RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L3678February29,1952 JOSEMENDOZA,plaintiffappellant, vs. PHILIPPINEAIRLINES,INC.,defendantappellee. ManuelO.Chan,ReyesandDyLiacoforappellant. DanielMe.GomezandEmigdioTanjuatcoforappellee. MONTEMAYOR,J.: ThepresentappealbyplaintiffJoseMendozafromthedecisionoftheCourtofFirstInstanceofCamarinesSur,hascome directlytothisTribunalforthereasonthatbothparties,appellantandappellee,acceptedthefindingsoffactmadebythe trialcourtandhereraiseonlyquestionsoflaw.Onourpart,wemustalsoacceptsaidfindingsoffactofthelowercourt. Intheyear1948,appellantJoseMendozawastheowneroftheCitaTheaterlocatedintheCityofNaga,CamarinesSur, whereheusedtoexhibitmoviepicturesbookedfrommovieproducersorfilmownersinManila.Thefiestaortownholiday oftheCityofNaga,heldonSeptember17and18,yearly,wasusuallyattendedbyagreatmanypeople,mostlyfromthe Bicolregion,especiallysincethePatronSaintVirginofPeaFranciawasbelievedbymanytobemiraculous.Asagood businessman,appellant,takingadvantageofthesecircumstances,decidedtoexhibitafilmwhichwouldfittheoccasionand haveaspecialattractionandsignificancetothepeopleattendingsaidfiesta.Amonthbeforetheholiday,thatistosay, August1948,hecontractedwiththeLVNpictures,Inc.,amovieproducerinManilaforhimtoshowduringthetownfiesta the Tagalog film entitled "Himala ng Birhen" or Miracle of the Virgin. He made extensive preparations; he had two thousandpostersprintedandlaterdistributednotonlyintheCityofNagabutalsointheneighboringtowns.Healso advertisedinaweeklyofgeneralcirculationintheprovince.Thepostersandadvertisementstatedthatthefilmwouldbe shownintheCitatheateronthe17thand18thofSeptember,correspondingtotheeveanddayofthefiestaitself. InpursuanceoftheagreementbetweentheLVNPicturesInc.andMendoza,theformeronSeptember17th,1948,delivered tothedefendantPhilippineAirlines(PAL)whoseplanescarriedpassengersandcargoandmaderegulartripsfromManila tothePiliAirPortnearNaga,CamarinesSur,acancontainingthefilm"HimalangBirhen"consignedtotheCitaTheater. ForthisshipmentthedefendantissueditsAirWayBillNo.317133markedExhibit"1".Thiscanoffilmswasloadedon flight113ofthedefendant,theplanearrivingattheAirPortatPilialittleafterfouro'clockintheafternoonofthesame day,September17th.Forreasonsnotexplainedbythedefendant,butwhichwouldappeartobethefaultofitsemployeesor agents,thiscanoffilmwasnotunloadedatPiliAirPortanditwasbroughtbatoManila.Mendozawhohadcompletedall arrangementsfortheexhibitionofthefilmbeginningintheeveningofSeptember17th,toexploitthepresenceofthebig crowdthatcametoattendthetownfiesta,wenttotheAirPortandinquiredfromthedefendant'sstationmasterthereabout thecanoffilm.Saidstationmastercouldnotexplainwhythefilmwasnotunloadedandsentseveralradiogramstohis principalinManilamakinginquiriesandaskingthatthefilmbesenttoNagaimmediately.Afterinvestigationandsearchin theManilaoffice,thefilmwasfinallylocatedthefollowingday,September18th,andthenshippedtothePiliAirPorton September20th.Mendozareceiveditandexhibitedthefilmbuthehadmissedhisopportunitytorealizealargeprofitashe expectedforthepeopleafterthefiestahadalreadyleftfortheirtowns.Torecouphislosses,Mendozabroughtthisaction againstthePAL.Aftertrial,thelowercourtfoundthatbecauseofhisfailuretoexhibitthefilm"HimalangBirhen"during thetownfiesta,MendozasuffereddamagesorratherfailedtoearnprofitsintheamountofP3,000.00,butfindingthePAL notliableforsaiddamages,dismissedthecomplaint. Toavoidliability,defendantappellee,calledtheattentionofthetrialcourttothetermsandconditionsofparagraph6ofthe WayBillprintedonthebackthereofwhichparagraphreadsasfollows: 6.TheCarrierdoesnotobligateitselftocarrytheGoodsbyanyspecifiedaircraftoronaspecifiedtime.Said Carrierbeingherebyauthorizedtodeviatefromtherouteoftheshipmentwithoutanyliabilitytherefor. Itclaimedthatsincetherewasnoobligationonitsparttocarrythefilminquestiononanyspecifiedtime,itcouldnotbe heldaccountableforthedelayofaboutthreedays.Thetrialcourt,however,foundandheldthatalthoughthedefendantwas notobligatedtoloadthefilmonanyspecifiedplaneoronanyparticularday,oncesaidcanfilmwasloadedandshippedon oneofitsplanesmakingtriptoCamarines,thenitassumedtheobligationtounloaditatitspointofdestinationanddeliverLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

ittotheconsignee,anditsunexplainedfailuretocomplywiththisdutyconstitutednegligence.Ifhoweverfoundthatfraud wasnotinvolvedandthatthedefendantwasadebtoringoodfaith. ThetrialcourtpresidedoverbyJudgeJoseN.Leuterioinawellconsidereddecisioncitingauthorities,particularlythecase ofDaywaltvs.CorporaciondePP.AgustinosRecoletos,39Phil.587,heldthatnotbecauseplaintifffailedtorealizeprofits inthesumofP3,000.00duetothenegligenceofthedefendant,shouldthelatterbemadetoreimbursehimsaidsum. ApplyingprovisionsofArt.1107oftheCivilCodewhichprovidesthatlossesandthoseforeseen,orwhichmighthavebeen foreseen,atthetimeofconstitutingtheobligation,andwhichareanecessaryconsequenceofthefailuretoperformit,the trialcourtheldthatinasmuchasthesedamagessufferedbyMendozawerenotforeseenorcouldnothavebeenforeseenat