if at the moment of the
disconnection is to be made the customer tenders payment of the unpaid bill to the agent or
employee of the electric utility who is to effect the disconnection, the said agent, or employee
shall be obliged to accept tendered payment and issue a temporary receipt for the amount and
shall desist from disconnecting the service.
The electric utility may discontinue service in case the customer is in arrear(s) in the payment of
bill(s). Any such suspension of service shall not terminate the contract between the electric utility
and the customer.
In the case of arrear(s) in the payment of bill(s), the electric utility may discontinue the service
notwithstanding the existence of the customers deposit with the electric utility which will serve
as guarantee for the payment of future bill(s) after service is reconnected. (Emphasis supplied)
True, Section 48 of ERB Resolution No. 95-21 expressly provides for the application of the 48hour notice rule to Section 43 on Payment of Bills. However, petitioner Meralco, through its
Revised Terms and Conditions of Service, adopted said notice requirement where disconnection
of service is warranted because (1) the consumer failed to pay the adjusted bill after the meter
stopped or failed to register the correct amount of energy consumed, (2) or for failure to comply
with any of the terms and conditions, (3) or in case of or to prevent fraud upon the Company.
Considering the discovery of the tampered meter by its Fully Phased Inspectors, petitioner
Meralco could have disconnected electricity to Permanent Light for no other reason but to
prevent fraud upon the Company. Therefore, under the Revised Terms and Conditions of Service
vis-a-vis Section 48 of ERB Resolution No. 95-21, petitioner is obliged to furnish respondents
with a 48-hour notice of disconnection. Having failed in this regard, we find basis for the award
of moral and exemplary damages in favor of respondents for the unceremonious disconnection of
electricity to Permanent Light.
Moral damages are awarded to compensate the claimant for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury.33Jurisprudence has established the following requisites for the award of moral
damages: (1) there is an injury whether physical, mental or psychological, which was clearly
sustained by the claimant; (2) there is a culpable act or omission factually established; (3) the

wrongful act or omission of the defendant is the proximate cause of the injury sustained by the
claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.34
Pertinent to the case at hand, Article 32 of the Civil Code provides for the award of moral
damages in cases where the rights of individuals, including the right against deprivation of
property without due process of law, are violated.35In Quisumbing v. Manila Electric Company,
this Court treated the immediate disconnection of electricity without notice as a form of
deprivation of property without due process of law, which entitles the subscriber aggrieved to
moral damages. We stressed:
More seriously, the action of the defendant in maliciously disconnecting the electric service
constitutes a breach of public policy. For public utilities, broad as their powers are, have a clear
duty to see to it that they do not violate nor transgress the rights of the consumers. Any act on
their part that militates against the ordinary norms of justice and fair play is considered an
infraction that gives rise to an action for damages. Such is the case at bar.36
Here, petitioner failed to establish factual basis for the immediate disconnection of electricity to
Permanent Light and to comply with the notice requirement provided by law. As the court a quo
correctly observed, there is no direct evidence that points to respondents as the ones who
tampered with Permanent Lights electric meter. Notably, the latters meter is located outside its
premises where it is readily accessible to anyone.
In addition to moral damages, exemplary damages are imposed by way of example or correction
for the public good. In this case, to serve as an example - that before disconnection of electric
supply can be effected by a public utility, the requisites of law must be complied with - we
sustain the award of exemplary damages to respondents.
In the assailed Decision dated May 21, 2008, the Court of Appeals affirmed the award of moral
damages and exemplary damages to respondents in the amount of P200,000 and P100,000,
respectively. In line with prevailing jurisprudence, however, this Court deems the award of moral
damages in the amount of P100,00037 and exemplary damages in the amount of
P50,00038 appropriate in cases where Meralco has wrongfully disconnected electric service to its
customer.
Nonetheless, the Court finds no reason to order the reimbursement to respondents of the
P55,538.20, which petitioner received as full settlement of Permanent Lights "differential
billing" for its unregistered consumption from September 20, 1993 to March 22, 1994. At this
point, it is well to clarify that RA 7832 assigns a specific meaning to "differential billing" and
utilizes various methodologies as basis for determining the same. More particularly, Section
639 of RA 7832 defines "differential billing" as the amount to be charged to the person concerned
for the unbilled electricity illegally consumed by him. However, since RA 7832 was approved
only on December 8, 1994 and introduced such concept only on said date, it would be improper

to treat the term "differential billing" as used by Meralco in this case in such context. Rather, we
shall treat the same as a generic term to refer to the unbilled electricity use of Permanent Light
from September 20, 1993 to March 22, 1994.
The Computation Worksheet40 of said "differential billing" shows that the amount of P61,709.11
was derived based on Permanent Lights average KWhour consumption for the six months
immediately preceding September 20, 1993. We find such method of computation in accord with
the Terms of Service approved by the Bureau of Energy on February 9, 1987, thus:
PAYMENTS:
Bills will be rendered by the Company to the Customer monthly in accordance with the
applicable rate schedule. Said bills are payable to collectors or at the main or branch offices of
the Company or at its authorized banks within ten (10) days after the regular reading date of the
electric meters. The word "month" as used herein and in the rate schedule is hereby defined to be
the elapsed time between two succeeding meter readings approximately thirty (30) days apart. In
the event of the stoppage or the failure by any meter to register the full amount of energy
consumed, the Customer shall be billed for such period on an estimated consumption based upon
his use of energy in a similar period of like use or the registration of a check meter.41 (Emphasis
supplied)
Spreading the P61,709.11 over the 6-month period covered by the "differential billing" will yield
a monthly rate of P10,284.85 - well within Permanent Lights average net bill for the previous
months. It is undisputed by respondents that from September 20, 1993 to March 22, 1994,
Permanent Light continued to enjoy petitioners services even as its electric meter stopped
functioning and no monthly electric bills were issued to it. We cannot therefore allow
respondents to enrich themselves unjustly at the expense of petitioner public utility.
However, we are at a loss as to how petitioner Meralco arrived at the second "differential billing"
for P38,693.53, which represents Permanent Lights unregistered consumption from March 22,
1994 to April 21, 1994. It bears mentioning that it was not until April 19, 1994 that petitioners
Fully Phased Inspectors replaced Permanent Lights electric meter. In months prior to that,
Permanent Lights electric meter had been stationary; hence, the first differential bill for its
consumption from September 20, 1993 to March 22, 1994. The first differential bill was
computed in accordance with the Terms of Service approved by the Bureau of Energy. It is only
proper that the same standard be used in estimating Permanent Lights consumption for the
period of March 22, 1994 to April 21, 1994.
Considering, however, that Permanent Lights electric meter had stopped registering its
consumption for months prior to April 20, 1994, we shall base our estimate on Permanent Lights
use of energy in a similar period. Permanent Lights Bill History42 shows that from March 19,
1992 to April 20, 1992, it consumed 3,648 KWhours of electricity. It last posted the same level
of consumption for the period of July 20, 1993 to August 19, 1993, for which it was billed

