G.R. No.

186312               June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 20011 against
Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages
arising from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September
11, 2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto
Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned
and operated by respondent.

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

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

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

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

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

The waves got more unwieldy. After getting hit by two big waves which came one after the other,
M/B Coco Beach III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the
captain, Matute and the other passengers who reached the surface asked him what they could do to
save the people who were still trapped under the boat. The captain replied "Iligtas niyo na lang ang
sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons,
consisting of 18 passengers and four crew members, who were brought to Pisa Island. Eight
passengers, including petitioners’ son and his wife, died during the incident.
At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death
of their son in the amount of at least ₱4,000,000.

Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the incident
which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the
amount of ₱10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondent’s offer, they filed the Complaint, as earlier reflected, alleging that
respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to
the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that
it exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners’
allegation, there was no storm on September 11, 2000 as the Coast Guard in fact cleared the
voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an award for attorney’s
fees and litigation expenses amounting to not less than ₱300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the
Resort’s assistant manager.8 He added that M/B Coco Beach III met all four conditions on
September 11, 2000,9 but a subasco or squall, characterized by strong winds and big waves,
suddenly occurred, causing the boat to capsize.10

By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners’ Complaint
and respondent’s Counterclaim.

Petitioners’ Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.

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

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

Petitioners maintain the position they took before the trial court, adding that respondent is a common
carrier since by its tour package, the transporting of its guests is an integral part of its resort
business. They inform that another division of the appellate court in fact held respondent liable for
damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it
is a common carrier; that the Resort’s ferry services for guests cannot be considered as ancillary to
its business as no income is derived therefrom; that it exercised extraordinary diligence as shown by
the conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and that the other case
wherein the appellate court held it liable for damages involved different plaintiffs, issues and
evidence.16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as a

common carrier.

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

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

The above article makes no distinction between one whose principal business activity is the carrying

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

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

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

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

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

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

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

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

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

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

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

Respondent’s insistence that the incident was caused by a fortuitous event does not impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d)
the obligor must have been free from any participation in the aggravation of the resulting injury to the
creditor.24

To fully free a common carrier from any liability, the fortuitous event must have been the proximate
and only cause of the loss. And it should have exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned
M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach III
suffered engine trouble before it capsized and sank.26 The incident was, therefore, not completely
free from human intervention.

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

Article 176427 vis-à-vis Article 220628 of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at ₱50,000.29

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

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

Life expectancy is determined in accordance with the formula:

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

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 — age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his dependents or
heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs.33

In computing the third factor – necessary living expense, Smith Bell Dodwell Shipping Agency Corp.
v. Borja34 teaches that when, as in this case, there is no showing that the living expenses constituted
the smaller percentage of the gross income, the living expenses are fixed at half of the gross
income.

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

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

2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of $90035 which, when
converted to Philippine peso applying the annual average exchange rate of $1 = ₱44 in
2000,36 amounts to ₱39,600. Ruelito’s net earning capacity is thus computed as follows:

Net Earning = life expectancy x (gross annual income - reasonable and necessary
Capacity living expenses).
= 35 x (₱475,200 - ₱237,600)
= 35 x (₱237,600)
Net Earning
= ₱8,316,000
Capacity

Respecting the award of moral damages, since respondent common carrier’s breach of contract of
carriage resulted in the death of petitioners’ son, following Article 1764 vis-à-vis Article 2206 of the
Civil Code, petitioners are entitled to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary
damages, which are granted in contractual obligations if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.37

Under the circumstances, it is reasonable to award petitioners the amount of ₱100,000 as moral
damages and ₱100,000 as exemplary damages.38 1avvphi1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary
damages are awarded. The Court finds that 10% of the total amount adjudged against respondent is
reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit —

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

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

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
 3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with certainty only in the present
petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline
in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE.
Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the following: (1)
₱50,000 as indemnity for the death of Ruelito Cruz; (2) ₱8,316,000 as indemnity for Ruelito’s loss of
earning capacity; (3) ₱100,000 as moral damages; (4) ₱100,000 as exemplary damages; (5) 10% of
the total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.

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

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

WE CONCUR:

ARTURO D. BRION LUCAS P. BERSAMIN

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

CERTIFICATION

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 to the writer of the opinion
of the Court’s Division.