thetimethatthedefendantacceptedthecanoffilmforshipment,forthereasonthatneithertheshipperLVNPicturesInc. northeconsigneeMendozahadcalleditsattentiontothespecialcircumstancesattendingtheshipmentandtheshowingof thefilmduringthetownfiestaofNaga,plaintiffmaynotrecoverthedamagessought. CounselforappellantinsiststhatthearticlesoftheCodeofCommerceratherthanthoseoftheCivilCodeshouldhavebeen appliedindecidingthiscaseforthereasonthattheshipmentofthecanoffilmisanactofcommerce;thatthecontractof transportationinthiscaseshouldbeconsideredcommercialunderArt.349oftheCodeofCommercebecauseitonly involvesmerchandiseoranobjectofcommercebutalsothetransportationcompany,thedefendantherein,wasacommon carrier,thatistosay,customarilyengagedintransportationforthepublic,andthatalthoughthecontractoftransportation wasnotbylandorwaterwaysasdefinedinsaidArt.349,nevertheless,airtransportationbeinganalogoustolandandwater transportation,shouldbeconsideredasincluded,especiallyinviewofthesecondparagraphofArt.2ofthesameCode whichsaysthattransactionscoveredbytheCodeofCommerceandallothersofanalogouscharactershallbedeemedactsof commerce.Thetrialcourt,however,disagreedtothiscontentionandopinedthatairtransportationnotbeingexpressly coveredbytheCodeofCommerce,cannotbegovernedbyitsprovisions. WebelievethatwhetherornottransportationbyairshouldberegardedasacommercialcontractunderArt.349,wouldbe immaterialinthepresentcase,aswillbeexplainedlater.Withoutmakingadefiniterulingonthecivilorcommercialnature oftransportationbyair,itbeingunnecessary,weareinclinedtobelieveandtoholdthatacontractoftransportationbyair mayberegardedascommercial.Thereasonisthatatleastinthepresentcasethetransportationcompany(PAL)isa commoncarrier;besides,airtransportationisclearlysimilaroranalogoustolandandwatertransportation.Theobvious reasonforitsnoninclusionintheCodeofCommercewasthatatthetimeofitspromulgation,transportationbyairona commercialbasiswasnotyetknown.IntheUnitedSateswhereairtransportationhasreacheditshighestdevelopment,an airlinecompanyengagedinthetransportationbusinessisregardedasacommoncarrier. Theprincipleswhichgoverncarriersbyothermeans,suchasbyrailroadormotorbus,governcarriersbyaircraft.6 Am.Jur.,Aviation,Sec.56,p.33. WhenAircraftOperatorisCommonCarrier.Thataircraftandtheindustryofcarriagebyaircraftarenewisno reasonwhyoneinfactemployingaircraftascommoncarriervehiclesshouldnotbeclassifiedasacommoncarrier andchargedwithliabilityassuch.Therecanbenodoubt,underthegenerallawofcommoncarriers,thatthoseair linesandaircraftownersengagedinthepassengerserviceonregularschedulesondefiniteroutes,whosolicitthe patronageofthetravelingpublic,advertiseschedulesforroutes,timeofleaving,andratesoffare,andmakethe usualstipulationastobaggage,arecommoncarriersbyair.Aflyingservicecompanywhich,accordingtoits printedadvertising,willtakeanyoneanywhereatanytime,thoughnotoperatingonregularroutesorschedules, andbasingitschargesnotonthenumberofpassengers,butontheoperatingcostoftheplanepermile,hasbeen heldtobeacommoncarrier.Itisnotnecessary,inordertomakeonecarryingpassengersbyaircraftacommon carrierofpassengersthatthepassengerscanbecarriedfromonepointtoanother;thestatusandtheliabilityasa commoncarriermayexistnotwithstandingthepassenger'sticketissuedbyanairplanecarrierofpassengersforhire containsastatementthatitisnotacommoncarrier,etc.,orastipulationthatitistobeheldonlyforitsproven negligence.Butanairplaneownercannotbeclassedasacommoncarrierofpassengersunlessheundertakes,for hire,tocarryallpersonswhoapplyforpassageindiscriminatelyaslongasthereisroomandnolegalexcusefor refusing....6Am.Jur.,Aviation,Sec.58,pp.3435. Therulesgoverningthebusinessofacommoncarrierbyairshiporflyingmachinemaybereadilyassimilatedto thoseappliedtoothercommoncarriers.2C.J.S.,1951,CumulativePocketPart,AerialNavigation,Sec.38,p.99. Thetestofwhetheroneisacommoncarrierbyairiswhetherheholdsoutthathewillcarryforhire,solongashe has room, goods for everyone bringing goods to him for carriage, not whether he is carrying as a public employmentorwhetherhecarriestoafixedplace.(Ibid.,Sec.39,p.99.) AppellantcontendsthatArt.358oftheCodeofCommerceshouldgoverntheawardofthedamagesinhisfavor.SaidarticleLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

providesthatifthereisnoperiodfixedforthedeliveryofthegoods,thecarriershallbeboundtoforwardtheminthefirst shipmentofthesameorsimilarmerchandisewhichhemaymaketothepointofdelivery,andthatuponfailuretodoso,the damagescausedbythedelayshouldbesufferedbythecarrier.Thisisageneralprovisionforordinarydamagesandisno differentfromtheprovisionsoftheCivilCode,particularlyArt.1101thereof,providingforthepaymentofdamagescaused bythenegligenceordelayinthefulfillmentofone'sobligation.EvenapplyingtheprovisionsoftheCodeofCommerce,as alreadystated,thepertinentprovisionsregardingdamagesonlytreats ofordinarydamagesordamagesingeneral,not specialdamageslikethosesufferedbytheplaintiffherein.Article2oftheCodeofCommerceprovidesthatcommercial transactionsaretobegovernedbytheprovisionsoftheCodeofCommerce,butintheabsenceofapplicableprovisions,they willbegovernedbytheusagesofcommercegenerallyobservedineachplace;andindefaultofboth,bythoseoftheCivil