Transportation Cases II Full Text

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GOVERNING AND APPLICABLE LAWS:

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,vs.NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J. : ñé+.£ ªwph !1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, findingdefendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised is a pure questionof law, which is, the liability of the defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate Optimawelded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD,(represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 dulyissued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, theaforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 Thegoods were however never delivered to, nor received by, the consignee at the port of destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal claimfor P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that t ime, against the former, but neither paid. Hence,the filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus attorney's fees andcosts. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment againstthird party defendant AMCYL which had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which should beexamined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only proper but necessary aswell because of the nature of the bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to

transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the parties thereto 3 who are bound byits terms and conditions 4 provided that these are not contrary to law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel, M/SSCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is plainly indicated on the face of the bill which contains thefollowing phrase printed below the space provided for the port of discharge from ship", thus: têñ.£îhqwâ£

if goods are to be transshipped at port of discharge, show destination under the columnfor "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of contents": têñ.£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAOFREIGHT PREPAID 8



It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations contained in Bill of Lading No.18. The delivery of the goods to AMCYL was part of appellants' duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means: têñ.£îhqwâ£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out anddelineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before thegoods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£

Whenever the carrier or m aster may deem it advisable or in any case where the goodsare placed at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or anypart of the goods before or after loading at the original port of shipment, ... This carrier, inmaking arrangements for any transshipping or forwarding vessels or means of

transportation not operated by this carrier shall be considered solely the forwarding agentof the shipper and without any other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of theshipper and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whomthe goods are entrusted or delivered for storage, handling or any service incidentalthereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full andgood condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to the aforequotedstipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damageto the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITEDSTATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but moreimportantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods inquestion in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us,provides: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goodsare not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection withall transshipping or forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely theagent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that: têñ.£îhqwâ£



... The short form Bill of Lading ( ) states in no uncertain terms that the port of dischargeof the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading (), appellee's responsibility as a common carrier ceased the moment the goods wereunloaded in Manila and in the matter of transshipment, appellee acted merely as anagent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the pert inentprovisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are validstipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while the same arenot in the latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to thePhilippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16 A careful perusal of the provisions of theNew Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: têñ.£îhqwâ£

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods areunconditionally placed in the possession of, and received by the carrier for transportation until the same aredelivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receivethem, without prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time thegoods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advisedof the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise disposeof them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goodshad already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaitingtransshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has aright to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actualapprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representat ivefor the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when

possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove thegoods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in thecourse of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THETRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatusbetween these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personalitychanges from that of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes, frompossession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, t herewas, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon suchdelivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from thatpoint onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the

transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced saidperformance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders andinstructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the

principal to accomplish the object of the agency, 21 This can be gleaned from the following provisions of the New Civil Code on theobligations of the agent: têñ.£îhqwâ£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damageswhich, through his non-performance, the principal may suffer.

xxx xxx xxx



Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but heshall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the person appointed wasnotoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged withmore or less rigor by the courts, according to whether the agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines.Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute instoring the goods awaiting transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of

Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur noliability for the loss of the goods in question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.

No costs.

SO ORDERED.1äwphï1.ñët

Makasiar (Chairman), Guerrero, Abad Santos and Escolin, concur.

Aquino, J., concurs in the result.

Concepcion Jr., J., took no part.


Manila

FIRST DIVISION

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,vs.INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION,respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,vs.THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO., LTD.,respondents.

MELENCIO-HERRERA, J. :



These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines,Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance

pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued atP92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value withrespondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories, in two(2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprisesand General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co.,for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respectiverespondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated untothe rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having beensubrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the amounts it hadpaid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it is notliable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00 andP92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to thethen Court of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co.,Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of thecargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the shipand non-observance of extraordinary diligence by petit ioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exemptingcircumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established, theburden of proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00 andUS $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Courtof Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount recoverable byDOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R. No. 71478on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 wasgiven due course on March 25, 1985, and the parties were required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for Reviewand moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then pending resolution with the FirstDivision. The same was granted; the Resolution of the Second Division of September 25, 1985 was set aside and the Petition wasgiven due course.



At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer thereof. Wenote that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where variousplaintiffs are represented by various counsel representing various consignees or insurance companies. The common defendant in these cases is petitioner herein, beingthe operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are deemed

admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received in evidence againstthe pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common carriers or theCarriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss,destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of

common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a

special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observeextraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8 Common carriers areresponsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the following causes only:

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

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity. "However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it ar ises almostinvariably from some act of man or by human means. 10 It does not fall within the category of an act of God unless caused bylightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where areduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the lawadopts a protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides thatall cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have actednegligently, unless it proves that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost.Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved tha t it hasexercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made thefollowing Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf thevessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; thatwhere the smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our thesame was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatchcovers of No, 2 tor commencement of f ire fighting by sea water: that all of these effort were not enough tocontrol the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in thevigilance over the goods. The evidence of the defendant did not show that extraordinary



vigilance was observed by the vessel to prevent the occurrence of fire at hatchesnumbers 2 and 3. Defendant's evidence did not likewise show he amount of diligencemade by the crew, on orders, in the care of the cargoes. What appears is that after thecargoes were stored in the hatches, no regular inspection was made as to their conditionduring the voyage. Consequently, the crew could not have even explain what could havecaused the fire. The defendant, in the Court's mind, failed to satisfactorily show thatextraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that thecarrier has "exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. " ThisPetitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the carrier shownby "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24)hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection was made as totheir condition during the voyage." The foregoing suffices to show that the circumstances under which the fire originated and spreadare such as to show that Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the completedefense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the COGSA,which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or inconnection with the transportation of goods in an amount exceeding $500 per package lawful money of theUnited States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of thatsum in other currency, unless the nature and value of such goods have been declared by the shipper beforeshipment and inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facieevidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amountthan that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than thefigure above named. In no event shall the carrier be Liable for more than the amount of damage actuallysustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in thebill of lading, unless the shipper or owner declares a greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package althoughthe Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the provisions of the CivilCode, steps in and supplements the Code by establishing a statutory provision limiting the carrier's liability in the absence of a



declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act onlimited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein byagreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liabilityfor the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liabilityshould not exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case"more than the amount of damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the amount of theinsurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goodswere shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at thecurrent exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage actually sustained."Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I -3"), their actual value was P92,361.75 (Exhibit "I"), which is likewisethe insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however, multiplying seven (7)cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, whichis the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA which wasalready reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate Courtalso limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons(considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more than theinsured value of the goods, that is $46,583, the Trial Court was correct in awarding said amount only for the 128 cartons, whichamount is less than the maximum limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which had beenshipped in vessel — supplied containers. The U.S. District Court for the Southern District of New York rendered judgment for theplaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the

number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnishedcontainers whose contents are disclosed should be treated as packages, the interest in securing internationaluniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a packageis inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, JudgeBeeks wrote, 414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there is, nonetheless, muchto commend it. It gives needed recognition to the responsibility of the courts to construe

and apply the statute as enacted, however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers frominternal illness, Congress alone must undertake the surgery. There is, in this regard,obvious wisdom in the Ninth Circuit's conclusion in Hartford that technologicaladvancements, whether or not forseeable by the COGSA promulgators, do not warrant adistortion or artificial construction of the statutory term "package." A ruling that these largereusable metal pieces of transport equipment qualify as COGSA packages — at leastwhere, as here, they were carrier owned and supplied — would amount to just such adistortion.