RENATO C. CORONA
Chief Justice

G.R. No. 131166 September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner,

vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO,
EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.

PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered
vessel and a passenger ship?

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products
of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with
MV Doña Paz, killing almost all the passengers and crew members of both ships, and thus resulting
in one of the country's worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly liable
with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.'s passenger
ship MV Doña Paz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to
Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT Vector
is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business
of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular
voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a
charter contract between
them. 3

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port of Tacloban
headed for Manila with a complement of 59 crew members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV Doña Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/
Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the
vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV
Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time
of the incident.
1âwphi1.nêt

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by
vessels that responded to distress calls. 5 Among those who perished were public school teacher
Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested
passengers but proved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation found
that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator
Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's wife and mother
respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages Arising from
Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a
third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines),
Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well
that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a
result, it rammed against MV Doña Paz in the open sea setting MT Vector's highly flammable cargo
ablaze.

On September 15, 1992, the trial court rendered decision dismissing, the third party complaint
against petitioner. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G.
Cañezal, including loss of future earnings of said Sebastian, moral and exemplary
damages, attorney's fees, in the total amount of P 1,241,287.44 and finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation
and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.

DONE IN MANILA, this 15th day of September 1992.

ARSEN
IO M.
GONO
NG

Judge 7

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of
Appeal modified the trial court's ruling and included petitioner Caltex as one of the those liable for
damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional
Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of

Sebastian E. Cañezal and Corazon Cañezal:

1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon

Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E.

Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;
 3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS
(P300,000.00);

4. Attorney's fees in the concept of actual damages in the amount of FIFTY

THOUSAND PESOS (P50,000.00);

5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally
liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. of the above-mentioned damages, attorney's fees and costs which the
latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co.
(being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc.
(being the charterer that negligently caused the shipping of combustible cargo
aboard an unseaworthy vessel).

SO ORDERED.

JORGE
S.
IMPERI
AL

Associate
Justice

WE CONCUR:

RAMON U. MABUTAS, JR. PORTIA ALIÑO HERMACHUELOS

Associate Justice Associate Justice. 8

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages under

Philippine Maritime laws.

The respective rights and duties of a shipper and the carrier depends not on whether the carrier is
public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the other. 9

Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is one by which the owner of a ship
or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods,
on a particular voyage, in consideration of the payment of freight. 11
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In
both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of
time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for the wages of
the master of the crew, and defray the expenses for the maintenance of the ship. 12

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people
and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages
caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to
answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private carrier.
The parties entered into a voyage charter, which retains the character of the vessel as a common
carrier.

In Planters Products, Inc. vs. Court of Appeals, 14 we said:

It is therefore imperative that a public carrier shall remain as such, notwithstanding

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

Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15

Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment . . .

A common carrier is a person or corporation whose regular business is to carry passengers or

property for all persons who may choose to employ and to remunerate him. 16 MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we
ruled:

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

Art. 1732. Common carriers are persons, corporations, firms or associations

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

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic,
occasional rather than regular or scheduled manner, and even though
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that the fee frequently fell below commercial freight rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

x x x           x x x          x x x

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code. 18

The provisions owed their conception to the nature of the business of common carriers. This business is
impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous. 19 For these reasons, a passenger or a shipper of goods is under no obligation
to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license renewed;

2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;

3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these deficiencies.

1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only
in bays and rivers when the subject collision occurred in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operator and lookout; and

5. The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code,
which provide:

Art. 20. — Every person who contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same.

Art. 2176. — Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this Chapter.

And what is negligence?

The Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.

If the law does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.

In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly

understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the
failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand,
or the omission to do something which ordinarily regulate the conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in "public service." 22 The Civil Code demands diligence which is required by the nature
of the obligation and that which corresponds with the circumstances of the persons, the time and the
place. Hence, considering the nature of the obligation between Caltex and MT Vector, liability as found by
the Court of Appeals is without basis.1âwphi1.nêt

The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessel's seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but
the futility of our maritime laws insofar as the protection of the public in general is concerned. By the same
token, we cannot expect passengers to inquire every time they board a common carrier, whether the
carrier possesses the necessary papers or that all the carrier's employees are qualified. Such a practice
would be an absurdity in a business where time is always of the essence. Considering the nature of
transportation business, passengers and shippers alike customarily presume that common carriers
possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in
shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector
could legally transport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the
entries here under "VESSEL'S DOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December 21, 1986,

and Expires December 7, 1987", Mr. Witness, what steps did you
take regarding the impending expiry of the C.I. or the Certificate of
Inspection No. 1290-85 during the hiring of MT Vector?