Law.Sothatassumingthatthepresentcaseinvolvedacommercialtransaction,stillinasmuchasthespecialdamagesherein claimedfindsnoapplicableprovisionintheCodeofCommerce,neitherhasitbeenshownthatthereareanycommercial usagesapplicablethereto,theninthelastanalysis,therulesofthecivillawwouldhavetocomeintoplay.UnderArt.1107 oftheCivilCode,adebtoringoodfaithlikethedefendantherein,maybeheldliableonlyfordamagesthatwereforeseenor mighthavebeenforeseenatthetimethecontractofthetransportationwasenteredinto.Thetrialcourtcorrectlyfoundthat thedefendantcompanycouldnothaveforeseenthedamagesthatwouldbesufferedbyMendozauponfailuretodeliverthe canoffilmonthe17thofSeptember,1948forthereasonthattheplansofMendozatoexhibitthatfilmduringthetown fiestaandhispreparations,speciallytheannouncementofsaidexhibitionbypostersandadvertisementinthenewspaper, werenotcalledtothedefendant'sattention. Inourresearchforauthoritieswehavefoundacaseverysimilartotheoneunderconsideration.InthecaseofChapmanvs. Fargo,L.R.A.(1918F)p.1049,theplaintiffinTroy,NewYork,deliveredpicturefilmstothedefendantFargo,anexpress company,consignedandtobedeliveredtohiminUtica.Atthetimeoftheshipmenttheattentionoftheexpresscompany wascalledtothefactthattheshipmentinvolvedmotionpicturefilmstobeexhibitedinUtica,andthattheyshouldbesentto theirdestination,rush.Therewasdelayintheirdeliveryanditwasfoundthattheplaintiffbecauseofhisfailuretoexhibit thefilminUticaduetothedelaysuffereddamagesorlossofprofits.ButthehighestcourtintheStateofNewYorkrefused toawardhimspecialdamages.Saidappellatecourtobserved: Butbeforedefendantcouldbeheldtospecialdamages,suchasthepresentallegedlossofprofitsonaccountof delayorfailureofdelivery,itmusthaveappearedthathehadnoticeatthetimeofdeliverytohimoftheparticular circumstancesattendingtheshipment,andwhichprobablywouldleadtosuchspeciallossifhedefaulted.Or,asthe rulehasbeenstatedinanotherform,inordertoimposeonthedefaultingpartyfurtherliabilitythanfordamages naturallyanddirectly,i.e.,intheordinarycourseofthings,arisingfromabreachofcontract,suchunusualor extraordinarydamagesmusthavebeenbroughtwithinthecontemplationofthepartiesastheprobableresultofa breachatthetimeoforpriortocontracting.Generally,noticethenofanyspecialcircumstanceswhichwillshow thatthedamagestobeanticipatedfromabreachwouldbeenhancedhasbeenheldsufficientforthiseffect. Asmaybeseen,thatNewYorkcaseisastrongeronethanthepresentcaseforthereasonthattheattentionofthecommon carrierinsaidcasewascalledtothenatureofthearticlesshipped,thepurposeofshipment,andthedesiretorushthe shipment,circumstancesandfactsabsentinthepresentcase. ButappellantsnowcontendsthatheisnotsuingonabreachofcontractbutonatortasprovidedforinArt.1902ofthe CivilCode.Wearealittleperplexedastothisnewtheoryoftheappellant.First,heinsiststhatthearticlesoftheCodeof Commerceshouldbeapplied;thatheinvokestheprovisionsofsaidCodegoverningtheobligationsofacommoncarrierto makepromptdeliveryofgoodsgiventoitunderacontractoftransportation.Later,asalreadysaid,hesaysthathewasnever apartytothecontractoftransportationandwasacompletestrangertoit,andthatheisnowsuingonatortorviolationof hisrightsasastranger(culpaaquiliana).Ifhedoesnotinvokethecontractofcarriageenteredintowiththedefendant company,thenhewouldhardlyhaveanylegtostandon.HisrighttopromptdeliveryofthecanoffilmatthePiliAirPort stemsandisderivedfromthecontractofcarriageunderwhichcontract,thePALundertooktocarrythecanoffilmsafely andtodeliverittohimpromptly.Takeawayorignorethatcontractandtheobligationtocarryandtodeliverandtherightto promptdeliverydisappear.Commoncarriersarenotobligatedbylawtocarryandtodelivermerchandise,andpersonsare notvestedwiththerightofpromptdelivery,unlesssuchcommoncarrierspreviouslyassumetheobligation.Saidrightsand obligationsarecreatedbyaspecificcontractenteredintobytheparties.Inthepresentcase,thefindingsofthetrialcourt whichasalreadystated,areacceptedbythepartiesandwhichwemustacceptaretotheeffectthattheLVNPicturesInc. andJoseMendozaononeside,andthedefendantcompanyontheother,enteredintoacontractoftransportation.(p.29, Rec.onAppeal).OneinterpretationofsaidfindingisthattheLVNPicturesInc.throughpreviousagreementwithMendoza actedasthelatter'sagent.WhenhenegotiatedwiththeLVNPicturesInc.torentthefilm"HimalangBirhen"andshowitLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