Certainly, if the individual crates or cartons prepared by the shipper and containing hisgoods can rightly be considered "packages" standing by themselves, they do not suddenly



lose that character upon being stowed in a carrier's container. I would liken thesecontainers to detachable stowage compartments of the ship. They simply serve to dividethe ship's overall cargo stowage space into smaller, more serviceable loci. Shippers'packages are quite literally "stowed" in the containers utilizing stevedoring practices andmaterials analogous to those employed in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and

similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods arepacked into cardboard cartons which are then placed in containers, the cartons and not the containers are thepackages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were thenplaced by the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier inthe bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA

packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear and unambiguous language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and ThirdWorld Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in FordhamInternational Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or units, as wellas the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2)containers should be considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually, however,containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner Carrier was atliberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A")appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading arenot already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry themin any type of container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods

could probably fit in two (2) containers only. I t cannot mean that the shipper had furnished the containers for if so, "Two (2)Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinalprinciple in the construction of contracts that the interpretation of obscure words or stipulations in a contract shall not f avor the partywho caused the obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already prepared andthe other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan by writteninterrogatories.



We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point, the TrialCourt found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, whenits answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was

conducted for the last time, the defendant had more than nine months to prepare its evidence. Its belated noticeto take deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was its undertaking on July 11 thethat the deposition of the witnesses would be dispensed with if by next time it had not yet been obtained, onlyproves the lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathyfrom the Court in that regard. The defendant has told the Court since February 16, 1979, that it was going totake the deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, toprepare its written interrogatories. Only the defendant itself is to blame for its failure to adduce evidence insupport of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due processwhen the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWAin G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00 would be morereasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the DevelopmentInsurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978,plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

GOVERNMENT REGULATION:


Manila

FIRST DIVISION

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,vs.HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and thePROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.



Potenciano A. Flores for petitioner.

Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.

Jose F. Miravite for movants.

KAPUNAN, J .:

Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterpriseswhich specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services areimpressed with public interest and concern. The same is true with respect to the business of common carrier which holds such apeculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties areaffected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in whichthe public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for thecommon good, to the extent of the interest he has thus created. 1

An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeedlamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of theDepartment of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory BoardLTFRB) 2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribedtransportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in v iolationof Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB'sduty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving thatthere is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places uponeach party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuancespointed out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of publictransportation without hearing and due process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz : (a) DOTC MemorandumOrder 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country;

(b) DOTC Department Order No.92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum datedOctober 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24,1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman,Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% belowthe LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in full:

One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transportsector. Along this line, the Government intends to move away gradually from regulatory policies and make

progress towards greater reliance on free market forces.

Based on several surveys and observations, bus companies are already charging passenger rates above andbelow the official fare declared by LTFRB on many provincial routes. It is in this context that some form of liberalization on public transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincialbus routes in country (except those operating within Metro Manila). Transport Operators shall be allowed tocharge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRBofficial rate for a period of one year .



Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTCPlanning Service.

The implementation of the said fare range scheme shall start on 6 August 1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the followingmemorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in thecountry (except those operating within Metro Manila)" that will allow operators "to charge passengers within arange of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of oneyear" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the following for the f ixing anddetermination of rates — (a) the rates to be approved should be proposed by public serviceoperators; (b) there should be a publication and notice to concerned or affected parties inthe territory affected; (c) a public hearing should be held for the fixing of the rates; hence,implementation of the proposed fare range scheme on August 6 without complying with therequirements of the Public Service Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the presentLTFRB fares in the wake of the devastation, death and suffering caused by the July 16earthquake will not be socially warranted and will be politically unsound; most likely publiccriticism against the DOTC and the LTFRB will be triggered by the untimely motu

propio implementation of the proposal by the mere expedient of publicizing the fare rangescheme without calling a public hearing, which scheme many as early as during theSecretary's predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired.

3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementationof the proposal will instead trigger an upward adjustment in bus fares by fifteen percent(15%) at a time when hundreds of thousands of people in Central and Northern Luzon,particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the CagayanValley are suffering from the devastation and havoc caused by the recent earthquake.

4. In lieu of the said proposal, the DOTC with its agencies involved in public transportationcan consider measures and reforms in the industry that will be socially uplifting, especiallyfor the people in the areas devastated by the recent earthquake.

In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of theproposed fare range scheme this year be further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an applicationfor fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincialbuses with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, withthe said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50)minimum per kilometer fare for aircon buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a

half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rateswere exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase inrates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with thefollowing schedule of fares on a straight computation method, viz:

AUTHORIZED FARES



LUZONMIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37STUDENT P1.15 P0.28

VISAYAS/MINDANAO

REGULAR P1.60 P0.375STUDENT P1.20 P0.285FIRST CLASS (PER KM.)LUZON P0.385VISAYAS/MINDANAO P0.395PREMIERE CLASS (PER KM.)LUZON P0.395VISAYAS/MINDANAO P0.405

AIRCON (PER KM.) P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issuedDepartment Order No.92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below inview of the importance of the provisions contained therein:

WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation andCommunications (DOTC) as the primary policy, planning, regulating and implementing agency ontransportation;

WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, thetransportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopta common philosophy and direction;

WHEREAS, the government proposes to build on the successful liberalization measures pursued over the lastfive years and bring the transport sector nearer to a balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principlesin the economic regulation of land, air, and water transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchiseholder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall bepermitted to operate on any route.

The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Fil ipinocitizenship, financial capability, public need, and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. Theburden of proving that there is no need for a proposed service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchiseapplication and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports,the use of demand management measures in conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services.



2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport)for which the government will fix indicative or reference fares. Operators of particular services may fix their ownfares within a range 15% above and below the indicative or reference rate.

Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the governmentpending actions to increase the level of competition.

For unserved or single operator routes, the government shall contract such services in the most advantageousterms to the public and the government, following public bids for the services. The advisability of bidding out theservices or using other kinds of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall notengage in special financing and incentive programs, including direct subsidies for fleet acquisition andexpansion. Only when the market situation warrants government intervention shall programs of this type beconsidered. Existing programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order,the detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as theProvincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the

Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr.issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures toimplement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transportsector. Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and ExitOut of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein.Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules andprocedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5

On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides,among others, the following challenged portions:

xxx xxx xxx

IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s).

xxx xxx xxx

V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without publichearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneysshall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and premier services.



xxx xxx xxx

(Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial busoperators to collect plus 20% and minus 25% of the prescribed fare without first having filed a pet ition for the purpose and withoutthe benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were

to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU f iled a petition before the LTFRB opposing the upward adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portionreads:

PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FORLACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved withdispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitledunder existing laws.

SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents fromimplementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial busfares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced onthe issuance of franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators toset a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent,over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal.Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without havingto prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions thewisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no

real interest in the case at bench and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and theLTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is withinDOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificatesof public convenience.

We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides:

xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which arelegally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of theGovernment.

In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the rightto sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant. One who is directlyaffected by and whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requiresthat a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable



decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in hisbehalf. 8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage f romthe implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violatedand continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who availof the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not

neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren proceduralinfirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this actof liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion andwaived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in thesame lines and enumerated some of the cases where the same policy was adopted,viz :

. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion,set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No.L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Aranetav. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Courtbrushed aside this technicality because "the transcendental importance to the public of these cases demandsthat they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs.

Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is notdevoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680[1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333(1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi , ordinary taxpayers, members of Congress, and evenassociation of planters, andnon-profit civic organizations were allowed to initiate and prosecute actions before this court to question theconstitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as itallows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and toelective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, whichallowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government

offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automaticappropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991];(d) R.A. No. 7056 on the holding of desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on theground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp.,197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. ExecutiveSecretary, 206 SCRA 290 [1992]).

Other cases where we have followed a liberal policy regarding locus standi include those attacking the validityor legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452(Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed theCOMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad v.Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi,Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by theBoard of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of

its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha onlyto naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v.Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of theExecutive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, andthe Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices didnot allow the petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454[1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products(Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Electionsconcerning the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs.



Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting theChief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite itsunequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless topass upon the issues raised because of the far-reaching implications of the petition. We did no less in De Guiav. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus standi , astanding in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the

importance of the issue involved, concerning as it does the polit ical exercise of qualified voters affected by theapportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing . — The Commission shall have power,upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations andexceptions mentioned and saving provisions to the contrary:

xxx xxx xxx

(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well ascommutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followedthereafter by any public service: Provided , That the Commission may, in its discretion, approve rates proposedby public services provisionally and without necessity of any hearing; but it shall call a hearing thereon withinthirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided,further , That in case the public service equipment of an operator is used principally or secondarily for thepromotion of a private business, the net profits of said private business shall be considered in relation with thepublic service of such operator for the purpose of fixing the rates. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing therates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine,

prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to theoperation of public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specializationeven in legislation has become necessary. Given the task of determining sensitive and delicate matters asroute-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinatelegislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in astatute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under theaforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a commoncarrier, a transport operator, or other public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above theauthorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegatanon delegari potest . What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a

delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation of such power would indeed constitute a negationof the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincialbus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affai rs.This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its fre ightrates at will, this Court categorically declared that:

In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet thecompetition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as



maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to itsadvantage to do so.

The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it isuntenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of

public services, but it has not authorized the Public Service Commission to delegate that power to a commoncarrier or other public service. The rates of public services like the Philippine Railway Co. have been approvedor fixed by the Public Service Commission, and any change in such rates must be authorized or approved by

the Public Service Commission after they have been shown to be just and reasonable. The public service may,of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully makesaid new rates effective without the approval of the Public Service Commission, and the Public ServiceCommission itself cannot authorize a public service to enforce new rates without the prior approval of said ratesby the commission. The commission must approve new rates when they are submitted to it, if the evidenceshows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission cannotdetermine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable,because it does not know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to changeits freight rates at will. It may change them every day or every hour, whenever it deems itnecessary to do so in order to meet competition or whenever in its opinion it would be toits advantage. Such a procedure would create a most unsatisfactory state of affairs andlargely defeat the purposes of the public service law. 13 (Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized toimpose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will undulyprejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bankinterest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37)centavo per kilometer fare for ordinary buses. At the same t ime, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavoincrease per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 +P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, thenthe fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect,commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part,transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additionalamount by virtue of the authorized fare range. Mathematically, the situation translates into the following:

Year ** LTFRB authorized Fare Range Fare to berate*** collected per kilometer

1990 P0.37 15% (P0.05) P0.421994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.561998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.732002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility andthe public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not beconfiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enablepublic utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the

other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonableand fair and must be affordable to the end user who will uti lize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, governmentmust not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should therequisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given fullopportunity to be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved.To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, willundermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and



reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to publicinterest.

On the presumption of public need .

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation servicesfor public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must

be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership,association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be f inancially capable of undertaking theproposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the

public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner . It isunderstood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV,provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states:

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires

that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public serviceproposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that thepresumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute andan administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basicrequirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets areasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence or non-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The objectand purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existingtransport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, itshall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic convenience is the primaryconsideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject

routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be requiredto prove his capacity and capability to furnish the service which he has undertaken torender. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi- judicial and administrative procedures. It allows the party who initiates the proceedings to prove, by mere application, his affirmativeallegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rulesconcerning pleading, practice and procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right toexercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilit iesthemselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we findthat they committed grave abuse of discretion in issuing DOTC Department Order No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances beingamendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is nulland void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC MemorandumOrder No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications betweenadministrative officers.



WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged administrative issuances andorders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum Circular No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalidinsofar as they affect provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase or decreasethe duly prescribed transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant for acertificate of public convenience and placing the burden of proving that there is no need for the proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate

increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

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

REGISTERED OWNER RULE:


Manila

SECOND DIVISION

G.R. No. L-30212 September 30, 1987

BIENVENIDO GELISAN, petitioner,vs.BENITO ALDAY, respondent.