P10,834.58. We deem this amount a reasonable approximation of the net bill that respondents
should pay for Permanent Lights use of electricity from March 22, 1994 to April 21, 1994.
We now turn to the question of whether respondents are entitled to actual damages for the
supposed overbilling by petitioner Meralco of their electric consumption from April 20, 1994 to
November 28, 2001.
Actual damages are compensation for an injury that will put the injured party in the position
where it was before the injury. They pertain to such injuries or losses that are actually sustained
and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled
to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to
recover actual damages, not only must the amount of loss be capable of proof; it must also be
actually proven with a reasonable degree of certainty premised upon competent proof or the best
evidence obtainable.43
Respondents anchor their claim for actual damages on the alleged overbilling by petitioner
Meralco of Permanent Lights electricity use from April 20, 1994 to November 28, 2001. In
support, respondents presented in evidence the Comparative Monthly Meralco Bills of
Permanent Light Mfg. Enterprises from 1985-2001.44 Said document lists the amounts which
respondents supposedly paid based on Permanent Lights electric bills from the year 1985 to
2001 for a total of P2,466,941.22. In particular, respondents submitted "representative Meralco
bills" of Permanent Light for the years 1985 to 1987, 1993 to 1997 and 2001 to 2002.
On January 29, 2002, respondents filed with the court a quo an Urgent Motion to Proffer and
Mark the Latest Meralco Bill of P9,318.65 which was Reflected in the 3rd Meralco Electric
Meter Recently Installed by Defendant Meralco. Attached to said pleading is a copy of
Permanent Lights electric bill for the period of November 29, 2001 to December 29, 2001 for
P9,318.65. Apparently, Meralco installed a new electric meter at the premises of Permanent
Light on November 28, 2001.
Respondents claim that the bill for P9,318.65 more accurately reflects Permanent Lights normal
consumption, consistent with the latters electric bills before its meter was first replaced on April
20, 1994. Respondents argue that, at most, their net bill should be at par with those of Permanent
Lights neighboring establishments, Eureka Steel and Asiatic Steel Manufacturing Co., (Asiatic
Steel) which are purportedly engaged in the same business. For the courts reference,
respondents submitted "representative Meralco bills" of Eureka Steel for 1996 to 1997 and
Asiatic Steel for the years 1994 to 1998. Using the figures in the latter bills vis-a-vis Permanent
Lights "comparative bills" from 1986 to 2001, respondents seek the refund of P1,138,898.86,
representing their alleged overpayment to Meralco.
However, Section 34,45 Rule 132 of the 1997 Rules of Civil Procedure, as amended, dictates that
the court shall consider no evidence which has not been formally offered. In this case,
respondents rely heavily on the bill for P9,318.65 covering the period of November 29, 2001 to

December 29, 2001 to demonstrate a defect in the replacement meter installed at Permanent
Light on April 20, 1994. However, said bill was not included in the Written Offer of Exhibits
which respondents filed much earlier, on October 30, 1998. To be sure, it could not have been
made part thereof.
Yet, even if we disregard the bill for P9,318.65, we cannot ignore the sudden and unexplainable
increase in Permanent Lights electric consumption following the replacement of its broken
meter. Normally, when a tampered electric meter is replaced, assuming the same amount of
monthly rate of usage, the new electric meter will register the increased use of electricity that had
previously been concealed by the tampered meter.46 While Permanent Lights electric meter,
indeed, registered a sharp increase in its electricity use after being replaced on April 20, 1994,
there is no direct evidence to suggest that respondents tampered with said meter. Truth be told,
respondents repeatedly sought technical assistance from Meralco after Permanent Lights electric
meter stopped working on December 7, 1993,47 albeit, without success. This fact remains
undisputed by petitioner.
Based on Permanent Lights Meralco bills of record, its electricity use has increased by
approximately 96.3% from an average of 1,672 KWhours per month in 1985 to 3,282 KWhours
per month in 1993. On the other hand, the last recorded electric consumption of Permanent Light
before its meter broke, that is, from August 19, 1993 to September 20, 1993, was 3,432 KWhours
while it registered a reading of 11,904 KWhours from June 20, 1994 to July 20, 1994 a
246.85% increase in consumption over a period of nine (9) months.
This inordinate surge in electric reading is inconsistent with the pattern of steady but gradual rise
in Permanent Lights consumption over the years. To our mind, the fact that Permanent Light
registered a significant increase in its electric use after the replacement meter was installed is no
reason to automatically conclude that its meter had been running tampered long before the same
stopped working. From 1985 to 1993, petitioner Meralco has observed nothing irregular with
Permanent Lights recorded electric use such as a drastic and unexplainable drop in its
consumption to arouse suspicion that its meter has been tampered. As the appellate court
correctly observed, petitioner did not even present an iota of proof to refute the claim that the
replacement meter was running at an unusually high speed.48 It must be underscored that
petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus
and equipment to ensure that they do not malfunction, and the due diligence to discover and
repair defects therein.49
Notably, respondents complained of a sudden spike in Permanent Lights net bill in their
Letter50 to Meralco dated December 7, 1993 - two days before Permanent Lights meter stopped
working. Thus, if it is true that there was evidence of tampering found on April 19, 1994 yet
Permanent Light continued to register an increased consumption even after its meter was
replaced, the better view would be that the defective meter was not actually corrected after the
first inspection.

Be that as it may, we cannot award actual damages to respondents.

We reiterate that actual or compensatory damages cannot be presumed, but must be duly proved
with a reasonable degree of certainty. The award is dependent upon competent proof of the
damage suffered and the actual amount thereof. The award must be based on the evidence
presented, not on the personal knowledge of the court; and certainly not on flimsy, remote,
speculative and unsubstantial proof.51
In this case, respondents presented a summary of Permanent Lights electric bills from the years
1986 to 2001. Said list contains the amounts which respondents allegedly paid on Permanent
Lights from 1986 to 2001. Curiously, respondents submitted mere "representative samples" of
Permanent Lights electric bills for the years 1985 to 1987 and from 1993 to 1997. It appears,
however, that respondents conveniently selected the bills which cover the period from December
to mid-March - months in which demand for electricity is normally less. To our mind,
respondents did this for no other reason than to magnify the disparity between Permanent Lights
net bill before and after its meter was replaced on April 20, 1994 so that it can demand greater in
damages.
Nonetheless, in the absence of competent proof on the amount of actual damages suffered, a
party is entitled to temperate damages.52 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 cannot, from the nature of the case, be proved
with certainty.53 The amount thereof is usually left to the discretion of the courts but the same
should be reasonable, bearing in mind that temperate damages should be more than nominal but
less than compensatory.
In this case, we are convinced that respondents sustained damages from the abnormal increase in
Permanent Lights electric bills after petitioner replaced the latters meter on April 19, 1994.
However, respondents failed to establish the exact amount thereof by competent evidence.
Considering the attendant circumstances, an award of temperate damages in the amount of
P300,000 is just and reasonable.
Finally, we delete the award of attorneys fees for lack of basis.
An award of attorneys fees has always been the exception rather than the
rule.1wphi1 Attorneys fees are not awarded every time a party prevails in a suit. The policy of
the Court is that no premium should be placed on the right to litigate.54 The trial court must make
express findings of fact and law that bring the suit within the exception. What this demands is
that factual, legal or equitable justifications for the award must be set forth not only in the fallo
but also in the text of the decision, or else, the award should be thrown out for being speculative
and conjectural.55

Here, the award of attorneys fees in favor of respondents appeared only in the fallo of the trial
courts Decision dated July 9, 2003. Neither did the appellate court proffer any justification for
sustaining said award.
WHEREFORE, the Decision dated May 21, 2008 of the Court of Appeals in CA-G.R. CV No.
80572 is AFFIRMED with MODIFICATIONS, as follows:
(a) Petitioner is ordered to pay respondents ;P300,000 as temperate damages, ;PI 00,000
as moral damages and ;P50,000 as exemplary damages;
(b) Respondents are ordered to pay petitioner ; PI 0,834.58, representing the estimate of
its unregistered consumption for the period from March 22, 1994 to April 21, 1994; and
(c) The award of attorney's fees is DELETED for lack of basis.
Costs against petitioner.
SO ORDERED.
G.R. No. 181293

