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PRELIMINARIES 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
Republic of the Philippines W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being
SUPREME COURT a Filipino and the other five all Americans; that Baylon's subscription was for 1,145
Manila 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
EN BANC 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.
G.R. No. L-6055 June 12, 1953 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
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, because of the difference in voting power between the preferred shares and the
vs. common shares. Still, with the capital structure as it was, the article of incorporation
WILLIAM H. QUASHA, defendant-appellant. were accepted for registration and a certificate of incorporation was issued by the
Securities and Exchange Commission.

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 There is no question that Baylon actually subscribed to 60.005 per cent of the
Francisco Carreon for appellee. 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
REYES, J.: process of organization Baylon was made a trustee for the American incorporators,
and that the reason for making Baylon such trustee was as follows:
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 Q. According to this article of incorporation Arsenio Baylon subscribed to
in that, having been entrusted with the preparation and registration of the article of 1,135 preferred shares with a total value of P1,135. Do you know how that
incorporation of the Pacific Airways Corporation, a domestic corporation organized for came to be?
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 A. Yes.
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 The people who were desirous of forming the corporation, whose names are listed on
and the money paid thereon were American citizen whose name did not appear in the page 7 of this certified copy came to my house, Messrs. Shannahan, Onstott,
article of incorporation, and that the purpose for making this false statement was to O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable
circumvent the constitutional mandate that no corporation shall be authorize to difficulty to get them all together at one time because they were pilots. They had
operate as a public utility in the Philippines unless 60 per cent of its capital stock is difficulty in deciding what their respective share holdings would be. Onstott had
owned by Filipinos. 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
Found guilty after trial and sentenced to a term of imprisonment and a fine, the desirous of getting a corporation formed right away. And they wanted to have their
accused has appealed to this Court. 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
The essential facts are not in dispute. On November 4,1946, the Pacific Airways things was not to put the shares in the name of anyone of the interested parties and
Corporation registered its articles of incorporation with the Securities and Exchanged to have someone act as trustee for their respective shares holdings. So we looked
Commission. The article were prepared and the registration was effected by the around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is
accused, who was in fact the organizer of the corporation. The article stated that the there someone around whom we could get right away?" I said, "There is Arsenio. He
primary purpose of the corporation was to carry on the business of a common carrier was my boy during the liberation and he cared for me when i was sick and i said i
by air, land or water; that its capital stock was P1,000,000, represented by 9,000 consider him my friend." I said. They all knew Arsenio. He is a very kind man and that
preferred and 100,000 common shares, each preferred share being of the par value was what was done. That is how it came about.
of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and
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Defendant is accused under article 172 paragraph 1, in connection with article 171, validity once it is noted that it is predicated on the erroneous assumption that the
paragraph 4, of the Revised Penal Code, which read: 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,
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic a mistaken belief which has induced the lower court to that the accused was under
minister. — The penalty of prision mayor and a fine not to exceed 5,000 obligation to disclose the whole truth about the nationality of the subscribed capital
pesos shall be imposed upon any public officer, employee, or notary who, stock of the corporation by revealing that Baylon was a mere trustee or dummy of his
taking advantage of his official position, shall falsify a document by American co-incorporators, and that in not making such disclosure defendant's
committing any of the following acts: 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
xxx xxx xxx capital. What it does prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to a corporation already in
4. Making untruthful statements in a narration of facts. 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",
ART. 172. Falsification by private individuals and use of falsified documents. "certificate", or "any other form of authorization" with the phrase "for the operation of a
— The penalty of prision correccional in its medium and maximum period public utility," thereby making it clear that the franchise meant is not the "primary
and a fine of not more than 5,000 pesos shall be imposed upon: 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.
xxx xxx xxx
If the Constitution does not prohibit the mere formation of a public utility corporation
1. Any private individual who shall commit any of the falsifications with the alien capital, then how can the accused be charged with having wrongfully
enumerated in the next preceding article in any public or official document or intended to circumvent that fundamental law by not revealing in the articles of
letter of exchange or any other kind of commercial document. 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
Commenting on the above provision, Justice Albert, in his well-known work on the American? For the mere formation of the corporation such revelation was not
Revised Penal Code ( new edition, pp. 407-408), observes, on the authority of U.S. essential, and the Corporation Law does not require it. Defendant was, therefore,
vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts must be under no obligation to make it. In the absence of such obligation and of the allege
made with the wrongful intent of injuring a third person; and on the authority of U.S. wrongful intent, defendant cannot be legally convicted of the crime with which he is
vs. Lopez (15 Phil., 515), the same author further maintains that even if such wrongful charged.
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 It is urged, however, that the formation of the corporation with 60 per cent of its
truth. Wrongful intent to injure a third person and obligation on the part of the narrator subscribed capital stock appearing in the name of Baylon was an indispensable
to disclose the truth are thus essential to a conviction for a crime of falsification under preparatory step to the subversion of the constitutional prohibition and the laws
the above article of the Revised Penal Code. 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
Now, as we see it, the falsification imputed in the accused in the present case per cent of its capital owned by Filipinos from the start. A corporation formed with
consists in not disclosing in the articles of incorporation that Baylon was a mere capital that is entirely alien may subsequently change the nationality of its capital
trustee ( or dummy as the prosecution chooses to call him) of his American co- through transfer of shares to Filipino citizens. conversely, a corporation originally
incorporators, thus giving the impression that Baylon was the owner of the shares formed with Filipino capital may subsequently change the national status of said
subscribed to by him which, as above stated, amount to 60.005 per cent of the sub- capital through transfer of shares to foreigners. What need is there then for a
scribed capital stock. This, in the opinion of the trial court, is a malicious perversion of corporation that intends to operate a public utility to have, at the time of its formation,
the truth made with the wrongful intent circumventing section 8, Article XIV of the 60 per cent of its capital owned by Filipinos alone? That condition may anytime be
Constitution, which provides that " no franchise, certificate, or any other form of attained thru the necessary transfer of stocks. The moment for determining whether a
authorization for the operation of a public utility shall be granted except to citizens of corporation is entitled to operate as a public utility is when it applies for a franchise,
the Philippines or to corporation or other entities organized under the law of the certificate, or any other form of authorization for that purpose. And that can be done
Philippines, sixty per centum of the capital of which is owned by citizens of the after the corporation has already come into being and not while it is still being formed.
Philippines . . . ." Plausible though it may appear at first glance, this opinion loses And at that moment, the corporation must show that it has complied not only with the

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requirement of the Constitution as to the nationality of its capital, but also with the This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents
requirements of the Civil Aviation Law if it is a common carrier by air, the Revised from further implementing and enforcing the "Revised and Restated Agreement to
Administrative Code if it is a common carrier by water, and the Public Service Law if it Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992,
is a common carrier by land or other kind of public service. 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
Equally untenable is the suggestion that defendant should at least be held guilty of an May 6, 1993.
"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 Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members
the alleged constitutional prohibition which he is charged for having tried to of the Philippine Senate and are suing in their capacities as Senators and as
circumvent does not exist, conviction under that article is out of the question. taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the
Department of Transportation and Communications (DOTC), while private respondent
The foregoing consideration can not but lead to the conclusion that the defendant can EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
not be held guilty of the crime charged. The majority of the court, however, are also of Hongkong.
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 I
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 In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
Philippines, thus doing away with the prohibition in section 8, Article XIV of the thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Constitution in so far as American citizens are concerned, the said act has ceased to Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA
be an offense within the meaning of the law, so that defendant can no longer be held LRT III), was intended to provide a mass transit system along EDSA and alleviate the
criminally liable therefor. congestion and growing transportation problem in the metropolis.

In view of the foregoing, the judgment appealed from is reversed and the defendant On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
William H. Quasha acquitted, with costs de oficio. represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct
the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and Labrador,
JJ., concur. On March 15, 1990, Secretary Orbos invited Levin to send a technical team to
discuss the project with DOTC.
Republic of the Philippines
SUPREME COURT On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Manila Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," was signed by President Corazon C. Aquino.
EN BANC Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9,
1990.
G.R. No. 114222 April 6, 1995
Republic Act No. 6957 provides for two schemes for the financing, construction and
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. operation of government projects through private initiative and investment: Build-
BIAZON, petitioners, Operate-Transfer (BOT) or Build-Transfer (BT).
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III
of Transportation and Communications, and EDSA LRT CORPORATION, project underway, DOTC, on January 22, 1991 and March 14, 1991, issued
LTD., respondents. Department Orders Nos. 91-494 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
QUIASON, J.: contractors for the financing and implementation of the project The notice, advertising
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the prequalification of bidders, was published in three newspapers of general Secretary Prado, thereafter, requested presidential approval of the contract.
circulation once a week for three consecutive weeks starting February 21, 1991.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced
The deadline set for submission of prequalification documents was March 21, 1991, Executive Secretary Orbos, informed Secretary Prado that the President could not
later extended to April 1, 1991. Five groups responded to the invitation namely, ABB grant the requested approval for the following reasons: (1) that DOTC failed to
Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that
Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed the law authorized public bidding as the only mode to award BOT projects, and the
of ten foreign and domestic corporations: namely, Kaiser Engineers International, prequalification proceedings was not the public bidding contemplated under the law;
Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which
the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and authorized negotiated award of contract in addition to public bidding was of doubtful
Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta legality; and (4) that congressional approval of the list of priority projects under the
& Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc. BOT or BT Scheme provided in the law had not yet been granted at the time the
contract was awarded (Rollo, pp. 178-179).
On the last day for submission of prequalification documents, the prequalification
criteria proposed by the Technical Committee were adopted by the PBAC. The In view of the comments of Executive Secretary Drilon, the DOTC and private
criteria totalling 100 percent, are as follows: (a) Legal aspects — 10 percent; (b) respondents re-negotiated the agreement. On April 22, 1992, the parties entered into
Management/Organizational capability — 30 percent; and (c) Financial capability — a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
30 percent; and (d) Technical capability — 30 percent (Rollo, p. 122). System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the
fact the DOTC has full authority to sign the Agreement without need of approval by
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the President pursuant to the provisions of Executive Order No. 380 and that certain
the Implementation Rules and Regulations thereof, approved the same. 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
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to
1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their
requirements of garnering at least 21 points per criteria [sic], except for Legal respective rights and responsibilities" and to submit [the] Supplemental Agreement to
Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). the President, of the Philippines for his approval" (Rollo, pp. 79-80).
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).
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,
Subsequently, Secretary Orbos was appointed Executive Secretary to the President approved the said Agreements, (Rollo, p. 194).
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 According to the agreements, the EDSA LRT III will use light rail vehicles from the
complying bidder, the EDSA LRT Consortium, and requesting for authority to Czech and Slovak Federal Republics and will have a maximum carrying capacity of
negotiate with the said firm for the contract pursuant to paragraph 14(b) of the 450,000 passengers a day, or 150 million a year to be achieved-through 54 such
Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302). 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
In July 1991, Executive Secretary Orbos, acting on instructions of the President, (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen
issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, (13) passenger stations and one depot in 16-hectare government property at North
the EDSA LRT Consortium submitted its bid proposal to DOTC. Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

Finding this proposal to be in compliance with the bid requirements, DOTC and Private respondents shall undertake and finance the entire project required for a
respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT complete operational light rail transit system (Revised and Restated Agreement, Sec.
Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years
Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177). 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).

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Upon full or partial completion and viability thereof, private respondent shall deliver (5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380
the use and possession of the completed portion to DOTC which shall operate the FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL
same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
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 (6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS
independent and internationally accredited inspection firm to be appointed by the TO THE GOVERNMENT (Rollo, pp. 15-16).
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 Secretary Garcia and private respondent filed their comments separately and claimed
Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have that:
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. (1) Petitioners are not the real parties-in-interest and have no legal standing to
11.1; Rollo, p. 67). institute the present petition;

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act (2) The writ of prohibition is not the proper remedy and the petition requires
No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and ascertainment of facts;
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 (3) The scheme adopted in the Agreements is actually a build-transfer scheme
general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, allowed by the BOT Law;
1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT
contracts.
(4) The nationality requirement for public utilities mandated by the Constitution does
not apply to private respondent;
II

(5) The Agreements executed by and between respondents have been approved by
In their petition, petitioners argued that: President Ramos and are not disadvantageous to the government;

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY (6) The award of the contract to private respondent through negotiation and not public
THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR bidding is allowed by the BOT Law; and
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 (7) Granting that the BOT Law requires public bidding, this has been amended by R.A
UNCONSTITUTIONAL; No. 7718 passed by the Legislature On May 12, 1994, which provides for direct
negotiation as a mode of award of infrastructure projects.
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE
AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. III
NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS
AND, HENCE, IS ILLEGAL; 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
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED capacity as Senators and as taxpayers.
BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question
(4) THE AWARD OF THE CONTRACT IN FAVOR OF contracts entered into by the national government or government-owned or controlled
RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232
THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING SCRA 110 [1994]) and to disallow the same when only municipal contracts are
RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA.
ILLEGAL; 240 [1989]).

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For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no The Constitution, in no uncertain terms, requires a franchise for the operation of a
choice but to follow it and uphold the legal standing of petitioners as taxpayers to public utility. However, it does not require a franchise before one can own the facilities
institute the present action. needed to operate a public utility so long as it does not operate them to serve the
public.
IV
Section 11 of Article XII of the Constitution provides:
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 No franchise, certificate or any other form of authorization for
invalid for the following reasons: the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under
(1) the EDSA LRT III is a public utility, and the ownership and the laws of the Philippines at least sixty per centum of whose
operation thereof is limited by the Constitution to Filipino citizens capital is owned by such citizens, nor shall such franchise,
and domestic corporations, not foreign corporations like private certificate or authorization be exclusive character or for a longer
respondent; period than fifty years . . . (Emphasis supplied).

(2) the Build-Lease-Transfer (BLT) scheme provided in the In law, there is a clear distinction between the "operation" of a public utility and the
agreements is not the BOT or BT Scheme under the law; ownership of the facilities and equipment used to serve the public.

(3) the contract to construct the EDSA LRT III was awarded to Ownership is defined as a relation in law by virtue of which a thing pertaining to one
private respondent not through public bidding which is the only person is completely subjected to his will in everything not prohibited by law or the
mode of awarding infrastructure projects under the BOT law; and concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence
on the Civil Code of the Philippines 45 [1992]).
(4) the agreements are grossly disadvantageous to the
government. 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
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct transportation of passengers from one point to another point, their loading and
the EDSA LRT III was awarded by public respondent, is admittedly a foreign unloading at designated places and the movement of the trains at pre-scheduled
corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7
50, 79). There is also no dispute that once the EDSA LRT III is constructed, private A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d.
respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
system and pay rentals for said use.
The right to operate a public utility may exist independently and separately from the
The question posed by petitioners is: 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
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation facilities used to serve the public. The devotion of property to serve the public may be
own EDSA LRT III; a public utility? (Rollo, p. 17). done by the owner or by the person in control thereof who may not necessarily be the
owner thereof.
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 This dichotomy between the operation of a public utility and the ownership of the
power plant, not a public utility. While a franchise is needed to operate these facilities facilities used to serve the public can be very well appreciated when we consider the
to serve the public, they do not by themselves constitute a public utility. What transportation industry. Enfranchised airline and shipping companies may lease their
constitutes a public utility is not their ownership but their use to serve the public (Iloilo aircraft and vessels instead of owning them themselves.
Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
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

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Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private It is well to point out that the role of private respondent as lessor during the lease
respondent and DOTC agreed that on completion date, private respondent will period must be distinguished from the role of the Philippine Gaming Management
immediately deliver possession of the LRT system by way of lease for 25 years, Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110
during which period DOTC shall operate the same as a common carrier and private (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity
respondent shall provide technical maintenance and repair services to DOTC Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement
(Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
Technical maintenance consists of providing (1) repair and maintenance facilities for lessor obligated itself to build, at its own expense, all the facilities necessary to
the depot and rail lines, services for routine clearing and security; and (2) producing operate and maintain a nationwide on-line lottery system from whom PCSO was to
and distributing maintenance manuals and drawings for the entire system (Revised lease the facilities and operate the same. Upon due examination of the contract, the
and Restated Agreement, Annex F). 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,
Private respondent shall also train DOTC personnel for familiarization with the becoming indispensable to the pursuit, conduct, administration and control of the
operation, use, maintenance and repair of the rolling stock, power plant, substations, highly technical and sophisticated lottery system. In effect, the PCSO leased out its
electrical, signaling, communications and all other equipment as supplied in the franchise to PGMC which actually operated and managed the same.
agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training
consists of theoretical and live training of DOTC operational personnel which includes Indeed, a mere owner and lessor of the facilities used by a public utility is not a public
actual driving of light rail vehicles under simulated operating conditions, control of utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa
operations, dealing with emergencies, collection, counting and securing cash from the Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246
fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434,
Personnel of DOTC will work under the direction and control of private respondent 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and
only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The beer cars who supply cars under contract to railroad companies considered as public
training objectives, however, shall be such that upon completion of the EDSA LRT III utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
and upon opening of normal revenue operation, DOTC shall have in their employ
personnel capable of undertaking training of all new and replacement personnel Even the mere formation of a public utility corporation does not ipso
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of facto characterize the corporation as one operating a public utility. The moment for
the three-year construction period and upon commencement of normal revenue determining the requisite Filipino nationality is when the entity applies for a franchise,
operation, DOTC shall be able to operate the EDSA LRT III on its own and train all certificate or any other form of authorization for that purpose (People v. Quasha, 93
new personnel by itself. Phil. 333 [1953]).

Fees for private respondent' s services shall be included in the rent, which likewise 2. Petitioners further assert that the BLT scheme under the Agreements in question is
includes the project cost, cost of replacement of plant equipment and spare parts, not recognized in the BOT Law and its Implementing Rules and Regulations.
investment and financing cost, plus a reasonable rate of return thereon (Revised and
Restated Agreement, Sec. 1; Rollo, p. 54).
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
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 (a) Build-operate-and-transfer scheme — A contractual
harmless private respondent from any losses, damages, injuries or death which may arrangement whereby the contractor undertakes the construction
be claimed in the operation or implementation of the system, except losses, including financing, of a given infrastructure facility, and the
damages, injury or death due to defects in the EDSA LRT III on account of the operation and maintenance thereof. The contractor operates the
defective condition of equipment or facilities or the defective maintenance of such facility over a fixed term during which it is allowed to charge facility
equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. users appropriate tolls, fees, rentals and charges sufficient to
68). 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
In sum, private respondent will not run the light rail vehicles and collect fees from the government agency or local government unit concerned at the end
riding public. It will have no dealings with the public and the public will have no right to of the fixed term which shall not exceed fifty (50) years. For the
demand any services from it. construction stage, the contractor may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign

Page 7 of 71
and/or Filipino constructor [sic]: Provided, That the ownership Emphasis must be made that under the BOT scheme, the owner of the infrastructure
structure of the contractor of an infrastructure facility whose facility must comply with the citizenship requirement of the Constitution on the
operation requires a public utility franchise must be in accordance operation of a public utility. No such a requirement is imposed in the BT scheme.
with the Constitution: Provided, however, That in the case of
corporate investors in the build-operate-and-transfer corporation, There is no mention in the BOT Law that the BOT and BT schemes bar any other
the citizenship of each stockholder in the corporate investors shall arrangement for the payment by the government of the project cost. The law must not
be the basis for the computation of Filipino equity in the said be read in such a way as to rule out or unduly restrict any variation within the context
corporation: Provided, further, That, in the case of foreign of the two schemes. Indeed, no statute can be enacted to anticipate and provide all
constructors [sic], Filipino labor shall be employed or hired in the the fine points and details for the multifarious and complex situations that may be
different phases of the construction where Filipino skills are encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183
available: Provided, furthermore, that the financing of a foreign or [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29
foreign-controlled contractor from Philippine government financing Phil. 119 [1914]).
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 The BLT scheme in the challenged agreements is but a variation of the BT scheme
Government or by government-owned or controlled corporations. under the law.
The build-operate-and-transfer scheme shall include a supply-and-
operate situation which is a contractual agreement whereby the As a matter of fact, the burden on the government in raising funds to pay for the
supplier of equipment and machinery for a given infrastructure project is made lighter by allowing it to amortize payments out of the income from the
facility, if the interest of the Government so requires, operates the operation of the LRT System.
facility providing in the process technology transfer and training to
Filipino nationals. 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
(b) Build-and-transfer scheme — "A contractual arrangement confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec.
whereby the contractor undertakes the construction including 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made
financing, of a given infrastructure facility, and its turnover after to and received by private respondent, it shall transfer to DOTC, free from any lien or
completion to the government agency or local government unit encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00
concerned which shall pay the contractor its total investment (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec;
expended on the project, plus a reasonable rate of return thereon. 7; Rollo, pp. 67, .87).
This arrangement may be employed in the construction of any
infrastructure project including critical facilities which for security or A lease is a contract where one of the parties binds himself to give to another the
strategic reasons, must be operated directly by the government enjoyment or use of a thing for a certain price and for a period which may be definite
(Emphasis supplied). 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
The BOT scheme is expressly defined as one where the contractor undertakes the stipulate that title to the leased premises shall be transferred to the lessee at the end
construction and financing in infrastructure facility, and operates and maintains the of the lease period upon the payment of an agreed sum, the lease becomes a lease-
same. The contractor operates the facility for a fixed period during which it may purchase agreement.
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 Furthermore, it is of no significance that the rents shall be paid in United States
ownership and operation of the project to the government. 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
In the BT scheme, the contractor undertakes the construction and financing of the falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is,
facility, but after completion, the ownership and operation thereof are turned over to therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which
the government. The government, in turn, shall pay the contractor its total investment reads as follows:
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 Sec. 1. — Every provision contained in, or made with respect to,
government unit concerned, this shall be made in accordance with a scheme any domestic obligation to wit, any obligation contracted in the
proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6). Philippines which provisions purports to give the obligee the right to
Page 8 of 71
require payment in gold or in a particular kind of coin or currency with provision of laws and acts on the matter, subject to the
other than Philippine currency or in an amount of money of the approval of the Minister of Public Works and Transportation and
Philippines measured thereby, be as it is hereby declared against Communications, the Minister of Public Highways, or the Minister of
public policy, and null, void, and of no effect, and no such provision Energy, as the case may be, if the project cost is less than P1
shall be contained in, or made with respect to, any obligation Million, and the President of the Philippines, upon recommendation
hereafter incurred. The above prohibition shall not apply to (a) . . .; of the Minister, if the project cost is P1 Million or more (Emphasis
(b) transactions affecting high-priority economic projects for supplied).
agricultural, industrial and power development as may be
determined by xxx xxx xxx
the National Economic Council which are financed by or through
foreign funds; . . . .
Indeed, where there is a lack of qualified bidders or contractors, the award of
government infrastructure contracts may he made by negotiation. Presidential Decree
3. The fact that the contract for the construction of the EDSA LRT III was awarded No. 1594 is the general law on government infrastructure contracts while the BOT
through negotiation and before congressional approval on January 22 and 23, 1992 Law governs particular arrangements or schemes aimed at encouraging private
of the List of National Projects to be undertaken by the private sector pursuant to the sector participation in government infrastructure projects. The two laws are not
BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award. inconsistent with each other but are in pari materia and should be read together
accordingly.
Subsequent congressional approval of the list including "rail-based projects packaged
with commercial development opportunities" (Rollo, p. 310) under which the EDSA In the instant case, if the prequalification process was actually tainted by foul play,
LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III one wonders why none of the competing firms ever brought the matter before the
contract under the BOT Law. 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,
Petitioners insist that the prequalifications process which led to the negotiated award 205 SCRA 705 [1992]).
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 The challenged agreements have been approved by President Ramos himself.
applicants could fairly participate. 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
The records show that only one applicant passed the prequalification process. Since our laws that prohibits parties to a contract from renegotiating and modifying in good
only one was left, to conduct a public bidding in accordance with Section 5 of the BOT faith the terms and conditions thereof so as to meet legal, statutory and constitutional
Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v. requirements. Under the circumstances, to require the parties to go back to step one
Sandiganbayan, 217 SCRA 49, 61 [1993]). of the prequalification process would just be an idle ceremony. Useless bureaucratic
"red tape" should be eschewed because it discourages private sector participation,
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and
Law in relation to Presidential Decree No. 1594 allows the negotiated award of renders the BOT Law nugatory.
government infrastructure projects.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts," allows the negotiated award of (e) Build-lease-and-transfer — A contractual arrangement whereby
government projects in exceptional cases. Sections 4 of the said law reads as follows: a project proponent is authorized to finance and construct an
infrastructure or development facility and upon its completion turns
Bidding. — Construction projects shall generally be undertaken by it over to the government agency or local government unit
contract after competitive public bidding. Projects may be concerned on a lease arrangement for a fixed period after which
undertaken by administration or force account or by negotiated ownership of the facility is automatically transferred to the
contract only in exceptional cases where time is of the essence, or government unit concerned.
where there is lack of qualified bidders or contractors, or where
there is conclusive evidence that greater economy and efficiency Section 5-A of the law, which expressly allows direct negotiation of contracts,
would be achieved through this arrangement, and in accordance provides:
Page 9 of 71
Direct Negotiation of Contracts. — Direct negotiation shall be whatever doubts and alleged procedural lapses private respondent and DOTC may
resorted to when there is only one complying bidder left as defined have engendered and committed in entering into the questioned contracts, these
hereunder. 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];
(a) If, after advertisement, only one contractor applies for Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
prequalification and it meets the prequalification requirements, after
which it is required to submit a bid proposal which is subsequently 4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the
found by the agency/local government unit (LGU) to be complying. 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
(b) If, after advertisement, more than one contractor applied for terms during the most productive years of the project.
prequalification but only one meets the prequalification
requirements, after which it submits bid/proposal which is found by It must be noted that as part of the EDSA LRT III project, private respondent has
the agency/local government unit (LGU) to be complying. 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,
(c) If, after prequalification of more than one contractor only one sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-
submits a bid which is found by the agency/LGU to be complying. 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
(d) If, after prequalification, more than one contractor submit bids that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be
but only one is found by the agency/LGU to be complying. allowed to deduct any shortfalls from the monthly rent due private respondent for the
Provided, That, any of the disqualified prospective bidder [sic] may construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-
appeal the decision of the implementing agency, agency/LGUs 94). All rights, titles, interests and income over all contracts on the commercial spaces
prequalification bids and awards committee within fifteen (15) shall revert to DOTC upon expiration of the 25-year period. (Supplemental
working days to the head of the agency, in case of national projects Agreement, Sec. 11; Rollo, pp. 91-92).
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 The terms of the agreements were arrived at after a painstaking study by DOTC. The
implementing agency/LGUs concerned should act on the appeal determination by the proper administrative agencies and officials who have acquired
within forty-five (45) working days from receipt thereof. 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
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not Medical Education v. Alfonso, 176 SCRA 304 [1989]).
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 Government officials are presumed to perform their functions with regularity and
into contract with any duly prequalified proponent for the financing, construction, strong evidence is necessary to rebut this presumption. Petitioners have not
operation and maintenance of any financially viable infrastructure or development presented evidence on the reasonable rentals to be paid by the parties to each other.
facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add- The matter of valuation is an esoteric field which is better left to the experts and which
operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and- this Court is not eager to undertake.
transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
That the grantee of a government contract will profit therefrom and to that extent the
From the law itself, once and applicant has prequalified, it can enter into any of the government is deprived of the profits if it engages in the business itself, is not worthy
schemes enumerated in Section 2 thereof, including a BLT arrangement, enumerated of being raised as an issue. In all cases where a party enters into a contract with the
and defined therein (Sec. 3). government, he does so, not out of charity and not to lose money, but to gain
pecuniarily.
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 5. Definitely, the agreements in question have been entered into by DOTC in the
specific government undertakings in support of the private sector" (Sec. 1). A curative exercise of its governmental function. DOTC is the primary policy, planning,
statute makes valid that which before enactment of the statute was invalid. Thus, programming, regulating and administrative entity of the Executive branch of
Page 10 of 71
government in the promotion, development and regulation of dependable and In that case, it was held that a contract, whereby a local government leased property
coordinated networks of transportation and communications systems as well as in the to a private party with the understanding that the latter would build a market building
fast, safe, efficient and reliable postal, transportation and communications services and at the end of the lease would transfer the building of the lessor, did not involve a
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive disbursement of public funds so as to give taxpayer standing to question the legality
department, DOTC in particular that has the power, authority and technical expertise of the contract. I see no substantial difference, as far as the standing is of taxpayers
determine whether or not a specific transportation or communication project is to question public contracts is concerned, between the contract there and the build-
necessary, viable and beneficial to the people. The discretion to award a contract is lease-transfer (BLT) contract being questioned by petitioners in this case.
vested in the government agencies entrusted with that function (Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]). Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which
citizens were authorized to sue, this Court found standing because it thought the
WHEREFORE, the petition is DISMISSED. constitutional claims pressed for decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by invalidating the challenged statutes
SO ORDERED or governmental actions. Thus in the Lotto case6 relied upon by the majority for
upholding petitioners standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral
Bellosillo and Kapunan, JJ., concur. well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:"7 Accordingly, the Court invalidated the contract
Padilla and Regalado, JJ., concurs in the result. for the operation of lottery.