duringtheNagatownfiesta,hemostprobablyauthorizedandenjoinedthePictureCompanytoshipthefilmforhimonthe PALonSeptember17th.AnotherinterpretationisthateveniftheLVNPicturesInc.asconsignorofitsowninitiative,and actingindependentlyofMendozaforthetimebeing,madeMendozaasconsignee,astrangertothecontractifthatis possible,neverthelesswhenhe,Mendoza,appearedatthePiliAirPortarmedwiththecopyoftheAirWayBill(Exh.1) demandingthedeliveryoftheshipmenttohim,hetherebymadehimselfapartytothecontractofthetransportation.The verycitationmadebyappellantinhismemorandumsupportsthisview.Speakingofthepossibilityofaconflictbetweenthe orderoftheshipperontheonehandandtheorderoftheconsigneeontheother,aswhentheshipperorderstheshipping companytoreturnorretainthegoodsshippedwhiletheconsigneedemandstheirdelivery,MalagarrigainhisbookCodigo deComercioComentado,Vol.I,p.400,citingadecisionofArgentinaCourtofAppealsoncommercialmatters,citedby TolentinoinVol.IIofhisbookentitled"CommentariesandJurisprudenceontheCommercialLawsofthePhilippines"p. 209,saysthattherightoftheshippertocountermandtheshipmentterminateswhentheconsigneeorlegitimateholderof thebillofladingappearswithsuchbillofladingbeforethecarrierandmakeshimselfapartytothecontract.Priortothat time,heisstrangertothecontract. StillanotherviewofthisphaseofthecaseisthatcontemplatedinArt.1257,paragraph2,oftheoldCivilCodewhichreads thus: Shouldthecontractcontainanystipulationinfavorofathirdperson,hemaydemanditsfulfillment,providedhe hasgivennoticeofhisacceptancetothepersonboundbeforethestipulationhasbeenrevoked. Here,thecontractofcarriagebetweentheLVNPicturesInc.andthedefendantcarriercontainsthestipulationsofthe deliverytoMendozaasconsignee.HisdemandforthedeliveryofthecanoffilmtohimatthePiliAirPortmayberegarded asanoticeofhisacceptanceofthestipulationofthedeliveryinhisfavorcontainedinthecontractofcarriage,suchdemand beingoneofthefulfillmentofthecontractofcarriageanddelivery.Inthiscasehealsomadehimselfapartytothecontract, oratleasthascometocourttoenforceit.Hiscauseofactionmustnecessarilybefoundedonitsbreach. Onecanreadilysympathizewiththeappellanthereinforhislossofprofitswhichheexpectedtorealize.Butheoverlooked thelegalangle.Insituationslikethepresentwherefailuretoexhibitfilmsonacertaindaywouldspellsubstantialdamages or considerable loss of profits, including waste of efforts on preparations and expenses incurred in advertisements, exhibitors,fortheirsecurity,mayeithergetholdofthefilmswellaheadofthetimeofexhibitioninordertomakeallowance foranyhitchinthedelivery,orelseenterintoaspecialcontractormakeasuitablearrangementwiththecommoncarrierfor thepromptdeliveryofthefilms,callingtheattentionofthecarriertothecircumstancessurroundingthecaseandthe approximateamountofdamagestobesufferedincaseofdelay. Findingnoreversibleerrorinthedecisionappealedfrom,thesameisherebyaffirmed.Nopronouncementastocosts.So ordered. Paras, C.J., Feria, Bengzon, Padilla, Reyes, Jugo and Bautista Angelo, JJ., concur. Paras,C.J.,IcertifythatMr.JusticeTuasonvotedfortheaffirmance.

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RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L9671August23,1957 CESARL.ISAAC,plaintiffappellant, vs. A.L.AMMENTRANSPORTATIONCO.,INC.,defendantappellee. AngelS.Gamboaforappellant. ManuelO.Chanforappellee. BAUTISTAANGELO,J.: A.L.AmmenTransportationCo.,Inc.,hereinafterreferredtoasdefendant,isacorporationengagedinthebusinessof transporting passengers by land for compensation in the Bicol provinces and one of the lines it operates is the one connectingLegaspiCity,AlbaywithNagaCity,CamarinesSur.OneofthebuseswhichdefendantwasoperatingisBusNo. 31.OnMay31,1951,plaintiffboardedsaidbusasapassengerpayingtherequiredfarefromLigao,AlbayboundforPili, CamarinesSur,butbeforereachinghisdestination,thebuscollidedwithamotorvehicleofthepickuptypecomingfrom theoppositedirection,asaresultofwhichplaintiff'sleftarmwascompletelyseveredandtheseveredportionfellinsidethe bus.PlaintiffwasrushedtoahospitalinIriga,CamarinesSurwherehewasgivenbloodtransfusiontosavehislife.After fourdays,hewastransferredtoanotherhospitalinTabaco,Albay,whereheunderwenttreatmentforthreemonths.Hewas movedlatertotheOrthopedicHospitalwherehewasoperatedonandstayedthereforanothertwomonths.Forthese services,heincurredexpensesamountingtoP623.40,excludingmedicalfeeswhichwerepaidbydefendant. Asanaftermath,plaintiffbroughtthisactionagainstdefendantsfordamagesallegingthatthecollisionwhichresultedinthe lossofhis left arm wasmainlyduetothegrossincompetenceandrecklessness ofthedriverofthebusoperatedby defendantandthatdefendantincurredinculpacontractualarisingfromitsnoncompliancewithitsobligationtotransport plaintiffsafelytohis,destination.Plaintiffpraysforjudgmentagainstdefendantasfollows:(1)P5,000asexpensesforhis medicaltreatment,andP3,000asthecostofanartificialarm,oratotalofP8,000;(2)P6,000representinglossofearning; (3)P75,000fordiminutionofhisearningcapacity;(4)P50,000asmoraldamages;and(5)P10,000asattorneys'feesand costsofsuit. Defendantsetupasspecialdefensethattheinjurysufferedbyplaintiffwasdueentirelytothefaultornegligenceofthe driverofthepickupcarwhichcollidedwiththebusdrivenbyitsdriverandtothecontributorynegligenceofplaintiff himself.Defendantfurtherclaimsthattheaccidentwhichresultedintheinjuryofplaintiffisonewhichdefendantcouldnot foreseeor,thoughforeseen,wasinevitable. Theaftertrialfoundthatthecollisionoccurredduetothenegligenceofthedriverofthepickupcarandnottothatofthe driverofthebusitappearingthatthelatterdideverythinghecouldtoavoidthesamebutthatnotwithstandinghisefforts,he wasnotabletoavoidit.Asaconsequence,thecourtdismissedcomplaint,withcostsagainstplaintiff.Thisisanappealfrom