February 23, 2015

ANA THERESIA "RISA" HONTIVEROS-BARAQUEL, DANIEL L. EDRALIN,

VICTOR M. GONZALES, SR., JOSE APOLLO R. ADO, RENE D. SORIANO,
ALLIANCE OF PROGRESSIVE LABOR, BUKLURAN NG MANGGAGAWANG
PILIPINO, LAHING PILIPINO MULTIPURPOSE TRANSPORT SERVICE
COOPERATIVE, PNCC SKYWAY CORPORATION EMPLOYEES UNION (PSCEU),
and PNCC TRAFFIC MANAGEMENT & SECURITY DEPARTMENT WORKERS
ORGANIZATION (PTMSDWO), Petitioners,
vs.
TOLL REGULATORY BOARD, THE SECRETARY OF THE DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS (DOTC), PNCC SKYWAY
CORPORATION, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION,
SKYWAY O & M CORPORATION, and CITRA METRO MANILA TOLLWAYS
CORP.,Respondents.
DECISION
SERENO, CJ:
This is an original petition for certiorari and prohibition under Rule 65 of the Rules of Court,
with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining
order, seeking the annulment of the following:

1. The Amendment to the Supplemental Toll Operation Agreement executed on 18 July

2007 between the Republic of the Philippines, the Philippine National Construction
Corporation, and Citra Metro Manila Tollways Corporation;
2. The Memorandum dated 20 July 2007 of the Secretary of Transportation and
Communications, approving the Amendment to the Supplemental Toll Operation
Agreement;
3. The Memorandum of Agreement executed on 21 December 2007 between the
Philippine National Construction Corporation, PNCC Skyway Corporation, and Citra
Metro Manila Tollways Corporation; and
4. The Toll Operation Certificate issued by the Toll Regulatory Board on 28 December
2007 in favor of Skyway O & M Corporation.
The annulment of the above is sought for being unconstitutional, contrary to law, and grossly
disadvantageous to the government. Petitioners also seek to prohibit Skyway O & M Corporation
from assuming operations and maintenance responsibilities over the Skyway toll facilities.
ANTECEDENT FACTS
The Toll Regulatory Board (TRB) was created on 31 March 1977 by Presidential Decree No.
(P.D.) 11121 in order to supervise and regulate, on behalf of the government, the collection of toll
fees and the operation of toll facilities by the private sector.
On the same date, P.D. 11132 was issued granting to the Construction and Development
Corporation of the Philippines (now Philippine National Construction Corporation or PNCC) the
right, privilege, and authority to construct, operate, and maintain toll facilities in the North and
South Luzon Toll Expressways for a period of 30 years starting 1 May1977.
TRB and PNCC later entered into a Toll Operation Agreement,3 which prescribed the operating
conditions of the right granted to PNCC under P.D. 1113.
P.D. 1113 was amended by P.D. 1894,4 which granted PNCC the right, privilege, and authority to
construct, maintain, and operate the North Luzon, South Luzon and Metro Manila Expressways,
together with the toll facilities appurtenant thereto. The term of 30 years provided under P. D.
1113 starting from 1 May 1977 remained the same for the North and the South Luzon
Expressways, while the franchise granted for the Metro Manila Expressway (MME) provided a
term of 30 years commencing from the date of completion of the project.
On 22 September 1993, PNCC entered into an agreement5 with PT Citra Lamtoro Gung Persada
(CITRA), a limited liability company organized and established under the laws of the Republic
of Indonesia, whereby the latter committed to provide PNCC with a pre-feasibility study on the
proposed MME project. The agreement was supplemented6 on 14 February 1994 with a related
undertaking on the part of CITRA. CITRA was to provide a preliminary feasibility study on the

Metro Manila Skyways (MMS) project, a system of elevated roadway networks passing through
the heart of the Metropolitan Manila area. In order to accelerate the actual implementation of
both the MME and the MMS projects, PNCC and CITRA entered into a second
agreement.7 Through that agreement, CITRA committed to finance and undertake the
preparation, updating, and revalidation of previous studies on the construction, operation, and
maintenance of the projects.
As a result of the feasibility and related studies, PNCC and CITRA submitted, through the TRB,
a Joint Investment Proposal (JIP) to the Republic of the Philippines.8 The JIP embodied the
implementation schedule for the financing, design and construction of the MMS in three stages:
the South Metro Manila Skyway, the North Metro Manila Skyway, and the Central Metro Manila
Skyway.9
The TRB reviewed, evaluated and approved the JIP, particularly as it related to Stage 1, Phases 1
and 2; and Stage 2, Phase 1 of the South Metro Manila Skyway.
On 30 August 1995, PNCC and CITRA entered into a Business and Joint Venture
Agreement10 and created the Citra Metro Manila Tollways Corporation (CMMTC). CMMTC was
a joint venture corporation organized under Philippine laws to serve as a channel through which
CITRA shall participate in the construction and development of the project.
On 27 November 1995, the Republic of the Philippines - through the TRB - as Grantor, CMMTC
as Investor, and PNCC as Operator executed a Supplemental Toll Operation Agreement
(STOA)11 covering Stage 1, Phases 1 and 2; and Stage 2, Phase 1 of the South Metro Manila
Skyway. Under the STOA, the design and construction of the project roads became the primary
and exclusive privilege and responsibility of CMMTC. The operation and maintenance of the
project roads became the primary and exclusive privilege and responsibility of the PNCC
Skyway Corporation (PSC), a wholly owned subsidiary of PNCC, which undertook and
performed the latter's obligations under the STOA.
CMMTC completed the design and construction of Stage 1 of the South Metro Manila Skyway,
which was operated and maintained by PSC.12
On 18 July 2007, the Republic of the Philippines, through the TRB, CMMTC, and PNCC
executed the assailed Amendment to the Supplemental Toll Operation Agreement
(ASTOA).13 The ASTOA incorporated the amendments, revisions, and modifications necessary
to cover the design and construction of Stage 2 of the South Metro Manila Skyway. Also under
the ASTOA, Skyway 0 & M Corporation (SOMCO) replaced PSC in performing the operations
and maintenance of Stage 1 of the South Metro Manila Skyway.
Pursuant to the authority granted to him under Executive Order No. (E.O.) 49714 dated 24
January 2006, Department of Transportation and Communications (DOTC) Secretary Leandro
Mendoza approved the ASTOA through the challenged Memorandum dated 20 July 2007.15

On 21 December 2007, PNCC, PSC, and CMMTC entered into the assailed Memorandum of
Agreement (MOA)16providing for the successful and seamless assumption by SOMCO of the
operations and maintenance of Stage 1 of the South Metro Manila Skyway. Under the MOA,
PSC received the amount of P320 million which was used for the settlement of its liabilities
arising from the consequent retrenchment or separation of its affected employees.
The TRB issued the challenged Toll Operation Certificate (TOC)17 to SOM CO on 28 December
2007, authorizing the latter to operate and maintain Stage 1 of the South Metro Manila Skyway
effective 10:00 p.m. on 31December2007.
Meanwhile, on 28 December 2007, petitioner PNCC Traffic Management and Security
Department Workers Organization (PTMSDWO) filed a Notice of Strike against PSC on the
ground of unfair labor practice, specifically union busting.18 The Secretary of Labor and
Employment19 assumed jurisdiction over the dispute in an Order dated 31 December 2007 and
set the initial hearing of the case on 2 January 2008.20
On 3 January 2008, petitioners PTMSDWO and PNCC Skyway Corporation Employees Union
(PSCEU) filed before the Regional Trial Court of Paraaque City, Branch 258 (RTC), a
complaint against respondents TRB, PNCC, PSC, CMMTC, and SOMCO. The complaint was
for injunction and prohibition with a prayer for a writ of preliminary injunction and/or a
temporary restraining order, and sought to prohibit the implementation of the AS TOA and the
MOA, as well as the assumption of the toll operations by SOMCO.21 Petitioners PSCEU and
PTMSDWO also sought the subsequent nullification of the ASTOA and the MOA for being
contrary to law and for being grossly disadvantageous to the government.22 They later filed an
Amended Complaint23 dated 8 January 2008, additionally praying that PSC be allowed to
continue the toll operations. With the exception of TRB, all defendants therein filed their
Opposition.
On 23 January 2008, the RTC issued an Order24 denying the prayer for the issuance of a
temporary restraining order and/or writ of preliminary injunction. According to the RTC,
petitioners were seeking to enjoin a national government infrastructure project. Under Republic
Act No. (R.A.) 8975,25 lower courts are prohibited from issuing a temporary restraining order or
preliminary injunction against the government - or any person or entity acting under the
government's direction - to restrain the execution, implementation, or operation of any such
contract or project. Furthermore, the RTC ruled that it could no longer issue a temporary
restraining order or preliminary injunction, considering that the act sought to be restrained had
already been consummated.26 The AS TOA, the MOA, and the assumption of the toll operations
by SOMCO took effect at 10:00 p.m. on 31 December 2007, while petitioners PSCEU and
PTMSDWO sought to prohibit their implementation only on 3 January 2008.
In view of its denial of the ancillary prayer, the RTC required defendants to file their respective
Answers to the Amended Complaint.27