Romero, J., is on leave. But in the case at bar, the Court precisely finds the opposite by finding petitioners'
substantive contentions to be without merit To the extent therefore that a party's
standing is affected by a determination of the substantive merit of the case or a
preliminary estimate thereof, petitioners in the case at bar must be held to be without
standing. This is in line with our ruling in Lawyers League for a Better Philippines v.
Aquino8 and In re Bermudez 9 where we dismissed citizens' actions on the ground
that petitioners had no personality to sue and their petitions did not state a cause of
action. The holding that petitioners did not have standing followed from the finding
that they did not have a cause of action.
Separate Opinions
In order that citizens' actions may be allowed a party must show that he personally
has suffered some actual or threatened injury as a result of the allegedly illegal
conduct of the government; the injury is fairly traceable to the challenged action; and
the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court
MENDOZA, J., concurring: has held:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not Typically, . . . the standing inquiry requires careful judicial
have standing to sue, I join to dismiss the petition in this case. I write only to set forth examination of a complaint's allegation to ascertain whether the
what I understand the grounds for our decisions on the doctrine of standing are and, particular plaintiff is entitled to an adjudication of the particular
why in accordance with these decisions, petitioners do not have the rights to sue, claims asserted. Is the injury too abstract, or otherwise not
whether as legislators, taxpayers or citizens. As members of Congress, because they appropriate, to be considered judicially cognizable? Is the line of
allege no infringement of prerogative as legislators.1 As taxpayers because causation between the illegal conduct and injury too attenuated? Is
petitioners allege neither an unconstitutional exercise of the taxing or spending the prospect of obtaining relief from the injury as a result of a
powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public favorable ruling too speculative? These questions and any others
money.3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a party relevant to the standing inquiry must be answered by reference to
suing as taxpayer "must specifically prove that he has sufficient interest in preventing the Art III notion that federal courts may exercise power only "in the
the illegal expenditure of money raised by taxation and that he will sustain a direct last resort, and as a necessity, Chicago & Grand Trunk R. Co. v.
injury as a result of the enforcement of the questioned statute or contract. It is not Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and
sufficient that he has merely a general interest common to all members of the public." only when adjudication is "consistent with a system of separated
Page 11 of 71
powers and [the dispute is one] traditionally thought to be capable to the terms and conditions hereinafter set forth; (Emphasis
of resolution through the judicial process," Flast v Cohen, 392 US supplied).
83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge,
454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11 and in Section 5 which requires public bidding of projects under both schemes.

Today's holding that a citizen, qua citizen, has standing to question a government All prior acts and negotiations leading to the perfection of the challenged contract
contract unduly expands the scope of public actions and sweeps away the case and were clearly intended and pursued for such schemes.
controversy requirement so carefully embodied in Art. VIII, §5 in defining the
jurisdiction of this Court. The result is to convert the Court into an office of
ombudsman for the ventilation of generalized grievances. Consistent with the view A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and
that this case has no merit I submit with respect that petitioners, as representatives of none of the aforesaid prior acts and negotiations were designed for such
the public interest, have no standing. unauthorized scheme. Hence, the DOTC is without any power or authority to enter
into the BLT contract in question.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT
Law that the BOT and the BT schemes bar any other arrangement for the payment by
DAVIDE, JR., J., dissenting: the government of the project cost," then "[t]he law must not be read in such a way as
to rule outer unduly restrict any variation within the context of the two schemes." This
After wading through the record of the vicissitudes of the challenged contract and interpretation would be correct if the law itself provides a room for flexibility. We find
evaluating the issues raised and the arguments adduced by the parties, I find myself no such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it
unable to joint majority in the well-written ponencia of Mr. Justice Camilo P. Quiason. should have so stated, for contracts of lease are not unknown in our jurisdiction, and
Congress has enacted several laws relating to leases. That the BLT scheme was
I most respectfully submit that the challenged contract is void for at least two reasons: never intended as a permissible variation "within the context" of the BOT and BT
(a) it is an-ultra-vires act of the Department of Transportation and Communications schemes is conclusively established by the passage of R.A. No. 7718 which amends:
(DOTC) since under R.A. 6957 the DOTC has no authority to enter into a Build-
Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the a. Section 2 by adding to the original BOT and BT schemes the
contract was entered into without complying with the mandatory requirement of public following schemes:
bidding.
(1) Build-own-and-operate (BOO)
I
(2) Build-Lease-and-transfer (BLT)

Respondents admit that the assailed contract was entered into under R.A. 6957. This (3) Build-transfer-and-operate (BTO)
law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and (4) Contract-add-and-operate (CAO)
Maintenance of Infrastructure Projects by the Private Sector, and For Other
Purposes," recognizes only two (2) kinds of contractual arrangements between the (5) Develop-operate-and-transfer (DOT)
private sector and government infrastructure agencies: (a) the Build-Operate-and- (6) Rehabilitate-operate-and-transfer (ROT)
Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion
(7) Rehabilitate-own-and-operate (ROO).
finds support in Section 2 thereof which defines only the BOT and BT schemes, in
Section 3 which explicitly provides for said schemes thus: b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase
"through the build-operate-and-transfer or build-and-transfer
scheme."
Sec. 3 Private Initiative in Infrastructure. — All government
infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby II
authorized to enter into contract with any duly prequalified private
contractor for the financing, construction, operation and Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
maintenance of any financially viable infrastructure facilities through
the build-operate-and transfer or build-and-transfer scheme, subject

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Sec. 5 Public Bidding of Projects. — Upon approval of the projects However the majority opinion posits the view that since only private respondent EDSA
mentioned in Section 4 of this Act, the concerned head of the LRT was prequalified, then a public bidding would be "an absurd and pointless
infrastructure agency or local government unit shall forthwith cause exercise." I submit that the mandatory requirement of public bidding cannot be legally
to be published, once every week for three (3) consecutive weeks, dispensed with simply because only one was qualified to bid during the
in at least two (2) newspapers of general circulation and in at least prequalification proceedings. Section 5 mandates that the BOT or BT contract should
one (1) local newspaper which is circulated in the region, province, be awarded "to the lowest complying bidder," which logically means that there must at
city or municipality in which the project is to be constructed a notice least be two (2) bidders. If this minimum requirement is not met, then the proposed
inviting all duly prequalified infrastructure contractors to participate bidding should be deferred and a new prequalification proceeding be scheduled.
in the public bidding for the projects so approved. In the case of a Even those who were earlier disqualified may by then have qualified because they
build-operate-and-transfer arrangement, the contract shall be may have, in the meantime, exerted efforts to meet all the qualifications.
awarded to the lowest complying bidder based on the present value
of its proposed tolls, fees, rentals, and charges over a fixed term for This view of the majority would open the floodgates to the rigging of prequalification
the facility to be constructed, operated, and maintained according proceedings or to unholy conspiracies among prospective bidders, which would even
to the prescribed minimum design and performance standards include dishonest government officials. They could just agree, for a certain
plans, and specifications. For this purpose, the winning contractor consideration, that only one of them qualify in order that the latter would automatically
shall be automatically granted by the infrastructure agency or local corner the contract and obtain the award.
government unit the franchise to operate and maintain the facility,
including the collection of tolls, fees, rentals; and charges in
accordance with Section 6 hereof. That section 5 admits of no exception and that no bidding could be validly had with
only one bidder is likewise conclusively shown by the amendments introduced by
R.A. No. 7718 Per section 7 thereof, a new section denominated as Section 5-A was
In the case of a build-and-transfer arrangement, the contract shall introduced in R.A. No. 6957 to allow direct negotiation contracts. This new section
be awarded to the lowest complying bidder based on the present reads:
value of its proposed, schedule of amortization payments for the
facility to be constructed according to the prescribed minimum
design and performance standards, plans and Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation,
specifications: Provided, however, That a Filipino constructor who shall be resorted to when there is only one complying bidder left as
submits an equally advantageous bid shall be given preference. defined hereunder.

A copy of each build-operate-and-transfer or build-and-transfer (a) If, after advertisement, only one contractor
contract shall forthwith be submitted to Congress for its information. applies for prequalification requirements, after
which it is required to submit a bid/proposal
which subsequently found by the agency/local
The requirement of public bidding is not an idle ceremony. It has been aptly said that government unit (LGU) to be complying.
in our jurisdiction "public bidding is the policy and medium adhered to in Government
procurement and construction contracts under existing laws and regulations. It is the
accepted method for arriving at a fair and reasonable price and ensures that (b) If, after advertisement, more than one
overpricing, favoritism, and other anomalous practices are eliminated or minimized. contractor applied for prequalification but only
And any Government contract entered into without the required bidding is null and one meets the prequalification requirements,
void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, after which it submits bid/proposal which is found
Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 by the agency/local government unit (LGU) to be
[rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]). complying,

The Office of the President, through then Executive Secretary Franklin Drilon (c) If after prequalification of more than one
Correctly disapproved the contract because no public bidding is strict compliance with contractor only one submits a bid which is found
Section 5 of R.A. No. 6957 was conducted. Secretary Drilon Further bluntly stated by the agency/LGU to be complying.
that the provision of the Implementing Rules of said law authorizing negotiated
contracts was of doubtful legality. Indeed, it is null and void because the law itself (d) If, after prequalification, more than one
does not recognize or allow negotiated contracts. contractor, only one submit bids but only one is
found by the agency/LGU to be
Page 13 of 71
complying: Provided, That, any of the disqualified by my distinguished brother in the Court Quiason, J. At the end of the day, however, I
prospective bidder may appeal the decision find myself unable to join in the result reached by the majority.
contractor of the implementing agency/LGUs
prequalification bids an award committee within I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is
fifteen (15) working days to the head of the appropriately drawn on fairly narrow grounds. At the same time; I wish to address
agency, in case of national projects or to the briefly one of the points made by Justice Quiason in the majority opinion in his effort
Department of the Interior and Local to meet the difficulties posed by Davide Jr., J.
Government, in case of local projects from the
date the disqualification was made known to the
disqualified bidder Provided, That the I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11
implementing agency/LGUs concerned should June 1978 entitled: "Prescribing policies, Guidelines, Rules and Regulations for
act on the appeal within forty-five (45) working Government Infrastructure Contracts·" More specifically, the majority opinion invokes
days from receipt thereof. paragraph 1 of Section 4 of this Degree which reads as follows:

Can this amendment be given retroactive effect to the challenged contract so that it Sec. 4. Bidding. — Construction projects shall, generally be
may now be considered a permissible negotiated contract? I submit that it cannot be undertaken by contract after competitive public bidding. Projects
R.A. No. 7718 does not provide that it should be given retroactive effect to pre- may be undertaken by administration or force account or by
existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) days negotiated contract only in exceptional cases where time is of the
after its publication in at least two (2) newspapers of general circulation." If it were the essence, or where there is lack of qualified bidders or contractors,
intention of Congress to give said act retroactive effect then it would have so or where there is a conclusive evidence that greater economy and
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no efficiency would be achieved through this arrangement, and in
retroactive effect, unless the contrary is provided." accordance with provisions of laws and acts on the matter, subject
to the approval of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of
The presumption is that all laws operate prospectively, unless the contrary clearly Energy, as the case may be, if the project cost is less than P1
appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In Million, and of the President of the Philippines, upon the
every case of doubt, the doubt will be resolved against the retroactive application of recommendation of the Minister, if the project cost is P1 Million or
laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to more.
amendatory acts, or acts which change an existing statute, Sutherland states:
xxx xxx xxx
In accordance with the rule applicable to original acts, it is
presumed that provisions added by the amendment affecting
substantive rights are intended to operate prospectively. Provisions I understand the unspoken theory in the majority opinion to be that above Section 4
added by the amendment that affect substantive rights will not be and presumably the rest of Presidential Decree No. 1594 continue to exist and to run
construed to apply to transactions and events completed prior to its parallel to the provisions of Republic Act No. 6957, whether in its original form or as
enactment unless the legislature has expressed its intent to that amended by Republic Act No. 7718.
effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 A principal difficulty with this approach is that Presidential Decree No. 1594 purports
Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND to apply to all "government contracts for infrastructure and other construction
STATUTORY CONSTRUCTION 434-436 [1943 ed.]). projects." But Republic Act No. 6957 as amended by Republic Act No. 7718,
relates only to "infrastructure projects" which are financed, constructed, operated and
I vote then to grant the instant petition and to declare void the challenged contract maintained "by the private sector" "through the build/operate-and-transfer or build-
and its supplement. and-transfer scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic Act No.
6957 and Republic Act. No. 7718 must be held, in my view, to be special
FELICIANO, J., dissenting: statutes applicable to a more limited field of "infrastructure projects" than the wide-
ranging scope of application of the general statute i.e., Presidential Decree No. 1594.
After considerable study and effort, and with much reluctance, I find I must dissent in Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act
the instant case. I agree with many of the things set out in the majority opinion written No. 6957 in specific connection with BCT- and BLT type and BLT type of
Page 14 of 71
contracts imposed an unqualified requirement of public bidding set out in Section 5 b. Failure to award the contract after competitive
thereof. public bidding for valid cause or causes [such as
where the prices obtained through public bidding
It should also be pointed out that under Presidential Decree No. 1594, projects may are all above the AAE and the bidders refuse to
be undertaken "by administration or force account or by negotiated contract only" reduce their prices to the AAE].

(1) in exceptional cases where time is of the essence; or In these cases, bidding may be undertaken through sealed canvass
of at least three (3) qualified contractors. Authority to negotiate
contracts for projects under these exceptional cases shall be
(2) where there is lack of bidders or contractors; or subject to prior approval by heads of agencies within their limits of
approving authority.
(3) where there is a conclusive evidence that greater economy and
efficiency would be achieved through these arrangements, and in c. Where the subject project is adjacent or
accordance with provision[s] of laws and acts on the matter. contiguous to an on-going project and it could be
economically prosecuted by the same contractor
It must, upon the one hand, be noted that the special law Republic Act No. 6957 provided that he has no negative slippage and
made absolutely no mention of negotiated contracts being permitted to displace the has demonstrated a satisfactory performance.
requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic (Emphasis supplied).
Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to
authorize direct negotiation of contracts situations where there is a lack of pre- Note that there is no reference at all in these Presidential Decree No. 1594
qualified contractors or, complying bidders. Thus, even under the amended special Implementing Rules and Regulations to absence of pre-qualified applicants and
statute, entering into contracts by negotiation is not permissible in the other (2) bidders as justifying negotiation of contracts as distinguished from requiring public
categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in bidding or a second public bidding.
exceptional cases where time is of the essence" and "when there is conclusive
evidence that greater economy and efficiency would be achieved through these
arrangements, etc." Note also the following provision of the same Implementing Rules and Regulations:

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the IB 1 Prequalification
applicable public bidding requirement is that set out in Republic Act No. 6957
and, with respect to such type of contracts opened for pre-qualification and bidding The following may be become contractors for government projects:
after the date of effectivity of Republic Act No. 7718, The provision of Republic Act
No. 7718. The assailed contract was entered into before Republic Act. No. 7718 was 1 Filipino
enacted.
a. Citizens (single proprietorship)
The difficulties. of applying the provisions of Presidential Degree No. 1594 to the
Edsa LRT-type of contracts are aggravated when one considers the detailed
"Implementing Rules and Regulations as amended April 1988" issued under that b. Partnership of corporation duly organized under the laws of the
Presidential Decree.1 For instance: Philippines, and at least seventy five percent (75%) of the capital
stock of which belongs to Filipino citizens.
IB [2.5.2] 2.4.2 By Negotiated Contract
2. Contractors forming themselves into a joint venture, i.e., a group
of two or more contractors that intend to be jointly and severally
xxx xxx xxx responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being
a. In times of emergencies arising from natural currently and properly accredited by the Philippine Contractors
calamities where immediate action is necessary Accreditation Board, shall comply with the provisions of R.A. 4566,
to prevent imminent loss of life and/or property. provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the
Page 15 of 71
structures to be built require the application of techniques and/or a private party with the understanding that the latter would build a market building and
technologies which are not adequately possessed by a Filipino at the end of the lease would transfer the building of the lessor, did not involve a
entity as defined above. disbursement of public funds so as to give taxpayer standing to question the legality
of the contract contracts I see no substantial difference, as far as the standing is of
[The foregoing shall not negate any existing and future taxpayers is concerned, between the contract there and the build-lease-transfer (BLT)
commitments with respect to the bidding and aware of contracts contract being questioned by petitioners in this case.
financed partly or wholly with funds from international lending
institutions like the Asian Development Bank and the Worlds Bank Nor do petitioners have standing to bring this suit as citizens. In the cases5 in which
as well as from bilateral and other similar sources.(Emphases citizens were authorized to sue, this Court found standing because it thought the
supplied) constitutional claims pressed for decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by invalidating the challenged statutes
The record of this case is entirely silent on the extent of Philippine equity in the Edsa or governmental actions. Thus in the Lotto case6 relied upon by the majority for
LRT Corporation; there is no suggestion that this corporation is organized under upholding petitioners standing, this Court took into account the "paramount public
Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens. interest" involved which "immeasurably affect[ed] the social, economic, and moral
well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:"7 Accordingly, the Court invalidated the contract
Public bidding is the normal method by which a government keeps contractors honest for the operation of lottery.
and is able to assure itself that it would be getting the best possible value for its
money in any construction or similar project. It is not for nothing that multilateral
financial organizations like the World Bank and the Asian Development Bank But in the case at bar, the Court precisely finds the opposite by finding petitioners'
uniformly require projects financed by them to be implemented and carried out by substantive contentions to be without merit To the extent therefore that a party's
public bidding. Public bidding is much too important a requirement casually to loosen standing is affected by a determination of the substantive merit of the case or a
by a latitudinarian exercise in statutory construction. preliminary estimate thereof, petitioners in the case at bar must be held to be without
standing. This is in line with our ruling in Lawyers League for a Better Philippines v.
Aquino8 and In re Bermudez9 where we dismissed citizens' actions on the ground that
The instant petition should be granted and the challenged contract and its supplement petitioners had no personality to sue and their petitions did not state a cause of
should be nullified and set aside. A true public bidding, complete with a new action. The holding that petitioners did not have standing followed from the finding
prequalification proceeding, should be required for the Edsa LRT Project. that they did not have a cause of action.

In order that citizens' actions may be allowed a party must show that he personally
has suffered some actual or threatened injury as a result of the allegedly illegal
Separate Opinions conduct of the government; the injury is fairly traceable to the challenged action; and
the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court
MENDOZA, J., concurring: has held:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not Typically, . . . the standing inquiry requires careful judicial
have standing to sue, I join to dismiss the petition in this case. I write only to set forth examination of a complaint's allegation to ascertain whether the
what I understand the grounds for our decisions petitioners do not have the rights to particular plaintiff is entitled to an adjudication of the particular
sue, whether as legislators, taxpayers or citizens. As members of Congress, because claims asserted. Is the injury too abstract, or otherwise not
they allege no infringement of prerogative as legislators.1 As taxpayers because appropriate, to be considered judicially cognizable? Is the line of
petitioners allege neither an unconstitutional exercise of the taxing or spending causation between the illegal conduct and injury too attenuated? Is
powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public the prospect of obtaining relief from the injury as a result of a
money.3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a party favorable ruling too speculative? These questions and any others
suing as taxpayer "must specifically prove that he has sufficient interest in preventing relevant to the standing inquiry must be answered by reference to
the illegal expenditure of money raised by taxation and that he will sustain a direct the Art III notion that federal courts may exercise power only "in the
injury as a result of the enforcement of the questioned statute or contract, It is not last resort, and as a necessity, Chicago & Grand Trunk R. Co. v.
sufficient that has merely a general interest common to all members of the public." In Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and
that case, it was held that a contract, whereby a local government leased property to only when adjudication is "consistent with a system of separated
powers and [the dispute is one] traditionally thought to be capable
Page 16 of 71
of resolution through the judicial process," Flast v Cohen, 392 US to the terms and conditions hereinafter set forth; (Emphasis
83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, supplied).
454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11
and in Section 5 which requires public bidding of projects under both schemes.
Today's holding that a citizen, qua citizen, has standing to question a government
contract unduly expands the scope of public actions and sweeps away the case and All prior acts and negotiations leading to the perfection of the challenged contract
controversy requirement so carefully embodied in Art. VIII, §5 in defining the were clearly intended and pursued for such schemes.
jurisdiction of this Court. The result is to convert the Court into an office of
ombudsman for the ventilation of generalized grievances. Consistent with the view
that this case has no merit I submit with respect that petitioners, as representatives of A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and
the public interest, have no standing. none of the aforesaid prior acts and negotiations were designed for such
unauthorized scheme. Hence, the DOTC is without any power or authority to enter
into the BLT contract in question.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT
DAVIDE, JR., J., dissenting: Law that the BOT and the BT schemes bar any other arrangement for the payment by
the government of the project cost," then "[t]he law must not be read in such a way as
After wading through the record of the vicissitudes of the challenged contract and to rule outer unduly restrict any variation within the context of the two schemes." This
evaluating the issues raised and the arguments adduced by the parties, I find myself interpretation would be correct if the law itself provides a room for flexibility. We find
unable to joint majority in the well-written ponencia of Mr. Justice Camilo P. Quiason. no such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it
should have so stated, for contracts of lease are not unknown in our jurisdiction, and
I most respectfully submit that the challenged contract is void for at least two reasons: Congress has enacted several laws relating to leases. That the BLT scheme was
(a) it is an-ultra-vires act of the Department of Transportation and Communications never intended as a permissible variation "within the context" of the BOT and BT
(DOTC) since under R.A. 6957 the DOTC has no authority to enter into a Build- schemes is conclusively established by the passage of R.A. No. 7718 which amends:
Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the
contract was entered into without complying with the mandatory requirement of public a. Section. 2 by adding to the original BOT and BT schemes the
bidding. following schemes:

I 1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
Respondents admit that the assailed contract was entered into under R.A. 6957. This
law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and 3) Build-transfer-and-operate (BTO)
Maintenance of Infrastructure Projects by the Private Sector, and For Other 4) Contract-add-and-operate (CAO)
Purposes," recognizes only two (2) kinds of contractual arrangements between the
private sector and government infrastructure agencies: (a) the Build-Operate-and- 5) Develop-operate-and-transfer (DOT)
Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion 6) Rehabilitate-operate-and-transfer (ROT)
finds support in Section 2 thereof which defines only the BOT and BT schemes, in
7) Rehabilitate-own-and-operate (ROO).
Section 3 which explicitly provides for said schemes thus:
b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase
"through the build-operate-and-transfer or build-and-transfer
Sec. 3 Private Initiative in Infrastructure. — All government
scheme.
infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby
authorized to enter into contract with any duly prequalified private II
contractor for the financing, construction, operation and
maintenance of any financially viable infrastructure facilities through Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
the build-operate-and transfer or build-and-transfer scheme, subject

Page 17 of 71
Sec. 5 Public Bidding of Projects. — Upon approval of the projects However the majority opinion posits the view that since only private respondent EDSA
mentioned in Section 4 of this Act, the concerned head of the LRT was prequalified, then a public bidding would be "an absurd and pointless
infrastructure agency or local government unit shall forthwith cause exercise." I submit that the mandatory requirement of public bidding cannot be legally
to be published, once every week for three (3) consecutive weeks, dispensed with simply because only one was qualified to bid during the
in at least two (2) newspapers of general circulation and in at least prequalification proceedings. Section 5 mandates that the BOT or BT contract should
one (1) local newspaper which is circulated in the region, province, be awarded "to the lowest complying bidder," which logically means that there must at
city or municipality in which the project is to be constructed a notice least be two (2) bidders. If this minimum requirement is not met, then the proposed
inviting all duly prequalified infrastructure contractors to participate bidding should be deferred and a new prequalification proceeding be scheduled.
in the public bidding for the projects so approved. In the case of a Even those who were earlier disqualified may by then have qualified because they
build-operate-and-transfer arrangement, the contract shall be may have, in the meantime, exerted efforts to meet all the qualifications.
awarded to the lowest complying bidder based on the present value
of its proposed tolls, fees, rentals, and charges over a fixed term for This view of the majority would open the floodgates to the rigging of prequalification
the facility to be constructed, operated, and maintained according proceedings or to unholy conspiracies among prospective bidders, which would even
to the prescribed minimum design and performance standards include dishonest government officials. They could just agree, for a certain
plans, and specifications. For this purpose, the winning contractor consideration, that only one of them qualify in order that the latter would automatically
shall be automatically granted by the infrastructure agency or local corner the contract and obtain the award.
government unit the franchise to operate and maintain the facility,
including the collection of tolls, fees, rentals; and charges in
accordance with Section 6 hereof. That section 5 admits of no exception and that no bidding could be validly had with
only one bidder is likewise conclusively shown by the amendments introduced by
R.A. No. 7718 Per section 7 thereof, a new section denominated as Section 5-A was
In the case of a build-and-transfer arrangement, the contract shall introduced in R.A. No. 6957 to allow direct negotiation contracts. This new section
be awarded to the lowest complying bidder based on the present reads:
value of its proposed, schedule of amortization payments for the
facility to be constructed according to the prescribed minimum
design and performance standards, plans and Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation,
specifications: Provided, however, That a Filipino constructor who shall be resorted to when there is only one complying bidder left as
submits an equally advantageous bid shall be given preference. defined hereunder.