Apolinario Ng: At the time when I extended the Contract, I did nothing
because the tanker has a valid C.I. which will expire on December 7,
1987 but on the last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn,
assured me they will renew the same.

Q: What happened after that?

A: On the first week of December, I again made a follow-up from Mr.

Abalos, and said they were going to send me a copy as soon as
possible, sir.  24

x x x           x x x          x x x

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr. Abalos on
the first place, because of our long business relation, we trust Mr.
Abalos and the fact that the vessel was able to sail indicates that the
documents are in order. . . . 25

On cross examination —
 Atty. Sarenas: This being the case, and this being an admission by
you, this Certificate of Inspection has expired on December 7. Did it
occur to you not to let the vessel sail on that day because of the very
approaching date of expiration?

Apolinar Ng: No sir, because as I said before, the operation Manager

assured us that they were able to secure a renewal of the Certificate
of Inspection and that they will in time submit us a
copy. 26

Finally, on Mr. Ng's redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pending expiry of
the Certificate of Inspection in the coastwise license on December 7,
1987. What was your assurance for the record that this document
was renewed by the MT Vector?

Atty. Sarenas: . . .

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long time

business partner; secondly, those three years; they were allowed to
sail by the Coast Guard. That are some that make me believe that
they in fact were able to secure the necessary renewal.

Q: If the Coast Guard clears a vessel to sail, what would that mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross examination to the

effect that if it was allowed, referring to MV Vector, to sail, where it is
loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no case MV
Vector will be allowed to sail if the Certificate of inspection is, indeed,
not to be extended. That was his repeated explanation to the cross-
examination. So, there is no need to clarify the same in the re-direct
examination. 27

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to
observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we
find no legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our
ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as
Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of
Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages
the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of
Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and
Corazon Cañezal damages as set forth therein. Third-party defendant-appellee Vector Shipping
Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines,
Inc. whatever damages, attorneys' fees and costs the latter is adjudged to pay plaintiffs-appellees in
the case.1âwphi1.nêt

No costs in this instance.

SO ORDERED.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,

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

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967  and renewed by the Energy Regulatory Board in 1992. 
1 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal
year 1993 pursuant to the Local Government Code . The respondent City Treasurer assessed
3

a business tax on the petitioner amounting to P956,076.04 payable in four installments based
on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under
protest in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

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

Moreover, Transportation contractors are not included in the enumeration of

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

The imposition and assessment cannot be categorized as a mere fee

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

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. 5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint  for tax refund with prayer for writ of preliminary injunction against respondents
6

City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities
to impose and collect a tax on the gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes
on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid. 7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the
term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code
pertains to the mode or manner by which a product is delivered to its destination. 8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

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

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

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act

387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:

1. That the exemption granted under Sec. 133 (j)

encompasses only common carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities
to a single specific or "special customer" under a
"special contract."

2. The Local Tax Code of 1992 was basically

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

Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication.   On November 29, 1995, the respondent court rendered a
10

decision   affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
11

for reconsideration was denied on July 18, 1996.  12

Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.   Petitioner moved for a reconsideration which was granted by this Court
13

in a Resolution   of January 22, 1997. Thus, the petition was reinstated.
14

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying

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

2. He must undertake to carry goods of the kind to

which his business is confined;

3. He must undertake to carry by the method by

which his business is conducted and over his
established roads; and

4. The transportation must be for hire.  15

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

ruled that:

The above article (Art. 1732, Civil Code) makes no distinction

between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only
as an ancillary activity (in local idiom, as a "sideline"). Article
1732 . . . avoids making any distinction between a person or
enterprise offering transportation service on
a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article

1732 may be seen to coincide neatly with the notion of "public
service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law
on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, "public service"
includes:
 every person that now or hereafter may own,
operate. manage, or control in the Philippines, for
hire or compensation, with general or limited
clientele, whether permanent, occasional or
accidental, and done for general business
purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or
without fixed route and whatever may be its
classification, freight or carrier service of any
class, express service, steamboat, or steamship
line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power, water
supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or
wireless broadcasting stations and other similar
public services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common carriers.  17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. — A pipe

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

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

that everything relating to the exploration for and exploitation of

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

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

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

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

Sec. 133. Common Limitations on the Taxing Powers of Local

Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:

x x x           x x x          x x x

(j) Taxes on the gross receipts of

transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common carriers
by air, land or water, except as
provided in this Code.