saiddecision. ItappearsthatplaintiffboardedabusofdefendantaspayingpassengerfromLigao,Albay,boundforPili,CamarinesSur, butbeforereachinghisdestination,thebuscollidedwithapickupcarwhichwascomingfromtheoppositedirectionand, asa,result,hisleftarmwascompletelyseveredandfellinsidethebackpartofthebus.Havingthisbackgroundinview,and consideringthatplaintiffchosetoholddefendantliableonitscontractualobligationtocarryhimsafelytohisplaceof destination,itbecomesimportanttodeterminethenatureandextentoftheliabilityofacommoncarriertoapassengerin thelightofthelawapplicableinthisjurisdiction. Inthisconnection,appellantinvokestherulethat,"whenanactionisbasedonacontractofcarriage,asinthiscase,allthat isnecessarytosustainrecoveryisproofoftheexistenceofthecontractofthebreachthereofbyactoromission",andin supportthereof,hecitesseveralPhilippinecases.1Withtherulinginmind,appellantseemstoimplythatoncethecontract ofcarriageisestablishedandthereisproofthatthesamewasbrokenbyfailureofthecarriertotransportthepassenger safelytohisdestination,theliabilityoftheformerattaches.Ontheotherhand,appelleeclaimsthatisawrongpresentation oftherule.ItclaimsthatthedecisionsofthisCourtinthecasesciteddonotwarranttheconstructionsoughttobeplaced upon,thembyappellantforamereperusalthereofwouldshowthattheliabilityofthecarrierwaspredicatednotuponmere breachofitscontractofcarriagebutuponthefindingthatitsnegligencewasfoundtobethedirectorproximatecauseoftheLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

injurycomplainedof.Thus,appelleecontendsthat"ifthereisnonegligenceonthepartofthecommoncarrierbutthatthe accidentresultingininjuriesisduetocauseswhichareinevitableandwhichcouldnothavebeenavoidedoranticipated notwithstandingtheexerciseofthathighdegreeofcareandskillwhichthecarrierisboundtoexerciseforthesafetyofhis passengers",neitherthecommoncarriernorthedriverisliabletherefor. Webelievethatthelawconcerningtheliabilityofacommoncarrierhasnowsufferedasubstantialmodificationinviewof theinnovationsintroducedbythenewCivilCode.TheseinnovationsaretheonesembodiedinArticles1733,1755and1756 insofarastherelationbetweenacommoncarrieranditspassengersisconcerned,which,forreadyreference,wequote hereunder: ART.1733.Commoncarriers,fromthenatureoftheirbusinessandforreasonsofpublicpolicy,areboundto observeextraordinarydiligenceinthevigilanceoverthegoodsandforthesafetyofthepassengerstransportedby themaccordingtoallthecircumstancesofeachcase. Suchextraordinarydiligenceinthevigilanceoverthegoodsisfurtherexpressedinarticles1734,1735,and1745, Nos.5,6,and7,whiletheextraordinarydiligenceforthesafetyofthepassengersisfurthersetforthinarticles1755 and1756. ART.1755.Acommoncarrierisboundtocarrythepassengerssafelyasfarashumancareandforesightcan provide,usingtheutmostdiligenceofverycautiouspersons,withadueregardforallthecircumstances. ART.1756.Incaseofdeathoforinjuriestopassengers,commoncarriersarepresumedtohavebeenatfaultorto haveactednegligently,unlesstheyprovethattheyobservedextraordinarydiligenceasprescribedinarticles1733 and1755. TheCodeCommission,injustifyingthisextraordinarydiligencerequiredofacommoncarrier,saysthefollowing: Acommoncarrierisboundtocarrythepassengerssafelyasfarashumancareandforesightcanprovide,usingthe utmostdeligenceofverycautionspersons,withdueregardforallcircumstances.Thisextraordinarydiligence requiredofcommoncarriersiscalculatedtoprotectthepassengersfromthetragicmishapsthatfrequentlyoccurin connection with rapid modern transportation. This high standard of care is imperatively demanded by the precariousnessofhumanlifeandbytheconsiderationthateverypersonmustineverywaybesafeguardedagainst allinjury.(ReportoftheCodeCommission,pp.3536)"(Padilla,CivilCodeofthePhilippines,Vol.IV,1956ed., p.197). Fromtheabovelegalprovisions,wecanmakethefollowingrestatement oftheprinciplesgoverningtheliabilityofa commoncarrier:(1)theliabilityofacarrieriscontractualandarisesuponbreachofitsobligation.Thereisbreachifitfails toexertextraordinarydiligenceaccordingtoallcircumstancesofeachcase;(2)acarrierisobligedtocarryitspassenger withtheutmostdiligenceofaverycautiousperson,havingdueregardforallthecircumstances;(3)acarrierispresumedto beatfaultortohaveactednegligentlyincaseofdeathof,orinjuryto,passengers,itbeingitsdutytoprovethatitexercised extraordinarydiligence;and(4)thecarrierisnotaninsureragainstallrisksoftravel. Thequestionthatnowarisesis:Hasdefendantobservedextraordinarydiligenceortheutmostdiligenceofeverycautious person,havingdueregardforallcircumstances,inavoidingthecollisionwhichresultedintheinjurycausedtotheplaintiff? Afterexaminingtheevidenceinconnectionwithhowthecollisionoccurred,thelowercourtmadethefollowingfinding: Hemosexaminadomuydetenidamentelaspruebaspresentadasenlavista,principalmente,lasdeclaracionesque hemosacotadoarriba,yhernosIlegadoalaconclusiondequeeldemandadohahecho,todocuantoestuvieredesu parteparaevitarelaccidente,perosinembargo,nohapodidoevitarlo. EIhechodequeeldemandado,antesdelchoque,tuvoquehacerpasarsutruckencimadelosmontonesdegrava queestabandepositadosenlaorilladelcamino,sinquehayaidomasalla,porelgraveriesgoquecorrianlasvidas desuspasajeros,espruebaconcluyentedeloquetenemosdicho,asaber:queelcuantoesubadesuparte,para evitarelaccidente,sinquehayapodidoevitardo,porestarfueradesucontrol. The