A copy of each build-operate-and-transfer or build-and-transfer (a) If, after advertisement, only one contractor
contract shall forthwith be submitted to Congress for its information. applies for prequalification requirements submit a
bid/proposal which subsequently found by the
agency/local government unit (LGU) to be
The requirement of public bidding is not an idle ceremony. It has been aptly said that complying.
in our jurisdiction "public bidding is the policy and medium adhered to in Government
procurement and construction contracts under existing laws and regulations. It is the
accepted method for arriving at a fair and reasonable price and ensures that (b) If, after advertisement, more than one
overpricing, favoritism, and other anomalous practices are eliminated or minimized. contractor applied for prequalification but only
And any Government contract entered into without the required bidding is null and one meets the prequalification .requirements,
void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, after which it submits bid/proposal which is found
Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 by the agency/local government unit (LGU) to be
[rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]). complying,

The Office of the president secretary through then Executive Secretary Franklin Drilon (c) If after prequalification of more than one
Correctly disapproved the contract because no public bidding is strict compliance with contractor only one submits a bid which is found
Section 5 of R.A. No. 6957 was conducted. Secretary Drilon Further bluntly stated by the agency/LGU to be complying.
that the provision of the Implementing Rules of said law authorizing negotiated
contracts was of doubtful legality. Indeed, it is null and void because the law itself (d) If, after prequalification, more than one
does not recognize or allow negotiated contracts. contractor, only one submit bids but only one is
found by the agency/LGU to be
Page 18 of 71
complying: Provided, That, any of the disqualified by my distinguished brother in the Court Quiason, J. At the end of the day, however, I
prospective bidder may appeal the decision find myself unable to join in the result reached by the majority.
contractor of the implementing agency/LGUs
prequalification bids an award committee within I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is
fifteen (15) working days to the head of the appropriately drawn on fairly narrow grounds. At the same time; I wish to address
agency of national projects or to the Department briefly one of Justice Quiason in the majority opinion in his effort to meet the
of the Interior and Local Government, in case of difficulties posed by Davide Jr., J.
local projects from the date the disqualification
was made known to the disqualified
bidder Provided, That the implementing I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11
agency/LGUs concerned should act on the June 1978 entitled: "Prescribing policies, Guidelines, Rules and Regulations for
appeal within forty-five (45) working days from Government Infrastructure Contracts·" More specifically, the majority opinion invokes
receipt thereof. paragraph 1 of Section 4 of this Degree which reads as follows:

Can this amendment be given retroactive effect to the challenged contract so that it Sec. 4. Bidding. — Construction projects shall, generally be
may now be considered a permissible negotiated contract? I submit that it cannot be undertaken by contract after competitive public bidding. Projects
R.A. No. 7718 does not provide that it should be given retroactive effect to pre- may be undertaken by administration or force account or by
existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) after its negotiated contract only in exceptional cases where time is of the
publication in at least two (2) newspapers of general circulation." If it were the essence, or where there is lack of qualified bidders or contractors,
intention of Congress to give said act retroactive effect then it would have so or where there is a conclusive evidence that greater economy and
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no efficiency would be achieved through this arrangement, and in
retroactive effect, unless the contrary is provided." accordance with provisions of laws and acts on the matter, subject
to the approval of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of
The presumption is that all laws operate prospectively, unless the contrary clearly Energy, as the case may be, if the project cost is less than P1
appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In Million, and of the president of the Philippines, upon the
every case of doubt, the doubt will be resolved against the retroactive application of recommendation of the Minister, if the project cost is P1 Million or
laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to more.
amendatory acts, or acts which change an existing statute, Sutherland states:
xxx xxx xxx
In accordance with the rule applicable to original acts, it is
presumed that provisions added by the amendment affecting
substantive rights are intended to operate prospectively. Provisions I understand the unspoken theory in the majority opinion utility and the ownership of
added by the amendment that affect substantive rights will not be the facilities used to serve the public can be very w1594 continue to exist and to run
construed to apply to transactions and events completed prior to its parallel to the provisions of Republic Act No. 6957, whether in its original form or as
enactment unless the legislature has expressed its intent to that amended by Republic Act No. 7718.
effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 A principal difficulty with this approach is that Presidential Decree No. 1594 purports
Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND to apply to all "government contracts for infrastructure and other construction
STATUTORY CONSTRUCTION 434-436 [1943 ed.]). projects" But Republic Act No. 6957 as amended by Republic Act No. 7718, relates
on to "infrastructure projects" which are financed, constructed, operated and
I vote then to grant the instant petition and to declare void the challenged contract maintained "by the private sector" "through the build/operate-and-transfer or build-
and its supplement. and-transfer scheme" under Republic Act No. 6597 and under a series of
other comparable schemes under Republic Act No. 7718. In other words, Republic
Act No. 6957 and Republic Act. No: 7718 must be held, in my view, to be special
FELICIANO, J., dissenting: statutes applicable to a more limited field of "infrastructure projects" than the wide-
ranging scope of application of the general statute i.e., Presidential Decree No. 1594.
After considerable study and effort, and with much reluctance, I find I must dissent in Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act
the instant case. I agree with many of the things set out in the majority opinion written No. 6957 in specific connection with BCT- and BLT type and BLT type of
Page 19 of 71
contracts imposed an unqualified requirement of public bidding set out in Section 5 b. Failure to award the contract after competitive
thereof. public bidding for valid cause or causes [such as
where the prices obtained through public bidding
It should also be pointed out that under Presidential Decree No. 1594, projects may are all above the AAE and the bidders refuse to
be undertaken "by administration or force account or by negotiated contract only " reduce their prices to the AAE].

(1) in exceptional cases where time is of the essence; or In these cases, bidding may be undertaken through sealed canvass
of at least three (3) qualified contractors. Authority to negotiate
contracts for projects under these exceptional cases shall be
(2) where there is lack of bidders or contractors; or subject to prior approval by heads of agencies within their limits of
approving authority.
(3) where there is a conclusive evidence that greater economy and
efficiency would be achieved through these arrangements, and in c. Where the subject project is adjacent or
accordance with provision[s] of laws and acts on the matter. contiguous to an on-going project and it could be
economically prosecuted by the same contractor
It must, upon the one hand, be noted that the special law Republic Act- No. 6957 provided that he has no negative slippage and
made absolutely no mention of negotiated contracts being permitted to displace the has demonstrated a satisfactory performance.
requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic (Emphasis supplied).
Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to
authorize direct negotiation of contracts situations where there is a lack of pre- Note that there is no reference at all in these presidential Decree No. 1594
qualified contractors or, complying bidders. Thus, even under the amended special Implementing Rules and Regulations to absence of pre-qualified applicants and
statute, entering into contracts by negotiation is not permissible in the other (2) bidders as justifying negotiation of contracts as distinguished from requiring public
categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in bidding or a second public bidding.
exceptional cases where time is of the essence" and "when there is conclusive
evidence that greater economy and efficiency would be achieved through these
arrangements, etc." Note also the following provision of the same Implementing Rules and Regulations:

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the IB 1 Prequalification
applicable public bidding requirement is that set out in Republic Act No. 6957
and, with respect to such type of contracts opened for pre-qualification and bidding The following may be become contractors for government projects:
after the date of effectivity of Republic Act No. 7718. The provision of Republic Act
No. 7718. The assailed contract was entered into before Republic Act. No. 7718 was 1 Filipino
enacted.
a. Citizens (single proprietorship)
The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa
LRT-type of contracts are aggravated when one considers the detailed" Implementing
Rules and Regulations as amended April 1988" issued under that Presidential b. Partnership of corporation duly organized under the laws of the
Decree.1 For instance: Philippines, and at least seventy five percent (75%) of the capital
stock of which belongs to Filipino citizens.
IB [2.5.2] 2.4.2 By Negotiated Contract
2. Contractors forming themselves into a joint venture, i.e., a group
of two or more contractors that intend to be jointly and severally
xxx xxx xxx responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being
a. In times of emergencies arising from natural currently and properly accredited by the Philippine Contractors
calamities where immediate action is necessary Accreditation Board, shall comply with the provisions of R.A. 4566,
to prevent imminent loss of life and/or property. provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the
Page 20 of 71
structures to be built require the application of techniques and/or statement of the law, statement of the authorities, statement of the petitioner's case,
technologies which are not adequately possessed by a Filipino and of the government's case, and judgment.
entity as defined above.
STATEMENT OF THE ISSUE
[The foregoing shall not negate any existing and future
commitments with respect to the bidding and aware of contracts The issue is whether the Iloilo Ice and Cold Storage Company is a public utility, as
financed partly or wholly with funds from international lending that term is defined by section 9 of Act No. 2694.
institutions like the Asian Development Bank and the Worlds Bank
as well as from bilateral and other similar sources.(Emphases
supplied) STATEMENT OF THE CASE

The record of this case is entirely silent on the extent of Philippine equity in the Edsa Francisco Villanueva, Jr., secretary of the Public Utility Commission, investigated the
LRT Corporation; there is no suggestion that this corporation is organized under operation of ice plants in Iloilo early in November, 1921. He reported to the Public
Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens. Utility Commissioner that the Iloilo Ice and Cold Storage Company should be
considered a public utility, and that, accordingly, the proper order should issue.
Public bidding is the normal method by which a government keeps contractors honest
and is able to assure itself that it would be getting the best possible value for its Agreeable to the recommendation of Secretary Villanueva, the Public Utility
money in any construction or similar project. It is not for nothing that multilateral Commissioner promulgated an order on December 19, 1921, reciting the facts
financial organizations like the World Bank and the Asian Development Bank abovementioned, and directing the Iloilo Ice and Cold Storage Company to show
uniformly require projects financed by them to be implemented and carried out by cause why it should not be considered a public utility and as such required to comply
public bidding. Public bidding is much too important a requirement casually to loosen with each and every duty of public utilities provided in Act No. 2307, as amended by
by a latitudinarian exercise in statutory construction. Act No. 2694. To this order, John Bordman, treasurer of the Iloilo Ice and Cold
Storage Company, interposed a special answer, in which it was alleged that the
company is, and always has been operated as a private enterprise.
The instant petition should be granted and the challenged contract and its supplement
should be nullified and set aside. A true public bidding, complete with a new
prequalification proceeding, should be required for the Edsa LRT Project. Hearing was then had, at which the testimonies of Francisco Villanueva, Jr., and of
John Bordman were received. Various exhibits were presented and received in
evidence. Mr. Bordman, as the managing director and treasurer of the company, later
G.R. No. L-19857 March 2, 1923 submitted an affidavit.

THE ILOILO ICE AND COLD STORAGE COMPANY, petitioner, The Public Utility Commissioner rendered a decision holding in effect that the Iloilo
vs. Ice and Cold Storage Company was a public utility, and that, accordingly, it should file
PUBLIC UTILITY BOARD, respondent. in the office of the Public Utility Commissioner, a statement of its charges for ice. This
decision was affirmed on appeal to the Public Utility Board. From this last decision,
John Bordman for petitioner. petitioner has come before this court, asking that the proceeding below be reviewed,
Attorney-General Villa-Real for respondent. and the decisions set aside.

MALCOLM, J.: STATEMENT OF THE FACTS

This action in certiorari is for the purpose of reviewing a decision of the Public Utility The petitioner, the Iloilo Ice and Cold Storage Company, is a corporation organized
Commissioner, affirmed by the Public Utility Board, holding that the petitioner, the under the laws of the Philippine Islands in 1908, with a capital stock of P60,000.
Iloilo Ice and Cold Storage Company, is a public utility and, as such, subject to the Continuously since that date, the company has maintained and operated a plant for
control and jurisdiction of the Public Utility Commissioner. the manufacture and sale of ice in the City of Iloilo. It also does business to a certain
extent in the Provinces of Negros, Capiz, and Antique, and with boats which stop at
The case can be best understood by a consideration of its various phases, under the the port of Iloilo. At the time its operation were started, two additional ice plants were
following topic: Statement of the issue, statement of the case, statement of the facts, operating in Iloilo. Subsequently, however, the other plants ceased to operate, so that
the petitioner now has no competitor in the field.
Page 21 of 71
The normal production of ice of the Iloilo Ice and Cold Storage Company is about 3 "public utility," failed to include ice, refrigeration, and cold storage plants. This
tons per day. In the month of January, 1922, a total of 83,837 kilos of ice were sold, of deficiency was, however, remedied by Act No. 2694, enacted in 1917, which
which 56,400 kilos were on written contracts in the City of Iloilo and adjoining territory, amended section 14 of Act No. 2307, to read as follows:
14,214 kilos, also on written contracts, to steamers calling at the port of Iloilo, and
13,233 kilos on verbal contracts. Although new machinery has been installed in the * * * The term "public utility" is hereby defined to include every individual,
plant, this was merely for replacement purposes, and did not add to its capacity. The copartnership, association, corporation or joint stock company, whether
demand for ice has usually been much more than the plant could produce and no domestic or foreign, their lessee, trustees or receivers appointed by any
effort has been made to provide sufficient ice to supply all who might apply. court whatsoever, or any municipality, province or other department of the
Government of the Philippine Islands, that now or hereafter may own,
Since 1908, the business of the Iloilo Ice and Cold Storage Company, accordingly to operate, manage or control within the Philippine Islands any common carrier,
its managing director and treasurer, has been carried on with selected customers railroad, street railway, traction railway, steamboat or steamship line, small
only. Preference, however, is always given to hospitals, the request of practicing water craft, such as bancas, virais, lorchas, and others, engaged in the
physicians, and the needs of sick persons. The larger part of the company's business transportation of passengers and cargo, line of freight and passenger
is perfected by written contracts signed by the parties served, which, in the present automobiles, shipyard, marine railway, marine repair shop, ferry, freight or
form, includes an agreement that no right to future service is involved. any other car services, public warehouse, public wharf or dock not under the
jurisdiction of the Insular Collector of Customs, ice, refrigeration, cold
The coupon books of the company contain on the outside the following: storage, canal, irrigation, express, subway, pipe line, gas, electric light, heat,
power, water, oil sewer, telephone, wire or wireless telegraph system, plant
or equipment, for public use: Provided, That the Commission or
This agreement witnesseth, that The Iloilo Ice and Cold Storage Co. will Commissioner shall have no jurisdiction over ice plants, cold storage plants,
furnish the undersigned with ice as indicated herein at the rate of one or any other kind of public utilities operated by the Federal Government
coupon per day. These coupons are not transferable. It is further agreed that exclusively for its own and not for public use. . . .
the company is not obligated to similar service in future except by special
agreement.
It will thus be noted that the term "public utility," in this jurisdiction, includes every
individual, copartnership, association, corporation, or joint stock company that now or
Iloilo, ......................................................................................., 192 ...... hereafter may own, operate, manage, or control, within the Philippine Islands, any ice,
refrigeration, cold storage system, plant, or equipment, for public use. Particular
(Signed) ....................................................................... No. .................. attention is invited to the last phrase, "for public use."

Cash sales of ice are accomplished on forms reading: "In receiving the ice STATEMENT OF THE AUTHORITIES
represented by this ticket I hereby agree that the Iloilo Ice and Cold Storage Co. is not
bound in future to extend to me further service." A notice posted in the Iloilo store The authorities are abundant, although some of them are not overly instructive.
reads: "No ice is sold to the public by this plant. Purchases can only be made by Selection is made of the pertinent decisions coming from our own Supreme Court, the
private contract." In August, 1918, all storage facilities were abolished, and resumed Supreme Court of the United States, and the Supreme Court of California.
in 1920 only with contracts, a copy of the form at present in use waiving any right to
continued service.
In the case of United States vs. Tan Piaco ([1920], 40 Phil., 853), the facts were that
the trucks of the defendant furnished service under special agreements to carry
On only one point of fact is there any divergence, and this is relatively unimportant. particular persons and property. Following the case of Terminal Taxicab Co. vs. Kutz
Secretary Villanueva reported, and the Public Utility Commissioner found, that the ([1916], 241 U. S., 252), it was held that since the defendant did not hold himself out
Iloilo Ice and Cold Storage Company sold ice to the public, and advertised its sale to carry all passengers and freight for all persons who might offer, he was not a public
through the papers; while managing director Bordman claims that only once have the utility and, therefore, was not criminally liable for his failure to obtain a license from
instructions of the board of directors prohibiting public advertising been violated. the Public Utility Commissioner. It was said:

STATEMENT OF THE LAW Under the provisions of said section, two things are necessary: (a) The
individual, copartnership, etc., etc., must be a public utility; and (b) the
The original public utility law, Act No. 2307, in its section 14, 1n speaking of the business in which such individual, copartnership, etc., etc., is engaged must
jurisdiction of the Board of Public Utility Commissioner, and in defining the term be for public use. So long as the individual or copartnership, etc., etc., is
Page 22 of 71
engaged in a purely private enterprise, without attempting to render service an invitation to the public to buy does not necessarily entail an obligation to
to all who may apply, he can in no sense be considered a public utility, for sell. It is assumed an ordinary shopkeeper may refuse his wares arbitrary to
public use. a customer whom he dislikes, and although that consideration is not
conclusive (233 U. S., 407), it is assumed that such a calling is not public as
"Public use" means the same as "use by the public." The essential feature of the word is used. In the absence of clear language to the contrary it would
the public use is that it is not confined to privileged individuals, but is open to be assumed that an ordinary livery stable stood on the same footing as a
the indefinite public. It is this indefinite or unrestricted quality that gives it its common shop, and there seems to be no difference between the plaintiff's
public character. In determining whether a use is public, we must look not service from its garage and that of a livery stable. It follows that the plaintiff
only to the character of the business to be done, but also to the proposed is not bound to give information as to its garage rates.
mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of The Supreme Court of California in the case of Thayer and Thayer vs. California
the jurisdiction of the public utility commission. There must be, in general, a Development Company ([1912], 164 Cal., 117), announced, among other things, that
right which the law compels the owner to give to the general public. It is not the essential feature of a public use is that "it is not confined to privileged individuals,
enough that the general prosperity of the public is promoted. Public use is but is open to the indefinite public. It is this indefiniteness or unrestricted quality that
not synonymous with public interest. The true criterion by which to judge of gives it its public character." Continuing, reference was made to the decision of the
the character of the use is whether the public may enjoy it by right or only by United States Supreme Court in Fallbrook Irrigation District vs. Bradley ([1896], 164
permission. U. S., 161), where the United States Supreme Court considered the question of
whether or not the water belonging to an irrigation district organized under the
In the decision of the Supreme Court of the United States in Terminal Taxicab California statute of 1887, and acquired for and applied to its authorized uses and
Company vs. Kutz, supra, it was held: "A taxicab company is a common carrier within purposes, was water dedicated to a public use. Upon this question, the Supreme
the meaning of the Act of March 4, 1913 (37 Stat. at L., 938, chap. 150), sec. 8, and Court on appeal said:
hence subject to the jurisdiction of the Public Utilities Commission of the District of
Columbia as a "public utility" in respect of its exercise of its exclusive right under The fact that the use of the water is limited to the landowner is not therefore
lease from the Washington Terminal Company, the owner of the Washington Union a fatal objection to this legislation. It is not essential that the entire
Railway Station, to solicit livery and taxicab business from persons passing to or from community, or even any considerable portion thereof, should directly enjoy
trains, and of its exclusive right under contracts with certain Washington hotels to or participate in an improvement in order to constitute a public use. All
solicit taxicab business from guest, but that part of its business which consists in landowners in the district have the right to a proportionate share of the
furnishing automobiles from its central garage on individual orders, generally by water, and no one landowner is favored above his fellow in his right to the
telephone, cannot be regarded as a public utility, and the rates charged for such use of the water. It is not necessary, in order that the use should be public,
service are therefore not open to inquiry by the Commission." Mr. Justice Holmes, that every resident in the district should have the right to the use of the
delivering the opinion of the court, in part said: water. The water is not used for general, domestic, or for drinking purposes,
and it is plain from the scene of the act that the water is intended for the use
The rest of the plaintiff's business, amounting to four tenths, consists mainly of those who will have occasion to use it on their lands. . . . We think it
in furnishing automobiles from its central garage on orders, generally by clearly appears that all who by reason of their ownership of or connection
telephone. It asserts the right to refuse the service, and no doubt would do with any portion of the lands would have occasion to use the water, would in
so it the pay was uncertain, but it advertises extensively, and, we must truth have the opportunity to use it upon the same terms as all others
assume, generally accepts any seemingly solvent customer. Still, the similarly situated. In this away the use, so far as this point is concerned, is
bargains are individual, and however much they may tend towards uniformity public because all persons have the right to use the water under the same
in price, probably have not quite the mechanical fixity of charges that attends circumstances. This is sufficient.
the use of taxicabs from the station and hotels. There is no contract with a
third person to serve the public generally. The question whether, as to this The latest pronouncement of the United States Supreme Court here available is
part of its business, it is an agency for public use within the meaning of the found in the case of Producers Transportation Company vs. Railroad Commission of
statute, is more difficult. . . . Although I have not been able to free my mind the State of California ([1920], 251 U. S., 228). Mr. Justice Van Devander, delivering
from doubt, the court is of opinion that this part of the business is not to be the opinion of the court, in part said:
regarded as a public utility. It is true that all business, and, for the matter of
that, every life in all its details, has a public aspect, some bearing upon the It is, of course, true that if the pipe line was constructed solely to carry oil for
welfare of the community in which it is passed. But, however it may have particular procedures under strictly private contracts and never was devoted
been in earlier days as to the common callings, it is assumed in our time that by its owner to public use, that is, to carrying for the public, the State could
Page 23 of 71
not by mere legislative fiat or by any regulating order of a commission right to say that he will or will not contract with any member of the public.
convert it into a public utility or make its owner a common carrier; for that What differentiates all such activities from a true public utility is this and this
would be taking private property for public use without just compensation, only: That the devotion to public use must be of such character that the
which no State can do consistently with the due process of law clause of the public generally, or that part of it which has been served and which has
Fourteenth Amendment. . . . On the other hand, if in the beginning or during accepted the services, has the right to demand that that service shall be
its subsequent operation the pipe line was devoted by its owner to public conducted, so long as it is continued, with reasonable efficiency under
use, and if the right thus extended to the public has not been withdrawn, reasonable charges. Public use, then, means the use by the public and be
there can be no doubt that the pipe line is a public utility and its owner a every individual member of it, as a legal right.
common carrier whose rates and practices are subject to public regulation.
Munn vs. Illinois, supra. STATEMENT OF THE PETITIONER'S CASE AND OF THE GOVERNMENT'S CASE

The state court, upon examining the evidence, concluded that the company Petitioner contends on the facts, that the evidence shows that the petitioner is
voluntarily had devoted the pipe line to the use of the public in transporting operating a small ice plant in Iloilo; that no attempt has been made to supply the
oil, and it rested this conclusion upon the grounds . . . that, looking through needs of all who may apply for accommodation or to expand the plant to meet all
the maze of contracts, agency agreements and the like, under which the demands; that sales have been made to selected customers only, and that the right
transportation was effected, subordinating form to substance, and having has been freely exercised to refuse sales not only to whole districts, but constantly to
due regard to the agency's ready admission of new members and its individuals as wells; that the greater portion of the business is conducted through
exclusion of none, it was apparent that the company did in truth carry oil for signed contracts with selected individuals, and on occasions, when there is a surplus,
all producers seeking its service, in other words, for the public. (See Pipe the same is sold for cash to selected applicants; that no sales are made except to
Line Cases, 234 U. S., 548.) persons who have waived all claim of right to similar accommodation in the future;
and that no offer, agreement, or tender of service to the public has ever been made.
Lastly, we take note of the case of Allen vs. Railroad Commission of the State of Petitioner contends, as to the law, that the decisions heretofore referred to are
California ([1918], 179 Cal., 68; 8 A. L. R., 249). It was here held that a water controlling.
company does not, by undertaking to furnish a water supply to a municipality which
will require only a small percentage of its product, become a public utility as to the The Government has no quarrel with the petitioner as to the facts. But the Attorney-
remainder, which it sells under private contracts. The court observed that its decision General attempts to differentiate the authorities from the instant situation. The
fully recognized that a private water company may be organized to sell water for Attorney-General also argues that to sanction special contracts would "open a means
purposes of private gain, and that in doing, it does not become a public utility. "To of escape from the application of the law."
hold that property has been dedicated to a public use," reads the opinion, "is not a
trivial thing, and such dedication is never presumed without evidence of unequivocal
intention." Continuing, the court discusses what is a public utility in the following The result is, therefore, that we have substantial agreement between the petitioner
language: and the government as to the issue, as to the facts, as to the law, and as to the
applicable authorities. The question, however, remains as puzzling as before.
What is a public utility, over which the state may exercise its regulatory
control without regard to the private interest which may be affected thereby? Planting ourselves of the authorities, which discuss the subject of public use, the
It its broadest sense everything upon which man bestows labor for purpose criterion by which to judge of the character of the use is whether the public may enjoy
other than those for the benefits of his immediate family is impressed with a it by right or only by permission. (U. S. vs. Tan Piaco, supra.) The essential feature of
public use. No occupation escapes it, no merchant can avoid it, no a public use is that it is not confined to privileged individuals, but is open to the
professional man can deny it. As an illustrative type one may instance the indefinite public. (Thayler and Thayler vs. California Development Company, supra.)
butcher. He deals with the public; he invites and is urgent that the public The use is public if all persons have the right to the use under the same
should deal with him. The character of his business is such that, under the circumstances. (Fall brook Irrigation District vs. Bradley, supra.) If the company did in
police power of the state, it may well be subject to regulation, and in many truth sell ice to all persons seeking its service, it would be a public utility. But if on the
places and instances is so regulated. The preservation of cleanliness, the other hand, it was organized solely for particular persons under strictly private
inspection of meats to see that they are wholesome, all such matters are contracts, and never was devoted by its owners to public use, it could not be held to
within the due and reasonable regulatory powers of the state or nation. But be a public utility without violating the due process of law clause of the Constitution.
these regulatory powers are not called into exercise because the butcher (Producers Transportation Co. vs. Railroad Commission, supra.) And the apparent
has devoted his property to public service so as to make it a public utility. He and continued purpose of the Iloilo Ice and Storage Company has been, and is, to
still has the unquestionable right to fix his prices; he still has the questioned remain a private enterprise and to avoid submitting to the Public Utility law.

Page 24 of 71
The argument for the Government, nevertheless, merits serious consideration. The by posting notices to the effect that it does not deal with the public, will seriously
attempt of the Public Utility Commissioner to intervene in corporate affairs, to protect impair the efficacy of the Public Utilities Act. I think a tendency may be discerned in
the public, is commendable. Sympathetic thought should always be given to the facts later decisions to give the expression "public use" a broader significance than that
laid before the Commissioner, with reference to the law under which he is acting. given it by the earlier authorities.

Aware of the foregoing situation, the members of the Court are of the opinion that the Republic of the Philippines
present case is governed by the authorities mentioned in this decision, which means, SUPREME COURT
of course, that, upon the facts shown in the record, the Iloilo Ice and Storage Manila
Company is not a public utility within the meaning of the law. Like Mr. Justice Holmes,
in his opinion in Terminal Taxicab Company vs. Kutz, supra, when, in speaking for EN BANC
himself personally, he admitted that he had not been able to free his mind from doubt,
so has the writer not been able to free his mind from doubt, but is finally led to accept
the authorities as controlling. G.R. No. L-19857 March 2, 1923

JUDGMENT THE ILOILO ICE AND COLD STORAGE COMPANY, petitioner,


vs.
PUBLIC UTILITY BOARD, respondent.
It is declared that the business of the Iloilo Ice and Cold Storage Company is not a
public utility, subject to the control and jurisdiction of the Public Utility Commissioner,
and that, accordingly, the decisions of the Public Utility Commissioner and of the John Bordman for petitioner.
Public Utility Board must be revoked, without special finding as to costs. So ordered. Attorney-General Villa-Real for respondent.

Araullo, C. J., Street, Avanceña, Johns, and Romualdez, JJ., concur. MALCOLM, J.:

This action in certiorari is for the purpose of reviewing a decision of the Public Utility
Commissioner, affirmed by the Public Utility Board, holding that the petitioner, the
Separate Opinions Iloilo Ice and Cold Storage Company, is a public utility and, as such, subject to the
control and jurisdiction of the Public Utility Commissioner.
OSTRAND, J., concurring:
The case can be best understood by a consideration of its various phases, under the
following topic: Statement of the issue, statement of the case, statement of the facts,
I concur in the result on the ground that an ice plant is not public utility by common statement of the law, statement of the authorities, statement of the petitioner's case,
law, but is only made so by statute; that in the present case the plant existed in and of the government's case, and judgment.
approximately its present form and as, in a then legal sense, a private enterprise,
before the statute making such plants public utilities was enacted; and that under
these circumstances to deprive the owner of a part of the control over his property STATEMENT OF THE ISSUE
amounts to a taking of property without compensation and without due process of
law, and cannot be regarded as being within the police power of the State. The issue is whether the Iloilo Ice and Cold Storage Company is a public utility, as
that term is defined by section 9 of Act No. 2694.
I find it difficult to agree to the proposition that an ice plant, the product of which is not
intended primarily for the use of the owners thereof but for general consumption, is for STATEMENT OF THE CASE
private use, merely, and not for "public use" within the meaning of Act No. 2307, the
Public Utilities Act. The fact that sales of ice are made under special contracts and Francisco Villanueva, Jr., secretary of the Public Utility Commission, investigated the
that some individuals have been denied the privilege of purchasing cannot after the operation of ice plants in Iloilo early in November, 1921. He reported to the Public
fact that the plant is designed to supply the trade and to serve the public as far as the Utility Commissioner that the Iloilo Ice and Cold Storage Company should be
quantity of ice produced permits and the purchasers are acceptable. To hold that a considered a public utility, and that, accordingly, the proper order should issue.
utility of a public character can escape regulatory control by the simple expedient of
arbitrary excluding a limited number of persons from the enjoyment of its benefits and

Page 25 of 71
Agreeable to the recommendation of Secretary Villanueva, the Public Utility The coupon books of the company contain on the outside the following:
Commissioner promulgated an order on December 19, 1921, reciting the facts
abovementioned, and directing the Iloilo Ice and Cold Storage Company to show This agreement witnesseth, that The Iloilo Ice and Cold Storage Co. will
cause why it should not be considered a public utility and as such required to comply furnish the undersigned with ice as indicated herein at the rate of one
with each and every duty of public utilities provided in Act No. 2307, as amended by coupon per day. These coupons are not transferable. It is further agreed that
Act No. 2694. To this order, John Bordman, treasurer of the Iloilo Ice and Cold the company is not obligated to similar service in future except by special
Storage Company, interposed a special answer, in which it was alleged that the agreement.
company is, and always has been operated as a private enterprise.
Iloilo, ......................................................................................., 192 ......
Hearing was then had, at which the testimonies of Francisco Villanueva, Jr., and of
John Bordman were received. Various exhibits were presented and received in
evidence. Mr. Bordman, as the managing director and treasurer of the company, later (Signed) ....................................................................... No. ..................
submitted an affidavit.
Cash sales of ice are accomplished on forms reading: "In receiving the ice
The Public Utility Commissioner rendered a decision holding in effect that the Iloilo represented by this ticket I hereby agree that the Iloilo Ice and Cold Storage Co. is not
Ice and Cold Storage Company was a public utility, and that, accordingly, it should file bound in future to extend to me further service." A notice posted in the Iloilo store
in the office of the Public Utility Commissioner, a statement of its charges for ice. This reads: "No ice is sold to the public by this plant. Purchases can only be made by
decision was affirmed on appeal to the Public Utility Board. From this last decision, private contract." In August, 1918, all storage facilities were abolished, and resumed
petitioner has come before this court, asking that the proceeding below be reviewed, in 1920 only with contracts, a copy of the form at present in use waiving any right to
and the decisions set aside. continued service.