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

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

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on

the Taxing Powers of Local Government Units." . . .

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

Still on page 95, subparagraph 5, on taxes on the business of

transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government
units. May we know the reason why the transportation business
is being excluded from the taxing powers of the local
government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that
local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
 Now, Mr. Speaker, if the Gentleman would care to go to page 98
of Book II, one can see there that provinces have the power to
impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would
be subject to tax by the province. That is the exception, Mr.
Speaker.

What we want to guard against here, Mr. Speaker, is the

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

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . .
. 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.   To tax petitioner again on its 19

gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.

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

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

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

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

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

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

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

On 10 December 1975, the trial court rendered a Decision   finding private respondent to be a
1

common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.

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

1. that private respondent was not a common carrier;

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

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

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

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

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

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

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

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

It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.

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

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

Common carriers, "by the nature of their business and for reasons of public policy"   are held to a
2

very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.

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

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

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

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

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

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

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

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745,
numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust

and contrary to public policy:

xxx xxx xxx

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

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

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

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

In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force.  Three (3) of the five (5) hold-
3

uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

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

FIRST DIVISION

[G.R. No. 131621. September 28, 1999.]

LOADSTAR SHIPPING CO., INC., Petitioner, v. COURT OF APPEALS and THE MANILA

INSURANCE CO., INC., Respondents.

DECISION

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil
Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter
MIC) the amount of P6,067,178, with legal interest from the filing of the complaint until fully paid,
P8,000 as attorney’s fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3
denying LOADSTAR’s motion for reconsideration of said decision.

The facts are undisputed. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the
following goods for shipment: chanrob1es virtual 1aw library

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and others; and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL LOSS OF THE VESSEL." The vessel, in turn, was insured by
Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off
Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with
LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in
full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of
the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that
PGAI be ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said
amount to be deducted from MIC’s claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper’s goods and claimed that the
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped
as a party defendant after it paid the insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed
its decision in toto.

In dismissing LOADSTAR’s appeal, the appellate court made the following observations: chanrob1es virtual 1aw library

1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single
shipper on that fateful voyage. The court noted that the charter of the vessel was limited to the ship,
but LOADSTAR retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in
determining the rights and liabilities of the parties.

3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had
been seaworthy, it could have withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The vessel sank, not because of force
majeure, but because it was not seaworthy. LOADSTAR’S allegation that the sinking was probably due
to the "convergence of the winds," as stated by a PAG-ASA expert, was not duly proven at the trial.
The "limited liability" rule, therefore, is not applicable considering that, in this case, there was an
actual finding of negligence on the part of the carrier. 5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said
provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper for the goods
insured, it was subrogated to the latter’s rights as against the carrier, LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the shipper’s goods never reached their
destination. LOADSTAR’s defense of "diligence of a good father of a family" in the training and
selection of its crew is unavailing because this is not a proper or complete defense in culpa
contractual.chanroblesvirtualawlibrary

6) "Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are
delivered on board a ship in good order and condition, and the shipowner delivers them to the shipper
in bad order and condition, it then devolves upon the shipowner to both allege and prove that the
goods were damaged by reason of some fact which legally exempts him from liability." Transportation
of the merchandise at the risk and venture of the shipper means that the latter bears the risk of loss
or deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless
otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues: chanrob1es virtual 1aw library

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

(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not
issued a certificate of public convenience, it did not have a regular trip or schedule nor a fixed route,
and there was only "one shipper, one consignee for a special cargo." cralaw virtua1aw library