PADILLA, J .:

Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, asamended by its resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday,plaintiff-appellant, vs. Roberto Espiritu and Bienvenido Gelisan, defendants-appellees," which ordered theherein petitioner Bienvenido Gelisan to pay, jointly and severally, with Roberto Espiritu, the respondentBenito Alday the amount of P5,397.30, with. legal interest thereon from the filing of the complaint, and thecosts of suit; and for the said Roberto Espiritu to pay or refund the petitioner Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday by virtue of the judgment.

The uncontroverted facts of the case are, as follows:

Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-2377. On January 31, 1962, defendant Bienvenido Gelisan and Roberto Espirituentered into a contract marked Exhibit 3-Gelisan under which Espiritu hired the samefreight truck of Gelisan for the purpose of hauling rice, sugar, flour and fertilizer at anagreed price of P18.00 per trip within the limits of the City of Manila provided theloads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and pay alllosses and damages attending the carriage of the goods to be hauled by him. Thetruck was taken by a driver of Roberto Espiritu on February 1, 1962. Plaintiff Benito



Alday, a trucking operator, and who owns about 15 freight trucks, had known thedefendant Roberto Espiritu since 1948 as a truck operator. Plaintiff had a contract tohaul the fertilizers of the Atlas Fertilizer Corporation from Pier 4, North Harbor, to itsWarehouse in Mandaluyong. Alday met Espiritu at the gate of Pier 4 and the latter offered the use of his truck with the driver and helper at 9 centavos per bag of fertilizer. The offer was accepted by plaintiff Alday and he instructed his checker

Celso Henson to let Roberto Espiritu haul the fertilizer. Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to the driver and helper of Espiritu with the necessary way bill receipts, Exhibits A and B. Espiritu, however, didnot deliver the fertilizer to the Atlas Fertolizer bodega at Mandaluyong. Thesignatures appearing in the way bill receipts Exhibits A and B of the AldayTransportation admittedly not the signature of any representative or employee of the

Atlas Fertilizer Corporation. Roberto Espiritu could not be found, and plaintiff reported the loss to the Manila Police Department. Roberto Espiritu was later arrested and booked for theft. ...

Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he notifiedthe Manila Police Department, and it was impounded by the police. It was claimed byBienvenido Gelisan from the Police Department after he had been notified by his

employees that the truck had been impounded by the police; but as he could not produceat the time the registration papers, the police would not release the truck to Gelisan. As aresult of the impounding of the truck according to Gelisan, ... and that for the release of the truck he paid the premium of P300 to the surety company. 1

Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33, to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaintagainst Roberto Espiritu and Bienvenido Gelisan with the Court of First Instance of Manila, docketedtherein as Civil Case No. 49603, for the recovery of damages suffered by him thru the criminal actscommitted by the defendants.

The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default.

The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed thathe had no contractual relations with the plaintiff Benito Alday as regards the hauling and/or deliveryof the 400 bags of fertilizer mentioned in the complaint; that the alleged misappropriation or nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of fertilizer, was entirely beyond his(Gelisan's) control and knowledge, and which fact became known to him, for the first time, on 8February 1962 when his freight truck, with plate No. TH-2377, was impounded by the Manila PoliceDepartment, at the instance of the plaintiff; and that in his written contract of hire with RobertoEspiritu, it was expressly provided that the latter will bear and pay all loss and damages attendingthe carriage of goods to be hauled by said Roberto Espiritu.

After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito Alday, since Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. Thedispositive portion of the decision reads, as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against thedefendant Roberto Espiritu for the sum of P6,000 with interest at the legal rate from thetime of the filing of the complaint, and the costs of the suit. Plantiff's complaint isdismissed with respect to defendant Bienvenido Gelisan, and judgment is rendered infavor of defendant Bienvenido Gelisan and against the plaintiff for the sum of P350. 2



On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that BienvenidoGelisan is likewise liable for being the registered owner of the truck; and that the lease contract, executedby and between Bienvenido Gelisan and Roberto Espiritu, is not binding upon Benito Alday for not havingbeen previously approved by the Public Service Commission. Accordingly, it sentenced BienvenidoGelisan to pay, jointly and severally with Roberto Espiritu, Benito Alday the amount of P5,397.30, withlegal interest thereon from the filing of the complaint; and to pay the costs. Roberto Espiritu, in turn, wasordered to pay or refund Bienvenido Gelisan whatever amount the latter may have paid to Benito Aldayby virtue of the judgment. 4

Hence, the present recourse by Bienvenido Gelisan.

The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to bereviewed, is in accord with the facts and the law on the case and we find no cogent reason to disturb thesame. The Court has invariably held in several decisions that the registered owner of a public servicevehicle is responsible for damages that may arise from consequences incident to its operation or that maybe caused to any of the passengers therein. 5 The claim of the petitioner that he is not hable in view of thelease contract executed by and between him and Roberto Espiritu which exempts him from liability tothird persons, cannot be sustained because it appears that the lease contract, adverted to, had not beenapproved by the Public Service Commission. It is settled in our jurisprudence that if the property covered

by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer isnot binding upon the public and third persons. 6

We also find no merit in the petitioner's argument that the rule requiring the previous approval by thePublic Service Commission, of the transfer or lease of the motor vehicle, may be applied only in caseswhere there is no positive Identification of the owner or driver, or where there are very scant means of Identification, but not in those instances where the person responsible for damages has been fixed or determined beforehand, as in the case at bar. The reason for the rule we reiterate in the present case,was explained by the Court in Montoya vs. Ignacio, 7 thus:

There is merit in this contention. The law really requires the approval of the PublicService Commission in order that a franchise, or any privilege pertaining thereto,may be sold or leased without infringing the certificate issued to the grantee. The

reason is obvious. Since a franchise is personal in nature any transfer or leasethereof should be notified to the Public Service Commission so that the latter mavtake proper safeguards to protect the interest of the public. In fact, the law requiresthat, before the approval is granted, there should be a public hearing, with notice toall interested parties, in order that the Commission may determine if there are goodand reasonable grounds justifying the transfer or lease of the property covered by thefranchise, or if the sale or lease is detrimental to public interest. Such being thereason and philosophy behind this requirement, it follows that if the property coveredby the franchise is transferred, or leased to another without obtaining the requisiteapproval, the transfer is not binding against the Public Service Commission and incontemplation of law the grantee continues to be responsible under the franchise inrelation to the Commission and to the Public. Since the lease of the jeepney inquestion was made without such approval the only conclusion that can be drawn isthat Marcelino Ignacio still continues to be its operator in contemplation of law, andas such is responsible for the consequences incident to its operation, one of thembeing the collision under consideration.

Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to beindemnified by Roberto Espiritu for the amount titat he may be required to pay as damages for the injurycaused to Benito Alday, since the lease contract in question, although not effective against the public for not having been approved by the Public Service Commission, is valid and binding between thecontracting parties. 8



We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court hasconsistently considered the registered owner/operator of a public service vehicle to be jointly andseverally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said vehicles. Thus, in the case of Vargas vs. Langcay , 9 the Courtsaid:

We hold that the Court of Appeals erred in considering appellant-petitioner DiwataVargas only subsidiarily liable under Article 103 of the Revised Penal Code. Thiscourt, in previous decisions, has always considered the registered owner/operator of a passenger vehicle, jointly and severally liable with the driver, for damages incurredby passengers or third persons as a consequence of injuries (or death) sustained inthe operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol vs. Osias,G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506;Necesito vs. Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; Tamayo vs. Aquinoand Rayos vs Tamayo, 105 Phil., 949; 56 Off. Gaz. [36] 5617.) In the case of Erezovs. Jepte, Supra, We held:

* * * In synthesis, we hold that the registered owner, the defendant-appellant herein,is primarily responsible for the damage caused * * * (Emphasis supplied)

In the case of Tamayo vs. Aquino, supra, We said:

* * * As Tamayo is the registered owner of the truck, his responsibffity to the public or to any passenger riding in the vehicle or truck must be direct * * * (Emphasissupplied)

WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.


Manila

THIRD DIVISION

G.R. No. 70876 July 19, 1990

MA. LUISA BENEDICTO, petitioner,vs.

HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD INDUSTRIES COMPANY, INC. respondents.

Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner.

Abelardo V. Viray for private respondent.

FELICIANO, J .:



This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the Regional Trial Court ("RTC") of Dagupan City in Civil Case No. 5206.There, the RTC held petitioner Ma. Luisa Benedicto liable to pay private respondent Greenhills Wood Industries Company, Inc.("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills' lost sawn lumber and attorney's fees,respectively.

Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City, operates sawmill in Maddela,Quirino.

Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc., ("Blue Star") a company withbusiness operations in Valenzuela, Bulacan 100,000 board feet of sawn lumber with the understanding that an initial delivery wouldbe made on 15 May 1980. 1 To effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz,contracted Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its sawn lumber to the consigneeBlue Star in Valenzuela, Bulacan. This cargo truck was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business enterprise engaged in hauling freight, with main office in B.F. Homes, Parañaque.

On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the loading of 7,690 board feet of sawnlumber with invoice value of P16,918.00 aboard the cargo truck. Before the cargo truck left Maddela for Valenzuela, Bulacan, Cruzissued to Licuden Charge Invoices Nos. 3259 and 3260 both of which were initialed by the latter at the bottom left corner. 2 The firstinvoice was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber, while the other set out theamount of P5,095.20 as the value of 2,316 board feet. Cruz instructed Licuden to give the original copies of the two (2) invo ices tothe consignee upon arrival in Valenzuela, Bulacan 3 and to retain the duplicate copies in order that he could afterwards claim thefreightage from private respondent's Manila office. 4

On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills' president, Henry Lee Chuy, informinghim that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela, Bulacan. The latter in turn informedGreenhills' resident manager in its Maddela saw-mill of what had happened. In a letter 5 dated 18 May 1980, Blue Star'sadministrative and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general manager that BlueStar still had not received the sawn lumber which was supposed to arrive on 15 May 1980 and because of this delay, "they wereconstrained to look for other suppliers."

On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to continue with their cont ract,private respondent Greenhill's filed Criminal Case No. 668 against driver Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for recovery of the value of the lost sawn lumber plus damages before the RTC of Dagupan City.

In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the contract of carriage, the subjecttruck having been earlier sold by her to Benjamin Tee, on 28 February 1980 as evidenced by a deed of sale. 7She claimed that thetruck had remained registered in her name notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00

out of the total agreed price of P68,000.00 However, she averred that Tee had been operating the said truck in Central Luzon fromthat date (28 February 1980) onwards, and that, therefore, Licuden was Tee's employee and not hers.

On 20 June 1983, based on the f inding that petitioner Benedicto was still the registered owner of the subject truck, and holding thatLicuden was her employee, the trial court adjudged as follows:

WHEREFORE, in the light of the foregoing considerations, this Court hereby renders judgment againstdefendant Maria Luisa Benedicto, ordering her to pay the Greenhills Wood Industries Co. Inc., thru its Presidentand General Manager, the amount of P16,016 cost of the sawn lumber loaded on the cargo truck, with legalrate of interest from the filing of the complaint to pay attorney's fees in the amount of P2,000.00; and to pay thecosts of this suit.

SO ORDERED. 8

On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed

9

the decision of the trial court in toto.Like the trial court, the appellate court held that since petitioner was the registered owner of the subject vehicle, Licuden the driver of the truck, was her employee, and that accordingly petitioner should be responsible for the negligence of said driver and bear theloss of the sawn lumber plus damages. Petitioner moved for reconsideration, without success.10

In the present Petition for Review, the sole issue raised is whether or not under the facts and applicable law, the appellate court wascorrect in finding that petitioner, being the registered owner of the carrier, should be held liable for the value of the undelivered or lost sawn lumber.

Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine which makes the registeredowner of a common carrier vehicle answerable to the public for the negligence of the driver despite the sale of the vehicle to another



person, applies only to cases involving death of or injury to passengers. What applies in the present case, according to petitioner, isthe rule that a contract of carriage requires proper delivery of the goods to and acceptance by the carrier. Thus, petitioner contendsthat the delivery to a person falsely representing himself to be an agent of the carrier prevents liability from attaching to theregistered owner.

The Court considers that petitioner has failed to show that appellate court committed reversible error in affirming the trial court'sholding that petitioner was liable for the cost of the sawn lumber plus damages.

There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in brief, a common carrier.

The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the operations of thecarrier, even though the specific vehicle involved may already have been transferred to another person. This doctrine rests upon theprinciple that in dealing with vehicles registered under the Public Service Law, the public has the right to assume that the registeredowner is the actual or lawful owner thereof It would be very difficult and often impossible as a practical matter, for members of thegeneral public to enforce the rights of action that they may have for injuries inflicted by the vehicles being negligently operated if they should be required to prove who the actual owner is. 11The registered owner is not allowed to deny liability by proving theidentity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle'scertificate of registration to ascertain the owner of the carrier. In this regard, the letter presented by petitioner allegedly written byBenjamin Tee admitting that Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented incourt to testify on this matter but also because of the aforementioned doctrine. To permit the ostensible or registered owner to provewho the actual owner is, would be to set at naught the purpose or public policy which infuses that doctrine.