STATEMENT OF THE FACTS On only one point of fact is there any divergence, and this is relatively unimportant.
Secretary Villanueva reported, and the Public Utility Commissioner found, that the
Iloilo Ice and Cold Storage Company sold ice to the public, and advertised its sale
The petitioner, the Iloilo Ice and Cold Storage Company, is a corporation organized through the papers; while managing director Bordman claims that only once have the
under the laws of the Philippine Islands in 1908, with a capital stock of P60,000. instructions of the board of directors prohibiting public advertising been violated.
Continuously since that date, the company has maintained and operated a plant for
the manufacture and sale of ice in the City of Iloilo. It also does business to a certain
extent in the Provinces of Negros, Capiz, and Antique, and with boats which stop at STATEMENT OF THE LAW
the port of Iloilo. At the time its operation were started, two additional ice plants were
operating in Iloilo. Subsequently, however, the other plants ceased to operate, so that The original public utility law, Act No. 2307, in its section 14, 1n speaking of the
the petitioner now has no competitor in the field. jurisdiction of the Board of Public Utility Commissioner, and in defining the term
"public utility," failed to include ice, refrigeration, and cold storage plants. This
The normal production of ice of the Iloilo Ice and Cold Storage Company is about 3 deficiency was, however, remedied by Act No. 2694, enacted in 1917, which
tons per day. In the month of January, 1922, a total of 83,837 kilos of ice were sold, of amended section 14 of Act No. 2307, to read as follows:
which 56,400 kilos were on written contracts in the City of Iloilo and adjoining territory,
14,214 kilos, also on written contracts, to steamers calling at the port of Iloilo, and * * * The term "public utility" is hereby defined to include every individual,
13,233 kilos on verbal contracts. Although new machinery has been installed in the copartnership, association, corporation or joint stock company, whether
plant, this was merely for replacement purposes, and did not add to its capacity. The domestic or foreign, their lessee, trustees or receivers appointed by any
demand for ice has usually been much more than the plant could produce and no court whatsoever, or any municipality, province or other department of the
effort has been made to provide sufficient ice to supply all who might apply. Government of the Philippine Islands, that now or hereafter may own,
operate, manage or control within the Philippine Islands any common carrier,
Since 1908, the business of the Iloilo Ice and Cold Storage Company, accordingly to railroad, street railway, traction railway, steamboat or steamship line, small
its managing director and treasurer, has been carried on with selected customers water craft, such as bancas, virais, lorchas, and others, engaged in the
only. Preference, however, is always given to hospitals, the request of practicing transportation of passengers and cargo, line of freight and passenger
physicians, and the needs of sick persons. The larger part of the company's business automobiles, shipyard, marine railway, marine repair shop, ferry, freight or
is perfected by written contracts signed by the parties served, which, in the present any other car services, public warehouse, public wharf or dock not under the
form, includes an agreement that no right to future service is involved. jurisdiction of the Insular Collector of Customs, ice, refrigeration, cold

Page 26 of 71
storage, canal, irrigation, express, subway, pipe line, gas, electric light, heat, the character of the use is whether the public may enjoy it by right or only by
power, water, oil sewer, telephone, wire or wireless telegraph system, plant permission.
or equipment, for public use: Provided, That the Commission or
Commissioner shall have no jurisdiction over ice plants, cold storage plants, In the decision of the Supreme Court of the United States in Terminal Taxicab
or any other kind of public utilities operated by the Federal Government Company vs. Kutz, supra, it was held: "A taxicab company is a common carrier within
exclusively for its own and not for public use. . . . the meaning of the Act of March 4, 1913 (37 Stat. at L., 938, chap. 150), sec. 8, and
hence subject to the jurisdiction of the Public Utilities Commission of the District of
It will thus be noted that the term "public utility," in this jurisdiction, includes every Columbia as a "public utility" in respect of its exercise of its exclusive right under
individual, copartnership, association, corporation, or joint stock company that now or lease from the Washington Terminal Company, the owner of the Washington Union
hereafter may own, operate, manage, or control, within the Philippine Islands, any ice, Railway Station, to solicit livery and taxicab business from persons passing to or from
refrigeration, cold storage system, plant, or equipment, for public use. Particular trains, and of its exclusive right under contracts with certain Washington hotels to
attention is invited to the last phrase, "for public use." solicit taxicab business from guest, but that part of its business which consists in
furnishing automobiles from its central garage on individual orders, generally by
STATEMENT OF THE AUTHORITIES telephone, cannot be regarded as a public utility, and the rates charged for such
service are therefore not open to inquiry by the Commission." Mr. Justice Holmes,
delivering the opinion of the court, in part said:
The authorities are abundant, although some of them are not overly instructive.
Selection is made of the pertinent decisions coming from our own Supreme Court, the
Supreme Court of the United States, and the Supreme Court of California. The rest of the plaintiff's business, amounting to four tenths, consists mainly
in furnishing automobiles from its central garage on orders, generally by
telephone. It asserts the right to refuse the service, and no doubt would do
In the case of United States vs. Tan Piaco ([1920], 40 Phil., 853), the facts were that so it the pay was uncertain, but it advertises extensively, and, we must
the trucks of the defendant furnished service under special agreements to carry assume, generally accepts any seemingly solvent customer. Still, the
particular persons and property. Following the case of Terminal Taxicab Co. vs. Kutz bargains are individual, and however much they may tend towards uniformity
([1916], 241 U. S., 252), it was held that since the defendant did not hold himself out in price, probably have not quite the mechanical fixity of charges that attends
to carry all passengers and freight for all persons who might offer, he was not a public the use of taxicabs from the station and hotels. There is no contract with a
utility and, therefore, was not criminally liable for his failure to obtain a license from third person to serve the public generally. The question whether, as to this
the Public Utility Commissioner. It was said: part of its business, it is an agency for public use within the meaning of the
statute, is more difficult. . . . Although I have not been able to free my mind
Under the provisions of said section, two things are necessary: (a) The from doubt, the court is of opinion that this part of the business is not to be
individual, copartnership, etc., etc., must be a public utility; and (b) the regarded as a public utility. It is true that all business, and, for the matter of
business in which such individual, copartnership, etc., etc., is engaged must that, every life in all its details, has a public aspect, some bearing upon the
be for public use. So long as the individual or copartnership, etc., etc., is welfare of the community in which it is passed. But, however it may have
engaged in a purely private enterprise, without attempting to render service been in earlier days as to the common callings, it is assumed in our time that
to all who may apply, he can in no sense be considered a public utility, for an invitation to the public to buy does not necessarily entail an obligation to
public use. sell. It is assumed an ordinary shopkeeper may refuse his wares arbitrary to
a customer whom he dislikes, and although that consideration is not
"Public use" means the same as "use by the public." The essential feature of conclusive (233 U. S., 407), it is assumed that such a calling is not public as
the public use is that it is not confined to privileged individuals, but is open to the word is used. In the absence of clear language to the contrary it would
the indefinite public. It is this indefinite or unrestricted quality that gives it its be assumed that an ordinary livery stable stood on the same footing as a
public character. In determining whether a use is public, we must look not common shop, and there seems to be no difference between the plaintiff's
only to the character of the business to be done, but also to the proposed service from its garage and that of a livery stable. It follows that the plaintiff
mode of doing it. If the use is merely optional with the owners, or the public is not bound to give information as to its garage rates.
benefit is merely incidental, it is not a public use, authorizing the exercise of
the jurisdiction of the public utility commission. There must be, in general, a The Supreme Court of California in the case of Thayer and Thayer vs. California
right which the law compels the owner to give to the general public. It is not Development Company ([1912], 164 Cal., 117), announced, among other things, that
enough that the general prosperity of the public is promoted. Public use is the essential feature of a public use is that "it is not confined to privileged individuals,
not synonymous with public interest. The true criterion by which to judge of but is open to the indefinite public. It is this indefiniteness or unrestricted quality that
gives it its public character." Continuing, reference was made to the decision of the
Page 27 of 71
United States Supreme Court in Fallbrook Irrigation District vs. Bradley ([1896], 164 transportation was effected, subordinating form to substance, and having
U. S., 161), where the United States Supreme Court considered the question of due regard to the agency's ready admission of new members and its
whether or not the water belonging to an irrigation district organized under the exclusion of none, it was apparent that the company did in truth carry oil for
California statute of 1887, and acquired for and applied to its authorized uses and all producers seeking its service, in other words, for the public. (See Pipe
purposes, was water dedicated to a public use. Upon this question, the Supreme Line Cases, 234 U. S., 548.)
Court on appeal said:
Lastly, we take note of the case of Allen vs. Railroad Commission of the State of
The fact that the use of the water is limited to the landowner is not therefore California ([1918], 179 Cal., 68; 8 A. L. R., 249). It was here held that a water
a fatal objection to this legislation. It is not essential that the entire company does not, by undertaking to furnish a water supply to a municipality which
community, or even any considerable portion thereof, should directly enjoy will require only a small percentage of its product, become a public utility as to the
or participate in an improvement in order to constitute a public use. All remainder, which it sells under private contracts. The court observed that its decision
landowners in the district have the right to a proportionate share of the fully recognized that a private water company may be organized to sell water for
water, and no one landowner is favored above his fellow in his right to the purposes of private gain, and that in doing, it does not become a public utility. "To
use of the water. It is not necessary, in order that the use should be public, hold that property has been dedicated to a public use," reads the opinion, "is not a
that every resident in the district should have the right to the use of the trivial thing, and such dedication is never presumed without evidence of unequivocal
water. The water is not used for general, domestic, or for drinking purposes, intention." Continuing, the court discusses what is a public utility in the following
and it is plain from the scene of the act that the water is intended for the use language:
of those who will have occasion to use it on their lands. . . . We think it
clearly appears that all who by reason of their ownership of or connection What is a public utility, over which the state may exercise its regulatory
with any portion of the lands would have occasion to use the water, would in control without regard to the private interest which may be affected thereby?
truth have the opportunity to use it upon the same terms as all others It its broadest sense everything upon which man bestows labor for purpose
similarly situated. In this away the use, so far as this point is concerned, is other than those for the benefits of his immediate family is impressed with a
public because all persons have the right to use the water under the same public use. No occupation escapes it, no merchant can avoid it, no
circumstances. This is sufficient. professional man can deny it. As an illustrative type one may instance the
butcher. He deals with the public; he invites and is urgent that the public
The latest pronouncement of the United States Supreme Court here available is should deal with him. The character of his business is such that, under the
found in the case of Producers Transportation Company vs. Railroad Commission of police power of the state, it may well be subject to regulation, and in many
the State of California ([1920], 251 U. S., 228). Mr. Justice Van Devander, delivering places and instances is so regulated. The preservation of cleanliness, the
the opinion of the court, in part said: inspection of meats to see that they are wholesome, all such matters are
within the due and reasonable regulatory powers of the state or nation. But
It is, of course, true that if the pipe line was constructed solely to carry oil for these regulatory powers are not called into exercise because the butcher
particular procedures under strictly private contracts and never was devoted has devoted his property to public service so as to make it a public utility. He
by its owner to public use, that is, to carrying for the public, the State could still has the unquestionable right to fix his prices; he still has the questioned
not by mere legislative fiat or by any regulating order of a commission right to say that he will or will not contract with any member of the public.
convert it into a public utility or make its owner a common carrier; for that What differentiates all such activities from a true public utility is this and this
would be taking private property for public use without just compensation, only: That the devotion to public use must be of such character that the
which no State can do consistently with the due process of law clause of the public generally, or that part of it which has been served and which has
Fourteenth Amendment. . . . On the other hand, if in the beginning or during accepted the services, has the right to demand that that service shall be
its subsequent operation the pipe line was devoted by its owner to public conducted, so long as it is continued, with reasonable efficiency under
use, and if the right thus extended to the public has not been withdrawn, reasonable charges. Public use, then, means the use by the public and be
there can be no doubt that the pipe line is a public utility and its owner a every individual member of it, as a legal right.
common carrier whose rates and practices are subject to public regulation.
Munn vs. Illinois, supra. STATEMENT OF THE PETITIONER'S CASE AND OF THE GOVERNMENT'S CASE

The state court, upon examining the evidence, concluded that the company Petitioner contends on the facts, that the evidence shows that the petitioner is
voluntarily had devoted the pipe line to the use of the public in transporting operating a small ice plant in Iloilo; that no attempt has been made to supply the
oil, and it rested this conclusion upon the grounds . . . that, looking through needs of all who may apply for accommodation or to expand the plant to meet all
the maze of contracts, agency agreements and the like, under which the demands; that sales have been made to selected customers only, and that the right
Page 28 of 71
has been freely exercised to refuse sales not only to whole districts, but constantly to JUDGMENT
individuals as wells; that the greater portion of the business is conducted through
signed contracts with selected individuals, and on occasions, when there is a surplus, It is declared that the business of the Iloilo Ice and Cold Storage Company is not a
the same is sold for cash to selected applicants; that no sales are made except to public utility, subject to the control and jurisdiction of the Public Utility Commissioner,
persons who have waived all claim of right to similar accommodation in the future; and that, accordingly, the decisions of the Public Utility Commissioner and of the
and that no offer, agreement, or tender of service to the public has ever been made. Public Utility Board must be revoked, without special finding as to costs. So ordered.
Petitioner contends, as to the law, that the decisions heretofore referred to are
controlling.
Araullo, C. J., Street, Avanceña, Johns, and Romualdez, JJ., concur.
The Government has no quarrel with the petitioner as to the facts. But the Attorney-
General attempts to differentiate the authorities from the instant situation. The
Attorney-General also argues that to sanction special contracts would "open a means
of escape from the application of the law." Separate Opinions

The result is, therefore, that we have substantial agreement between the petitioner OSTRAND, J., concurring:
and the government as to the issue, as to the facts, as to the law, and as to the
applicable authorities. The question, however, remains as puzzling as before. I concur in the result on the ground that an ice plant is not public utility by common
law, but is only made so by statute; that in the present case the plant existed in
Planting ourselves of the authorities, which discuss the subject of public use, the approximately its present form and as, in a then legal sense, a private enterprise,
criterion by which to judge of the character of the use is whether the public may enjoy before the statute making such plants public utilities was enacted; and that under
it by right or only by permission. (U. S. vs. Tan Piaco, supra.) The essential feature of these circumstances to deprive the owner of a part of the control over his property
a public use is that it is not confined to privileged individuals, but is open to the amounts to a taking of property without compensation and without due process of
indefinite public. (Thayler and Thayler vs. California Development Company, supra.) law, and cannot be regarded as being within the police power of the State.
The use is public if all persons have the right to the use under the same
circumstances. (Fall brook Irrigation District vs. Bradley, supra.) If the company did in I find it difficult to agree to the proposition that an ice plant, the product of which is not
truth sell ice to all persons seeking its service, it would be a public utility. But if on the intended primarily for the use of the owners thereof but for general consumption, is for
other hand, it was organized solely for particular persons under strictly private private use, merely, and not for "public use" within the meaning of Act No. 2307, the
contracts, and never was devoted by its owners to public use, it could not be held to Public Utilities Act. The fact that sales of ice are made under special contracts and
be a public utility without violating the due process of law clause of the Constitution. that some individuals have been denied the privilege of purchasing cannot after the
(Producers Transportation Co. vs. Railroad Commission, supra.) And the apparent fact that the plant is designed to supply the trade and to serve the public as far as the
and continued purpose of the Iloilo Ice and Storage Company has been, and is, to quantity of ice produced permits and the purchasers are acceptable. To hold that a
remain a private enterprise and to avoid submitting to the Public Utility law. utility of a public character can escape regulatory control by the simple expedient of
arbitrary excluding a limited number of persons from the enjoyment of its benefits and
The argument for the Government, nevertheless, merits serious consideration. The by posting notices to the effect that it does not deal with the public, will seriously
attempt of the Public Utility Commissioner to intervene in corporate affairs, to protect impair the efficacy of the Public Utilities Act. I think a tendency may be discerned in
the public, is commendable. Sympathetic thought should always be given to the facts later decisions to give the expression "public use" a broader significance than that
laid before the Commissioner, with reference to the law under which he is acting. given it by the earlier authorities.

Aware of the foregoing situation, the members of the Court are of the opinion that the SECOND DIVISION
present case is governed by the authorities mentioned in this decision, which means, [G.R. No. 125948. December 29, 1998]
of course, that, upon the facts shown in the record, the Iloilo Ice and Storage
Company is not a public utility within the meaning of the law. Like Mr. Justice Holmes,
in his opinion in Terminal Taxicab Company vs. Kutz, supra, when, in speaking for
himself personally, he admitted that he had not been able to free his mind from doubt,
so has the writer not been able to free his mind from doubt, but is finally led to accept FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF
the authorities as controlling. APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and

Page 29 of 71
ADORACION C. ARELLANO, in her official capacity as City Treasurer of On March 8, 1994, the respondent City Treasurer denied the protest contending that
Batangas, respondents. petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
DECISION
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
MARTINEZ, J.: complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
This petition for review on certiorari assails the Decision of the Court of Appeals dated petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' to impose and collect a tax on the gross receipts of "contractors and independent contractors"
complaint for a business tax refund imposed by the City of Batangas. 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
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and
to contract, install and operate oil pipelines. The original pipeline concession was granted in collected the said tax, thus meriting the immediate refund of the tax paid. [7]
1967[1] and renewed by the Energy Regulatory Board in 1992. [2]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent "transportation contractors and persons engaged in the transportation by hire and common
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal carriers by air, land and water." Respondents assert that pipelines are not included in the term
year 1993 pursuant to the Local Government Code.[3] The respondent City Treasurer assessed "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
a business tax on the petitioner amounting to P956,076.04 payable in four installments based like. Respondents further posit that the term "common carrier" under the said code pertains to
on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted the mode or manner by which a product is delivered to its destination.[8]
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 October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling
in this wise:
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads: "xxx Plaintiff is either a contractor or other independent contractor.

"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 xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax
exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the
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 government. Exemption may therefore be granted only by clear and unequivocal provisions of
Local Government Code of 1991 x x x x law.

"Moreover, Transportation contractors are not included in the enumeration of contractors "Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit
under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to 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.
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. "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:
"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, 1. That the exemption granted under Sec. 133 (j) encompasses only common
and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition carriers so as not to overburden the riding public or commuters
thereof based on gross receipts is violative of the aforecited provision. The amount with taxes. Plaintiff is not a common carrier, but a special carrier
of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, extending its services and facilities to a single specific or
inspection and licensing. The fee is already a revenue raising measure, and not a mere "special customer" under a "special contract."
regulatory imposition."[4]
2. The Local Tax Code of 1992 was basically enacted to give more and
effective local autonomy to local governments than the previous
Page 30 of 71
enactments, to make them economically and financially viable for compensation. The fact that petitioner has a limited clientele does not exclude it from the
to serve the people and discharge their functions with a definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
concomitant obligation to accept certain devolution of powers, x
x x So, consistent with this policy even franchise grantees are "The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
taxed (Sec. 137) and contractors are also taxed under Sec. 143 business activity is the carrying of persons or goods or both, and one who does such carrying
(e) and 151 of the Code."[9] only as an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making
any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or
Petitioner assailed the aforesaid decision before this Court via a petition for review. On unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration services to the 'general public,' i.e., the general community or population, and one who
and adjudication.[10]On November 29, 1995, the respondent court rendered a offers services or solicits business only from a narrow segment of the general
decision[11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion population. We think that Article 1877 deliberately refrained from making such
for reconsideration was denied on July 18, 1996.[12] distinctions.
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide
Court in a Resolution[14]of January 20, 1997. Thus, the petition was reinstated. 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
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public
petitioner is not a common carrier or a transportation contractor, and (2) the exemption sought service' includes:
for by petitioner is not clear under the law.
There is merit in the petition. '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
A "common carrier" may be defined, broadly, as one who holds himself out to the public accidental, and done for general business purposes, any common carrier, railroad, street
as engaged in the business of transporting persons or property from place to place, for railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with
compensation, offering his services to the public generally. or without fixed route and whatever may be its classification, freight or carrier service of any
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged
firm or association engaged in the business of carrying or transporting passengers or goods or in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or
both, by land, water, or air, for compensation, offering their services to the public." 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
The test for determining whether a party is a common carrier of goods is: communications systems, wire or wireless broadcasting stations and other similar public
services.' "(Underscoring Supplied)
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
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of
transportation of goods for person generally as a business and not as a
the Local Government Code refers only to common carriers transporting goods and passengers
casual occupation;
through moving vehicles or vessels either by land, sea or water, is erroneous.

2. He must undertake to carry goods of the kind to which his business is confined; 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
3. He must undertake to carry by the method by which his business is conducted
vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. [17]
and over his established roads; and
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered
4. The transportation must be for hire.[15] a "common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
Based on the above definitions and requirements, there is no doubt that petitioner is a preferential right to utilize installations for the transportation of petroleum owned by him, but
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum is obligated to utilize the remaining transportation capacity pro rata for the transportation of
products, for hire as a public employment. It undertakes to carry for all persons indifferently, such other petroleum as may be offered by others for transport, and to charge without
that is, to all persons who choose to employ its services, and transports the goods by land and

Page 31 of 71
discrimination such rates as may have been approved by the Secretary of Agriculture and MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec.
Natural Resources." 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.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion
of Article 7 thereof provides: 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
"that everything relating to the exploration for and exploitation of petroleum x x and not more than one-half of 1 percent of the gross annual receipts. So, transportation contractors
everything relating to the manufacture, refining, storage, or transportation by special who are enjoying a franchise would be subject to tax by the province. That is the exception,
methods of petroleum, is hereby declared to be a public utility." (Underscoring Supplied) Mr. Speaker.

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
BIR Ruling No. 069-83, it declared: government units on the carrier business. Local government units may impose taxes on top
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting of what is already being imposed by the National Internal Revenue Code which is the so-
petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such called "common carriers tax." We do not want a duplication of this tax, so we just provided
being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13- for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a
78, as amended." specific rate.

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit: 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
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - duplication of the so-called "common carrier's tax."
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 : 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
xxxxxxxxx gross receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
(j) Taxes on the gross receipts of transportation contractors and persons engaged
in the transportation of passengers or freight by hire and common carriers WHEREFORE, the petition is hereby GRANTED. The decision of the respondent
by air, land or water, except as provided in this Code." Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and
SET ASIDE.

The deliberations conducted in the House of Representatives on the Local Government SO ORDERED.
Code of 1991 are illuminating:
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.
"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131].
Common Limitations on the Taxing Powers of Local Government Units." x x x
THIRD DIVISION
MR. AQUINO (A.). Thank you Mr. Speaker.
[G.R. No. 112287. December 12, 1997]
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? NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND
VLASONS SHIPPING, INC., respondents.

Page 32 of 71
[G.R. No. 112350. December 12, 1997] The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such,


VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL does not transport cargo or shipment for the general public. Its services are available
STEEL CORPORATION, respondents. 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 this capacity that
DECISION its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract
of voyage charter hire with National Steel Corporation.
PANGANIBAN, J.:
The facts as found by Respondent Court of Appeals are as follows:
The Court finds occasion to apply the rules on the seaworthiness of (1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
a private carrier, its owners responsibility for damage to the cargo and its liability for Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire
demurrage and attorneys fees.The Court also reiterates the well-known rule that (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one
findings of facts of trial courts, when affirmed by the Court of Appeals, are binding on (1) voyage to load steel products at Iligan City and discharge them at North Harbor, Manila,
this Court. under the following terms and conditions, viz:
The Case
1. x x x x x x.

Before us are two separate petitions for review filed by National Steel 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the August option.
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
3. x x x x x x
No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff 4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant Lading within fifteen (15) days.
on the counterclaim as follows:
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
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
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24
the same shall have been fully paid;
consecutive hours, Sundays and Holidays Included).
2. Attorneys fees and expenses of litigation in the sum of P100,000.00;
and 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
3. Cost of suit.
8. x x x x x x
SO ORDERED. [2]
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not
On the other hand, the Court of Appeals ruled: responsible for losses/damages except on proven willful negligence of the officers of the
vessel.
WHEREFORE, premises considered, the decision appealed from is modified by reducing the
award for demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of
litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as 10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally
to costs. recognized Charter Party Agreement shall form part of this Contract.

SO ORDERED. [3] xxxxxxxxx

Page 33 of 71
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
NANYOZAI Charter Party which stands for Freight In and Out including Stevedoring and container/metal casings of the skids were rusting all over. MASCO ventured the opinion that
Trading, which means that the handling, loading and unloading of the cargoes are the rusting of the tinplates was caused by contact with SEA WATER sustained while still on
responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states, board the vessel as a consequence of the heavy weather and rough seas encountered while en
Charterers to load, stow and discharge the cargo free of risk and expenses to owners. x x route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at random
x (Underscoring supplied). 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
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of Report No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of
the voyage, exercise due diligence to make the vessel seaworthy and properly manned, packing materials xxx shows that wetting was caused by contact with SEA WATER.
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 (5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with
loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by the defendant its claim for damages suffered due to the downgrading of the damaged tinplates
want of due diligence on the part of the owners to make the vessel seaworthy, and to secure in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment
that the vessel is properly manned, equipped and supplied and to make the holds and all other of said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against
parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or (6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due of P941,145.18 as a result of the act, neglect and default of the master and crew in the
diligence; any other cause arising without the actual fault or privity of Owners or without the management of the vessel as well as the want of due diligence on the part of the defendant to
fault of the agents or servants of owners. 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
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be defendants undertaking under their Contract of Voyage Charter Hire.
responsible for split, chafing and/or any damage unless caused by the negligence or default of
the master and crew. (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 plaintiffs cargo; that said vessel
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the was not a common carrier inasmuch as she was under voyage charter contract with the
MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of plaintiff as charterer under the charter party; that in the course of the voyage from Iligan City
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight to Manila, the MV VLASONS I encountered very rough seas, strong winds and adverse
of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the three (3) weather condition, causing strong winds and big waves to continuously pound against the
hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] vessel and seawater to overflow on its deck and hatch covers; that under the Contract of
acknowledged receipt of the cargo on board and signed the corresponding bill of lading, Voyage Charter Hire, defendant shall not be responsible for losses/damages except on proven
B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974. 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
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, furthermore the Voyage Charter Party provides that loading and discharging of the cargo was
1974. The following day, August 13, 1974, when the vessels three (3) hatches containing the on FIOST terms which means that the vessel was free of risk and expense in connection with
shipment were opened by plaintiffs agents, nearly all the skids of tinplates and hot rolled the loading and discharging of the cargo; that the damage, if any, was due to the inherent
sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of
stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after the cargo not discoverable by due diligence or to any other cause arising without the actual
incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading fault or privity of defendant and without the fault of the agents or servants of defendant;
operations. (Exhibit E) 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; and that
the cargo was exposed to rain and seawater spray while on the pier or in transit from the pier
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of to plaintiffs warehouse after discharge from the vessel; and that plaintiffs claim was highly
the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the speculative and grossly exaggerated and that the small stain marks or sweat marks on the
NSC dated March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant
conducted on the cargo, both while it was still on board the vessel and later at the NDC claimed that it had complied with all its duties and obligations under the Voyage Charter Hire
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following
reported that it found wetting and rusting of the packages of hot rolled sheets and metal covers counterclaim:

Page 34 of 71
(a) That despite the full and proper performance by defendant of its obligations under the rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates
Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire sweat by themselves when packed even without being in contract (sic) with water from outside
of P75,000.00 despite demands made by defendant; especially when the weather is bad or raining. The rust 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
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for
sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in loss or damage arising from the character of the goods x x x. All the 1,769 skids of the
Manila waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to tinplates could not have been damaged by water as claimed by plaintiff. It was shown as
pay defendant demurrage in the total amount of P88,000.00. claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to
pay defendant attorneys fees and all expenses of litigation in the amount of not less (f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in
than P100,000.00. 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
(8) From the evidence presented by both parties, the trial court came out with the following would be easy for them to resume work when the rains stopped by just removing the tent or
findings which were set forth in its decision: 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
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
is available for hire only under special contracts of charter party as in this particular case. 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
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), charterer and defendant carrier has no liability for whatever damage may occur or maybe [sic]
the MV VLASONS I was covered by the required seaworthiness certificates including the caused to the cargo in the process.
Certification of Classification issued by an international classification society, the NIPPON
KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of Transportation (Exh. 5); (g) It was also established that the vessel encountered rough seas and bad weather while en
International Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship route from Iligan City to Manila causing sea water to splash on the ships deck on account of
Safety Equipment Certificate also from the Philippine Coast Guard (Exh. 7); Ship Radio which the master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13,
Station License (Exh. 8); Certificate of Inspection by the Philippine Coast Guard (Exh. 12); 1974 (Exh. 15) which can be invoked by defendant as a force majeure that would exempt the
and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh. 9). That defendant from liability.
being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a
higher degree of seaworthiness and safety. (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
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of with the requirement, then it could have recovered its loss or damage from the
Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was insurer. Plaintiff also violated the charter party contract when it loaded not only steel products,
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the vessels i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high
first voyage after the drydocking. The evidence shows that the MV VLASONS I was grade cargo commanding a higher freight. Thus plaintiff was able to ship high grade cargo at a
seaworthy and properly manned, equipped and supplied when it undertook the voyage. It had lower freight rate.
all the required certificates of seaworthiness.
(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon
openings were covered by hatchboards which were in turn covered by two or double presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight
tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were steel due of P75,000.00 despite demands. The evidence also showed that the plaintiff was required
beams to give support. 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
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported (11) days thereby making plaintiff liable to pay defendant for demurrage in the amount
by evidence. The provisions of the Civil Code on common carriers pursuant to which there of P88,000.00.
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 Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:

Page 35 of 71
I 3. Whether or not a charterers failure to insure its cargo exempts the
shipowner from liability for cargo damage.
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 Questions of Fact
vessels officers.
II 1. Whether or not the vessel was seaworthy and cargo-worthy;
The trial court erred in finding that the rusting of NSCs tinplates was due to the 2. Whether or not vessels officers and crew were negligent in handling and
inherent nature or character of the goods and not due to contact with seawater. caring for NSCs cargo;
III 3. Whether or not NSCs cargo of tinplates did sweat during the voyage
The trial court erred in finding that the stevedores hired by NSC were negligent in the and, hence, rusted on their own; and
unloading of NSCs shipment. (4) Whether or not NSCs stevedores were negligent and caused the
IV wetting[/]rusting of NSCs tinplates.