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The singular
fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert
the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by
the maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to
undertake a voyage. Its crew at the time was experienced, licensed and unquestionably competent.
With all these precautions, there could be no other conclusion except that LOADSTAR exercised the
diligence of a good father of a family in ensuring the vessel’s seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to
force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MIC’s
witness, Graceli Tapel, fully established the existence of two typhoons, "WELFRING" and "YOLING,"
inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was declared
over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area, naturally
producing strong waves and winds, in turn, causing the vessel to list and eventually sink. chanrobles.com:cralaw:red

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner’s risk," LOADSTAR
was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred in holding
that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the
insurer of the goods, which conclusion runs counter to the Supreme Court’s ruling in the case of St.
Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburg v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC’s claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same — suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from
the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo
was due to force majeure, because the same concurred with LOADSTAR’s fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must
be deemed waived.

Thirdly, the "limited liability" theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certificate of public convenience, and this public character is not altered by the
fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo
or chartering the vessel to a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability for
loss due to the negligence of its agent is void only if the strict policy governing common carriers is
upheld. Such policy has no force where the public at large is not involved, as in the case of a ship
totally chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and
Industrial Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of
which upheld the Home Insurance doctrine. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the
factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no
charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V "Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental,
is not reason enough to convert the vessel from a common to a private carrier, especially where, as in
this case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 15 the
Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:
chanrob1es virtual 1aw library

The Civil Code defines "common carriers" in the following terms: jgc:chanrobles.com.ph

"ARTICLE 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public." cralaw virtua1aw library

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

x          x          x

It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such
backhauling was done on a periodic or occasional rather than regular or scheduled manner, and even
though private respondent’s principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that that fee
frequently fell below commercial freight rates is not relevant here.

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

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the
time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed
in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR’s argument that the "limited liability" theory should be applied in
this case. The doctrine of limited liability does not apply where there was negligence on the part of the
vessel owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel
and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it
did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind
condition in the area where it sank was determined to be moderate. Since it was remiss in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in
utter disregard of this Court’s pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co.,
Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in
turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods
is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is
necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the
cases relied on by LOADSTAR involved a limitation on the carrier’s liability to an amount fixed in the
bill of lading which the parties may enter into, provided that the same was freely and fairly agreed
upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces
the common carrier’s liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at "owner’s risk." Such stipulation is obviously null and void for being contrary to
public policy. 20 It has been said: chanrob1es virtual 1aw library

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence. The second is
one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one
limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value
and pays a higher rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC’s
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for loss of,
or damage to, cargoes sustained during transit — may be applied suppletorily to the case at bar. This
one-year prescriptive period also applies to the insurer of the goods. 22 In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period
is null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.

SO ORDERED. chanrobles law library

Puno, Kapunan, Pardo and Santiago, JJ., concur.

G.R. No. 157917               August 29, 2012

SPOUSES TEODORO and NANETTE PERENA, Petitioners,

1 

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

DECISION

BERSAMIN, J.:

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

The Case

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

Antecedents

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

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

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

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

A. FACTS:

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

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

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

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

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

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

(7) The train driver or operator left the scene of the incident on board the commuter
train involved without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the vehicular
collision;

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

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

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

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

B. ISSUES

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

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

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

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

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

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

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

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

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

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

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

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

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

Ruling of the RTC

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

3 

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

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

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

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

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

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

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration, reiterating that the
4 

cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the death
of Aaron; and that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.

The CA’s Ruling

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

PNR assigned the following errors, to wit: 5

The Court a quo erred in:

 1. In finding the defendant-appellant Philippine National Railways jointly and
severally liable together with defendant-appellants spouses Teodorico and Nanette
Pereña and defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the
death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses
despite overwhelming documentary evidence on record, supporting the case of
defendants-appellants Philippine National Railways.

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

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

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

The trial court erred in awarding excessive damages and attorney’s fees.

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.

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

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Parañaque City is AFFIRMED with the modification that the 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.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, wherein the Court gave
7 

the heirs of Cariaga a sum representing the loss 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:–

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

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy
from age of 21 (the age when he would have graduated from college and started working for his own
livelihood) instead of 15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron’s death were unknown, it used the prevailing minimum wage of ₱
280.00/day to compute Aaron’s gross annual salary to be ₱ 110,716.65, inclusive of the thirteenth
month pay. Multiplying this annual salary by Aaron’s life expectancy of 39.3 years, his gross income
would aggregate to ₱ 4,351,164.30, from which his estimated expenses 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 amount claimed by the Zarates, only ₱
2,109,071.00, the amount expressly prayed for by them, was granted.