On 28 January 2008, petitioners PSCEU and PTMSDWO filed a Notice of Dismissal with
Urgent Ex-Parte Motion for the Issuance of Order Confirming the Dismissal,28 considering that
no Answers had yet been filed. On the basis thereof, the R TC dismissed the case without
prejudice on 29 January 2008.29
On 4 February 2008, petitioners filed the instant Petition30 before this Court. On 13 February
2008, we required respondents to comment on the same.31
Meanwhile, defendants PNCC32 and PSC33 filed their respective Motions for Partial
Reconsideration of the Order of the R TC dismissing the case without prejudice. Both argued
that the RTC should have dismissed the case with prejudice. They pointed out that petitioners
PSCEU and PTMSDWO had acted in bad faith by filing the complaint before the RTC, despite
the pendency of a labor case over which the Secretary of Labor and Employment had assumed
jurisdiction. Defendant CMMTC joined PNCC and PSC in moving for a partial reconsideration
of the RTC Order.34
The RTC denied the Motions for Partial Reconsideration in an Order dated 13 June 2008.35
Before this Court, SOMCO,36 PSC,37 PNCC,38 CMMTC,39 and TRB40 filed their respective
Comments on the Petition.
THE PARTIES' POSITIONS
Petitioners argue that the franchise for toll operations was exclusively vested by P.D. 1113 in
PNCC, which exercised the powers under its franchise through PSC in accordance with the
STOA. By agreeing to the arrangement whereby SOMCO would replace PSC in the toll
operations and management, PNCC seriously breached the terms and conditions of its
undertaking under the franchise and effectively abdicated its rights and privileges in favor of
SOMCO.
Furthermore, the TOC granted to SOMCO was highly irregular and contrary to law, because 1) it
did not indicate the conditions that shall be imposed on SOMCO as provided under P.D.
1112;41 2) none of the requirements on public bidding, negotiations, or even publication was
complied with before the issuance of the TOC to SOMCO; 3) applying the stricter "grandfather
rule," SOMCO does not qualify as a facility operator as defined under R.A. 6957,42 as amended
by R.A. 7718;43 and 4) there were no public notices and hearings conducted wherein all
legitimate issues and concerns about the transfer of the toll operations would have been properly
ventilated.
Petitioners also claim that the approval by the DOTC Secretary of the AS TOA could not take the
place of the presidential approval required under P.D. 111344 and P.D. 189445 concerning the
franchise granted to PNCC.

Finally, petitioners claim that the assumption of the toll operations by SOM CO was grossly
disadvantageous to the government, because 1) for a measly capital investment of P2.5 million,
SOMCO stands to earn P400 million in gross revenues based on official and historical records;
2) with its measly capital, SOMCO would not be able to cover the direct overhead for personal
services in the amount of P226 million as borne out by Commission on Audit reports; 3) the net
revenue from toll operations would go to private shareholders of SOMCO, whereas all earnings
of PSC when it was still in charge of the toll operations went to PNCC - the mother company
whose earnings, as an "acquired-asset corporation," formed part of the public treasury; 4) the
new arrangement would result in the poor delivery of toll services by SOMCO, which had no
proven track record; 5) PSC received only P320 million as settlement for the transfer of toll
operations to SOMCO.
All respondents counter that petitioners do not have the requisite legal standing to file the
petition. According to respondents, petitioner Hontiveros-Baraquel filed the instant petition as a
legislator in her capacity as party-list representative of Akbayan. As such, she was only allowed
to sue to question the validity of any official action when it infringed on her prerogative as a
legislator.46 Presently, she has cited no such prerogative, power, or privilege that is adversely
affected by the assailed acts.47
While suing as citizens, the individual petitioners have not shown any personal or substantial
interest in the case indicating that they sustained or will sustain direct injury as a result of the
implementation of the assailed acts.48 The maintenance of the suit by petitioners as taxpayers has
no merit either because the assailed acts do not involve the disbursement of public
funds.49 Finally, the bringing of the suit by petitioners as people's organizations does not
automatically confer legal standing, especially since petitioner-organizations do not even allege
that they represent their members,50 nor do they cite any particular constitutional provision that
has been violated or disregarded by the assailed acts.51 In fact, the suit raises only issues of
contract law, and none of the petitioners is a party or is privy to the assailed agreements and
issuances.52
Respondents also argue that petitioners violate the hierarchy of courts. In particular, it is alleged
that while lower courts are prohibited from issuing temporary restraining orders or preliminary
injunctions against national government projects under R.A. 8975, the law does not preclude
them from assuming jurisdiction over complaints that seek the nullification of a national
government project as ultimate relief.53
As a final procedural challenge to the petition, respondents aver that petitioners are guilty of
forum shopping. When petitioners filed the instant petition, the case before the R TC seeking
similar reliefs was still pending, as respondents PNCC, PSC and CMMTC had moved for the
partial reconsideration of the RTC's Order of dismissal within the reglementary
period.54 Furthermore, the instant case and the one before the RTC were filed while petitioners'
labor grievances seeking similar reliefs were also being heard before the Department of Labor
and Employment.55

On the merits of the arguments in the petition, respondents argue that nothing in the ASTOA, the
approval thereof by the DOTC Secretary, the MOA, or the TOC was violative of the
Constitution. It is argued that the authority to operate a public utility can be granted by
administrative agencies when authorized by law.56 Under P.D. 1112, the TRB is empowered to
grant authority and enter into contracts for the construction, operation, and maintenance of a toll
facility,57 such as the ASTOA in this case. Also, the ASTOA was an amendment, not to the
legislative franchise of PNCC, but to the STOA previously executed between the Republic of the
Philippines through the TRB, PNCC, and CMMTC.58 In fact, PNCC's franchise was never sold,
transferred, or otherwise assigned to SOMCO59 in the same way that PSC's previous assumption
of the operation and maintenance of the South Metro Manila Skyway did not amount to a sale,
transfer or assignment of PNCC's franchise.60
There can be no valid objection to the approval of the ASTOA by the DOTC Secretary, because
he was authorized by the President to do so by virtue of E.O. 497.61 Also, the phrase "subject to
the approval of the President of the Philippines" in P.D. 1112 and 1113 does not in any way mean
that the presidential approval must be obtained prior to the execution of a contract, or that the
approval be made personally by the President.62 The presidential approval may be obtained under
the doctrine of qualified political agency.63
Respondents argue that there is no merit in the claim that the TOC granted to SOMCO was
highly irregular and contrary to law. First, the TOC clearly states that the toll operation and
maintenance by SOMCO shall be regulated by the Republic of the Philippines in accordance
with P.D. 1112, the STOA, the toll operations and maintenance rules and regulations, and lawful
orders, instructions, and conditions that may be imposed from time to time.64Second, there is no
need to comply with the public bidding and negotiation requirements, because the South Metro
Manila Skyway is an ongoing project, not a new one.65 Furthermore, the STOA, which was the
basis for the ASTOA, was concluded way before the effectivity of R.A. 918466 in 2003.67
Third, SOMCO is a Filipino corporation with substantial 72% Filipino ownership.68 Fourth, the
law requires prior notice and hearing only in an administrative body's exercise of quasi-judicial
functions.69 In this case, the transfer of the toll operations and maintenance to SOM CO was a
contractual arrangement entered into in accordance with law.70
Finally, the assumption of the toll operation and maintenance by SOMCO is not disadvantageous
to the government. Petitioners belittle the P2.5 million capitalization of SOMCO, considering
that PSC's capitalization at the time it was incorporated was merely P500,000.71
Respondents claim that under the ASTOA, PNCC shall get a direct share in the toll revenues
without any corollary obligation, unlike the arrangement in the STOA whereby PNCC's 10%
share in the toll revenues was intended primarily for the toll operation and maintenance by
PSC.72