The trial court erred in exempting VSI from liability on the ground of force majeure. In its separate petition, [9] VSI submits for the consideration of this Court the
following alleged errors of the CA:
V
A. The respondent Court of Appeals committed an error of law in reducing the award of
The trial court erred in finding that NSC violated the contract of voyage charter hire. demurrage from P88,000.00 to P44,000.00.
VI
B. The respondent Court of Appeals committed an error of law in deleting the award
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to of P100,000 for attorneys fees and expenses of litigation.
VSI.[4]
As earlier stated, the Court of Appeals modified the decision of the trial court by Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]
reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award of I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
attorneys fees and expenses of litigation. NSC and VSI filed separate motions for pursuant to which there exist[s] a presumption of negligence against the common carrier in
reconsideration. In a Resolution[5] dated October 20, 1993, the appellate court denied case of loss or damage to the cargo are applicable to a private carrier.
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] 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 Issues
The foregoing issues raised by the parties will be discussed under the following
headings:
In its petition[7] and memorandum,[8] NSC raises the following questions of law
and fact: 1. Questions of Fact

Questions of Law 2. Effect of NSCs Failure to Insure the Cargo


3. Admissibility of Certificates Proving Seaworthiness
1. Whether or not a charterer of a vessel is liable for demurrage due to 4. Demurrage and Attorneys Fees.
cargo unloading delays caused by weather interruption;
The Courts Ruling
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 vessels seaworthiness at the beginning of the voyages; The Court affirms the assailed Decision of the Court of Appeals, except in
and respect of the demurrage.

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Preliminary Matter: Common Carrier or Private Carrier? 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
At the outset, it is essential to establish whether VSI contracted with NSC as a Party also provided that [o]wners shall not be responsible for split, chafing and/or any
common carrier or as a private carrier. The resolution of this preliminary question damage unless caused by the negligence or default of the master or crew. [19]
determines the law, standard of diligence and burden of proof applicable to the
present case. Burden of Proof

Article 1732 of the Civil Code defines a common carrier as persons,


corporations, firms or associations engaged in the business of carrying or transporting In view of the aforementioned contractual stipulations, NSC must prove that the
passengers or goods or both, by land, water, or air, for compensation, offering their damage to its shipment was caused by VSIs willful negligence or failure to exercise
services to the public. It has been held that the true test of a common carrier is the due diligence in making MV Vlasons I seaworthy and fit for holding, carrying and
carriage of passengers or goods, provided it has space, for all who opt to avail safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the
themselves of its transportation service for a fee. [11] A carrier which does not qualify parties agreement.
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 This view finds further support in the Code of Commerce which pertinently
goods for the general public. The most typical, although not the only form of private provides:
carriage, is the charter party, a maritime contract by which the charterer, a party other Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
than the shipowner, obtains the use and service of all or some part of a ship for a contrary has not been expressly stipulated.
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 Therefore, the damage and impairment suffered by the goods during the transportation, due to
general public. As found by the Regional Trial Court, it carried passengers or goods fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the
only for those it chose under a special contract of charter party. [13] As correctly account and risk of the shipper.
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 The burden of proof of these accidents is on the carrier.
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 Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned
Shipping Corporation, [16] the Court ruled: 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
x x x in a contract of private carriage, the parties may freely stipulate their duties and the shipper committed fraud in the bill of lading, making him to believe that the goods were of
obligations which perforce would be binding on them. Unlike in a contract involving a a class or quality different from what they really were.
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 Because the MV Vlasons I was a private carrier, the shipowners obligations are
justifiably be applied to a ship transporting commercial goods as a private
governed by the foregoing provisions of the Code of Commerce and not by the Civil
carrier. Consequently, the public policy embodied therein is not contravened by stipulations in Code which, as a general rule, places the prima facie presumption of negligence on a
a charter party that lessen or remove the protection given by law in contracts involving common carrier. It is a hornbook doctrine that:
common carriers.[17]
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
Extent of VSIs Responsibility and Liability Over NSCs Cargo plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods
were lost or damaged while in the carriers custody does not put the burden of proof on the
carrier.
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 Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the
officers of the vessel. The NANYOZAI Charter Party, which was incorporated in the protection of the goods committed to its care, the burden of proving negligence or a breach of
parties contract of transportation, further provided that the shipowner shall not be that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carriers
liable for loss of or damage to the cargo arising or resulting from unseaworthiness, possession does not cast on it the burden of proving proper care and diligence on its part or
unless the same was caused by its lack of due diligence to make the vessel that the loss occurred from an excepted cause in the contract or bill of lading. However, in

Page 37 of 71
discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and In any event, the records reveal that VSI exercised due diligence to make the
inferences by which the law aids the bailor in an action against a bailee, and since the carrier is ship seaworthy and fit for the carriage of NSCs cargo of steel and tinplates. This is
in a better position to know the cause of the loss and that it was not one involving its liability, shown by the fact that it was drydocked and inspected by the Philippine Coast Guard
the law requires that it come forward with the information available to it, and its failure to do before it proceeded to Iligan City for its voyage to Manila under the contract of voyage
so warrants an inference or presumption of its liability. However, such inferences and charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first voyage
presumptions, while they may affect the burden of coming forward with evidence, do not alter after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy,
the burden of proof which remains on plaintiff, and, where the carrier comes forward with fitted and equipped; it met all requirements for trading as cargo vessel. [25] The Court
evidence explaining the loss or damage, the burden of going forward with the evidence is of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was
again on plaintiff. seaworthy. We find no reason to modify or reverse this finding of both the trial and the
appellate courts.
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving Who Were Negligent: Seamen or Stevedores?
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 carriers possession does not cast on
it the burden of proving seaworthiness. x x x Where the contract of carriage exempts the
As noted earlier, the NSC had the burden of proving that the damage to the
carrier from liability for unseaworthiness not discoverable by due diligence, the carrier has the
cargo was caused by the negligence of the officers and the crew of MV Vlasons I in
preliminary burden of proving the exercise of due diligence to make the vessel seaworthy. [20]
making their vessel seaworthy and fit for the carriage of tinplates. NSC failed to
discharge this burden.
In the instant case, the Court of Appeals correctly found that NSC has not taken
the correct position in relation to the question of who has the burden of proof. Thus, in Before us, NSC relies heavily on its claim that MV Vlasons I had used an old
its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter and torn tarpaulin or canvas to cover the hatches through which the cargo was loaded
Party (incidentally plaintiff-appellants [NSCs] interpretation of Clause 12 is not even into the cargo hold of the ship. It faults the Court of Appeals for failing to consider
correct), it argues that a careful examination of the evidence will show that VSI such claim as an uncontroverted fact [26] and denies that MV Vlasons I was equipped
miserably failed to comply with any of these obligations as if defendant-appellee [VSI] with new canvas covers in tandem with the old ones as indicated in the Marine
had the burden of proof.[21] Protest xxx. [27] We disagree.

First Issue: Questions of Fact The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships hatches
watertight. The foregoing are clear from the marine protest of the master of the MV
Based on the foregoing, the determination of the following factual questions is Vlasons I, Antonio C. Dumlao, and the deposition of the ships boatswain, Jose
manifestly relevant: (1) whether VSI exercised due diligence in making MV Vlasons Pascua. The salient portions of said marine protest read:
I seaworthy for the intended purpose under the charter party; (2) whether the damage x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8,
to the cargo should be attributed to the willful negligence of the officers and crew of 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to
the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the National Steel Corporation; that before departure, the vessel was rigged, fully equipped and
tinplates was caused by its own sweat or by contact with seawater. cleared by the authorities; that on or about August 9, 1974, while in the vicinity of the western
These questions of fact were threshed out and decided by the trial court, which part of Negros and Panay, we encountered very rough seas and strong winds and Manila office
had the firsthand opportunity to hear the parties conflicting claims and to carefully was advised by telegram of the adverse weather conditions encountered; that in the morning of
weigh their respective evidence. The findings of the trial court were subsequently August 10, 1974, the weather condition changed to worse and strong winds and big waves
affirmed by the Court of Appeals. Where the factual findings of both the trial court and continued pounding the vessel at her port side causing sea water to overflow on deck andhatch
the Court of Appeals coincide, the same are binding on this Court. [22] We stress that, (sic) covers and which caused the first layer of the canvass covering to give way while the
subject to some exceptional instances, [23] only questions of law -- not questions of new canvass covering still holding on;
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 That the weather condition improved when we reached Dumali Point protected by Mindoro;
disturb the lower courts factual findings, as indeed NSC has not successfully proven that we re-secured the canvass covering back to position; that in the afternoon of August 10,
the application of any of the aforecited exceptions. 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
Was MV Vlasons I Seaworthy? and big waves which caused the same canvass to give way and leaving the new canvass
holding on;

Page 38 of 71
xxx xxx xxx [28] Q: And on top of the beams you said there is a hatch board. How many
pieces of wood are put on top?
And the relevant portions of Jose Pascuas deposition are as follows:
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: What is the purpose of the canvas cover?
Q: And is there a space between the hatch boards?
A: So that the cargo would not be soaked with water.
A: There is none, sir.
A: And will you describe how the canvas cover was secured on the hatch
opening? Q: They are tight together?
WITNESS A: Yes, sir.
A: It was placed flat on top of the hatch cover, with a little canvas flowing Q: How tight?
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 A: Very tight, sir.
could not be removed. Q: Now, on top of the hatch boards, according to you, is the canvas
ATTY DEL ROSARIO cover. How many canvas covers?

Q: And will you tell us the size of the hatch opening? The length and the A: Two, sir. [29]
width of the hatch opening. That due diligence was exercised by the officers and the crew of the MV
A: Forty-five feet by thirty-five feet, sir. Vlasons I was further demonstrated by the fact that, despite encountering rough
weather twice, the new tarpaulin did not give way and the ships hatches and cargo
xxxxxxxxx holds remained waterproof. As aptly stated by the Court of Appeals, xxx we find no
reason not to sustain the conclusion of the lower court based on overwhelming
Q: How was the canvas supported in the middle of the hatch opening? evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on
A: There is a hatch board. August 8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677 skids
of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from
ATTY DEL ROSARIO NSCs pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August
12, 1974; xxx. [30]
Q: What is the hatch board made of?
Indeed, NSC failed to discharge its burden to show negligence on the part of the
A: It is made of wood, with a handle. 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.
Q: And aside from the hatch board, is there any other material there to
cover the hatch? 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
A: There is a beam supporting the hatch board.
cargo. This tent-like covering, however, was clearly inadequate for keeping rain and
Q: What is this beam made of? seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI,
testified thus:
A: It is made of steel, sir.
ATTY ZAMORA:
Q: Is the beam that was placed in the hatch opening covering the whole
hatch opening? Q: Now, during your testimony on November 5, 1979, you stated on
August 14 you went on board the vessel upon notice from the
A: No, sir. National Steel Corporation in order to conduct the inspection of the
cargo. During the course of the investigation, did you chance to see
Q: How many hatch beams were there placed across the opening? the discharging operation?
A: There are five beams in one hatch opening.
WITNESS:
ATTY DEL ROSARIO

Page 39 of 71
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates A: Yes, sir, the second time I went there, I saw it.
already discharged on the pier but majority of the tinplates were
inside the hall, all the hatches were opened. Q: As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores in
Q: In connection with these cargoes which were unloaded, where is the discharging the cargo particularly in this tent covering of the hatches?
place.
A: Yes, sir, I did the first time I saw it, I called the attention of the
A: At the Pier. stevedores but the stevedores did not mind at all, so, I called the
attention of the representative of the National Steel but nothing was
Q: What was used to protect the same from weather? done, just the same. Finally, I wrote a letter to them. [31]
ATTY LOPEZ: NSC attempts to discredit the testimony of Angliongto by questioning his failure
We object, your Honor, this question was already asked. This particular to complain immediately about the stevedores negligence on the first day of
matter . . . the transcript of stenographic notes shows the same was unloading, pointing out that he wrote his letter to petitioner only seven days
covered in the direct examination. later. [32] The Court is not persuaded. Angliongtos candid answer in his aforequoted
testimony satisfactorily explained the delay. Seven days lapsed because he first
ATTY ZAMORA: called the attention of the stevedores, then the NSCs representative, about the
negligent and defective procedure adopted in unloading the cargo. This series of
Precisely, your Honor, we would like to go on detail, this is the serious part actions constitutes a reasonable response in accord with common sense and ordinary
of the testimony. human experience. Vicente Angliongto could not be blamed for calling the stevedores
attention first and then the NSCs representative on location before formally informing
COURT:
NSC of the negligence he had observed, because he was not responsible for the
All right, witness may answer. 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
ATTY LOPEZ: performance of their task to unload the cargo.
Q: What was used in order to protect the cargo from the weather? We see no reason to reverse the trial and the appellate courts findings and
conclusions on this point, viz:
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. 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 NSCs shipment. We do not think
Q: You also stated that the hatches were already opened and that there so. Such negligence according to the trial court is evident in the stevedores hired by [NSC],
were tents constructed at the opening of the hatches to protect the not closing the hatch of MV VLASONS I when rains occurred during the discharging of the
cargo from the rain. Now, will you describe [to] the Court the tents cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall
constructed. on the cargo. It was proven that the stevedores merely set up temporary tents or canvas to
A: The tents are just a base of canvas which look like a tent of an Indian cover the hatch openings when it rained during the unloading operations so that it would be
camp raise[d] high at the middle with the whole side separated down easier for them to resume work after the rains stopped by just removing said tents or
to the hatch, the size of the hatch and it is soaks [sic] at the middle canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto
because of those weather and this can be used only to temporarily wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging
protect the cargo from getting wet by rains. 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
Q: Now, is this procedure adopted by the stevedores of covering tents suggesting that due to four (4) days continuos rains with strong winds that the hatches be
proper? 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
A: No, sir, at the time they were discharging the cargo, there was a (Exhibit 13-A). [33]
typhoon passing by and the hatch tent was not good enough to hold
all of it to prevent the water soaking through the canvas and enter the
cargo. 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
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact thereby. In passing, it may be noted that the NSC may seek indemnification, subject
the water enter and soak into the canvas and tinplates. to the laws on prescription, from the stevedoring company at fault in the discharge

Page 40 of 71
operations. A stevedore company engaged in discharging cargo xxx has the duty to NSC argues that the certificates are hearsay for not having been presented in
load the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly
caused by its negligence xxx and where the officers and members and crew of the are not written records or acts of public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12
vessel do nothing and have no responsibility in the discharge of cargo by stevedores are not evidenced by official publications or certified true copies as required by
xxx the vessel is not liable for loss of, or damage to, the cargo caused by the Sections 25 and 26, Rule 132, of the Rules of Court. [37]
negligence of the stevedores xxx [34] as in the instant case.
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5,
Do Tinplates Sweat? 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
The trial court relied on the testimony of Vicente Angliongto in finding that xxx of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and
tinplates sweat by themselves when packed even without being in contact with water 12 are photocopies, but their admission under the best evidence rule have not been
from outside especially when the weather is bad or raining xxx. [35] The Court of demonstrated.
Appeals affirmed the trial courts finding.
We find, however, that Exhibit 11 is admissible under a well-settled exception to
A discussion of this issue appears inconsequential and unnecessary. As the hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that
previously discussed, the damage to the tinplates was occasioned not by airborne (e)ntries in official records made in the performance of a duty by a public officer of the
moisture but by contact with rain and seawater which the stevedores negligently Philippines, or by a person in the performance of a duty specially enjoined by law,
allowed to seep in during the unloading. 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
Second Issue: Effect of NSCs Failure to Insure the Cargo Noli C. Flores to the effect that the vessel VLASONS I was drydocked x x x and PCG
Inspectors were sent on board for inspection x x x. After completion of drydocking and
duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage seaworthy condition, meets all requirements, fitted and equipped for trading as a
Charter Hire is totally separate and distinct from the contractual or statutory cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on
responsibility that may be incurred by VSI for damage to the cargo caused by the July 10, 1974. (sic) NSCs claim, therefore, is obviously misleading and erroneous.
willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore,
NSCs failure to insure the cargo will not affect its right, as owner and real party in At any rate, it should be stressed that that NSC has the burden of proving
interest, to file an action against VSI for damages caused by the latters willful that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a private
negligence. We do not find anything in the charter party that would make the liability carrier and, as such, it did not have the obligation of a common carrier to show that it
of VSI for damage to the cargo contingent on or affected in any manner by NSCs was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful
obtaining an insurance over the cargo. 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
Third Issue: Admissibility of Certificates Proving Seaworthiness proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
NSCs 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: The contract of voyage charter hire provides inter alia:

1. Certificate of Inspection of the Philippine Coast Guard at Cebu xxx xxx xxx

2. Certificate of Inspection from the Philippine Coast Guard 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters
option.
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation xxx xxx xxx

5. Certificate of Approval for Conversion issued by the Bureau of 6. Loading/Discharging Rate : 750 tons per WWDSHINC.
Customs. [36]
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

Page 41 of 71
The Court defined demurrage in its strict sense as the compensation provided Court. Although there are settled exceptions, NSC has not satisfactorily shown that
for in the contract of affreightment for the detention of the vessel beyond the laytime this case is one of them. Second, the agreement between the parties -- the Contract
or that period of time agreed on for loading and unloading of cargo. [40] It is given to of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon
compensate the shipowner for the nonuse of the vessel. On the other hand, the the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC,
following is well-settled: 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 party from the
Laytime runs according to the particular clause of the charter party. x x x If laytime is effects of a private contract freely entered into, on the ground that it is allegedly one-
expressed in running days, this means days when the ship would be run continuously, and sided or unfair to the plaintiff. The charter party is a normal commercial contract and
holidays are not excepted. A qualification of weather permitting excepts only those days when its stipulations are agreed upon in consideration of many factors, not the least of
bad weather reasonably prevents the work contemplated. [41] 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
In this case, the contract of voyage charter hire provided for a four-day laytime; damage to the cargo. In recognition of such factors, the parties even stipulated that
it also qualified laytime as WWDSHINC or weather working days Sundays and the shipper should insure the cargo to protect itself from the risks it undertook under
holidays included. [42] The running of laytime was thus made subject to the weather, the charter party. That NSC failed or neglected to protect itself with such insurance
and would cease to run in the event unfavorable weather interfered with the unloading should not adversely affect VSI, which had nothing to do with such failure or neglect.
of cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day
laytime allowed it did not lapse, having been tolled by unfavorable weather condition WHEREFORE, premises considered, the instant consolidated petitions are
in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was hereby DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with
error for the trial court and the Court of Appeals to have found and affirmed the MODIFICATION that the demurrage awarded to VSI is deleted. No
respectively that NSC incurred eleven days of delay in unloading the cargo. The trial pronouncement as to costs.
court arrived at this erroneous finding by subtracting from the twelve days, specifically SO ORDERED.
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.
Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of
attorneys fees. We disagree. While VSI was compelled to litigate to protect its rights, [G.R. No. 148496. March 19, 2002]
such fact by itself will not justify an award of attorneys fees under Article 2208 of the
Civil Code when x x x 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 x x x. [44] Moreover, attorneys fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is VIRGINES CALVO doing business under the name and style TRANSORIENT
tantamount to imposing a premium on ones right to litigate or seek judicial redress of CONTAINER TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL
legitimate grievances. [45] INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.

Epilogue DECISION
MENDOZA, J.:
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 This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of
truths. First, both lower courts found that such damage was brought about during the Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which
unloading process when rain and seawater seeped through the cargo due to the fault ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal
or negligence of the stevedores employed by it.Basic is the rule that factual findings interest, representing the value of damaged cargo handled by petitioner, 25% thereof as
of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme attorneys fees, and the cost of the suit.

Page 42 of 71
The facts are as follows: 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
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. acted negligently, unless they prove that they have observed the extraordinary diligence
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has
SMCs warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo been held that the mere proof of delivery of goods in good order to a carrier, and of their
was insured by respondent UCPB General Insurance Co., Inc. arrival at the place of destination in bad order, makes out a prima facie case against the carrier,
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in so that if no explanation is given as to how the injury occurred, the carrier must be held
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some
the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, other circumstances inconsistent with its liability. (cited in Commercial Laws of the
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
and delivered it to SMCs 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 Defendant, being a customs brother, warehouseman and at the same time a common carrier is
paper were wet/stained/torn and 3 reels of kraft liner board were likewise torn. The damage supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
was placed at P93,112.00. 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
SMC collected payment from respondent UCPB under its insurance contract for the by the carrier to the consignee or to the person who has the right to receive the same.[3]
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 Accordingly, the trial court ordered petitioner to pay the following amounts
shipment. 1. The sum of P93,112.00 plus interest;
The trial court held:
2. 25% thereof as lawyers fee;
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. 3. Costs of suit.[4]
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- The decision was affirmed by the Court of Appeals on appeal. Hence this petition for
A) confirms the fact of the damaged condition of the subject cargoes. The surveyor[s] report review on certiorari.
(Exh. H-4-A) in particular, which provides among others that:
Petitioner contends that:
. . . we opine that damages sustained by shipment is attributable to improper handling in transit I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
presumably whilst in the custody of the broker . . . . ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE
PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND
is a finding which cannot be traversed and overturned. MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER
not liable. Defendant by reason of the nature of [her] business should have devised ways and AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD
means in order to prevent the damage to the cargoes which it is under obligation to take ITS SERVICES TO THE PUBLIC.[5]
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 It will be convenient to deal with these contentions in the inverse order, for if petitioner
that the moment the defendant accepts the cargo [she] shall perform such extraordinary is not a common carrier, although both the trial court and the Court of Appeals held otherwise,
diligence because of the nature of the cargo. 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.
....

Page 43 of 71
Petitioner contends that contrary to the findings of the trial court and the Court of Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
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 Common carriers, from the nature of their business and for reasons of public policy, are bound
offers the same to select parties with whom she may contract in the conduct of her business. 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. . . .
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 In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in
The Civil Code defines common carriers in the following terms: the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the common carrier to know and to follow the required precaution for avoiding damage to, or
business of carrying or transporting passengers or goods or both, by land, water, or air for destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
compensation, offering their services to the public. 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
The above article makes no distinction between one whose principal business activity is the care in the handling and stowage, including such methods as their nature requires.
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 In the case at bar, petitioner denies liability for the damage to the cargo. She claims that
person or enterprise offering transportation service on a regular or scheduled basis and one the spoilage or wettage took place while the goods were in the custody of either the carrying
offering such service on an occasional, episodic or unscheduled basis. Neither does Article vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator,
1732 distinguish between a carrier offering its services to the general public, i.e., the general to whom the goods were unloaded and who allegedly kept them in open air for nine days from
community or population, and one who offers services or solicits business only from a July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed,
narrow segment of the general population. We think that Article 1732 deliberately refrained cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:
from making such distinctions.
MAXU-2062880 - rain gutter deformed/cracked
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 ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
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 PERU-204209-4 - with pinholes on roof panel right portion
service includes:
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
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, MAXU-201406-0 - with dent/crack on roof panel
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 ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]
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, In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, that he has no personal knowledge on whether the container vans were first stored in
gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire petitioners warehouse prior to their delivery to the consignee. She likewise claims that after
or wireless communications systems, wire or wireless broadcasting stations and other similar withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro,
public services. x x x [8] immediately delivered the cargo to SMCs 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
There is greater reason for holding petitioner to be a common carrier because the cargo could not have taken place while these were in her custody. [11]
transportation of goods is an integral part of her business. To uphold petitioners contention
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
would be to deprive those with whom she contracts the protection which the law affords
Surveyors indicates that when the shipper transferred the cargo in question to the arrastre
them notwithstanding the fact that the obligation to carry goods for her customers, as already
operator, these were covered by clean Equipment Interchange Report (EIR) and, when
noted, is part and parcel of petitioners business.
petitioners employees withdrew the cargo from the arrastre operator, they did so without

Page 44 of 71
exception or protest either with regard to the condition of container vans Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless
or their contents. The Survey Report pertinently reads the same is due to any of the following causes only:
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, (4) The character of the goods or defects in the packing or in the containers.
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. ....

.... 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
Transfer/Delivery: 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
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by apparent defects in some of the container vans. Hence, for failure of petitioner to prove that
Transorient Container Services, Inc. . . . without exception. 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. 1735[15] holds.
[The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12] WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
As found by the Court of Appeals: SO ORDERED.
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.
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 FIRST DIVISION
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- [G.R. No. 149038. April 9, 2003]
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 PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS
cargo occurred while it was in the possession of the defendant-appellant. Whenever the thing SHIPPING COMPANY, respondent.
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 DECISION
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] VITUG, J.:

Anent petitioners insistence that the cargo could not have been damaged while in her The petition before the Court seeks a review of the decision of the Court of
custody as she immediately delivered the containers to SMCs compound, suffice it to say that Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
to prove the exercise of extraordinary diligence, petitioner must do more than merely show the affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of Makati,
possibility that some other party could be responsible for the damage. It must prove that it dismissing the complaint for damages filed by petitioner insurance corporation against
used all reasonable means to ascertain the nature and characteristic of goods tendered for respondent shipping company.
[transport] and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to do Davao Union Marketing Corporation (DUMC) contracted the services of
this. respondent PKS Shipping Company (PKS Shipping) for the shipment to Tacloban
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides City of seventy-five thousand (75,000) bags of cement worth Three Million Three
Page 45 of 71
Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the goods if a private carrier, or extraordinary, if a common carrier) required of it given the
for its full value with petitioner Philippine American General Insurance Company circumstances.
(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 The findings of fact made by the Court of Appeals, particularly when such
I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of findings are consistent with those of the trial court, may not at liberty be reviewed by
miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it this Court in a petition for review under Rule 45 of the Rules of
the entire cargo of 75,000 bags of cement. 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
DUMC filed a formal claim with Philamgen for the full amount of the intertwined with, a requisite appreciation of the applicable law. In such instances, the
insurance. Philamgen promptly made payment; it then sought reimbursement from conclusions made could well be raised as being appropriate issues in a petition for
PKS Shipping of the sum paid to DUMC but the shipping company refused to pay, review before this Court. Thus, an issue whether a carrier is private or common on
prompting Philamgen to file suit against PKS Shipping with the Makati RTC. the basis of the facts found by a trial court or the appellate court can be a valid and
reviewable question of law.
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 The Civil Code defines common carriers in the following terms:
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, Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
the ship owner could free itself of liability by abandoning, as it apparently so did, the business of carrying or transporting passengers or goods or both, by land, water, or air for
vessel with all her equipment and earned freightage. compensation, offering their services to the public.