In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a contract of carriage on behalf of theregistered owner. It appears that, earlier, in the first week of May 1980, private respondent Greenhills had contracted Licuden whowas then driving the same cargo truck to transport and carry a load of sawn lumber from the Maddela sawmill to Dagupan City. 12 Noone came forward to question that contract or the authority of Licuden to represent the owner of the carrier truck.

Moreover, assuming the truth of her story, petit ioner Benedicto retained registered ownership of the freight truck for her own benefitand convenience, that is, to secure the payment of the balance of the selling price of the truck. She may have been unaware of thelegal security device of chattel mortgage; or she, or her buyer, may have been unwilling to absorb the expenses of registering achattel mortgage over the truck. In either case, considerations both of public policy and of equity require that she bear theconsequences flowing from registered ownership of the subject vehicle.

Petitioner Benedicto, however, insists that the said principle should apply only to cases involving negligence and resulting injury toor death of passengers, and not to cases involving merely carriage of goods. We believe otherwise.

A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the law with the

duty of exercising extraordinary diligence not only in ensuring the safety of passengers but also in caring for goods transported byit. 13 The loss or destruction or deterioration of goods turned over to the common carrier for conveyance to a designated destination,raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damagearises from extreme circumstances such as a natural disaster or calamity or act of the public enemy in time of war, or from an act or omission of the shipper himself or from the character of the goods or their packaging or container. 14

This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier. 15 Clearly, to permit a commoncarrier to escape its responsibility for the passengers or goods transported by it by proving a prior sale of the vehicle or means of transportation to an alleged vendee would be to attenuate drastically the carrier's duty of extraordinary diligence. It would also openwide the door to collusion between the carrier and the supposed vendee and to shifting liability from the carrier to one withoutfinancial capability to respond for the resulting damages. In other words, the thrust of the public policy here involved is as sharp andreal in the case of carriage of goods as it is in the transporting of human beings. Thus, to sustain petitioner Benedicto's contention,that is, to require the shipper to go behind a certificate of registration of a public utility vehicle, would be utterly subversive of thepurpose of the law and doctrine.

Petitioner further insists that there was no perfected contract of carriage for the reason that there was no proof that her consent or that of Tee had been obtained; no proof that the driver, Licuden was authorized to bind the registered owner; and no proof that theparties had agreed on the freightage to be paid.

Once more, we are not persuaded by petitioner's arguments which appear to be a transparent attempt to evade statutoryresponsibilities. Driver Licuden was entrusted with possession and control of the freight truck by the registered owner (and by thealleged secret owner, for that matter). i•t•c -aüsl Driver Licuden, under the circumstances, was clothed with at least implied authority tocontract to carry goods and to accept delivery of such goods for carriage to a specified destination. That the freight to be paid may-not have been fixed before loading and carriage, did not prevent the contract of carriage from arising, since the freight was at leastdeterminable if not fixed by the tariff schedules in petitioner's main business office. Put in somewhat different terms, driver Licudenis in law regarded as the employee and agent of the petitioner, for whose acts petitioner must respond. A contract of carriage of goods was shown; the sawn lumber was loaded on board the freight truck; loss or non-delivery of the lumber at Blue Star's premises



in Valenzuela, Bulacan was also proven; and petitioner has not proven either that she had exercised extraordinary diligence toprevent such loss or non-delivery or that the loss or non-delivery was due to some casualty or force majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills was thus fixed and complete, without prejudice to petitioner's right toproceed against her putative transferee Benjamin Tee and driver Licuden for reimbursement or contribution. 17

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former Intermediate Appellate Courtdated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concur.

Bidin, J., took no part.

KABIT SYSTEM:


Manila

FIRST DIVISION

G.R. No. L-26815 May 26, 19810

ADOLFO L. SANTOS, petitioner,vs.ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J. : 1äwp hï1. ñët

The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words, SANTOS became what isknown in ordinary parlance as a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to theformer, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement.

On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated byVIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with theCourt of First Instance of Manila, Branch XVII , then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred toas the BRANCH XVII CASE.

On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to paySIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1

On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD, andscheduled the public auction sale thereof on May 8,1964.

On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon,and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine SuretyInsurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were to proceed with the sale andif SANTOS' third-party claim should be ultimately upheld.



On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunction witha prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 of Branch X , of thesame Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was later amended toinclude the BONDING COMPANY as a party defendant although its bond had not become effective. ln the Complaint, SANTOSalleged essentially that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of operating said vehicle as a passenger jeepney under the latter'sfranchise; that SANTOS did not receive any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietaryinterest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that

SANTOS was not a party in the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and thedriver Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney andstood to suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that 1, )pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD bedeclared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle inquestioned and 3) that damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of P450.00and costs. 2

No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the Sheriff fromconducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under theprovisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branch of thesame Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist from conducting thepublic sale unless the attaching creditor files a bond securing him against the third-party-claim. But the decision to proceed or notwith the public sale lies with him. As said in Uy Piaoco vs. Osmeña 9 Phil. 299, 307, "the powers of the Sheriff involve bothdiscretional power and personal liability." The mentioned discretional power and personal liability have been further elucidated

in Planes and Verdon vs. Madrigal & Co., et al ., 94 Phil. 754, where it was held.1äwphï1.ñët

The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed byRule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the propertylevied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it,is not bound to proceed with the levy of the property, unless he is given by the judgment creditor an indemnitybond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceedwith the levy even without the Indemnity bond, but in such case he will answer for any damages with his ownpersonal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341de los abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein containedshall prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39.).

It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with the publicauction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, with the publicauction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant.

On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, anddecreed: 1äwphï1.ñët

WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceedingwith the sale of the vehicle in question ordering its return to the plaintiff and furthermoresentencing the defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a dayfrom April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's fee's aswell as the costs. 4

This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the BONDINGCOMPANY as jointly slid severally liable with SIBUG. 5

1äwp hï1.ñët

... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00.

Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums itis ordered to pay under this decision.

The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished to theSheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has also been notedthat the Complaint against VIDAD was dismissed.

Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in question,SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business known asthe kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: 1äwphï1.ñët



... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approvaland authorization of the Commission previously had – ... (g) to sell, alienate, mortgage, encumber or lease itsproperty, franchise, certificates, privileges, or rights, or any part thereof.

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record atthe time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. AlthoughSANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of thefranchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of

the negligent or careless operation of the vehicle. 6 This ruling is based on the principle that the operator of record is considered the

operator of the vehicle in contemplation of law as regards the public and third persons 7 even if the vehicle involved in the accident

had been sold to another where such sale had not been approved by the then Public Service Commission. 8 For the same basicreason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle should beenforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of thevehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid hisresponsibilities as akabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one way of curbingthe pernicious kabit system that facilitates the commission of fraud against the travelling public.