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

Issues

In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.

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

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

Ruling

The petition has no merit.

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

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

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

We concur with the CA.

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

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

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

A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier. A private carrier is one who, without making the activity a
10 

vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire. The provisions on ordinary
11 

contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common
carrier is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering such
services to the public. Contracts of common carriage are governed by the provisions on common
12 

carriers of the Civil Code, the Public Service Act, and other special laws relating to transportation. A
13 

common carrier is required to observe extraordinary diligence, and is presumed to be at fault or to

have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers. 14

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

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

In De Guzman v. Court of Appeals, the Court noted that Article 1732 of the Civil Code avoided any
16 

distinction between a person or an enterprise offering transportation on a regular or an isolated

basis; and has not distinguished a carrier offering his services to the general public, that is, the
general community or population, from one offering his services only to a narrow segment of the
general population.

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

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

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators, custom brokers and warehousemen, and barge
18  19 

operators even if they had limited clientèle.

20 

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

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

The common carrier’s standard of care and vigilance as to the safety of the passengers is defined by
law. Given the nature of the business and for reasons of public policy, the common carrier is bound
"to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case." Article 1755 of
22 

the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand. No device, whether by stipulation, posting of notices, statements on tickets, or otherwise,
23 

may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code.  24

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

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger. The presumption of
25 

negligence, being a presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent. It was the law no less that required them to prove their
26 

observance of extraordinary diligence in seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences of such death.

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

The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier. In this
27 

connection, the records showed their driver’s actual negligence. There was a showing, to begin with,
that their driver traversed the railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that point had been used by
motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into taking that
route. On the other hand, with his familiarity with that shortcut, their driver was fully aware of the
risks to his passengers but he still disregarded the risks. Compounding his lack of care was that loud
music was playing inside the air-conditioned van at the time of the accident. The loudness most
probably reduced his ability to hear the warning horns of the oncoming train to allow him to correctly
appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a passenger bus
on the left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train
that was then coming from the opposite side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of the train. As a result, the bus avoided
a collision with the train but the van got slammed at its rear, causing the fatality. Lastly, he did not
slow down or go to a full stop before traversing the railroad tracks despite knowing that his
slackening of speed and going to a full stop were in observance of the right of way at railroad tracks
as defined by the traffic laws and regulations. He thereby violated a specific traffic regulation on
28 

right of way, by virtue of which he was immediately presumed to be negligent. 29

The omissions of care on the part of the van driver constituted negligence, which, according to
30 

Layugan v. Intermediate Appellate Court, is "the omission to do something which a reasonable man,
31 

guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man would not do, or as Judge Cooley
32 

defines it, ‘(t)he failure to observe for the protection of the interests of another person, that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.’"
33

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

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

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

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

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court, where the
35 

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

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 impleaded in the same complaint
as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact and of law were
common as to the Zarates. Although the basis of the right to relief of the Zarates (i.e., breach of
36 

contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school
van of the 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 others through
the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was
aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily,
the Pereñas and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aaron’s earning capacity proper?

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

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

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded.  They cited People v. Teehankee, Jr., where the Court deleted the indemnity for victim
1âwphi1
37 

Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before the shooting, and was at
the time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his
ambition to become a professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.

We reject the Pereñas’ submission.

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

And, secondly, the fact that Aaron was then without a history of earnings should not be taken against
his parents and in favor of the defendants whose negligence not only cost Aaron his life and his right
to work and earn money, but also deprived his parents of their right to his presence and his services
as well. Our law itself states that the loss of the earning capacity of the deceased shall be the liability
of the guilty party in favor of the heirs of the deceased, and shall in every case be assessed and
awarded by the court "unless the deceased on account of permanent physical disability not caused
by the defendant, had no earning capacity at the time of his death." Accordingly, we emphatically
38 

hold in favor of the indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for
loss of the deceased’s power or ability to earn money. 39

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas
Bus Company and Manila Railroad Company, fourth-year medical student Edgardo Carriaga’s
40 

earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he could have finished the
medical course and would have passed the medical board examinations in due time, and that he
could have possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez, the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan
41 

Gomez could have easily landed good-paying jobs had they graduated in due time, and that their
jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the
time of their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baños, the country’s leading educational institution in agriculture.
 3.
Were the amounts of damages excessive?