Philamgen interposed an appeal to the Court of Appeals which affirmed in Complementary to the codal definition is Section 13, paragraph (b), of the Public
toto the decision of the trial court. The appellate court ruled that evidence to establish Service Act; it defines public service to be
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 x x x every person that now or hereafter may own, operate, manage, or control in the
carrying goods for others was not generally held out as a business but as a casual Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occupation. It then concluded that PKS Shipping, not being a common carrier, was occasional or accidental, and done for general business purposes, any common carrier,
not expected to observe the stringent extraordinary diligence required of common railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with or
carriers in the care of goods. The appellate court, moreover, found that the loss of the without fixed route and whatever may be its classification, freight or carrier service of any
goods was sufficiently established as having been due to fortuitous event, negating class, express service, steamboat, or steamship, or steamship line, pontines, ferries and water
any liability on the part of PKS Shipping to the shipper. 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
In the instant appeal, Philamgen contends that the appellate court has light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
committed a patent error in ruling that PKS Shipping is not a common carrier and that communication systems, wire or wireless broadcasting stations and other similar public
it is not liable for the loss of the subject cargo. The fact that respondent has a limited services. x x x. (Underscoring supplied).
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 The prevailing doctrine on the question is that enunciated in the leading case
avers that typhoon "APIANG" has not entered the Philippine area of responsibility and of De Guzman vs. Court of Appeals.[2] Applying Article 1732 of the Code, in
that, even if it did, respondent would not be exempt from liability because its conjunction with Section 13(b) of the Public Service Act, this Court has held:
employees, particularly the tugmaster, have failed to exercise due diligence to The above article makes no distinction between one whose principal business activity is the
prevent or minimize the loss. carrying of persons or goods or both, and one who does such carrying only as
PKS Shipping, in its comment, urges that the petition should be denied because an ancillary activity (in local idiom, as `a sideline). Article 1732 also carefully avoids making
what Philamgen seeks is not a review on points or errors of law but a review of the any distinction between a person or enterprise offering transportation service on a regular or
undisputed factual findings of the RTC and the appellate court. In any event, PKS scheduled basis and one offering such service on an occasional, episodic or unscheduled
Shipping points out, the findings and conclusions of both courts find support from the basis. Neither does Article 1732 distinguish between a carrier offering its services to the
evidence and applicable jurisprudence. `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
The determination of possible liability on the part of PKS Shipping boils down to 1732 deliberately refrained from making such distinctions.
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,
Page 46 of 71
So understood, the concept of `common carrier under Article 1732 may be seen to coincide issued by the Philippine Coastguard and the Coastwise Load Line Certificate would
neatly with the notion of `public service, under the Public Service Act (Commonwealth Act attest to the seaworthiness of Limar I and should strengthen the factual findings of the
No. 1416, as amended) which at least partially supplements the law on common carriers set appellate court.
forth in the Civil Code.
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
Much of the distinction between a common or public carrier and a private or Appeals and the trial court are contradictory; (2) when the conclusion is a finding
special carrier lies in the character of the business, such that if the undertaking is an grounded entirely on speculation, surmises, or conjectures; (3) when the inference
isolated transaction, not a part of the business or occupation, and the carrier does not made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd,
hold itself out to carry the goods for the general public or to a limited clientele, or impossible; (4) when there is a grave abuse of discretion in the appreciation of
although involving the carriage of goods for a fee,[3] the person or corporation facts; (5) when the appellate court, in making its findings, went beyond the issues of
providing such service could very well be just a private carrier. A typical case is that of the case and such findings are contrary to the admissions of both appellant and
a charter party which includes both the vessel and its crew, such as in a bareboat or appellee; (6) when the judgment of the Court of Appeals is premised on a
demise, where the charterer obtains the use and service of all or some part of a ship misapprehension of facts; (7) when the Court of Appeals failed to notice certain
for a period of time or a voyage or voyages[4] and gets the control of the vessel and its relevant facts which, if properly considered, would justify a different conclusion;
crew.[5] Contrary to the conclusion made by the appellate court, its factual findings (8) when the findings of fact are themselves conflicting; (9) when the findings of fact
indicate that PKS Shipping has engaged itself in the business of carrying goods for are conclusions without citation of the specific evidence on which they are based; and
others, although for a limited clientele, undertaking to carry such goods for a fee. The (10) when the findings of fact of the Court of Appeals are premised on the absence of
regularity of its activities in this area indicates more than just a casual activity on its evidence but such findings are contradicted by the evidence on record would appear
part.[6] Neither can the concept of a common carrier change merely because to be clearly extant in this instance.
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 All given then, the appellate court did not err in its judgment absolving PKS
the simple expedient of entering into those distinct agreements with clients. Shipping from liability for the loss of the DUMC cargo.
Addressing now the issue of whether or not PKS Shipping has exercised the WHEREFORE, the petition is DENIED. No costs.
proper diligence demanded of common carriers, Article 1733 of the Civil Code
requires common carriers to observe extraordinary diligence in the vigilance over the SO ORDERED.
goods they carry. In case of loss, destruction or deterioration of goods, common Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
carriers are presumed to have been at fault or to have acted negligently, and the JJ., concur.
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; THIRD DIVISION
[G.R. No. 147246. August 19, 2003]
(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]


ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS
The appellate court ruled, gathered from the testimonies and sworn marine and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
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 DECISION
of Limar I. The vessel was suddenly tossed by waves of extraordinary height of six (6)
PUNO, J.:
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
Page 47 of 71
On appeal is the Court of Appeals May 11, 2000 Decision [1] in CA-G.R. CV No. On January 30, 1991, the private respondent indemnified the consignee in the
49195 and February 21, 2001 Resolution[2] affirming with modification the April 6, amount of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said
1994 Decision[3] of the Regional Trial Court of Manila which found petitioner liable to amount from the petitioner, but to no avail.
pay private respondent the amount of indemnity and attorney's fees.
On July 3, 1991, the private respondent filed a complaint against the petitioner
First, the facts. for recovery of the amount of indemnity, attorney's fees and cost of suit. [16] Petitioner
filed its answer with counterclaim.[17]
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk,
valued at US$423,192.35[4] was shipped by Marubeni American Corporation of The Regional Trial Court ruled in favor of the private respondent. The dispositive
Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the portion of its Decision states:
consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No.
PTD/Man-4.[5] The shipment was insured by the private respondent Prudential WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia
Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75 under Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc.
Marine Cargo Risk Note RN 11859/90.[6] 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
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was counterclaim is hereby DISMISSED.With costs against defendant.[18]
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 Petitioner appealed to the Court of Appeals insisting that it is not a common
consignee's warehouse at Bo. Ugong, Pasig City. carrier. The appellate court affirmed the decision of the trial court with
On August 15, 1990, 900 metric tons of the shipment was loaded on barge modification. The dispositive portion of its decision reads:
PSTSI III, evidenced by Lighterage Receipt No. 0364[7] for delivery to consignee. The WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the
cargo did not reach its destination. sense that the salvage value of P201,379.75 shall be deducted from the amount
It appears that on August 17, 1990, the transport of said cargo was suspended of P4,104,654.22. Costs against appellant.
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 SO ORDERED.
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 Petitioners Motion for Reconsideration dated June 3, 2000 was likewise denied
list because of a hole it sustained after hitting an unseen protuberance underneath by the appellate court in a Resolution promulgated on February 21, 2001.
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 Hence, this petition. Petitioner submits the following errors allegedly committed
barge.[9] The hole was then patched with clay and cement. by the appellate court, viz:[19]
The barge was then towed to ISLOFF terminal before it finally headed towards (1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
the consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
the barge again ran aground due to strong current. To avoid the complete sinking of DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT
the barge, a portion of the goods was transferred to three other barges. [10] PETITIONER IS A COMMON CARRIER.
The next day, September 6, 1990, the towing bits of the barge broke. It sank (2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
completely, resulting in the total loss of the remaining cargo.[11] A second Marine NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
Protest was filed on September 7, 1990.[12] DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED
THE FINDING OF THE LOWER COURT A QUO THAT ON THE
On September 14, 1990, a bidding was conducted to dispose of the damaged BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE
wheat retrieved and loaded on the three other barges. [13] The total proceeds from the TO COMMON CARRIERS, THE LOSS OF THE CARGO IS,
sale of the salvaged cargo was P201,379.75.[14] THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT
On the same date, September 14, 1990, consignee sent a claim letter to the IN THE FIVE (5) CASES ENUMERATED.
petitioner, and another letter dated September 18, 1990 to the private respondent for (3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
the value of the lost cargo. NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY

Page 48 of 71
CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE held out to the general public as his occupation rather than the quantity or extent of
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND the business transacted.[25] In the case at bar, the petitioner admitted that it is
CUSTODY OF THE CONSIGNEES CARGO. 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
The issues to be resolved are: compensation.[27]
(1) Whether the petitioner is a common carrier; and, On the second issue, we uphold the findings of the lower courts that petitioner
(2) Assuming the petitioner is a common carrier, whether it exercised failed to exercise extraordinary diligence in its care and custody of the consignees
extraordinary diligence in its care and custody of the consignees cargo. goods.

On the first issue, we rule that petitioner is a common carrier. 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
Article 1732 of the Civil Code defines common carriers as persons, have acted negligently if the goods are lost, destroyed or deteriorated. [29] To
corporations, firms or associations engaged in the business of carrying or transporting overcome the presumption of negligence in the case of loss, destruction or
passengers or goods or both, by land, water, or air, for compensation, offering their deterioration of the goods, the common carrier must prove that it exercised
services to the public. extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of
the Civil Code enumerates the instances when the presumption of negligence does
Petitioner contends that it is not a common carrier but a private not attach:
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 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
person. It is not bound to carry goods unless it consents. In short, it does not hold out goods, unless the same is due to any of the following causes only:
its services to the general public.[20]
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
We disagree.
In De Guzman vs. Court of Appeals,[21] we held that the definition of common (2) Act of the public enemy in war, whether international or civil;
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
(3) Act or omission of the shipper or owner of the goods;
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 (4) The character of the goods or defects in the packing or in the containers;
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 (5) Order or act of competent public authority.
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 In the case at bar, the barge completely sank after its towing bits broke,
and drayage[22] and it offers its barges to the public for carrying or transporting goods resulting in the total loss of its cargo. Petitioner claims that this was caused by a
by water for compensation. Petitioner is clearly a common carrier. In De typhoon, hence, it should not be held liable for the loss of the cargo. However,
Guzman, supra,[23] we considered private respondent Ernesto Cendaa to be a petitioner failed to prove that the typhoon is the proximate and only cause of the loss
common carrier even if his principal occupation was not the carriage of goods for of the goods, and that it has exercised due diligence before, during and after the
others, but that of buying used bottles and scrap metal in Pangasinan and selling occurrence of the typhoon to prevent or minimize the loss. [30] The evidence show that,
these items in Manila. 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
We therefore hold that petitioner is a common carrier whether its carrying of suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-
goods is done on an irregular rather than scheduled manner, and with an only limited submerged vessel was refloated but its hole was patched with only clay and
clientele. A common carrier need not have fixed and publicly known routes. Neither cement. The patch work was merely a provisional remedy, not enough for the barge
does it have to maintain terminals or issue tickets. to sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly
To be sure, petitioner fits the test of a common carrier as laid down in Bascos exposed the cargo to further damage. A portion of the cross-examination of Alfredo
vs. Court of Appeals.[24] The test to determine a common carrier is whether the Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states:
given undertaking is a part of the business engaged in by the carrier which he has CROSS-EXAMINATION BY ATTY. DONN LEE:[31]

Page 49 of 71
xxxxxxxxx q - And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they a - The next day, in the morning, we hired for additional two (2) tugboats as I have
tried to pull out the barge from the place of the accident, and bring it stated.
to the anchor terminal for safety, then after deciding if the vessel is
stabilized, they tried to pull it to the consignees warehouse, now while q - Despite of the threats of an incoming typhoon as you testified a while ago?
on route another accident occurred, now this time the barge totally
hitting something in the course.
a - It is already in an inner portion of Pasig River. The typhoon would be coming
q - You said there was another accident, can you tell the court the nature and it would be dangerous if we are in the vicinity of Manila Bay.
of the second accident?
a - The sinking, sir. q - But the fact is, the typhoon was incoming? Yes or no?

q - Can you tell the nature . . . can you tell the court, if you know what a - Yes.
caused the sinking?
a - Mostly it was related to the first accident because there was already a q - And yet as a standard operating procedure of your Company, you have to
whole (sic) on the bottom part of the barge. secure a sort of Certification to determine the weather condition, am I
correct?
xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite knowledge a - Yes, sir.
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 q - So, more or less, you had the knowledge of the incoming typhoon, right?
Philippine area of responsibility.[32] A part of the testimony of Robert Boyd, Cargo
Operations Supervisor of the petitioner, reveals:
a - Yes, sir.
DIRECT-EXAMINATION BY ATTY. LEE:[33]
q - And yet you proceeded to the premises of the GMC?
xxxxxxxxx
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow
you are already inside the vicinity or inside Pasig entrance, it is a safe
the Barge to lie where she was instead of towing it?
place to tow upstream.
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 Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force
goods to be delivered at their Wharf since they needed badly the majeure to escape liability for the loss sustained by the private respondent. Surely,
wheat that was loaded in PSTSI-3. It was needed badly by the meeting a typhoon head-on falls short of due diligence required from a common
consignee. 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
q - And this is the reason why you towed the Barge as you did?
of the cargo upon reaching the Pasig River, it was no longer affected by the
a - Yes, sir. typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a
human factor, i.e., negligence had intervened.
xxxxxxxxx
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
CROSS-EXAMINATION BY ATTY. IGNACIO:[34] Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution dated
February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
xxxxxxxxx
SO ORDERED.

Page 50 of 71
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave. 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.

THIRD DIVISION 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.
SPOUSES DANTE CRUZ and G.R. No. 186312
LEONORA CRUZ, The waves got more unwieldy. After getting hit by two big waves which came one
Petitioners, Present: 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
CARPIO MORALES, J., the captain, Matute and the other passengers who reached the surface asked him what they
Chairperson, could do to save the people who were still trapped under the boat. The captain replied Iligtas
BRION, niyo na lang ang sarili niyo (Just save yourselves).
- versus - BERSAMIN,
ABAD,* and Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
SUN HOLIDAYS, INC., VILLARAMA, JR., JJ. Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
Respondent. persons, consisting of 18 passengers and four crew members, who were brought
Promulgated: to Pisa Island. Eight passengers, including petitioners son and his wife, died during the
June 29, 2010 incident.

x-------------------------------------------------x 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
DECISION 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
CARPIO MORALES, J.: 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.
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 As petitioners declined respondents offer, they filed the Complaint, as earlier reflected,
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en Beach III to sail notwithstanding storm warning bulletins issued by the Philippine
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as
Beach Island Resort (Resort) owned and operated by respondent. 5:00 a.m. of September 11, 2000.[6]

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not
2000 was by virtue of a tour package-contract with respondent that included transportation to available to the general public as they only ferry Resort guests and crew
and from the Resort and the point of departure in Batangas. 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,
Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his 2000as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to
account of the incident that led to the filing of the complaint as follows: 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
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to not less than P300,000.
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.

Page 51 of 71
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires a sideline). Article 1732 also carefully avoids making any
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is distinction between a person or enterprise offering transportation service
clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is on a regular or scheduled basis and one offering such service on
clearance from the Resorts assistant manager.[8] He added that M/B Coco Beach III met all an occasional, episodic or unscheduled basis. Neither does Article 1732
four conditions on September 11, 2000,[9] but a subasco or squall, characterized by strong distinguish between a carrier offering its services to the general
winds and big waves, suddenly occurred, causing the boat to capsize. [10] public, i.e., the general community or population, and one who offers
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed petitioners services or solicits business only from a narrow segment of the general
Complaint and respondents Counterclaim. population. We think that Article 1733 deliberately refrained from
making such distinctions.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,[12] they appealed to the Court of Appeals. 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
By Decision of August 19, 2008,[13] the appellate court denied petitioners appeal, Service Act (Commonwealth Act No. 1416, as amended) which at least
holding, among other things, that the trial court correctly ruled that respondent is a private partially supplements the law on common carriers set forth in the Civil
carrier which is only required to observe ordinary diligence; that respondent in fact observed Code. Under Section 13, paragraph (b) of the Public Service Act, public
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the service includes:
proximate cause of the incident was a squall, a fortuitous event.
. . . every person that now or hereafter may own,
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16, operate, manage, or control in the Philippines, for hire
2009,[14] they filed the present Petition for Review.[15] or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done
Petitioners maintain the position they took before the trial court, adding that for general business purposes, any common carrier,
respondent is a common carrier since by its tour package, the transporting of its guests is an railroad, street railway, traction railway, subway
integral part of its resort business. They inform that another division of the appellate court in motor vehicle, either for freight or passenger, or both,
fact held respondent liable for damages to the other survivors of the incident. with or without fixed route and whatever may be its
classification, freight or carrier service of any class,
Upon the other hand, respondent contends that petitioners failed to present evidence to prove express service, steamboat, or steamship line,
that it is a common carrier; that the Resorts ferry services for guests cannot be considered as pontines, ferries and water craft, engaged in the
ancillary to its business as no income is derived therefrom; that it exercised extraordinary transportation of passengers or freight or both,
diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to shipyard, marine repair shop, wharf or dock, ice plant,
sail; that the incident was caused by a fortuitous event without any contributory negligence on ice-refrigeration plant, canal, irrigation system, gas,
its part; and that the other case wherein the appellate court held it liable for damages involved electric light, heat and power, water supply and power
different plaintiffs, issues and evidence.[16] petroleum, sewerage system, wire or wireless
communications systems, wire or wireless
The petition is impressed with merit. broadcasting stations and other similar public services
. . .[18] (emphasis and underscoring supplied.)
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing respondent as
a common carrier.
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its
The Civil Code defines common carriers in the following terms: main business as to be properly considered ancillary thereto. The constancy of respondents
Article 1732. Common carriers are persons, ferry services in its resort operations is underscored by its having its
corporations, firms or associations engaged in the own Coco Beach boats. And the tour packages it offers, which include the ferry services, may
business of carrying or transporting passengers or be availed of by anyone who can afford to pay the same. These services are thus available to
goods or both, by land, water, or air for compensation, the public.
offering their services to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no
The above article makes no distinction between one whose principal moment. It would be imprudent to suppose that it provides said services at a loss. The Court is
business activity is the carrying of persons or goods or both, and one aware of the practice of beach resort operators offering tour packages to factor the
who does such carrying only as an ancillary activity (in local idiom, as transportation fee in arriving at the tour package price. That guests who opt not to avail of

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respondents ferry services pay the same amount is likewise inconsequential. These guests may manner; and (d) the obligor must have been free from any participation in the aggravation of
only be deemed to have overpaid. the resulting injury to the creditor.[24]

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers has To fully free a common carrier from any liability, the fortuitous event must have been
deliberately refrained from making distinctions on whether the carrying of persons or goods is the proximate and only cause of the loss. And it should have exercised due diligence to
the carriers principal business, whether it is offered on a regular basis, or whether it is offered prevent or minimize the loss before, during and after the occurrence of the fortuitous event. [25]
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 Respondent cites the squall that occurred during the voyage as the fortuitous event that
businessmen engaged in the carrying of persons or goods in order to avoid the legal overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
obligations and liabilities of common carriers. 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
Under the Civil Code, common carriers, from the nature of their business and for reasons of was, therefore, not completely free from human intervention.
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 The Court need not belabor how respondents evidence likewise fails to demonstrate that it
carry the passengers safely as far as human care and foresight can provide, using the utmost exercised due diligence to prevent or minimize the loss before, during and after the occurrence
diligence of very cautious persons, with due regard for all the circumstances.[20] of the squall.

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 Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common carrier
statutory presumption may only be overcome by evidence that the carrier exercised in breach of its contract of carriage that results in the death of a passenger liable to pay the
extraordinary diligence.[21] following: (1) indemnity for death, (2) indemnity for loss of earning capacity and (3) moral
damages.
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 Petitioners are entitled to indemnity for the death of Ruelito which is fixed
position does not impress. at P50,000.[29]

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical As for damages representing unearned income, the formula for its computation is:
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 Net Earning Capacity = life expectancy x (gross annual income -
Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under reasonable and necessary living
such weather condition.[23] expenses).

A very cautious person exercising the utmost diligence would thus not brave such stormy Life expectancy is determined in accordance with the formula:
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 2 / 3 x [80 age of deceased at the time of death][30]
were their own. This respondent failed to do.

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]
Respondents insistence that the incident was caused by a fortuitous event does not The second factor is computed by multiplying the life expectancy by the net
impress either. earnings of the deceased, i.e., the total earnings less expenses necessary in the creation of such
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected earnings or income and less living and other incidental expenses.[32] The loss is not equivalent
occurrence, or the failure of the debtors to comply with their obligations, must have been to the entire earnings of the deceased, but only such portion as he would have used to support
independent of human will; (b) the event that constituted the caso fortuito must have been his dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have expenses supposed to be used by the deceased for his own needs.[33]
been such as to render it impossible for the debtors to fulfill their obligation in a normal

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In computing the third factor necessary living expense, Smith Bell Dodwell Shipping 1. When the obligation is breached, and it consists in the
Agency Corp. v. Borja[34] teaches that when, as in this case, there is no showing that the living payment of a sum of money, i.e., a loan or forbearance of money, the
expenses constituted the smaller percentage of the gross income, the living expenses are fixed interest due should be that which may have been stipulated in writing.
at half of the gross income. 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
Applying the above guidelines, the Court determines Ruelito's life expectancy as shall be 12% per annum to be computed from default, i.e., from judicial or
follows: extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28] 2. When an obligation, not constituting a loan or forbearance of
2/3 x [52] money, is breached, an interest on the amount of damages awarded may be
Life expectancy = 35 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
Documentary evidence shows that Ruelito was earning a basic monthly salary of except when or until the demand can be established with reasonable
$900[35] which, when converted to Philippine peso applying the annual average exchange rate certainty. Accordingly, where the demand is established with reasonable
of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net earning capacity is thus computed as certainty, the interest shall begin to run from the time the claim is made
follows: judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
Net Earning Capacity = life expectancy x (gross annual income - made, the interest shall begin to run only from the date the judgment of the
reasonable and necessary living expenses). court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
= 35 x (P475,200 - P237,600) computation of legal interest shall, in any case, be on the amount finally
= 35 x (P237,600) adjudged.

Net Earning Capacity = P8,316,000 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
Respecting the award of moral damages, since respondent common carriers breach from such finality until its satisfaction, this interim period being deemed to
of contract of carriage resulted in the death of petitioners son, following Article 1764 vis-- be by then an equivalent to a forbearance of credit. (emphasis supplied).
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 Since the amounts payable by respondent have been determined with certainty only in the
award too of exemplary damages, which are granted in contractual obligations if the defendant present petition, the interest due shall be computed upon the finality of this decision at the rate
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. [37] of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.
Under the circumstances, it is reasonable to award petitioners the amount
of P100,000 as moral damages and P100,000 as exemplary damages.[38] 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
Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded indemnity for Ruelitos loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000
where exemplary damages are awarded. The Court finds that 10% of the total amount as exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys
adjudged against respondent is reasonable for the purpose. fees; and (6) the costs of suit.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals[40] teaches that when an The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts computed from the finality of this decision until full payment.
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 SO ORDERED.

Page 54 of 71
decreed them jointly and severally liable with Philippine National Railways (PNR),
CONCHITA CARPIO MORALES their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for the death of
Associate Justice their 15-year old son, Aaron John L. Zarate (Aaron), then a high school student of
Chairperson Don Bosco Technical Institute (Don Bosco).

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

In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don
Bosco. On August 22, 1996, as on previous school days, the van picked Aaron up
Republic of the Philippines around 6:00 a.m. from the Zarates’ residence. Aaron took his place on the left side of
SUPREME COURT the van near the rear door. The van, with its air-conditioning unit turned on and the
Manila stereo playing loudly, ultimately carried all the 14 student riders on their way to Don
Bosco. Considering that the students were due at Don Bosco by 7:15 a.m., and that
FIRST DIVISION they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by
traversing the narrow path underneath the Magallanes Interchange that was then
G.R. No. 157917 August 29, 2012 commonly used by Makati-bound vehicles as a short cut into Makati. At the time, the
narrow path was marked by piles of construction materials and parked passenger
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners, jeepneys, and the railroad crossing in the narrow path had no railroad warning signs,
vs. or watchmen, or other responsible persons manning the crossing. In fact, the bamboo
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL barandilla was up, leaving the railroad crossing open to traversing motorists.
RAILWAYS, and the COURT OF APPEALS Respondents.
At about the time the van was to traverse the railroad crossing, PNR Commuter No.
DECISION 302 (train), operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes
Interchange travelling northbound. As the train neared the railroad crossing, Alfaro
BERSAMIN, J.: drove the van eastward across the railroad tracks, closely tailing a large passenger
bus. His view of the oncoming train was blocked because he overtook the passenger
bus on its left side. The train blew its horn to warn motorists of its approach. When the
The operator of a. school bus service is a common carrier in the eyes of the law. He train was about 50 meters away from the passenger bus and the van, Alano applied
is bound to observe extraordinary diligence in the conduct of his business. He is the ordinary brakes of the train. He applied the emergency brakes only when he saw
presumed to be negligent when death occurs to a passenger. His liability may include that a collision was imminent. The passenger bus successfully crossed the railroad
indemnity for loss of earning capacity even if the deceased passenger may only be an tracks, but the van driven by Alfaro did not. The train hit the rear end of the van, and
unemployed high school student at the time of the accident. the impact threw nine of the 12 students in the rear, including Aaron, out of the van.
Aaron landed in the path of the train, which dragged his body and severed his head,
The Case instantaneously killing him. Alano fled the scene on board the train, and did not wait
for the police investigator to arrive.
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias)
appeal the adverse decision promulgated on November 13, 2002, by which the Court Devastated by the early and unexpected death of Aaron, the Zarates commenced this
of Appeals (CA) affirmed with modification the decision rendered on December 3, action for damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and
1999 by the Regional Trial Court (RTC), Branch 260, in Parañaque City that had

Page 55 of 71
PNR filed their respective answers, with cross-claims against each other, but Alfaro (10) PNR refused to acknowledge any liability for the vehicular/train
could not be served with summons. collision;

At the pre-trial, the parties stipulated on the facts and issues, viz: (11) The eventual closure of the railroad crossing alleged by PNR was an
internal arrangement between the former and its project contractor; and
A. FACTS:
(12) The site of the vehicular/train collision was within the vicinity or less
(1) That spouses Zarate were the legitimate parents of Aaron John L. than 100 meters from the Magallanes station of PNR.
Zarate;
B. ISSUES
(2) Spouses Zarate engaged the services of spouses Pereña for the
adequate and safe transportation carriage of the former spouses' son from (1) Whether or not defendant-driver of the van is, in the performance of his
their residence in Parañaque to his school at the Don Bosco Technical functions, liable for negligence constituting the proximate cause of the
Institute in Makati City; vehicular collision, which resulted in the death of plaintiff spouses' son;

(3) During the effectivity of the contract of carriage and in the (2) Whether or not the defendant spouses Pereña being the employer of
implementation thereof, Aaron, the minor son of spouses Zarate died in defendant Alfaro are liable for any negligence which may be attributed to
connection with a vehicular/train collision which occurred while Aaron was defendant Alfaro;
riding the contracted carrier Kia Ceres van of spouses Pereña, then driven
and operated by the latter's employee/authorized driver Clemente Alfaro, (3) Whether or not defendant Philippine National Railways being the
which van collided with the train of PNR, at around 6:45 A.M. of August 22, operator of the railroad system is liable for negligence in failing to provide
1996, within the vicinity of the Magallanes Interchange in Makati City, Metro adequate safety warning signs and railings in the area commonly used by
Manila, Philippines; motorists for railroad crossings, constituting the proximate cause of the
vehicular collision which resulted in the death of the plaintiff spouses' son;
(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for (4) Whether or not defendant spouses Pereña are liable for breach of the
crossing the railroad tracks; contract of carriage with plaintiff-spouses in failing to provide adequate and
safe transportation for the latter's son;
(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly used (5) Whether or not defendants spouses are liable for actual, moral damages,
for railroad crossing; exemplary damages, and attorney's fees;

(6) At the material time, countless number of Makati bound public utility and (6) Whether or not defendants spouses Teodorico and Nanette Pereña
private vehicles used on a daily basis the site of the collision as an observed the diligence of employers and school bus operators;
alternative route and short-cut to Makati;
(7) Whether or not defendant-spouses are civilly liable for the accidental
(7) The train driver or operator left the scene of the incident on board the death of Aaron John Zarate;
commuter train involved without waiting for the police investigator;
(8) Whether or not defendant PNR was grossly negligent in operating the
(8) The site commonly used for railroad crossing by motorists was not in commuter train involved in the accident, in allowing or tolerating the motoring
fact intended by the railroad operator for railroad crossing at the time of the public to cross, and its failure to install safety devices or equipment at the
vehicular collision; site of the accident for the protection of the public;

(9) PNR received the demand letter of the spouses Zarate; (9) Whether or not defendant PNR should be made to reimburse defendant
spouses for any and whatever amount the latter may be held answerable or
Page 56 of 71
which they may be ordered to pay in favor of plaintiffs by reason of the (6) Attorney’s fees in the amount of Php200,000.00; and
action;
(7) Cost of suit.
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on
the amounts claimed by the latter in their Complaint by reason of its gross SO ORDERED.
negligence;
On June 29, 2000, the RTC denied the Pereñas’ motion for
(11) Whether or not defendant PNR is liable to defendants spouses for reconsideration,4 reiterating that the cooperative gross negligence of the Pereñas and
actual, moral and exemplary damages and attorney's fees. 2 PNR had caused the collision that led to the death of Aaron; and that the damages
awarded to the Zarates were not excessive, but based on the established
The Zarates’ claim against the Pereñas was upon breach of the contract of carriage circumstances.
for the safe transport of Aaron; but that against PNR was based on quasi-delict under
Article 2176, Civil Code. The CA’s Ruling

In their defense, the Pereñas adduced evidence to show that they had exercised the Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).
diligence of a good father of the family in the selection and supervision of Alfaro, by
making sure that Alfaro had been issued a driver’s license and had not been involved
in any vehicular accident prior to the collision; that their own son had taken the van PNR assigned the following errors, to wit:5
daily; and that Teodoro Pereña had sometimes accompanied Alfaro in the van’s trips
transporting the students to school. The Court a quo erred in:

For its part, PNR tended to show that the proximate cause of the collision had been 1. In finding the defendant-appellant Philippine National Railways jointly and
the reckless crossing of the van whose driver had not first stopped, looked and severally liable together with defendant-appellants spouses Teodorico and
listened; and that the narrow path traversed by the van had not been intended to be a Nanette Pereña and defendant-appellant Clemente Alfaro to pay plaintiffs-
railroad crossing for motorists. appellees for the death of Aaron Zarate and damages.