evidence would appear tosupport the abovefinding.Thus, it appears that Bus No.31, immediatelyprior to the collision,wasrunningatamoderatespeedbecauseithadjuststoppedattheschoolzoneofMatacong,Polangui,Albay.The pickupcarwasatfullspeedandwasrunningoutsideofitsproperlane.Thedriverofthebus,uponseeingthemannerin whichthepickupwasthenrunning,swervedthebustotheveryextremerightoftheroaduntilitsfrontandrearwheels havegoneoverthepileofstonesorgravelsituatedontherampartoftheroad.Saiddrivercouldnotmovethebusfarther rightandrunoveragreaterportionofthepile,thepeakofwhichwasabout3feethigh,withoutendangeringthesafetyof hispassengers.Andnotwithstandingalltheseefforts,therearleftsideofthebuswashitbythepickupcar. Ofcourse,thisfindingisdisputedbyappellantwhocannotseeeyetoeyewiththeevidencefortheappelleeandinsiststhat thecollisiontookplacebecausethedriverofthebuswasgoingatafastspeed.Hecontendsthat,havingseenthatacarwasLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

comingfromtheoppositedirectionatadistancewhichallowstheuseofmoderatecareandprudencetoavoidanaccident, andknowingthatonthesideoftheroadalongwhichhewasgoingtherewasapileofgravel,thedriverofthebusshould havestoppedandwaitedforthevehiclefromtheoppositedirectiontopass,andshouldhaveproceededonlyaftertheother vehiclehadpassed.Inotherwords,accordingtoappellant,theactofthedriverofthebusinsqueezinghiswaythroughof thebusinsqueezinghiswaythroughbetweentheoncomingpickupandthepileofgravelunderthecircumstanceswas considerednegligent. Butthismatterisoneofcredibilityandevaluationoftheevidence.Thisisevidence.Thisisthefunctionofthetrialcourt. Thetrialcourthasalreadyspokenonthismatteraswehavepointedoutabove.Thisisalsoamatterofappreciationofthe situationonthepartofthedriver.Whilethepositiontakenbyappellantappealsmoretothesenseofcautionthatoneshould observeinagivensituationtoavoidanaccidentormishap,suchhowevercannotalwaysbeexpectedfromonewhois placedsuddenlyinapredicamentwhereheisnotgivenenoughtimetotakethecourseofactionasheshouldunderordinary circumstances.Onewhoisplacedinsuchapredicamentcannotexercisesuchcoolnessoraccuracyofjudgmentasis requiredofhimunderordinarycircumstancesandhecannotthereforebeexpectedtoobservethesamejudgment,careand precautionasinthelatter.Forthisreason,authoritiesaboundwherefailuretoobservethesamedegreeofcarethatas ordinaryprudentmanwouldexerciseunderordinarycircumstanceswhenconfrontedwithasaddenemergencywasheldto bewarrantedandajustificationtoexemptthecarrierfromliability.Thus,itwasheldthat"whereacarrier'semployeeis confrontedwithasuddenemergency,thefactthatheisobligedtoactquicklyandwithoutachancefordeliberationmustbe takenintoaccount,andheisheldtothesomedegreeofcarethathewouldotherwiseberequiredtoexerciseintheabsence ofsuchemergencybutmustexerciseonlysuchcareasanyordinaryprudentpersonwouldexerciseunderlikecircumstances andconditions,andthefailureonhisparttoexercisethebestjudgementthecaserenderspossibledoesnotestablishlackof careandskillonhispartwhichrendersthecompany,liable....(13C.J.S.,1412;10C.J.,970).Consideringallthe circumstances,wearepersuadedtoconcludethatthedriverofthebushasdonewhataprudentmancouldhavedoneto avoidthecollisionandinouropinionthisrelievesappelleefromlegibilityunderourlaw. Acircumstanceswhichmiliatesagainstthestandofappellantisthefactborneoutbytheevidencethatwhenheboardedthe businquestion,heseatedhimselfontheleftsidethereofrestinghisleftarmonthewindowsillbutwithhisleftelbow outsidethewindow,thisbeinghispositioninthebuswhenthecollisiontookplace.Itisforthisreasonthatthecollision resultedintheseveranceofsaidleftarmfromthebodyofappellantthusdoinghimagreatdamage.Itisthereforeapparent thatappellantisguiltyofcontributorynegligence.Hadhenotplacedhisleftarmonthewindowsillwithaportionthereof protrudingoutside,perhapstheinjurywouldhavebeenavoidedasisthecasewiththeotherpassenger.Itistobenotedthat appellantwastheonlyvictimofthecollision. Itistruethatsuchcontributorynegligencecannotrelieveappelleeofitsliabilitybutwillonlyentitleittoareductionofthe amountofdamagecaused(Article1762,newCivilCode),butthisisacircumstancewhichfurthermilitatesagainstthe positiontakenbyappellantinthiscase. Itistheprevailingrulethatitisnegligenceperseforapassengeronarailroadvoluntarilyorinadvertentlyto protrudehisarm,hand,elbow,oranyotherpartofhisbodythroughthewindowofamovingcarbeyondtheouter edgeofthewindoworoutersurfaceofthecar,soastocomeincontactwithobjectsorobstaclesnearthetrack,and thatnorecoverycanbehadforaninjurywhichbutforsuchnegligencewouldnothavebeensustained.(10C.J. 1139) Plaintiff,(passenger)whileridingonaninterurbancar,toflicktheashes,fromhiscigar,thrusthishandoverthe guardrailasufficientdistancebeyondthesidelineofthecartobringitincontactwiththetrunkofatreestanding besidethetrack;theforceoftheblowbreakinghiswrist.Held,thathewasguiltyofcontributorynegligenceasa matteroflaw.(Malakiavs.RhodeIslandCo.,89A.,337.) Wherefore,thedecisionappealedfromisaffirmed,withcostagainstappellant. Paras,C.J.,Bengzon,Padilla,Montemayor,Reyes,A.,Labrador,Concepcion,EndenciaandFelix,JJ.,concur.