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

The plea is unwarranted.

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

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

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on

November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

TERESITA J. LEONARDO-DE CASTRO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

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 to the writer of the opinion
of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

G.R. No. 118664 August 7, 1998

JAPAN AIRLINES, petitioner,
vs.
THE COURT OF APPEALS, ENRIQUE AGANA., MARIA ANGELA NINA AGANA, ADALIA B.
FRANCISCO and JOSE MIRANDA, respondents.

ROMERO, J.:

Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the reversal
of the decision of the Court of Appeals,   which affirmed with modification the award of damages
1

made by the trial court in favor of herein private respondents Enrique Agana, Maria Angela Nina
Agana, Adelia Francisco and Jose Miranda.

On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco,
California bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria
Angela Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL
061. As an incentive for travelling on the said airline, both flights were to make an overnight stopover
at Narita, Japan, at the airlines' expense, thereafter proceeding to Manila the following day.

Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko
Narita for the night. The next day, private respondents, on the final leg of their journey, went to the
airport to take their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall
blanketed Ninoy Aquino International Airport (NAIA), rendering it inaccessible to airline traffic.
Hence, private respondents' trip to Manila was cancelled indefinitely.

To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound
passengers on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses
for their unexpected overnight stay. On June 16, 1991, much to the dismay of the private
respondents, their long anticipated flight to Manila was again cancelled due to NAIA's indefinite
closure. At this point, JAL informed the private respondents that it would no longer defray their hotel
and accommodation expense during their stay in Narita.

Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were forced to
pay for their accommodations and meal expenses from their personal funds from June 16 to June
21, 1991. Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on
board JL flight No. 741.

Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced an
action for damages against JAL before the Regional Trial Court of Quezon City, Branch 104.   To 2

support their claim, private respondents asserted that JAL failed to live up to its duty to provide care
and comfort to its stranded passengers when it refused to pay for their hotel and accommodation
expenses from June 16 to 21, 1991 at Narita, Japan. In other words, they insisted that JAL was
obligated to shoulder their expenses as long as they were still stranded in Narita. On the other hand,
JAL denied this allegation and averred that airline passengers have no vested right to these
amenities in case a flight is cancelled due to "force majeure."

On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding JAL
liable for damages, viz.:

WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant

Japan Airlines to pay the plaintiffs Enrique Agana, Adalia B. Francisco and Maria
Angela Nina Agana the sum of One million Two Hundred forty-six Thousand Nine
Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three
Hundred Twenty Thousand Six Hundred sixteen and 31/100 (P320,616.31) as
actual, moral and exemplary damages and pay attorney's fees in the amount of Two
Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.

Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the
exception of lowering the damages awarded affirmed the trial court's finding,   thus:
3

Thus, the award of moral damages should be as it is hereby reduced to P200,000.00

for each of the plaintiffs, the exemplary damages to P300,000.00 and the attorney's
fees to P100,000.00 plus the costs.

WHEREFORE, with the foregoing Modification, the judgment appealed from is

hereby AFFIRMED in all other respects.

JAL filed a motion for reconsideration which proved futile and

unavailing. 4

Failing in its bid to reconsider the decision, JAL has now filed this instant petition.

The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the
hotel and meal expenses of its stranded passengers until they have reached their final destination,
even if the delay were caused by "force majeure."

To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to
Manila on schedule. Likewise, private respondents concede that such event can be considered as
"force majeure" since their delayed arrival in Manila was not imputable to JAL.  5

However, private respondents contend that while JAL cannot be held responsible for the delayed
arrival in Manila, it was nevertheless liable for their living expenses during their unexpected stay in
Narita since airlines have the obligation to ensure the comfort and convenience of its passengers.
While we sympathize with the private respondents' plight, we are unable to accept this contention.