Ruling of the RTC 2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees
witnesses despite overwhelming documentary evidence on record,
On December 3, 1999, the RTC rendered its decision, 3 disposing: supporting the case of defendants-appellants Philippine National Railways.

WHEREFORE, premises considered, judgment is hereby rendered in favor of the The Pereñas ascribed the following errors to the RTC, namely:
plaintiff and against the defendants ordering them to jointly and severally pay the
plaintiffs as follows: The trial court erred in finding defendants-appellants jointly and severally liable for
actual, moral and exemplary damages and attorney’s fees with the other defendants.
(1) (for) the death of Aaron- Php50,000.00;
The trial court erred in dismissing the cross-claim of the appellants Pereñas against
(2) Actual damages in the amount of Php100,000.00; the Philippine National Railways and in not holding the latter and its train driver
primarily responsible for the incident.
(3) For the loss of earning capacity- Php2,109,071.00;
The trial court erred in awarding excessive damages and attorney’s fees.
(4) Moral damages in the amount of Php4,000,000.00;
The trial court erred in awarding damages in the form of deceased’s loss of earning
capacity in the absence of sufficient basis for such an award.
(5) Exemplary damages in the amount of Php1,000,000.00;

Page 57 of 71
On November 13, 2002, the CA promulgated its decision, affirming the findings of the III. The lower court erred in not reducing further the amount of damages awarded,
RTC, but limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s assuming petitioners are liable at all.
fees because the RTC did not state the factual and legal bases, to wit: 6
Ruling
WHEREFORE, premises considered, the assailed Decision of the Regional Trial
Court, Branch 260 of Parañaque City is AFFIRMED with the modification that the The petition has no merit.
award of Actual Damages is reduced to ₱ 59,502.76; Moral Damages is reduced to ₱
2,500,000.00; and the award for Attorney’s Fees is Deleted.
1.
Were the Pereñas and PNR jointly
SO ORDERED. and severally liable for damages?

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance The Zarates brought this action for recovery of damages against both the Pereñas
of the ruling in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad and the PNR, basing their claim against the Pereñas on breach of contract of carriage
Company,7 wherein the Court gave the heirs of Cariaga a sum representing the loss and against the PNR on quasi-delict.
of the deceased’s earning capacity despite Cariaga being only a medical student at
the time of the fatal incident. Applying the formula adopted in the American
Expectancy Table of Mortality:– The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.

2/3 x (80 - age at the time of death) = life expectancy We concur with the CA.

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his To start with, the Pereñas’ defense was that they exercised the diligence of a good
life expectancy from age of 21 (the age when he would have graduated from college father of the family in the selection and supervision of Alfaro, the van driver, by seeing
and started working for his own livelihood) instead of 15 years (his age when he to it that Alfaro had a driver’s license and that he had not been involved in any
died). Considering that the nature of his work and his salary at the time of Aaron’s vehicular accident prior to the fatal collision with the train; that they even had their
death were unknown, it used the prevailing minimum wage of ₱ 280.00/day to own son travel to and from school on a daily basis; and that Teodoro Pereña himself
compute Aaron’s gross annual salary to be ₱ 110,716.65, inclusive of the thirteenth sometimes accompanied Alfaro in transporting the passengers to and from school.
month pay. Multiplying this annual salary by Aaron’s life expectancy of 39.3 years, his The RTC gave scant consideration to such defense by regarding such defense as
gross income would aggregate to ₱ 4,351,164.30, from which his estimated expenses inappropriate in an action for breach of contract of carriage.
in the sum of ₱ 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net
income. Due to Aaron’s computed net income turning out to be higher than the We find no adequate cause to differ from the conclusions of the lower courts that the
amount claimed by the Zarates, only ₱ 2,109,071.00, the amount expressly prayed Pereñas operated as a common carrier; and that their standard of care was
for by them, was granted. extraordinary diligence, not the ordinary diligence of a good father of a family.

On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration. 8 Although in this jurisdiction the operator of a school bus service has been usually
regarded as a private carrier,9primarily because he only caters to some specific or
Issues privileged individuals, and his operation is neither open to the indefinite public nor for
public use, the exact nature of the operation of a school bus service has not been
finally settled. This is the occasion to lay the matter to rest.
In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:
A carrier is a person or corporation who undertakes to transport or convey goods or
I. The lower court erred when it upheld the trial court’s decision holding the petitioners persons from one place to another, gratuitously or for hire. The carrier is classified
jointly and severally liable to pay damages with Philippine National Railways and either as a private/special carrier or as a common/public carrier. 10 A private carrier is
dismissing their cross-claim against the latter. one who, without making the activity a vocation, or without holding himself or itself out
to the public as ready to act for all who may desire his or its services, undertakes, by
II. The lower court erred in affirming the trial court’s decision awarding damages for special agreement in a particular instance only, to transport goods or persons from
loss of earning capacity of a minor who was only a high school student at the time of one place to another either gratuitously or for hire.11 The provisions on ordinary
his death in the absence of sufficient basis for such an award. contracts of the Civil Code govern the contract of private carriage.The diligence
Page 58 of 71
required of a private carrier is only ordinary, that is, the diligence of a good father of petroleum, sewerage system, wire or wireless communications systems, wire or
the family. In contrast, a common carrier is a person, corporation, firm or association wireless broadcasting stations and other similar public services. x x x. 17
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the public. 12 Contracts Given the breadth of the aforequoted characterization of a common carrier, the Court
of common carriage are governed by the provisions on common carriers of the Civil has considered as common carriers pipeline operators,18 custom brokers and
Code, the Public Service Act,13 and other special laws relating to transportation. A warehousemen,19 and barge operators20 even if they had limited clientèle.
common carrier is required to observe extraordinary diligence, and is presumed to be
at fault or to have acted negligently in case of the loss of the effects of passengers, or
the death or injuries to passengers.14 As all the foregoing indicate, the true test for a common carrier is not the quantity or
extent of the business actually transacted, or the number and character of the
conveyances used in the activity, but whether the undertaking is a part of the activity
In relation to common carriers, the Court defined public use in the following terms in engaged in by the carrier that he has held out to the general public as his business or
United States v. Tan Piaco,15viz: occupation. If the undertaking is a single transaction, not a part of the general
business or occupation engaged in, as advertised and held out to the general public,
"Public use" is the same as "use by the public". The essential feature of the public use the individual or the entity rendering such service is a private, not a common, carrier.
is not confined to privileged individuals, but is open to the indefinite public. It is this The question must be determined by the character of the business actually carried on
indefinite or unrestricted quality that gives it its public character. In determining by the carrier, not by any secret intention or mental reservation it may entertain or
whether a use is public, we must look not only to the character of the business to be assert when charged with the duties and obligations that the law imposes.21
done, but also to the proposed mode of doing it. If the use is merely optional with the
owners, or the public benefit is merely incidental, it is not a public use, authorizing the Applying these considerations to the case before us, there is no question that the
exercise of the jurisdiction of the public utility commission. There must be, in general, Pereñas as the operators of a school bus service were: (a) engaged in transporting
a right which the law compels the owner to give to the general public. It is not enough passengers generally as a business, not just as a casual occupation; (b) undertaking
that the general prosperity of the public is promoted. Public use is not synonymous to carry passengers over established roads by the method by which the business was
with public interest. The true criterion by which to judge the character of the use is conducted; and (c) transporting students for a fee. Despite catering to a limited
whether the public may enjoy it by right or only by permission. clientèle, the Pereñas operated as a common carrier because they held themselves
out as a ready transportation indiscriminately to the students of a particular school
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil living within or near where they operated the service and for a fee.
Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a carrier The common carrier’s standard of care and vigilance as to the safety of the
offering his services to the general public, that is, the general community or passengers is defined by law. Given the nature of the business and for reasons of
population, from one offering his services only to a narrow segment of the general public policy, the common carrier is bound "to observe extraordinary diligence in the
population. vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case."22 Article 1755 of the Civil Code
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil specifies that the common carrier should "carry the passengers safely as far as
Code coincides neatly with the notion of public service under the Public Service Act, human care and foresight can provide, using the utmost diligence of very cautious
which supplements the law on common carriers found in the Civil Code. Public persons, with a due regard for all the circumstances." To successfully fend off liability
service, according to Section 13, paragraph (b) of the Public Service Act, includes: in an action upon the death or injury to a passenger, the common carrier must prove
his or its observance of that extraordinary diligence; otherwise, the legal presumption
x x x every person that now or hereafter may own, operate, manage, or control in the that he or it was at fault or acted negligently would stand. 23 No device, whether by
Philippines, for hire or compensation, with general or limited clientèle, whether stipulation, posting of notices, statements on tickets, or otherwise, may dispense with
permanent or occasional, and done for the general business purposes, any common or lessen the responsibility of the common carrier as defined under Article 1755 of the
carrier, railroad, street railway, traction railway, subway motor vehicle, either for Civil Code. 24
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 And, secondly, the Pereñas have not presented any compelling defense or reason by
steamship line, pontines, ferries and water craft, engaged in the transportation of which the Court might now reverse the CA’s findings on their liability. On the contrary,
passengers or freight or both, shipyard, marine repair shop, ice-refrigeration plant, an examination of the records shows that the evidence fully supported the findings of
canal, irrigation system, gas, electric light, heat and power, water supply and power the CA.

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As earlier stated, the Pereñas, acting as a common carrier, were already presumed to failure to observe for the protection of the interests of another person, that degree of
be negligent at the time of the accident because death had occurred to their care, precaution, and vigilance which the circumstances justly demand, whereby such
passenger.25 The presumption of negligence, being a presumption of law, laid the other person suffers injury.’"33
burden of evidence on their shoulders to establish that they had not been
negligent.26 It was the law no less that required them to prove their observance of The test by which to determine the existence of negligence in a particular case has
extraordinary diligence in seeing to the safe and secure carriage of the passengers to been aptly stated in the leading case of Picart v. Smith,34 thuswise:
their destination. Until they did so in a credible manner, they stood to be held legally
responsible for the death of Aaron and thus to be held liable for all the natural
consequences of such death. The test by which to determine the existence of negligence in a particular case may
be stated as follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in
There is no question that the Pereñas did not overturn the presumption of their the same situation? If not, then he is guilty of negligence. The law here in effect
negligence by credible evidence. Their defense of having observed the diligence of a adopts the standard supposed to be supplied by the imaginary conduct of the discreet
good father of a family in the selection and supervision of their driver was not legally paterfamilias of the Roman law. The existence of negligence in a given case is not
sufficient. According to Article 1759 of the Civil Code, their liability as a common determined by reference to the personal judgment of the actor in the situation before
carrier did not cease upon proof that they exercised all the diligence of a good father him. The law considers what would be reckless, blameworthy, or negligent in the man
of a family in the selection and supervision of their employee. This was the reason of ordinary intelligence and prudence and determines liability by that.
why the RTC treated this defense of the Pereñas as inappropriate in this action for
breach of contract of carriage.
The question as to what would constitute the conduct of a prudent man in a given
situation must of course be always determined in the light of human experience and
The Pereñas were liable for the death of Aaron despite the fact that their driver might in view of the facts involved in the particular case. Abstract speculation cannot here
have acted beyond the scope of his authority or even in violation of the orders of the be of much value but this much can be profitably said: Reasonable men govern their
common carrier.27 In this connection, the records showed their driver’s actual conduct by the circumstances which are before them or known to them. They are not,
negligence. There was a showing, to begin with, that their driver traversed the railroad and are not supposed to be, omniscient of the future. Hence they can be expected to
tracks at a point at which the PNR did not permit motorists going into the Makati area take care only when there is something before them to suggest or warn of danger.
to cross the railroad tracks. Although that point had been used by motorists as a Could a prudent man, in the case under consideration, foresee harm as a result of the
shortcut into the Makati area, that fact alone did not excuse their driver into taking that course actually pursued? If so, it was the duty of the actor to take precautions to
route. On the other hand, with his familiarity with that shortcut, their driver was fully guard against that harm. Reasonable foresight of harm, followed by the ignoring of
aware of the risks to his passengers but he still disregarded the risks. Compounding the suggestion born of this prevision, is always necessary before negligence can be
his lack of care was that loud music was playing inside the air-conditioned van at the held to exist. Stated in these terms, the proper criterion for determining the existence
time of the accident. The loudness most probably reduced his ability to hear the of negligence in a given case is this: Conduct is said to be negligent when a prudent
warning horns of the oncoming train to allow him to correctly appreciate the lurking man in the position of the tortfeasor would have foreseen that an effect harmful to
dangers on the railroad tracks. Also, he sought to overtake a passenger bus on the another was sufficiently probable to warrant his foregoing the conduct or guarding
left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of against its consequences. (Emphasis supplied)
the train that was then coming from the opposite side of the passenger bus, leading
him to miscalculate his chances of beating the bus in their race, and of getting clear of
the train. As a result, the bus avoided a collision with the train but the van got Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely
slammed at its rear, causing the fatality. Lastly, he did not slow down or go to a full negligent when he traversed the railroad tracks at a point not allowed for a motorist’s
stop before traversing the railroad tracks despite knowing that his slackening of speed crossing despite being fully aware of the grave harm to be thereby caused to his
and going to a full stop were in observance of the right of way at railroad tracks as passengers; and when he disregarded the foresight of harm to his passengers by
defined by the traffic laws and regulations.28He thereby violated a specific traffic overtaking the bus on the left side as to leave himself blind to the approach of the
regulation on right of way, by virtue of which he was immediately presumed to be oncoming train that he knew was on the opposite side of the bus.
negligent.29
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate
The omissions of care on the part of the van driver constituted negligence, 30 which, Court,35 where the Court held the PNR solely liable for the damages caused to a
according to Layugan v. Intermediate Appellate Court,31 is "the omission to do passenger bus and its passengers when its train hit the rear end of the bus that was
something which a reasonable man, guided by those considerations which ordinarily then traversing the railroad crossing. But the circumstances of that case and this one
regulate the conduct of human affairs, would do, or the doing of something which a share no similarities. In Philippine National Railways v. Intermediate Appellate Court,
prudent and reasonable man would not do,32 or as Judge Cooley defines it, ‘(t)he no evidence of contributory negligence was adduced against the owner of the bus.

Page 60 of 71
Instead, it was the owner of the bus who proved the exercise of extraordinary Yet, the Pereñas submit that the indemnity for loss of earning capacity was
diligence by preponderant evidence. Also, the records are replete with the showing of speculative and unfounded.1âwphi1 They cited People v. Teehankee, Jr.,37 where the
negligence on the part of both the Pereñas and the PNR. Another distinction is that Court deleted the indemnity for victim Jussi Leino’s loss of earning capacity as a pilot
the passenger bus in Philippine National Railways v. Intermediate Appellate Court for being speculative due to his having graduated from high school at the International
was traversing the dedicated railroad crossing when it was hit by the train, but the School in Manila only two years before the shooting, and was at the time of the
Pereñas’ school van traversed the railroad tracks at a point not intended for that shooting only enrolled in the first semester at the Manila Aero Club to pursue his
purpose. ambition to become a professional pilot. That meant, according to the Court, that he
was for all intents and purposes only a high school graduate.
At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and
severally" liable for damages arising from the death of Aaron. They had been We reject the Pereñas’ submission.
impleaded in the same complaint as defendants against whom the Zarates had the
right to relief, whether jointly, severally, or in the alternative, in respect to or arising First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there
out of the accident, and questions of fact and of law were common as to the of Jussi Leino was not akin to that of Aaron here. The CA and the RTC were not
Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of speculating that Aaron would be some highly-paid professional, like a pilot (or, for that
contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ matter, an engineer, a physician, or a lawyer). Instead, the computation of Aaron’s
right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they earning capacity was premised on him being a lowly minimum wage earner despite
nonetheless could be held jointly and severally liable by virtue of their respective his being then enrolled at a prestigious high school like Don Bosco in Makati, a fact
negligence combining to cause the death of Aaron. As to the PNR, the RTC rightly that would have likely ensured his success in his later years in life and at work.
found the PNR also guilty of negligence despite the school van of the Pereñas
traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of And, secondly, the fact that Aaron was then without a history of earnings should not
others through the placing of crossbars, signal lights, warning signs, and other be taken against his parents and in favor of the defendants whose negligence not
permanent safety barriers to prevent vehicles or pedestrians from crossing there. The only cost Aaron his life and his right to work and earn money, but also deprived his
RTC observed that the fact that a crossing guard had been assigned to man that parents of their right to his presence and his services as well. Our law itself states that
point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the risks the loss of the earning capacity of the deceased shall be the liability of the guilty party
to others as well as the need to control the vehicular and other traffic there. Verily, the in favor of the heirs of the deceased, and shall in every case be assessed and
Pereñas and the PNR were joint tortfeasors. awarded by the court "unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his
death."38 Accordingly, we emphatically hold in favor of the indemnification for Aaron’s
2. loss of earning capacity despite him having been unemployed, because
Was the indemnity for loss of compensation of this nature is awarded not for loss of time or earnings but for loss of
Aaron’s earning capacity proper? the deceased’s power or ability to earn money.39

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v.
with the RTC on the liability, the CA modified the amount. Both lower courts took into Laguna Tayabas Bus Company and Manila Railroad Company, 40 fourth-year medical
consideration that Aaron, while only a high school student, had been enrolled in one student Edgardo Carriaga’s earning capacity, although he survived the accident but
of the reputable schools in the Philippines and that he had been a normal and able- his injuries rendered him permanently incapacitated, was computed to be that of the
bodied child prior to his death. The basis for the computation of Aaron’s earning physician that he dreamed to become. The Court considered his scholastic record
capacity was not what he would have become or what he would have wanted to be if sufficient to justify the assumption that he could have finished the medical course and
not for his untimely death, but the minimum wage in effect at the time of his death. would have passed the medical board examinations in due time, and that he could
Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned have possibly earned a modest income as a medical practitioner. Also, in People v.
from his age of 15 years at the time of his death, but on 21 years, his age when he Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and
would have graduated from college. murder victim Allan Gomez could have easily landed good-paying jobs had they
graduated in due time, and that their jobs would probably pay them high monthly
We find the considerations taken into account by the lower courts to be reasonable salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their graduation. Their earning
and fully warranted. capacities were computed at rates higher than the minimum wage at the time of their
deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baños, the country’s leading educational institution in agriculture.

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3. Associate Justice
Were the amounts of damages excessive?
BIENVENIDO L. REYES
The Pereñas plead for the reduction of the moral and exemplary damages awarded to Associate Justice
the Zarates in the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the
ground that such amounts were excessive. CERTIFICATION

The plea is unwarranted. Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned
The moral damages of ₱ 2,500,000.00 were really just and reasonable under the to the writer of the opinion of the Court's Division.
established circumstances of this case because they were intended by the law to
assuage the Zarates’ deep mental anguish over their son’s unexpected and violent MARIA LOURDES P. A. SERENO
death, and their moral shock over the senseless accident. That amount would not be Chief Justice
too much, considering that it would help the Zarates obtain the means, diversions or
amusements that would alleviate their suffering for the loss of their child. At any rate,
reducing the amount as excessive might prove to be an injustice, given the passage
of a long time from when their mental anguish was inflicted on them on August 22,
1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the SECOND DIVISION
amount if only to render effective the desired example for the public good. As a
common carrier, the Pereñas needed to be vigorously reminded to observe their duty G.R. No. 194121, July 11, 2016
to exercise extraordinary diligence to prevent a similarly senseless accident from
happening again. Only by an award of exemplary damages in that amount would
suffice to instill in them and others similarly situated like them the ever-present need TORRES-MADRID BROKERAGE, INC., Petitioner, v. FEB MITSUI
for greater and constant vigilance in the conduct of a business imbued with public MARINE INSURANCE CO., INC. AND BENJAMIN P. MANALASTAS,
interest. DOING BUSINESS UNDER THE NAME OF BMT TRUCKING
SERVICES, Respondents.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs of DECISION
suit.
BRION, J.:
SO ORDERED.
We resolve the petition for review on certiorari challenging the Court of
LUCAS P. BERSAMIN Appeals' (CA) October 14, 2010 decision in CA-G.R. CV No.
Associate Justice 91829. 1chanrobleslaw

WE CONCUR: The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case
No. 01-1596, and found petitioner Torres-Madrid Brokerage,
MARIA LOURDES P. A. SERENO Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and solidarily
Chief Justice liable to respondent FEB Mitsui Marine Insurance Co., Inc. (Mitsui) for
damages from the loss of transported cargo.

MARTIN S. VILLARAMA, JR.


TERESITA J. LEONARDO-DE Antecedents
CASTRO Associate Justice
On October 7, 2000, a shipment of various electronic goods from Thailand
Page 62 of 71
and Malaysia arrived at the Port of Manila for Sony Philippines, Mitsui's claim. As a result, Mitsui filed a complaint against TMBI on
Inc. (Sony). Previous to the arrival, Sony had engaged the services of November 6, 2001,
TMBI to facilitate, process, withdraw, and deliver the shipment from the
port to its warehouse in Binan, Laguna.2chanrobleslaw TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a
third-party defendant. TMBI alleged that BMT's driver, Lapesura, was
TMBI - who did not own any delivery trucks - subcontracted the services of responsible for the theft/hijacking of the lost cargo and claimed BMT's
Benjamin Manalastas' company, BMT Trucking Services (BMT), to negligence as the proximate cause of the loss. TMBI prayed that in the
transport the shipment from the port to the Binan event it is held liable to Mitsui for the loss, it should be reimbursed by
warehouse.3 Incidentally, TMBI notified Sony who had no objections to the BMT,
arrangement.4chanrobleslaw
At the trial, it was revealed that BMT and TMBI have been doing business
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. with each other since the early 80's. It also came out that there had been
of October 7, 2000. However, BMT could not immediately undertake the a previous hijacking incident involving Sony's cargo in 1997, but neither
delivery because of the truck ban and because the following day was a Sony nor its insurer filed a complaint against BMT or TMBI.13chanrobleslaw
Sunday. Thus, BMT scheduled the delivery on October 9, 2000.
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly
In the early morning of October 9, 2000, the four trucks left BMT's garage and solidarity liable to pay Mitsui PHP 7,293,386.23 as actual damages,
for Laguna.5 However, only three trucks arrived at Sony's Binan attorney's fees equivalent to 25% of the amount claimed, and the costs of
warehouse. the suit.14 The RTC held that TMBI and Manalastas were common carriers
and had acted negligently.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-
391) was found abandoned along the Diversion Road in Filinvest, Alabang, Both TMBI and BMT appealed the RTC's verdict.
Muntinlupa City.6 Both the driver and the shipment were missing.
TMBI denied that it was a common carrier required to
Later that evening, BMT's Operations Manager Melchor Manalastas exercise extraordinary diligence. It maintains that it exercised the
informed Victor Torres, TMBI's General Manager, of the diligence of a good father of a family and should be absolved of liability
development.7 They went to Muntinlupa together to inspect the truck and because the truck was "hijacked" and this was a fortuitous event.
to report the matter to the police.8chanrobleslaw
BMT claimed that it had exercised extraordinary diligence over the lost
Victor Torres also filed a complaint with the National Bureau of shipment, and argued as well that the loss resulted from a fortuitous
Investigation (NBI) against Lapesura for "hijacking." 9 The complaint event.
resulted in a recommendation by the NBI to the Manila City Prosecutor's
Office to prosecute Lapesura for qualified theft.10chanrobleslaw On October 14, 2010, the CA affirmed the RTC's decision but reduced the
award of attorney's fees to PHP 200,000.
TMBI notified Sony of the loss through a letter dated October 10,
2000,11 It also sent BMT a letter dated March 29, 2001, demanding The CA held: (1) that "hijacking" is not necessarily a fortuitous event
payment for the lost shipment. BMT refused to pay, insisting that the because the term refers to the general stealing of cargo during
goods were "hijacked." transit;15 (2) that TMBI is a common carrier engaged in the business of
transporting goods for the general public for a fee; 16 (3) even if
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer the "hijacking" were a fortuitous event, TMBI's failure to observe
of the goods. After evaluating the merits of the claim, Mitsui paid extraordinary diligence in overseeing the cargo and adopting security
Sony PHP7,293,386.23 corresponding to the value of the lost measures rendered it liable for the loss; 17 and (4) even if TMBI had not
goods.12chanrobleslaw been negligent in the handling, transport and the delivery of the shipment,
TMBI still breached its contractual obligation to Sony when it failed to
After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter deliver the shipment.18chanrobleslaw
dated August 30, 2001 for payment of the lost goods. TMBI refused to pay