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RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L10126October22,1957 SALUD VILLANUEVA VDA. DE BATACLAN and the minors NORMA, LUZVIMINDA, ELENITA, OSCAR and ALFREDO BATACLAN, represented by their Natural guardian, SALUD VILLANUEVA VDA. DE BATACLAN, plaintiffsappellants, vs. MARIANOMEDINA,defendantappellant. LopeE.Adriano,EmmanuelAndamoandJoseR.Franciscoforplaintiffsappellants. FortunatoJosefordefendantandappellant. MONTEMAYOR,J.: Shortlyaftermidnight,onSeptember13,1952busno.30oftheMedinaTransportation,operatedbyitsownerdefendant MarianoMedinaunderacertificateofpublicconvenience,leftthetownofAmadeo,Cavite,onitswaytoPasayCity,driven byitsregularchauffeur,ConradoSaylon.Therewereabouteighteenpassengers,includingthedriverandconductor.Among thepassengerswereJuanBataclan,seatedbesideandtotherightofthedriver,FelipeLara,satedtotherightofBataclan, anotherpassengerapparentlyfromtheVisayanIslandswhomthewitnessesjustcalledVisaya,apparentlynotknowinghis name, seated in the left side of the driver, and a woman named Natalia Villanueva, seated just behind the four last mentioned.Atabout2:00o'clockthatsamemorning,whilethebuswasrunningwithinthejurisdictionofImus,Cavite,one ofthefronttiresburstandthevehiclebegantozigzaguntilitfellintoacanalorditchontherightsideoftheroadand turnedturtle.Someofthepassengersmanagedtoleavethebusthebestwaytheycould,othershadtobehelpedorpulled out,whilethethreepassengersseatedbesidethedriver,namedBataclan,LaraandtheVisayanandthewomanbehindthem namedNataliaVillanueva,couldnotgetoutoftheoverturnedbus.Someofthepassengers,aftertheyhadclamberedupto theroad,heardgroansandmoansfrominsidethebus,particularly,shoutsforhelpfromBataclanandLara,whosaidthey couldnotgetoutofthebus.Thereisnothingintheevidencetoshowwhetherornotthepassengersalreadyfreefromthe wreck,includingthedriverandtheconductor,madeanyattempttopulloutorextricateandrescuethefourpassengers trappedinsidethevehicle,butcallsorshoutsforhelpweremadetothehousesintheneighborhood.Afterhalfanhour, cameabouttenmen,oneofthemcarryingalightedtorchmadeofbamboowithawickononeend,evidentlyfueledwith petroleum.Thesemenpresumablyapproachtheoverturnedbus,andalmostimmediately,afiercefirestarted,burningand allbutconsumingthebus,includingthefourpassengerstrappedinsideit.Itwouldappearthatasthebusoverturned, gasolinebegantoleakandescapefromthegasolinetankonthesideofthechassis,spreadingoverandpermeatingthebody ofthebusandthegroundunderandaroundit,andthatthelightedtorchbroughtbyoneofthemenwhoansweredthecall forhelpsetitonfire. Thatsameday,thecharredbodiesofthefourdeemedpassengersinsidethebuswereremovedanddulyidentifiedthatof JuanBataclan.Byreasonofhisdeath,hiswidow,SaludVillanueva,inhernameandinbehalfofherfiveminorchildren, broughtthepresentsuittorecoverfromMarianoMedinacompensatory,moral,andexemplarydamagesandattorney'sfees inthetotalamountofP87,150.Aftertrial,theCourtofFirstInstanceofCaviteawardedP1,000totheplaintiffsplusP600as attorney'sfee,plusP100,thevalueofthemerchandisebeingcarriedbyBataclantoPasayCityforsaleandwhichwaslostin thefire.TheplaintiffsandthedefendantsappealedthedecisiontotheCourtofAppeals,butthelatterendorsedtheappealto usbecauseofthevalueinvolvedintheclaiminthecomplaint. OurnewCivilCodeamplyprovidesfortheresponsibilityofcommoncarriertoitspassengersandtheirgoods.Forpurposes ofreference,wearereproducingthepertinentcodalprovisions: ART.1733.Commoncarriers,fromthenatureoftheirbusinessandforreasonsofpublicpolicy,areboundto observeextraordinarydiligenceinthevigilanceoverthegoodsandforthesafetyofthepassengerstransportedby them,accordingtoallthecircumstancesofeachcase. Suchextraordinarydiligenceinthevigilanceoverthegoodsisfurtherexpressedinarticles1734,1735,and1745, Nos.5,6,and7,whiletheextraordinarydiligenceforthesafetyofthepassengersisfurthersetforthinarticles 1755and1756.LAW ON TRANSPORTATION MarielAngelaPiedadSoriano

ART.1755.Acommoncarrierisboundtocarrythepassengerssafelyasfarashumancareandforesightcan provide,usingtheutmostdiligenceofverycautiouspersons,withadueregardforallthecircumstances. ART.1756.Incaseofdeathoforinjuriestopassengers,commoncarriersarepresumedtohavebeenatfaultorto haveactednegligently,unlesstheyprovethattheyobservedextraordinarydiligenceasprescribedinarticles1733 and1755 ART.1759.Commoncarriersareliableforthedeathoforinjuriestopassengersthroughthenegligenceorwillful actsoftheformer'semployees,althoughsuchemployeesmayhaveactedbeyondthescopeoftheirauthorityorin violationoftheorderofthecommoncarriers. Thisliabilityofthecommoncarriersdoesnotceaseuponproofthattheyexercisedallthediligenceofagood fatherofafamilyintheselectionandsupervisionoftheiremployees. ART.1763.Acommoncarrierresponsibleforinjuriessufferedbyapassengeronaccountofthewillfulactsor negligenceofotherpassengersorofstrangers,ifthecommoncarrier'semployees throughtheexerciseofthe diligenceofagoodfatherofafamilycouldhavepreventedorstoppedtheactoromission. Weagreewiththetrialcourtthatthecaseinvolvesabreachofcontractoftransportationforhire,theMedinaTransportation