Finally, respondents assert that there is no reason to fear that the assumption by SOMCO would
result in poor delivery of toll services. CITRA and the other shareholders of SOMCO are entities
with experience and proven track record in toll operations.73 Also, SOM CO hired or absorbed
more than 300 PSC employees,74 who brought with them their work expertise and experience.
ISSUES
The instant case shall be resolved on the basis of the following issues:
Procedural:
I. Whether petitioners have standing;
II. Whether petitioners are guilty of forum-shopping;
Substantive:
III. Whether the TRB has the power to grant authority to operate a toll facility;
IV. Whether the TOC issued to SOMCO was valid;
V. Whether the approval of the ASTOA by the DOTC Secretary was valid; and
VI. Whether the assumption of toll operations by SOMCO is disadvantageous to the
government.
OUR RULING
I
Not all petitioners have personality to sue.
Standing is a constitutional law concept allowing suits to be brought not necessarily by parties
personally injured by the operation of a law or official action, but by concerned citizens,
taxpayers, or voters who sue in the public interest.75 Determining the standing of concerned
citizens, taxpayers, or voters requires a partial consideration of the substantive merit of the
constitutional question,76 or at least a preliminary estimate thereof.77
In this case, petitioners raise the power of Congress to grant franchises as a constitutional
question. They allege that the execution of the ASTOA and the MOA, the approval of the AS
TOA by the DOTC Secretary and the issuance of the TOC infringed on the constitutional power
of Congress, which has the sole authority to grant franchises for the operation of public utilities.
This Court has had a few occasions to rule that a franchise from Congress is not required before
each and every public utility may operate.78 Unless there is a law that specifically requires a

franchise for the operation of a public utility, particular agencies in the executive branch may
issue authorizations and licenses for the operation of certain classes of public utilities.79 In the
instant case, there is no law that states that a legislative franchise is necessary for the operation of
toll facilities.
In PAL v. Civil Aeronautics Board,80 this Court enunciated:
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 modem 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. 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. 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.81
It is thus clear that Congress does not have the sole authority to grant franchises for the operation
of public utilities. Considering the foregoing, we find that the petition raises no issue of
constitutional import. More particularly, no legislative prerogative, power, or privilege has been
impaired. Hence, legislators have no standing to file the instant petition, for they are only
allowed to sue to question the validity of any official action when it infringes on their
prerogatives as members of Congress.82 Standing is accorded to them only if there is an
unmistakable showing that the challenged official act affects or impairs their rights and
prerogatives as legislators.83
In line with our ruling in Kilosbayan, Inc. v. Morato,84 the rule concerning a real party in interest
- which is applicable to private litigation rather than the liberal rule on standing, should be
applied to petitioners.
A real party in interest is one who stands to be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit.85 One's interest must be personal and not one based on
a desire to vindicate the constitutional right of some third and unrelated party.86 The purposes of
the rule are to prevent the prosecution of actions by persons without any right or title to or
interest in the case; to require that the actual party entitled to legal relief be the one to prosecute
the action; to avoid a multiplicity of suits; and to discourage litigation and keep it within certain
bounds, pursuant to sound public policy.87
At bottom, what is being questioned in the petition is the relinquishment by PSC of the toll
operations in favor of SOMCO, effectively leading to the cessation of the former' s business. In
this case, we find that among petitioners, the only real parties in interest are the labor unions
PSCEU and PTMSDWO.

PSCEU and PTMSDWO filed the petition not as a representative suit on behalf of their members
who are rank-and-file employees of PSC, but as people's organizations "invested with a public
duty to defend the rule of law."88PSCEU and PTMSDWO cite Kilosbayan v. Ermita89 as authority
to support their standing to file the instant suit.
It is well to point out that the Court, in Ermita, accorded standing to people's organizations to file
the suit, because the matter involved therein was the qualification of a person to be appointed as
a member of this Court -"an issue of utmost and far-reaching constitutional importance."90 As
discussed, the instant petition raises no genuine constitutional issues.
Nevertheless, for a different reason, we accord standing to PSCEU and PTMSDWO to file the
instant suit. With the transfer of toll operations to SOMCO and the resulting cessation of PSC's
business comes the retrenchment and separation of all its employees. The existence of petitioner
labor unions would terminate with the dissolution of its employer and the separation of its
members. This is why the petition also prays that this Court issue an order "that would smoothly
preserve the toll operations services of respondent PNCC and/or respondent PSC under its
legislative franchise."91
We have recognized that the right of self-preservation is inherent in every labor union or any
organization for that matter.92 Thus, PSCEU and PTMSDWO, as real parties in interest, have the
personality to question the assumption of the toll operations by SOMCO.
II
PSCEU and PTMSDWO are not guilty of forum-shopping.
Forum shopping refers to the act of availing of several remedies in different courts and/or
administrative agencies, either simultaneously or successively, when these remedies are
substantially founded on the same material facts and circumstances and raise basically the same
issues either pending in or already resolved by some other court or administrative agency.93 What
is pivotal in determining whether forum shopping exists is the vexation caused to the courts and
litigants and the possibility of conflicting decisions being rendered by different courts and/or
administrative agencies upon the same issues.94
The elements of forum shopping are as follows: a) identity of parties or at least such parties that
represent the same interests in both actions; b) identity of rights asserted and the relief prayed
for, the relief founded on the same facts; and c) identity of the two preceding particulars, such
that any judgment rendered in one action will amount to res judicata in the other.95 Respondents
argue that petitioners PSCEU and PTMSDWO committed forum shopping by filing the
complaint for injunction and prohibition before the RTC during the pendency of NCMB-NCRNS-12-188-07 entitled In Re: Labor Dispute at PNCC Skyway Corporation. It was a case they
also filed, over which the Secretary of Labor and Employment has assumed jurisdiction.

The case involves a Notice of Strike filed against PSC on the ground of unfair labor practice.
While the specific act in question is not specified, the prohibited acts constituting unfair labor
practice96 essentially relate to violations concerning the workers' right to selforganization.97 When compared with the complaint filed with the RTC for injunction and
prohibition seeking to prohibit the implementation of the ASTOA and the MOA, as well as the
assumption of the toll operations by SOM CO for being unconstitutional, contrary to law and
disadvantageous to the government, it is easily discernible that there is no identity of rights
asserted and relief prayed for. These cases are distinct and dissimilar in their nature and
character.
For the sake of argument, let us assume that, in order to hurt the unions, PSC feigned a cessation
of business that led to the retrenchment and separation of all employees. That is an unfair labor
practice. In that complaint, the unions cannot be expected to ask for, or the Secretary of Labor
and Employment to grant, the annulment of the ASTOA and the MOA and the continuation of
toll operations by PSC. The Secretary would only focus on the legality of the retrenchment and
separation, and on the presence or absence of bad faith in PSC's cessation of business. On the
other hand, the complaint before the RTC would require it to focus on the legality of the ASTOA,
the MOA and the transfer of toll operations. Ultimately, even if the Secretary of Labor and
Employment makes a finding of unfair labor practice, this determination would not amount to res
judicata as regards the case before the RTC.
We also reject the claim of respondents that petitioners PSCEU and PTMSDWO committed
forum shopping by filing the instant petition before this Court while the motion for partial
reconsideration of the RTC's Order of dismissal without prejudice was still pending. Section 1,
Rule 17 of the Rules of Court states:
SECTION 1. Dismissal upon notice by plaintiff. - A complaint may be dismissed by the plaintiff
by filing a notice of dismissal at any time before service of the answer or of a motion for
summary judgment. Upon such notice being filed, the court shall issue an order confirming the
dismissal. Unless otherwise stated in the notice, the dismissal is without prejudice, except that a
notice operates as an adjudication upon the merits when filed by a plaintiff who has once
dismissed in a competent court an action based on or including the same claim.
In this case, petitioners PSCEU and PTMSDWO had filed a notice of dismissal of the complaint
before the RTC on 28 January 2008, before respondents filed their Answers. The following day,
the RTC issued an order confirming the dismissal. Under the above-cited rule, this confirmation
is the only qualification imposed on the right of a party to dismiss the action before the adverse
party files an answer.98 In this case, the dismissal of the action therefore became effective upon
that confirmation by the RTC despite the subsequent filing of the motions for partial
reconsideration.
Thus, when the instant petition was filed on 4 February 2008, the complaint before the RTC was
no longer pending. The complaint was dismissed without prejudice by virtue of the notice of