As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actualoperator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of theexecution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplary damages. 10

From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUGopposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X had no power tointerfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11

On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X CASE is"principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not belongingto the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree of another court of concurrent jurisdiction." 12

Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in aPetition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appealsrendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and permanently restraining V fromtaking cognizance of the BRANCH X CASE SANTOS. It ruled that: 1äwphï1.ñët

... the respondent Court Branch X, indeed, encroached and interfered with the judgmentof Branch XVII when it issued a restraining order and finally a decision permanentlyenjoining the other court from excuting the decision rendered in Civil Case No. 54335.This to our mind constitutes an interference with the powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitablylead to confusion which might hamper or hinder the proper administration of justice. ... 14

Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being leviedupon but registered in another's name in a separated action, observing that: 1äwphï1.ñët

As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any personaffected by the representation that said vehicle is registered under the name of a particular person had the rightto rely on his declaration of ownership and registration: and the registered owner or any other person for thatmatter cannot be permitted to repudiate said declaration with the objective of proving that said registeredvehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, NewCivil Code)

xxx xxx xxx

Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the registeredowner it would in effect be tantamount to sanctioning the attempt of the registered owner of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be opened to collusion between aperson and a registered owner for the latter to escape said responsibility to the public or to any person. .. .

SANTOS now seeks a review of respondent Court's Decision contending that: 1äwphï1.ñët



1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila hasno jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy the judgment indebtedness of another person:

2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was leviedupon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No.54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842)that he is the true owner of the said motor vehicle and not its registered owner;

3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482.

We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for decisionon July 20, 1967.

One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the instanceof a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgment creditor inanother Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to thevehicle levied upon through a separate action.

Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador , 15 speaking throughMr. Justice Ramon Aquino, succinctly held: 1äwphï1.ñët

It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgmentsor decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is appliedin cases, where no third-party claimant is involved, in order to prevent one court from nullifying the judgment or process of another court of the same rank or category, a power which devolves upon the proper appellate court.

xxx xxx xxx

When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction,which is issued to stop the auction sale of that property, is not an interference with the writ of execution issuedby another court because the writ of execution was improperly implemented by the sheriff. Under that writ, hecould attach the property of the judgment debtor. He is not authorized to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; ManilaHerald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).

An earlier case, Abiera vs. Hon. Court of Appeals, et al ., 16 explained the doctrine more extensively: 1äwphï1.ñët

Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of concurrent jurisdiction. – No court has power to interfere by injunction with the judgments or decrees of a courtof concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction.

Same, Same; Same; When applicable. – For this doctrine to apply, the injunction issued by one court mustinterfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and the relief sought by such injunction must be one which could be granted by the court which rendered the judgment or issued the decree.

Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims property levied upon on execution. – Under section 17 of Rule 39 a third person who claims property leviedupon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring him to bethe owner of the property - would not constitute interference with the powers or processes of the court whichrendered the judgment to enforce which the execution was levied. lf that be so - and it is so because theproperty, being that of a stranger, is not subject to levy - then an interlocutory order, such as injunction, upon aclaim and prima facie showing of ownership by the claimant, cannot be considered as such interference either.

Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules of Court, interpreted – The right of a person who claims to be the owner of property levied upon on execution tofile a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be sufferedby the third party claimant. By "action", as stated in the Rule, what is meant is a separate and independentaction.



Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it wasappropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in aseparate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X , declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers or processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a stranger is not ordinarily subject tolevy. While it is true that the vehicle in question was in custodia legis, and should not be interfered with without the permission of theproper Court, the property must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger'sproperty, the rule does not apply and interference with his custody is not interference with another Court's Order of attachment. 17

However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" that was levied uponby the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is involved. Whatever legaltechnicalities may be invoked, we find the judgment of respondent Court of Appeals to be in consonance with justice.

WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santos isdismissed with costs against the petitioner.

SO ORDERED.

Makasiar, Guerrero and De Castro, * JJ., concur.1äwphï1.ñët

Teehankee (Chairman), concurs in the result.


Manila

EN BANC

G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner,vs.SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P.GARCIA, respondents.

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J. : ñé+.£ ªwph! 1

"Ex pacto illicito non oritur actio" [No action arises out of an ill icit bargain] is the tune-honored maxim that must be applied to theparties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear theconsequences of his acts.

The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installmentfrom the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise tooperate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc,Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi,petitioner's trade name.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcyclewhose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the



driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, againstLita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney'sfees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with EngineNo. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wifefiled a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila.Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: têñ.£îhqwâ£

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez,Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars notlevied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing adeed of conveyance in favor of the plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of conveniencefrom March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p. 121, Ibid .)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including aspart of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£

In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyancebecause of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975.(Annex "D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petit ioner came to Us, praying that: têñ.£îhqwâ£

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending thedecision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) bedeleted;

(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or wasdeclared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. deGalvez, as heir of the victim Florante Galvez, who died as a result ot the gross negligence of privaterespondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person whohas been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the granteesthereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft andcorruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system thatcannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policyand, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it f inds them. Upon this premise, it was flagrant error on the part



of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code deniesthem such aid. It provides:têñ.£îhqwâ£

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,the following rules shall be observed;

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of

the contract, or demand the performance of the other's undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As thisCourt said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails.Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or a t law, froman illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered,or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down asthough it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against

the other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the ruleshould not be applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versusLita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio

Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs.

SO ORDERED.1äwphï1.ñët

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ., concur.

Aquino, J., took no part.


Manila

SECOND DIVISION

G.R. No. L-65510 March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,vs.HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.

Cirilo A. Diaz, Jr. for petitioner.

Henry V. Briguera for private respondent.

PARAS, J .:

"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the t ime-honored maxim that must be applied to theparties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear theconsequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, asfollows:



On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase pricethe defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance withinsixty days. The defendant, however, failed to comply with his promise and so upon his own request, the periodof paying the balance was extended to one year in monthly installments until January 1976 when he stoppedpaying anymore. The plaintiff made demands but just the same the defendant failed to comply with the samethus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the

total account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). Thisamount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the saidbalance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representingattorney's fees.

In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of thebalance of the purchase price. It has been the practice of financing firms that whenever there is a balance of thepurchase price the registration papers of the motor vehicle subject of the sale are not given to the buyer. Therecords of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made toappear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiff'sMCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of themotorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registrationfee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that thedefendant failed to comply with some requirements such as the payment of the insurance premiums and the

bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding themotorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle wasalready transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to theRural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit wasrediscounted with the bank.