Page 63 of 71
TMBI disagreed with the CA's ruling and filed the present petition on
December 3, 2010. Mitsui emphasizes that TMBI's theory - that force or intimidation must
have been used because Lapesura was never found - was only raised for
The Arguments the first time before this Court.29 It also discredits the theory as a mere
conjecture for lack of supporting evidence.
TMBI's Petition
Mitsui adopts the CA's reasons to conclude that TMBI is a common carrier.
TMBI insists that the hijacking of the truck was a fortuitous event. It It also points out Victor Torres' admission during the trial that TMBI's
contests the CA's finding that neither force nor intimidation was used in brokerage service includes the eventual delivery of the cargo to the
the taking of the cargo. Considering Lapesura was never found, the Court consignee.30chanrobleslaw
should not discount the possibility that he was a victim rather than a
perpetrator.19chanrobleslaw Mitsui invokes as well the legal presumption of negligence against TMBI,
pointing out that TMBI simply entrusted the cargo to BMT without adopting
TMBI denies being a common carrier because it does not own a single any security measures despite: (1) a previous hijacking incident, when
truck to transport its shipment and it does not offer transport services to TMBI lost Sony's cargo; and (2) TMBI's knowledge that the cargo was
the public for compensation.20 It emphasizes that Sony knew TMBI did not worth more than 10 million pesos.31chanrobleslaw
have its own vehicles and would subcontract the delivery to a third-party.
Mitsui affirms that TMBI breached the contract of carriage through its
Further, TMBI now insists that the service it offered was limited to the negligent handling of the cargo, resulting in its loss.
processing of paperwork attendant to the entry of Sony's goods. It denies
that delivery of the shipment was a part of its obligation.21chanrobleslaw The Court's Ruling

TMBI solely blames BMT as it had full control and custody of the cargo A brokerage may be considered a common
when it was lost.22 BMT, as a common carrier, is presumed negligent and carrier if it also undertakes to deliver the
should be responsible for the loss. goods for its customers

BhtT's Comment Common carriers are persons, corporations, firms or associations engaged
in the business of transporting passengers or goods or both, by land,
BMT insists that it observed the required standard of care.23 Like the water, or air, for compensation, offering their services to the public.32 By
petitioner, BMT maintains that the hijacking was a fortuitous event - the nature of their business and for reasons of public policy, they are
a force majeure - that exonerates it from liability.24 It points out that bound to observe extraordinary diligence in the vigilance over the goods
Lapesura has never been seen again and his fate remains a mystery. BMT and in the safety of their passengers.33chanrobleslaw
likewise argues that the loss of the cargo necessarily showed that the
taking was with the use of force or intimidation.25cralawredchanrobleslaw In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a
customs broker - whose principal business is the preparation of the correct
If there was any attendant negligence, BMT points the finger on TMBI who customs declaration and the proper shipping documents - is still
failed to send a representative to accompany the shipment.26 BMT further considered a common carrier if it also undertakes to deliver the goods for
blamed TMBI for the latter's failure to adopt security measures to protect its customers. The law does not distinguish between one whose principal
Sony's cargo.27chanrobleslaw business activity is the carrying of goods and one who undertakes this task
only as an ancillary activity.35 This ruling has been reiterated in Schmitz
Mitsui's Comment Transport &Brokerage Corp. v. Transport Venture, Inc.,36 Loadmasters
Customs Services, Inc. v. Glodel Brokerage Corporation,37 and Wesrwind
Mitsui counters that neither TMBI nor BMT alleged or proved during the Shipping Corporation v. UCPB General Insurance Co., Inc.38chanrobleslaw
trial that the taking of the cargo was accompanied with grave or
irresistible threat, violence, or force.28 Hence, the incident cannot be Despite TMBI's present denials, we find that the delivery of the goods is an
considered "force majeure" and TMBI remains liable for breach of contract. integral, albeit ancillary, part of its brokerage services. TMBI admitted that

Page 64 of 71
it was contracted to facilitate, process, and clear the shipments from the presumed to have been at fault or to have acted negligently, unless it can
customs authorities, withdraw them from the pier, then transport and prove that it observed extraordinary diligence.43chanrobleslaw
deliver them to Sony's warehouse in Laguna.39chanrobleslaw
Simply put, the theft or the robbery of the goods is not considered a
Further, TMBI's General Manager Victor Torres described the nature of its fortuitous event or a force majeure. Nevertheless, a common carrier may
services as follows: absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the
chanRoblesvirtualLawlibrary goods;44 or (2) if it stipulated with the shipper/owner of the goods to limit
ATTY. VIRTUDAZO: Could you please tell the court what is the nature of its liability for the loss, destruction, or deterioration of the goods to a
the business of [TMBI]? degree less than extraordinary diligence.45chanrobleslaw

Witness MR. Victor Torres of Torres Madrid: We are engaged in However, a stipulation diminishing or dispensing with the common carrier's
customs brokerage business. We acquire the release documents from the liability for acts committed by thieves or robbers who do not act with
Bureau of Customs and eventually deliver the cargoes to grave or irresistible threat, violence, or force is void under Article 1745 of
the consignee's warehouse and we are engaged in that kind of the Civil Code for being contrary to public policy. 46Jurisprudence, too,
business, sir. 40 has expanded Article 1734's five exemptions. De Guzman v. Court
of Appeals47 interpreted Article 1745 to mean that a robbery attended by
"grave or irresistible threat, violence or force" is a fortuitous event that
That TMBI does not own trucks and has to subcontract the delivery of its
absolves the common carrier from liability.
clients' goods, is immaterial. As long as an entity holds itself to the public
for the transport of goods as a business, it is considered a common carrier
In the present case, the shipper, Sony, engaged the services of TMBI, a
regardless of whether it owns the vehicle used or has to actually hire
common carrier, to facilitate the release of its shipment and deliver the
one.41chanrobleslaw
goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation - the delivery of the cargo - to another common carrier, BMT.
Lastly, TMBI's customs brokerage services - including the
transport/delivery of the cargo - are available to anyone willing to pay its
Despite the subcontract, TMBI remained responsible for the cargo. Under
fees. Given these circumstances, we find it undeniable that TMBI is a
Article 1736, a common carrier's extraordinary responsibility over the
common carrier.
shipper's goods lasts from the time these goods are unconditionally placed
in the possession of, and received by, the carrier for transportation, until
Consequently, TMBI should be held responsible for the loss, destruction, or
they are delivered, actually or constructively, by the carrier to the
deterioration of the goods it transports unless it results from:
consignee. 48chanrobleslaw
chanRoblesvirtualLawlibrary
That the cargo disappeared during transit while under the custody of BMT
(1) Flood, storm, earthquake, lightning, or other natural disaster or
- TMBI's subcontractor - did not diminish nor terminate TMBFs
calamity;
responsibility over the cargo. Article 1735 of the Civil Code presumes that
it was at fault.
(2) Act of the public enemy in war, whether international or civil;
Instead of showing that it had acted with extraordinary diligence, TMBI
(3) Act of omission of the shipper or owner of the goods;
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise
(4) The character of the goods or defects in the packing or in the
carries with it the presumption of fault or negligence, thus rendering it
containers;
liable to Sony/Mitsui for breach of contract.
(5) Order or act of competent public authority.42chanroblesvirtuallawlibrary
Specifically, TMBI's current theory - that the hijacking was attended by
force or intimidation - is untenable.
For all other cases - such as theft or robbery - a common carrier is

Page 65 of 71
First, TMBI alleged in its Third Party Complaint against BMT that Lapesura aquiliana).
was responsible for hijacking the shipment.49 Further, Victor Torres filed a
criminal complaint against Lapesura with the NBI.50 These actions In culpa contractual, the plaintiff only needs to establish the existence of
constitute direct and binding admissions that Lapesura stole the cargo. the contract and the obligor's failure to perform his obligation. It is not
Justice and fair play dictate that TMBI should not be allowed to change its necessary for the plaintiff to prove or even allege that the obligor's non-
legal theory on appeal. compliance was due to fault or negligence because Article 1735 already
presumes that the common carrier is negligent. The common carrier can
Second, neither TMBI nor BMT succeeded in substantiating this theory only free itself from liability by proving that it
through evidence. Thus, the theory remained an unsupported allegation no observed extraordinary diligence. It cannot discharge this liability by
better than speculations and conjectures. The CA therefore correctly shifting the blame on its agents or servants.52chanrobleslaw
disregarded the defense of force majeure.
On the other hand, the plaintiff in culpa aquiliana must clearly establish
TMBI and BMT are not solidarity liable the defendant's fault or negligence because this is the very basis of the
to Mitsui action.53 Moreover, if the injury to the plaintiff resulted from the act or
omission of the defendant's employee or servant, the defendant may
We disagree with the lower courts" ruling that TMBI and BMT are solidarity absolve himself by proving that he observed the diligence of a good father
liable to Mitsui for the loss as joint tortfeasors. The ruling was based on of a family to prevent the damage,54chanrobleslaw
Article 2194 of the Civil Code:
In the present case, Mitsui's action is solely premised on TMBl's breach of
chanRoblesvirtualLawlibrary contract. Mitsui did not even sue BMT, much less prove any negligence on
Art. 2194. The responsibility of two or more persons who are liable for its part. If BMT has entered the picture at all, it 'is because TMBI sued it
quasi-delict is solidary. for reimbursement for the liability that TMBI might incur from its contract
of carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.
Notably, TMBI's liability to Mitsui does not stem from a quasi-delict (culpa
aquiliana) but from its breach of contract (culpa contractual). The tie that
BMT is liable to TMBI for breach
binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui
of their contract of carriage
as a result of TMBI's contract of carriage with Sony to which Mitsui had
been subrogated as an insurer who had paid Sony's insurance claim. The
We do not hereby say that TMBI must absorb the loss. By subcontracting
legal reality that results from this contractual tie precludes the application
the cargo delivery to BMT, TMBI entered into its own contract of carriage
of quasi-delict based Article 2194.
with a fellow common carrier.
A third party may recover from a
The cargo was lost after its transfer to BMT's custody based on its contract
common carrier for quasi-delict
of carriage with TMBI. Following Article 1735, BMT is presumed to be at
but must prove actual n egligence
fault. Since BMT failed to prove that it observed extraordinary diligence in
the performance of its obligation to TMBI, it is liable to TMBI for breach of
We likewise disagree with the finding that BMT is directly liable to
their contract of carriage.
Sony/Mitsui for the loss of the cargo. While it is undisputed that the cargo
was lost under the actual custody of BMT (whose employee is the primary
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching
suspect in the hijacking or robbery of the shipment), no direct contractual
the contract of carriage. In turn, TMBI is entitled to reimbursement from
relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui's
BMT due to the latter's own breach of its contract of carriage with TMBI.
cause of action against BMT could only arise from quasi-delict, as a third
The proverbial buck stops with BMT who may either: (a) absorb the loss,
party suffering damage from the action of another due to the latter's fault
or (b) proceed after its missing driver, the suspected culprit, pursuant to
or negligence, pursuant to Article 2176 of the Civil Code.51chanrobleslaw
Article 2181,55chanrobleslaw
We have repeatedly distinguished between an action for breach of
WHEREFORE, the Court hereby ORDERS petitioner Torres- Madrid
contract {culpa contractual) and an action for quasi-delict (culpa
Page 66 of 71
Brokerage, Inc. to pay the respondent FEB Mitsui Marine Insurance Co., Public Convenience and Necessity, and to annul and set aside a temporary operating
Inc. the following: permit issued by the Civil Aeronautics Board in favor of Grand International Airways
(GrandAir, for brevity) allowing the same to engage in scheduled domestic air
chanRoblesvirtualLawlibrary transportation services, particularly the Manila-Cebu, Manila-Davao, and converse
a. Actual damages in the amount of PHP 7,293,386.23 plus legal routes.
interest from the time the complaint was filed until it is fully paid; The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative franchise
b. Attorney's fees in the amount of PHP 200,000.00; authorizing it to engage in air transportation service within the Philippines or
and cralawlawlibrary elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of
Public Convenience or Necessity by the respondent Board, as mandated under
c. Costs of suit. Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no
longer a requirement for the issuance of a Certificate of Public Convenience and
Respondent Benjamin P. Manalastas is in Necessity or a Temporary Operating Permit, following the Court's pronouncements in
turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of the the case of Albano vs. Reyes,[1] as restated by the Court of Appeals in Avia Filipinas
above-mentioned amounts. International vs. Civil Aeronautics Board[2] and Silangan Airways, Inc. vs. Grand
International Airways, Inc., and the Hon. Civil Aeronautics Board. [3]
SO ORDERED
On November 24, 1994, private respondent GrandAir applied for a Certificate of
Public Convenience and Necessity with the Board, which application was docketed as
Carpio, (Chairperson), Del Castillo, and Leonen, JJ., concur.
CAB Case No. EP-12711.[4] Accordingly, the Chief Hearing Officer of the CAB issued
Mendoza, J., on official leave. a Notice of Hearing setting the application for initial hearing on December 16, 1994,
Endnotes: and directing GrandAir to serve a copy of the application and corresponding notice to
all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed
its Compliance, and requested for the issuance of a Temporary Operating Permit.
1 Penned by Associate Justice Remedios Salazar-Fernando and concurred Petitioner, itself the holder of a legislative franchise to operate air transport services,
in by Associate Justices Celia C. Librea-Leagogo and Michael P. Elbinias. filed an Opposition to the application for a Certificate of Public Convenience and
Necessity on December 16, 1995 on the following grounds:
"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first
obtained a franchise to operate from Congress.

SECOND DIVISION B. The petitioner's application is deficient in form and substance in that:
[G.R. No. 119528. March 26, 1997]
1. The application does not indicate a route structure including a computation of trunkline,
secondary and rural available seat kilometers (ASK) which shall always be maintained at a
monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and operations for rural and secondary, respectively.
GRAND INTERNATIONAL AIRWAYS, INC., respondents.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected
DECISION balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff
TORRES, JR., J.: structure, documents supportive of financial capacity, route flight schedule, contracts on
facilities (hangars, maintenance, lot) etc.

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the
C. Approval of petitioner's application would violate the equal protection clause of the
Rules of Court seeks to prohibit respondent Civil Aeronautics Board from exercising
constitution.
jurisdiction over private respondent's Application for the issuance of a Certificate of

Page 67 of 71
D. There is no urgent need and demand for the services applied for. upon its own initiative, any temporary operating permit or Certificate of Public Convenience
and Necessity; Provided, however; that in the case of foreign air carriers, the permit shall be
E. To grant petitioner's application would only result in ruinous competition contrary to issued with the approval of the President of the Republic of the Philippines."
Section 4(d) of R.A. 776."[5]
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the
At the initial hearing for the application, petitioner raised the issue of lack of Supreme Court held that the CAB can even on its own initiative, grant a TOP even before the
jurisdiction of the Board to hear the application because GrandAir did not possess a presentation of evidence;
legislative franchise.
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order October 30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP
denying petitioner's Opposition. Pertinent portions of the Order read: but also a Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the therefor in the absence of a legislative franchise, citing therein as basis the decision of Albano
latter has first obtained a franchise to operate from Congress. vs. Reyes (175 SCRA 264) which provides (inter alia) that:

The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia a) Franchises by Congress are not required before each and every public utility may operate
Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. when the law has granted certain administrative agencies the power to grant licenses for or to
776, the Board possesses this specific power and duty. authorize the operation of certain public utilities;

In view thereof, the opposition of PAL on this ground is hereby denied. b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of a public utility does not
necessarily imply that only Congress has the power to grant such authorization since our
SO ORDERED." statute books are replete with laws granting specified agencies in the Executive Branch the
power to issue such authorization for certain classes of public utilities.
Meantime, on December 22, 1994, petitioner this time, opposed private
respondent's application for a temporary permit maintaining that: WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in
Section 2.1 that a minimum of two (2) operators in each route/link shall be encouraged and
"1. The applicant does not possess the required fitness and capability of operating the services
applied for under RA 776; and, that routes/links presently serviced by only one (1) operator shall be open for entry to
additional operators.

2. Applicant has failed to prove that there is clear and urgent public need for the services
applied for."[6] RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine
Airlines on January 05, 1995 on the Grant by this Board of a Temporary Operating Permit
(TOP) to Grand International Airways, Inc. alleging among others that the CAB has no such
On December 23, 1994, the Board promulgated Resolution No. 119(92) jurisdiction, is hereby DENIED, as it hereby denied, in view of the foregoing and considering
approving the issuance of a Temporary Operating Permit in favor of Grand Air [7] for a that the grounds relied upon by the movant are not indubitable."
period of three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner
moved for the reconsideration of the issuance of the Temporary Operating Permit on
On March 21, 1995, upon motion by private respondent, the temporary permit
January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on
was extended for a period of six (6) months or up to September 22, 1995.
February 2, 1995.[8] In the said Resolution, the Board justified its assumption of
jurisdiction over GrandAir's application. Hence this petition, filed on April 3, 1995.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. Petitioners argue that the respondent Board acted beyond its powers and
776 as follows: jurisdiction in taking cognizance of GrandAirs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
'(c) The Board shall have the following specific powers and duties: operating permit in the meantime, since GrandAir has not been granted and does not
possess a legislative franchise to engage in scheduled domestic air transportation. A
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, legislative franchise is necessary before anyone may engage in air transport services,
alter, modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or and a franchise may only be granted by Congress. This is the meaning given by the

Page 68 of 71
petitioner upon a reading of Section 11, Article XII,[9] and Section 1, Article VI,[10] of Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-
the Constitution. 381).
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department
of Justice, which reads: Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a
business activity or enterprise of a public nature, whereas a certificate of public convenience
Dr. Arturo C. Corona and necessity is a regulatory measure which constitutes the franchises authority to commence
Executive Director operations. It is thus logical that the grant of the former should precede the latter.
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue Please be guided accordingly.
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before (SGD.) SEDFREY A. ORDOEZ
the Civil Aeronautics Board (CAB) may issue a Certificate of Public Convenience and
Necessity and/or permit to engage in air commerce or air transportation to an individual or Secretary of Justice"
entity.
Respondent GrandAir, on the other hand, relies on its interpretation of the
You state that during the hearing on the application of Cebu Air for a congressional provisions of Republic Act 776, which follows the pronouncements of the Court of
franchise, the House Committee on Corporations and Franchises contended that under the Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and Silangan
present Constitution, the CAB may not issue the abovestated certificate or permit, unless the Airways, Inc. vs. Grand International Airways (supra).
individual or entity concerned possesses a legislative franchise. You believe otherwise,
however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly In both cases, the issue resolved was whether or not the Civil Aeronautics
empowered to issue operating permits or certificates of public convenience and necessity and Board can issue the Certificate of Public Convenience and Necessity or Temporary
that this statutory provision is not inconsistent with the current charter. Operating Permit to a prospective domestic air transport operator who does not
possess a legislative franchise to operate as such. Relying on the Court's
pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld the
We concur with the view expressed by the House Committee on Corporations and Franchises. authority of the Board to issue such authority, even in the absence of a legislative
In an opinion rendered in favor of your predecessor-in-office, this Department observed that,- franchise, which authority is derived from Section 10 of Republic Act 776, as
amended by P.D. 1462.[11]
xxx it is useful to note the distinction between the franchise to
operate and a permit to commence operation. The former is sovereign The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a
and legislative in nature; it can be conferred only by the lawmaking Temporary Operating Permit. This rule has been established in the case of Philippine
authority (17 W and P, pp. 691-697). The latter is administrative and Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968.[12] The
regulatory in character (In re Application of Fort Crook-Bellevue Board is expressly authorized by Republic Act 776 to issue a temporary operating
Boulevard Line, 283 NW 223); it is granted by an administrative permit or Certificate of Public Convenience and Necessity, and nothing contained in
agency, such as the Public Service Commission [now Board of the said law negates the power to issue said permit before the completion of the
Transportation], in the case of land transportation, and the Civil applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the
Aeronautics Board, in case of air services. While a legislative CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests
franchise is a pre-requisite to a grant of a certificate of public the power to exercise said authority, even before the presentation of said evidence
convenience and necessity to an airline company, such franchise has begun. Assuming arguendo that a legislative franchise is prerequisite to the
alone cannot constitute the authority to commence operations, issuance of a permit, the absence of the same does not affect the jurisdiction of the
inasmuch as there are still matters relevant to such operations which Board to hear the application, but tolls only upon the ultimate issuance of the
are not determined in the franchise, like rates, schedules and routes, requested permit.
and which matters are resolved in the process of issuance of permit The power to authorize and control the operation of a public utility is admittedly
by the administrative. (Secretary of Justice opn No. 45, s. 1981) a prerogative of the legislature, since Congress is that branch of government vested
Indeed, authorities are agreed that a certificate of public convenience and necessity is an with plenary powers of legislation.
authorization issued by the appropriate governmental agency for the operation of public "The franchise is a legislative grant, whether made directly by the legislature itself, or by any
services for which a franchise is required by law (Almario, Transportation and Public Service one of its properly constituted instrumentalities. The grant, when made, binds the public, and
is, directly or indirectly, the act of the state."[13]
Page 69 of 71
The issue in this petition is whether or not Congress, in enacting Republic Act SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the
776, has delegated the authority to authorize the operation of domestic air transport Board shall have the power to regulate the economic aspect of air transportation, and shall
services to the respondent Board, such that Congressional mandate for the approval have general supervision and regulation of, the jurisdiction and control over air carriers,
of such authority is no longer necessary. general sales agents, cargo sales agents, and air freight forwarders as well as their property
rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of
Congress has granted certain administrative agencies the power to grant carrying out the provision of this Act.
licenses for, or to authorize the operation of certain public utilities. With the growing
complexity of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly In support of the Board's authority as stated above, it is given the following
growing tendency towards the delegation of greater powers by the legislature, and specific powers and duties:
towards the approval of the practice by the courts. [14] It is generally recognized that a (C) The Board shall have the following specific powers and duties:
franchise may be derived indirectly from the state through a duly designated agency,
and to this extent, the power to grant franchises has frequently been delegated, even
to agencies other than those of a legislative nature.[15] In pursuance of this, it has (1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise,
been held that privileges conferred by grant by local authorities as agents for the state alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon
constitute as much a legislative franchise as though the grant had been made by an its own initiative any Temporary Operating Permit or Certificate of Public Convenience and
act of the Legislature.[16] Necessity: Provided however, That in the case of foreign air carriers, the permit shall be issued
with the approval of the President of the Republic of the Philippines.
The trend of modern legislation is to vest the Public Service Commissioner with
the power to regulate and control the operation of public services under reasonable Petitioner argues that since R.A. 776 gives the Board the authority to issue
rules and regulations, and as a general rule, courts will not interfere with the exercise "Certificates of Public Convenience and Necessity", this, according to petitioner,
of that discretion when it is just and reasonable and founded upon a legal right. [17] means that a legislative franchise is an absolute requirement. It cites a number of
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a authorities supporting the view that a Certificate of Public Convenience and Necessity
reading of the pertinent issuances governing the Philippine Ports Authority, [18] proves is issued to a public service for which a franchise is required by law, as distinguished
that the PPA is empowered to undertake by itself the operation and management of from a "Certificate of Public Convenience" which is an authorization issued for the
the Manila International Container Terminal, or to authorize its operation and operation of public services for which no franchise, either municipal or legislative, is
management by another by contract or other means, at its option. The latter power required by law.[20]
having been delegated to the PPA, a franchise from Congress to authorize an entity This submission relies on the premise that the authority to issue a certificate of
other than the PPA to operate and manage the MICP becomes unnecessary. public convenience and necessity is a regulatory measure separate and distinct from
Given the foregoing postulates, we find that the Civil Aeronautics Board has the the authority to grant a franchise for the operation of the public utility subject of this
authority to issue a Certificate of Public Convenience and Necessity, or Temporary particular case, which is exclusively lodged by petitioner in Congress.
Operating Permit to a domestic air transport operator, who, though not possessing a We do not agree with the petitioner.
legislative franchise, meets all the other requirements prescribed by the law. Such
requirements were enumerated in Section 21 of R.A. 776. Many and varied are the definitions of certificates of public convenience which
courts and legal writers have drafted. Some statutes use the terms "convenience and
There is nothing in the law nor in the Constitution, which indicates that a necessity" while others use only the words "public convenience." The terms
legislative franchise is an indispensable requirement for an entity to operate as a "convenience and necessity", if used together in a statute, are usually held not to be
domestic air transport operator. Although Section 11 of Article XII recognizes separable, but are construed together. Both words modify each other and must be
Congress' control over any franchise, certificate or authority to operate a public utility, construed together. The word 'necessity' is so connected, not as an additional
it does not mean Congress has exclusive authority to issue the same. Franchises requirement but to modify and qualify what might otherwise be taken as the strict
issued by Congress are not required before each and every public utility may significance of the word necessity. Public convenience and necessity exists when the
operate.[19] In many instances, Congress has seen it fit to delegate this function to proposed facility will meet a reasonable want of the public and supply a need which
government agencies, specialized particularly in their respective areas of public the existing facilities do not adequately afford. It does not mean or require an actual
service. physical necessity or an indispensable thing.[21]
A reading of Section 10 of the same reveals the clear intent of Congress to "The terms 'convenience' and 'necessity' are to be construed together, although they are not
delegate the authority to regulate the issuance of a license to operate domestic air synonymous, and effect must be given both. The convenience of the public must not be
transport services: circumscribed by according to the word 'necessity' its strict meaning or an essential
requisites."[22]
Page 70 of 71
The use of the word "necessity", in conjunction with "public convenience" in a (f) To promote safety of flight in air commerce in the Philippines; and,
certificate of authorization to a public service entity to operate, does not in any way
modify the nature of such certification, or the requirements for the issuance of the (g) The encouragement and development of civil aeronautics.
same. It is the law which determines the requisites for the issuance of such
certification, and not the title indicating the certificate.
More importantly, the said law has enumerated the requirements to determine
Congress, by giving the respondent Board the power to issue permits for the the competency of a prospective operator to engage in the public service of air
operation of domestic transport services, has delegated to the said body the authority transportation.
to determine the capability and competence of a prospective domestic air transport
operator to engage in such venture. This is not an instance of transforming the SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution and
respondent Board into a mini-legislative body, with unbridled authority to choose who existing treaty or treaties, a permit authorizing a person to engage in domestic air commerce
should be given authority to operate domestic air transport services. and/or air transportation shall be issued only to citizens of the Philippines. [24]

"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any
"roving commission" that will give the delegate unlimited legislative authority. It must not be part of the service covered by the application, if it finds: (1) that the applicant is fit, willing
a delegation "running riot" and "not canalized with banks that keep it from overflowing." and able to perform such service properly in conformity with the provisions of this Act and the
Otherwise, the delegation is in legal effect an abdication of legislative authority, a total rules, regulations, and requirements issued thereunder; and (2) that such service is required by
surrender by the legislature of its prerogatives in favor of the delegate."[23] the public convenience and necessity; otherwise the application shall be denied.

Congress, in this instance, has set specific limitations on how such authority Furthermore, the procedure for the processing of the application of a Certificate
should be exercised. of Public Convenience and Necessity had been established to ensure the weeding
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines out of those entities that are not deserving of public service. [25]
or policies: In sum, respondent Board should now be allowed to continue hearing the
"SECTION 4. Declaration of policies. In the exercise and performance of its powers and application of GrandAir for the issuance of a Certificate of Public Convenience and
duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator Necessity, there being no legal obstacle to the exercise of its jurisdiction.
shall consider the following, among other things, as being in the public interest, and in ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED
accordance with the public convenience and necessity: to DISMISS the instant petition for lack of merit. The respondent Civil Aeronautics
Board is hereby DIRECTED to CONTINUE hearing the application of respondent
(a) The development and utilization of the air potential of the Philippines; Grand International Airways, Inc. for the issuance of a Certificate of Public
Convenience and Necessity.
(b) The encouragement and development of an air transportation system properly adapted to SO ORDERED.
the present and future of foreign and domestic commerce of the Philippines, of the Postal
Service and of the National Defense; Regalado (Chairman), and Puno, JJ., concur.
Romero, J., no part. Related to counsel.
(c) The regulation of air transportation in such manner as to recognize and preserve the Mendoza, J., no part. Relative in management of party.
inherent advantages of, assure the highest degree of safety in, and foster sound economic
condition in, such transportation, and to improve the relations between, and coordinate
transportation by, air carriers;

(d) The promotion of adequate, economical and efficient service by air carriers at reasonable
charges, without unjust discriminations, undue preferences or advantages, or unfair or
destructive competitive practices;

(e) Competition between air carriers to the extent necessary to assure the sound development
of an air transportation system properly adapted to the need of the foreign and domestic
commerce of the Philippines, of the Postal Service, and of the National Defense;

Page 71 of 71

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