dismissal filed by petitioners PSCEU and PTMSDWO. Consequently, there was not even any
need for petitioners to mention the prior filing and dismissal of the complaint in the certificate of
non-forum shopping in the instant petition,99 but they did so anyway.100
Parenthetically, in their motions for partial reconsideration, respondents PNCC and PSC insisted
that the dismissal should have been with prejudice, because petitioners allegedly acted in bad
faith in filing the notice of dismissal, were guilty of forum shopping, and did not notify
respondents of their intention to file a notice of dismissal. With regard to the first and the third
allegation, petitioners may ask for dismissal at any time before the filing of the answer as a
matter of right, even if the notice cites "the most ridiculous of grounds for dismissal."101 As to the
second, we have already ruled that there was no forum shopping as regards the successive filings
of the labor case and the complaint before the RTC.
II
TRB has the power to grant authority to operate a toll facility.
This matter has already been settled by the Court in Francisco, Jr. v. TRB,102 which ruled thus:
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894
have invested the TRB with sufficient power to grant a qualified person or entity with authority
to construct, maintain, and operate a toll facility and to issue the corresponding toll operating
permit or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant
authority to operate toll facilities:
Section 3. Powers and Duties of the Board. - The Board shall have in addition to its general
powers of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of
the Republic of the Philippines with persons, natural or juridical, for the construction, operation
and maintenance of toll facilities such as but not limited to national highways, roads, bridges,
and public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in
toll operations;
xxxx
(e) To grant authority to operate a toll facility and to issue therefore the necessary "Toll
Operation Certificate" subject to such conditions as shall be imposed by the Board including
inter alia the following:

(1) That the Operator shall desist from collecting toll upon the expiration of the Toll
Operation Certificate.
(2) That the entire facility operated as a toll system including all operation and
maintenance equipment directly related thereto shall be turned over to the government
immediately upon the expiration of the Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the
rights or privileges acquired under the Toll Operation Certificate to any person, firm,
company, corporation or other commercial or legal entity, nor merge with any other
company or corporation organized for the same purpose, without the prior approval of the
President of the Philippines. In the event of any valid transfer of the Toll Operation
Certificate, the Transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same extent as if the Toll
Operation Certificate has been granted to the same person, firm, company, corporation or
other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or
disturbance of peace and order, the President of the Philippines may cause the total or
partial closing of the toll facility or order to take over thereof by the Government without
prejudice to the payment of just compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be
issued by any government agency or government-owned or controlled corporation on any
financing program of the toll operator in connection with his undertaking under the Toll
Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked whenever the
public interest so requires.
(a) The Board shall promulgate rules and regulations governing the procedures for
the grant of Toll Certificates. The rights and privileges of a grantee under a Toll
Operation Certificate shall be defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the
GRANTEE with respect to the Expressways, the toll facilities necessarily appurtenant thereto
and, subject to the provisions of Section 8 and 9 hereof, the toll that the GRANTEE will charge
the users thereof.
By explicit provision of law, the TRB was given the power to grant administrative franchise for
toll facility projects.103(Emphases supplied)

We cannot abide by the contention of petitioners that the franchise for toll operations was
exclusively vested in PNCC, which effectively breached its franchise when it transferred the toll
operations to SOMCO. First, there is nothing in P.D. 1113 or P.D. 1894 that states that the
franchise granted to PNCC is to the exclusion of all others.
Second, if we were to go by the theory of petitioners, it is only the operation and maintenance of
the toll facilities that is vested with PNCC. This interpretation is contrary to the wording of P.D.
1113 and P.D. 1894 g ranting PNCC the right, privilege and authority to construct, operate and
maintain the North Luzon, South Luzon and Metro Manila Expressways and their toll facilities.
It appears that petitioners have confused the franchise granted under P.D. 1113 and P.D. 1894
with particular provisions in the STOA. To clarify, the operation and maintenance of the project
roads were the primary and exclusive privilege and responsibility of PNCC through PSC under
the STOA. On the other hand, the design and construction of the project roads were the primary
and exclusive privilege and responsibility of CMMTC. However, with the execution of the AS
TOA, the parties agreed that SOM CO shall replace PSC in undertaking the operations and
maintenance of the project roads. Thus, the "exclusivity clause" was a matter of agreement
between the parties, which amended it in a later contract; it was not a matter provided under the
law.
Third, aside from having been granted the power to grant administrative franchises for toll
facility projects, TRB is also empowered to modify, amend, and impose additional conditions on
the franchise of PNCC in an appropriate contract, particularly when public interest calls for it.
This is provided under Section 3 of P.D. 1113 and Section 6 of P.D. 1894, to wit:
SECTION 3. This franchise is granted subject to such conditions as may be imposed by the [Toll
Regulatory] Board in an appropriate contract to be executed for this purpose, and with the
understanding and upon the condition that it shall be subject to amendment, alteration or repeal
when public interest so requires.
xxx
SECTION 6. This franchise is granted subject to such conditions, consistent with the provisions
of this Decree, as may be imposed by the Toll Regulatory Board in the Toll Operation Agreement
and such other modifications or amendments that may be made thereto, and with the
understanding and upon the condition that it shall be subject to amendment or alteration when
public interest so dictates.
Section 6 of P.D. 1894 specifically mentions the Toll Operation Agreement. The STOA was one
such modification or amendment of the franchise of PNCC. So was the ASTOA, which further
modified the franchise. PNCC cannot be said to have breached its franchise when it transferred
the toll operations to SOMCO. PNCC remained the franchise holder for the construction,

operation, and maintenance of the project roads; it only opted to partner with investors in the
exercise of its franchise leading to the organization of companies such as PSC and SOMCO.
Again, considering that PNCC was granted the right, privilege, and authority to construct,
operate, and maintain the North Luzon, South Luzon, and Metro Manila Expressways and their
toll facilities, we have not heard petitioners decrying the "breach" by PNCC of its franchise when
it agreed to make CMMTC responsible for the design and construction of the project roads under
the STOA.
IV
The TOC issued to SOMCO was not irregular.
Petitioners argue that the conditions provided under Section 3(e) of P.D. 1112104 were not
imposed on SOMCO, because these do not appear on the face of the TOC. Petitioners are
mistaken.
The TOC, as a grant of authority from the government, is subject to the latter's control insofar as
the grant affects or concerns the public.105 Like all other franchises or licenses issued by the
government, the TOC is issued subject to terms, conditions, and limitations under existing laws
and agreements. This rule especially holds true in this instance since the TRB has the power to
issue "the necessary 'Toll Operation Certificate' subject to such conditions as shall be imposed by
the Board including inter alia" those specified under Section 3(e) of P.D. 1112. Thus, impliedly
written into every TOC are the conditions prescribed therein.
In any case, part of the TOC issued to SOMCO reads:
Pursuant to Section 3(e) of Presidential Decree No. 1112 or the Toll Operation Decree, Skyway
O & M Corporation is hereby given authority to operate and maintain Stage 1 of the South Metro
Manila Skyway effective as of 10:00 p.m. of 31 December 2007.
This authorization is issued upon the clear understanding that the operation and maintenance of
Stage 1 of the South Metro Manila Skyway as a toll facility and the collection of toll fees shall
be closely supervised and regulated by the Grantor, by and through the Board of Directors, in
accordance with the terms and conditions set forth in the STOA, as amended, the rules and
regulations duly promulgated by the Grantor for toll road operations and maintenance, as well as
the lawful orders, instructions and conditions which the Grantor, through the TRB, may impose
from time to time in view of the public nature of the facility.
As regards the allegation that none of the requirements for public bidding was observed before
the TOC was issued to SOMCO, this matter was also squarely answered by the Court in
Francisco, Jr. v. TRB,106 to wit:

Where, in the instant case, a franchisee undertakes the tollway projects of construction,
rehabilitation and expansion of the tollways under its franchise, there is no need for a public
bidding. In pursuing the projects with the vast resource requirements, the franchisee can partner
with other investors, which it may choose in the exercise of its management prerogatives. In this
case, no public bidding is required upon the franchisee in choosing its partners as such process
was done in the exercise of management prerogatives and in pursuit of its right of delectus
personae. Thus, the subject tollway projects were undertaken by companies, which are the
product of the joint ventures between PNCC and its chosen partners.107
Under the STOA in this case, PNCC partnered with CMMTC in Stages 1 and 2 of the South
Metro Manila Skyway. The STOA gave birth to PSC, which was put in charge of the operation
and maintenance of the project roads. The ASTOA had to be executed for Stage 2 to
accommodate changes and modifications in the original design. The ASTOA then brought forth
the incorporation of SOMCO to replace PSC in the operations and maintenance of Stage 1 of the
South Metro Manila Skyway. Clearly, no public bidding was necessary because PNCC, the
franchisee, merely exercised its management prerogative when it decided to undertake the
construction, operation, and maintenance of the project roads through companies which are
products of joint ventures with chosen partners.
Petitioners also insist that SOMCO is not qualified to operate a toll facility, because it does not
meet the nationality requirement for a corporation when scrutinized under the "grandfather rule."
Other than advancing this argument, however, petitioners have not shown how SOMCO fails to
meet the nationality requirement for a public utility operator. Petitioners only aver in their
petition that 40% of SOMCO is owned by CMMTC, a foreign company, while the rest is owned
by the following: a) Toll Road Operation and Maintenance Venture Corporation (TROMVC),
almost 40% of which is owned by a Singaporean company; b) Asset values Holding Company,
Inc. (AHCI), of which almost 40% is Dutch-owned; and c) Metro Strategic Infrastructure
Holdings, Inc. (MSIHI), 40% of which is owned by Metro Pacific Corporation, whose ownership
or nationality was not specified.108
Section 11, Article XII of the Constitution provides that "[n]o franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens x x x." Clearly, under the
Constitution, a corporation at least 60% of whose capital is owned by Filipinos is of Philippine
nationality. Considering this constitutional provision, petitioners' silence on the ownership of the
remaining 60% of the corporations cited is very telling.
In order to rebut petitioners' allegations, respondents readily present matrices showing the
itemization of percentage ownerships of the subscribed capital stock of SOMCO, as well as that
of TROMVC, AHCI, and MSIHI. Respondents attempt to show that all these corporations are of
Philippine nationality, with 60% of their capital stock owned by Filipino citizens. We need not
reproduce the itemization here. Suffice it to say that in their Consolidated Reply,109petitioners did

not refute the unanimous claim of respondents. It is axiomatic that one who alleges a fact has the
burden of proving it. On this matter, we find that petitioners have failed to prove their allegation
that SOMCO is not qualified to operate a toll facility for failure to meet the nationality
requirement under the Constitution.
Finally, no public notices and hearings were necessary prior to the issuance of the TOC to
SOMCO. For the same reason that a public bidding is not necessary, PNCC cannot be required to
call for public hearings concerning matters within its prerogative. At any rate, we have studied
P.D. 1112 and the Implementing Rules and Regulations Authorizing the Establishment of Toll
Facilities and found no provision requiring the issuance of public notices and the conduct of
public hearings prior to the issuance of a TOC.
V
Approval of the AS TOA by the DOTC Secretary was approval by the President.
The doctrine of qualified political agency declares that, save in matters on which the Constitution
or the circumstances require the President to act personally, executive and administrative
functions are exercised through executive departments headed by cabinet secretaries, whose acts
are presumptively the acts of the President unless disapproved by the latter.110 As explained in
Villena v. Executive Secretary,111 this doctrine is rooted in the Constitution:
x x x With reference to the Executive Department of the government, there is one purpose which
is crystal-clear and is readily visible without the projection of judicial searchlight, and that is, the
establishment of a single, not plural, Executive. The first section of Article VII of the
Constitution, dealing with the Executive Department, begins with the enunciation of the principle
that "The executive power shall be vested in a President of the Philippines." This means that the
President of the Philippines is the Executive of the Government of the Philippines, and no other.
The heads of the executive departments occupy political positions and hold office in an advisory
capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence," and, in the language of Attorney-General Cushing, "are subject to the direction of
the President." Without minimizing the importance of the heads of the various departments, their
personality is in reality but the projection of that of the President. Stated otherwise, and as
forcibly characterized by Chief Justice Taft of the Supreme Court of the United States, "each
head of a department is, and must be, the President's alter ego in the matters of that department
where the President is required by law to exercise authority." Secretaries of departments, of
course, exercise certain powers under the law but the law cannot impair or in any way affect the
constitutional power of control and direction of the President. As a matter of executive policy,
they may be granted departmental autonomy as to certain matters but this is by mere concession
of the executive, in the absence of valid legislation in the particular field. If the President, then, is
the authority in the Executive Department, he assumes the corresponding responsibility. The
head of a department is a man of his confidence; he controls and directs his acts; he appoints him

and can remove him at pleasure; he is the executive, not any of his secretaries.112 x x x (Citations
omitted)
Applying the doctrine of qualified political agency, we have ruled that the Secretary of
Environment and Natural Resources can validly order the transfer of a regional office by virtue
of the power of the President to reorganize the national government.113 In Constantino v.
Cuisia,114 the Court upheld the authority of the Secretary of Finance to execute debt-relief
contracts. The authority emanates from the power of the President to contract foreign loans under
Section 20, Article VII of the Constitution. In Angeles v. Gaite,115 the Court ruled that there can
be no issue with regard to the President's act of limiting his power to review decisions and orders
of the Secretary of Justice, especially since the decision or order was issued by the secretary, the
President's "own alter ego."116
There can be no question that the act of the secretary is the act of the President, unless repudiated
by the latter. In this case, approval of the ASTOA by the DOTC Secretary had the same effect as
approval by the President. The same would be true even without the issuance of E.O. 497, in
which the President, on 24 January 2006, specifically delegated to the DOTC Secretary the
authority to approve contracts entered into by the TRB.
Petitioners are unimpressed. They cite Section 8 of P.D. 1113 and Section 13 of P.D. 1894 as
follows:
SECTION 8. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this
franchise nor the rights or privileges acquired hereby, to any person, firm, company, corporation
or other commercial or legal entity, nor merge with any other company or corporation without
the prior approval of the President of the Philippines. In the event that this franchise is sold,
transferred or assigned, the transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same extents as if the franchise has
been granted to the same person, firm, company, corporation or other commercial or legal entity.
(Emphasis supplied)
SECTION 13. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this
franchise nor the rights or privileges required hereby, to any person, firm, company, corporation
or other legal entity, nor merge with any other company or corporation without the prior approval
of the President of the Philippines. In the event that this franchise is sold, transferred or assigned,
the transferee shall be subject to all the conditions, terms, restrictions and limitations of this
Decree as fully and completely and to the same extent as if the franchise has been granted to the
said person, firm, company, corporation or other legal entity. (Emphasis supplied) Petitioners
insist that based on the above provisions, it is the President who should give personal approval
considering that the power to grant franchises was exclusively vested in Congress. Hence, to
allow the DOTC Secretary to exercise the power of approval would supposedly dilute that
legislative prerogative.