We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract
to transport passengers is quite different in kind, and degree from any other contractual relation. It is
safe to conclude that it is a relationship imbued with public interest. Failure on the part of the
common carrier to live up to the exacting standards of care and diligence renders it liable for any
damages that may be sustained by its passengers. However, this is not to say that common carriers
are absolutely responsible for all injuries or damages even if the same were caused by a fortuitous
event. To rule otherwise would render the defense of "force majeure," as an exception from any
liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force
majeure," the general rule is that he cannot be held liable for damages for non-
performance.  Corollarily, when JAL was prevented from resuming its flight to Manila due to the
6

effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal
expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL
assumed the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991.

Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for
the private respondents. To be sure, they underwent distress and anxiety during their unanticipated
stay in Narita, but their predicament was not due to the fault or negligence of JAL but the closure of
NAIA to international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for
the amenities of its stranded passengers by reason of a fortuitous event is too much of a burden to
assume.

Furthermore, it has been held that airline passengers must take such risks incident to the mode of
travel.   In this regard, adverse weather conditions or extreme climatic changes are some of the
7

perils involved in air travel, the consequences of which the passenger must assume or expect. After
all, common carriers are not the insurer of all risks.  8

Paradoxically, the Court of Appeals, despite the presence of "force majeure," still ruled against JAL
relying in our decision in PAL v. Court of Appeals,   thus:
9

The position taken by PAL in this case clearly illustrates its failure to grasp the
exacting standard required by law. Undisputably, PAL's diversion of its flight due to
inclement weather was a fortuitous event. Nonetheless, such occurrence did not
terminate PAL's contract with its passengers. Being in the business of air carriage
and the sole one to operate in the country, PAL is deemed equipped to deal with
situations as in the case at bar. What we said in one case once again must be
stressed, i.e., the relation of carrier and passenger continues until the latter has been
landed at the port of destination and has left the carrier's premises. Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing
battle between government forces and Muslim rebels in Cotabato City and the fact
that the private respondent was a stranger to the place.

The reliance is misplaced. The factual background of the PAL case is different from the instant
petition. In that case there was indeed a fortuitous event resulting in the diversion of the PAL flight.
However, the unforeseen diversion was worsened when "private respondents (passenger) was left
at the airport and could not even hitch a ride in a Ford Fiera loaded with PAL personnel,"   not to
10

mention the apparent apathy of the PAL station manager as to the predicament of the stranded
passengers.   In light of these circumstances, we held that if the fortuitous event was accompanied
11

by neglect and malfeasance by the carrier's employees, an action for damages against the carrier is
permissible. Unfortunately, for private respondents, none of these conditions are present in the
instant petition.

We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be
noted that private respondents bought tickets from the United States with Manila as their final
destination. While JAL was no longer required to defray private respondents' living expenses during
their stay in Narita on account of the fortuitous event, JAL had the duty to make the necessary
arrangements to transport private respondents on the first available connecting flight to Manila.
Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers
when it declassified private respondents from "transit passengers" to "new passengers" as a result of
which private respondents were obliged to make the necessary arrangements themselves for the
next flight to Manila. Private respondents were placed on the waiting list from June 20 to June 24. To
assure themselves of a seat on an available flight, they were compelled to stay in the airport the
whole day of June 22, 1991 and it was only at 8:00 p.m. of the aforesaid date that they were advised
that they could be accommodated in said flight which flew at about 9:00 a.m. the next day.

We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to June
21, 1991 caused considerable disruption in passenger booking and reservation. In fact, it would be
unreasonable to expect, considering NAIA's closure, that JAL flight operations would be normal on
the days affected. Nevertheless, this does not excuse JAL from its obligation to make the necessary
arrangements to transport private respondents on its first available flight to Manila. After all, it had a
contract to transport private respondents from the United States to Manila as their final destination.

Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order
that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying any loss suffered by him.   The court may award
12

nominal damages in every obligation arising from any source enumerated in article 1157, or in every
case where any property right has been invaded.  13

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December 22,
1993 is hereby MODIFIED. The award of actual, moral and exemplary damages is hereby
DELETED. Petitioner JAL is ordered to pay each of the private respondents nominal damages in the
sum of P100,000.00 each including attorney' s fees of P50,000.00 plus costs.

SO ORDERED.

Narvasa, C.J., Kapunan and Purisima, JJ., concur.