On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to theplaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of thecondition that the plaintiff would be the one to register every year the motorcycle with the Land TransportationCommission. In 1976, however, the plaintfff failed to register both the chattel mortgage and the motorcycle withthe LTC notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and registration fee andhad the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certif icate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcyclethe defendant suffered damages when he failed to claim any insurance indemnity which would amount to noless than P15,000.00 for the more than two times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle was impounded by

the LTC for not being registered.

The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting inits not being registered. The truth being that the motorcycle was being used for transporting passengers and itkept on travelling from one place to another. The motor vehicle sold to him was mortgaged by the plaintiff withthe Rural Bank of Camaligan without his consent and knowledge and the defendant was not even given a copyof the mortgage deed. The defendant claims that it is not true that the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank. The defendant puts theblame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registrationpapers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of thiscase he was forced to retain the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx

... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the transportation business and for this purpose said trimobileunit was attached to the plaintiffs transportation line who had the franchise, so much so that in the registrationcertificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit inquestion with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendantgave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against privaterespondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositiveportion of which reads:



WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to payplaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interestfrom the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 asattorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs.

SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of which reads —

However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the privaterespondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving thefictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with theprivileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties beingin

pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a),Civil Code].

xxx xxx xxx

WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing

and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Courtof First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed.No pronouncement as to costs.

SO ORDERED.

The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignmentof error — whether or not respondent court erred in applying the doctrine of "pari delicto."

We find the petition devoid of merit.

Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person whohas been granted a certificate of public convenience allows another person who owns motor vehicles to operate under suchfranchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege bythe grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of

graft and corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policyand, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accord the partiesrelief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, thefollowing rules shall be observed:

1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the contract, or demand, the performance of the other's undertaking.

The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time

cannot give efficacy to contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court (now theCourt of Appeals) is AFFIRMED. No costs.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.

Alampay, J., took no part.



BOUNDARY SYSTEM:


Manila

EN BANC

G.R. No. L-16790 April 30, 1963

URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees,vs.DELFIN BERNARDO, defendant-appellant.

Parades, Gaw and Associates for plaintiffs-appellees.Bonifacio B. Camacho for defendant-appellant.

MAKALINTAL, J .:

Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter to this Court on the ground thatonly questions of law are involved.

The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for enforcement of his subsidiaryliability as employer in accordance with Article 103, Revised Penal Code. The trial court ordered defendant to pay plaintiffsP3,000.00 and costs upon the following stipulated facts:

1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them and was under their custodyuntil his death on October 24,1956 when he was killed in a motor vehicle accident, the fatal vehicle being a passenger jeepney with Plate No, AC-1963 (56) owned by the defendant;

2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque;

3. That the contract between Conrado Roque and defendant Delf in Bernardo was that Roque was to pay to defendant the

sum of P8.00, which he paid to said defendant, for privilege of driving the jeepney on October 24, 1956, it being their agreement that whatever earnings Roque could make out of the use of the jeepney in transporting passengers from onepoint to another in the City of Manila would belong entirely to Conrado Roque;

4. That as a consequence of the accident and as a result of the death of Cesar Magboo in said accident, Conrado Roquewas prosecuted for homicide thru reckless imprudence before the Court of First Instance of Manila, the information havingbeen docketed as Criminal Case No. 37736, and that upon arraignment Conrado Roque pleaded guilty to the informationand was sentenced to six (6) months of arresto mayor , with the accessory penalties of the law; to indemnify the heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, and to pay the costs;

5. That pursuant to said judgment Conrado Roque served his sentence but he was not able to pay the indemnity becausehe was insolvent."

Appellant assails said decision, assigning three errors which boil down to the question of whether or not an employer-employeerelationship exists between a jeepney-owner and a driver under a "boundary system" arrangement. Appellant contends that the

relationship is essentially that of lessor and lessee.

A similar contention has been rejected by this Court in several cases. In National Labor Union v. Dinglasan, 52 O.G., No. 4, 1933, itwas held that the features which characterize the "boundary system" — namely, the fact that the driver does not receive a fixedwage but gets only the excess of the receipt of fares collected by him over the amount he pays to the jeep-owner and that thegasoline consumed by the jeep is for the account of the driver — are not sufficient to withdraw the relationship between them fromthat of employer and employee. The ruling was subsequently cited and applied in Doce v. Workmen's Compensation Commission,L-9417, December 22, 1958, which involved the liability of a bus owner for injury compensation to a conductor working under the"boundary system."



The same principle applies with greater reason in negligence cases concerning the right of third parties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, the owner and operator of a passenger jeepney leased it toanother, but without the approval of the Public Service Commission. In a subsequent collision a passenger died. We ruled that sincethe lease was made without such approval, which was required by law, the owner continued to be the operator of the vehicle in legalcontemplation and as such was responsible for the consequences incident to its operation. The same responsibility was held toattach in a case where the injured party was not a passenger but a third person, who sued on the theory of culpa aquiliana (Timbolvs. Osias, L-7547, April 30, 1955). There is no reason why a different rule should be applied in a subsidiary liability case under Article 103 of the Revised Penal Code. As in the existence of an employer-employee relationship between the owner of the vehicle

and the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on theground that he is a mere lessor would be not only to abet f lagrant violations of the Public Service law but also to place the ridingpublic at the mercy of reckless and irresponsible drivers - reckless because the measure of their earnings depends largely upon thenumber of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in noposition to pay the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court,without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts.1äwphï1.ñët

Appellant further argues that he should not have been held subsidiarily liable because Conrado Roque (the driver of the jeepney)pleaded guilty to the charge in the criminal case without appellant's knowledge and contrary to the agreement between them thatsuch plea would not be entered but, instead evidence would be presented to prove Roque's innocence. On this point we quote wi thapproval the pertinent portion of the decision appealed from:

"'With respect to the contention of the defendant that he was taken unaware by the spontaneous plea of guilt entered by

the driver Conrado Roque, and that he did not have a chance to prove the innocence of said Conrado Roque, the Courtholds that at this stage, it is already too late to try the criminal case all over again. Defendant's allegation that he relied onhis belief that Conrado Roque would defend himself and they had sufficient proof to show that Roque was not guilty of thecrime charged cannot be entertained. Defendant should have taken it to himself to aid in the defense of Conrado Roque.Having failed to take this step and the accused having been declared guilty by final judgment of the crime of homicide thrureckless imprudence, there appears no more way for the defendant to escape his subsidiary liability as provided for in Article 103 of the Revised Penal Code."'

WHEREFORE, the judgment appealed from, being in accordance with law, is hereby aff irmed, with costs against defendant-appellant.

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Transportation Cases II Full Text