The argument of petitioners is founded on the assumption that PNCC in some way leased,
transferred, granted the usufruct of, sold, or assigned to SOMCO its franchise or the rights or
privileges PNCC had acquired by it. Here lies the error in petitioners' stand. First, as discussed
above, the power to grant franchises or issue authorizations for the operation of a public utility is
not exclusively exercised by Congress. Second, except where the situation falls within that
special class that demands the exclusive and personal exercise by the President of
constitutionally vested power,117 the President acts through alter egos whose acts are as if the
Chief Executive's own.
Third, no lease, transfer, grant of usufruct, sale, or assignment of franchise by PNCC or its
merger with another company ever took place.
The creation of the TRB and the grant of franchise to PNCC were made in the light of the
recognition on the part of the government that the private sector had to be involved as an
alternative source of financing for the pursuance of national infrastructure projects. As the
franchise holder for the construction, maintenance and operation of infrastructure toll facilities,
PNCC was equipped with the right and privilege, but not necessarily the means, to undertake the
project. This is where joint ventures with private investors become necessary.
A joint venture is an association of companies jointly undertaking a commercial endeavor, with
all of them contributing assets and sharing risks, profits, and losses.118 It is hardly distinguishable
from a partnership considering that their elements are similar and, thus, generally governed by
the law on partnership.119
In joint ventures with investor companies, PNCC contributes the franchise it possesses, while the
partner contributes the financing - both necessary for the construction, maintenance, and
operation of the toll facilities. PNCC did not thereby lease, transfer, grant the usufruct of, sell, or
assign its franchise or other rights or privileges. This remains true even though the partnership
acquires a distinct and separate personality from that of the joint venturers or leads to the
formation of a new company that is the product of such joint venture, such as PSC and SOMCO
in this case.
Hence, when we say that the approval by the DOTC Secretary in this case was approval by the
President, it was not in connection with the franchise of PNCC, as required under Section 8 of
P.D. 1113 and Section 13 of P.D. 1894. Rather, the approval was in connection with the powers
of the TRB to enter into contracts on behalf of the government as provided under Section 3(a) of
P.D. 1112, which states:
SECTION 3. Powers and Duties of the Board. - The Board shall have in addition to its general
powers of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of
the Republic of the Philippines with persons, natural or juridical, for the construction, operation

and maintenance of toll facilities such as but not limited to national highways, roads, bridges,
and public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in
toll operations; (Emphasis supplied)
VI
Petitioners have not shown that the transfer of toll operations to SOM CO was grossly
disadvantageous to the government.
In support of their contention that the transfer of toll operations from PSC to SOMCO was
grossly disadvantageous to the government, petitioners belittle the initial capital investment,
private ownership, and track record of SOMCO.
When one uses the term "grossly disadvantageous to the government," the allegations in support
thereof must reflect the meaning accorded to the phrase. "Gross" means glaring, reprehensible,
culpable, flagrant, and shocking.120 It requires that the mere allegation shows that the
disadvantage on the part of the government is unmistakable, obvious, and certain.
In this case, we find that the allegations of petitioners are nothing more than speculations,
apprehensions, and suppositions.1wphi1 They speculate that with its "measly" capital
investment, SOMCO would not be able to cover the overhead expenses for personal services
alone. They fear that the revenue from toll operations would go to "private pockets" in exchange
for a small settlement amount to be given to PSC. Given that SOMCO has no proven track
record, petitioners deduce that its assumption of the toll operations would lead to poor delivery
of toll services to the public.
The aim in the establishment of toll facilities is to draw from private resources the financing of
government infrastructure projects. Naturally, these private investors would want to receive
reasonable return on their investments. Thus, the collection of toll fees for the use of public
improvements has been authorized, subject to supervision and regulation by the national
government.121 As regards the P320 million settlement given to PSC, the amount was to be used
principally for the payment of its liabilities of PSC arising from the retrenchment of its
employees. We note that under the MOA, the residual assets of PSC shall still be offered for sale
to CMMTC, subject to valuation.122 Thus, it would be inaccurate to say that PSC would receive
only P320 million for the entire arrangement.
It is quite understandable that SOMCO does not yet have a proven track record in toll operations,
considering that it was only the ASTOA and the MOA that gave birth to it. We are not prepared
to rule that this lack of track record would result in poor delivery of toll services, especially
because most of the former employees of PSC have been rehired by SOMCO, an allegation of
respondents that was never refuted by petitioners. Neither are we prepared to take the amount of

SOMCO's initial capital investment against it, as it is considerably higher than P500,000, the
authorized capital stock of PSC as of 2002.123
A FINAL NOTE
R.A. 8975 prohibits lower courts from issuing any temporary restraining order, preliminary
injunction, or preliminary mandatory injunction against the government - or any of its
subdivisions, officials or any person or entity, whether public or private, acting under the
government's direction - to restrain, prohibit or compel acts related to the implementation and
completion of government infrastructure projects.
The rationale for the law is easily discernible. Injunctions and restraining orders tend to derail the
expeditious and efficient implementation and completion of government infrastructure projects;
increase construction, maintenance and repair costs; and delay the enjoyment of the social and
economic benefits therefrom. Thus, unless the matter is of extreme urgency involving a
constitutional issue, judges of lower courts who shall issue injunctive writs or restraining orders
in violation of the law shall be administratively liable.
The law is clear that what is prohibited is merely the issuance of provisional orders enjoining the
implementation of a national government project. R.A. 8975 does not bar lower courts from
assuming jurisdiction over complaints that seek the nullification or implementation of a national
government infrastructure project as ultimate relief.124
There is no question that the ultimate prayer in the instant case is the nullification of a national
government project considering that the ASTOA involved the design and construction of Stage 2
of the South Metro Manila Skyway, as well as the operation and maintenance of Stage 1 thereof.
The prayer is grounded on the contract's alleged unconstitutionality, violation of the law, and
gross disadvantage to the government. Such principal action and relief were within the
jurisdiction of the RTC, which acted correctly when it ordered respondents to file their respective
answers to the complaint, even while it denied the prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order in observance of R.A. 8975.
It was therefore error on the part of petitioners to come directly before this Court for the sole
reason that the lower courts will not be able to grant the prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order to enjoin the assumption of toll
operations by SOMCO. The error even takes on a whole new meaning, because SOMCO
assumed responsibility for the operations and maintenance of the South Metro Manila Skyway at
10:00 p.m. on 31 December 2007. On the other hand, the complaint before the RTC seeking to
enjoin the assumption by SOMCO was filed only on 3 January 2008, while the instant petition
was filed on 4 February 2008.
As we held in Aznar Brothers Realty, Inc. v. CA,125 injunction does not lie when the act sought to
be enjoined has already become a fait accompli or an accomplished or consummated act.

Parties must observe the hierarchy of courts before seeking relief from this Court. Observance
thereof minimizes the imposition on the already limited time of this Court and prevents delay,
intended or otherwise, in the adjudication of cases.126 We do not appreciate the litigants' practice
of directly seeking recourse before this Court, relying on the gravitas of a personality yet making
serious claims without the proof to support them.
WHEREFORE, the petition is DISMISSED. The prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order is DENIED.
SO ORDERED.