havingundertakentocarryBataclansafelytohisdestination,PasayCity.Wealsoagreewiththetrialcourtthattherewas negligenceonthepartofthedefendant,throughhisagent,thedriverSaylon.Thereisevidencetoshowthatatthetimeof theblowout,thebuswasspeeding,astestifiedtobyoneofthepassengers,andasshownbythefactthataccordingtothe testimonyofthewitnesses,includingthatofthedefense,fromthepointwhereoneofthefronttiresburstuptothecanal wherethebusoverturnedafterzigzaging,therewasadistanceofabout150meters.Thechauffeur,aftertheblowout,must haveappliedthebrakesinordertostopthebus,butbecauseofthevelocityatwhichthebusmusthavebeenrunning,its momentumcarrieditoveradistanceof150metersbeforeitfellintothecanalandturnedturtle. Thereisnoquestionthatunderthecircumstances,thedefendantcarrierisliable.Theonlyquestionistowhatdegree.The trialcourtwasoftheopinionthattheproximatecauseofthedeathofBataclanwasnottheoverturningofthebus,but rather,thefirethatburnedthebus,includinghimselfandhiscopassengerswhowereunabletoleaveit;thatatthetimethe firestarted,Bataclan,thoughhemusthavesufferedphysicalinjuries,perhapsserious,wasstillalive,andsodamageswere awarded,notforhisdeath,butforthephysicalinjuriessufferedbyhim.Wedisagree.Asatisfactorydefinitionofproximate causeisfoundinVolume38,pages695696ofAmericanjurisprudence,citedbyplaintiffsappellantsintheirbrief.Itisas follows: ...'thatcause,which,innaturalandcontinuoussequence,unbrokenbyanyefficientinterveningcause,produces theinjury,andwithoutwhichtheresultwouldnothaveoccurred.'Andmorecomprehensively,'theproximatelegal causeisthatactingfirstandproducingtheinjury,eitherimmediatelyorbysettingothereventsinmotion,all constitutinganaturalandcontinuouschainofevents,eachhavingaclosecausalconnectionwithitsimmediate predecessor,thefinaleventinthechainimmediatelyeffectingtheinjuryasanaturalandprobableresultofthe causewhichfirstacted,undersuchcircumstancesthatthepersonresponsibleforthefirsteventshould,asan ordinaryprudentandintelligentperson,havereasonablegroundtoexpectatthemomentofhisactordefaultthat aninjurytosomepersonmightprobablyresulttherefrom. Itmaybethatordinarily,whenapassengerbusoverturns,andpinsdownapassenger,merelycausinghimphysicalinjuries, if through some event, unexpected and extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymenafterlootingthevehiclesetsitonfire,andthepassengerisburnedtodeath,onemightstillcontendthatthe proximate cause of his death was the fire and not the overturning of the vehicle. But in the present case under the circumstancesobtaininginthesame,wedonothesitatetoholdthattheproximatecausewastheoverturningofthebus,this forthereasonthatwhenthevehicleturnednotonlyonitssidebutcompletelyonitsback,theleakingofthegasolinefrom thetankwasnotunnaturalorunexpected;thatthecomingofthemenwithalightedtorchwasinresponsetothecallfor help,madenotonlybythepassengers,butmostprobably,bythedriverandtheconductorthemselves,andthatbecauseit wasdark(about2:30inthemorning),therescuershadtocarryalightwiththem,andcomingastheydidfromaruralarea wherelanternsandflashlightswerenotavailable;andwhatwasmorenaturalthanthatsaidrescuersshouldinnocently approachthevehicletoextendtheaidandeffecttherescuerequestedfromthem.Inotherwords,thecomingofthemen withatorchwastobeexpectedandwasanaturalsequenceoftheoverturningofthebus,thetrappingofsomeofits passengersandthecallforoutsidehelp.Whatismore,theburningofthebuscanalsoinpartbeattributedtothenegligence ofthecarrier,throughisdriveranditsconductor.Accordingtothewitness,thedriverandtheconductorwereontheroad walkingbackandforth.They,oratleast,thedrivershouldandmusthaveknownthatinthepositioninwhichtheoverturned buswas,gasolinecouldandmusthaveleakedfromthegasolinetankandsoakedtheareainandaroundthebus,thisasideLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

fromthefactthatgasolinewhenspilled,speciallyoveralargearea,canbesmeltanddirectedevenfromadistance,andyet neitherthedrivernortheconductorwouldappeartohavecautionedortakenstepstowarntherescuersnottobringthe lightedtorchtoonearthebus.Saidnegligenceonthepartoftheagentsofthecarriercomeunderthecodalprovisions abovereproduced,particularly,Articles1733,1759and1763. Asregardthedamagestowhichplaintiffsareentitled,consideringtheearningcapacityofthedeceased,aswellastheother elementsenteringintoadamageaward,wearesatisfiedthattheamountofSIXTHOUSAND(P6,000)PESOSwould constitutesatisfactorycompensation,thistoincludecompensatory,moral,andotherdamages.Wealsobelievethatplaintiffs areentitledtoattorney'sfees,andassessingthelegalservicesrenderedbyplaintiffs'attorneysnotonlyinthetrialcourt,but alsointhecourseoftheappeal,andnotlosingsightoftheablebriefspreparedbythem,theattorney'sfeesmaywellbe fixedatEIGHTHUNDRED(P800)PESOSforthelossofmerchandisecarriedbythedeceasedinthebus,isadequateand willnotbedisturbed. Thereisonephaseofthiscasewhichdisturbsifitdoesnotshockus.Accordingtotheevidence,oneofthepassengerswho, becauseoftheinjuriessufferedbyher,washospitalized,andwhileinthehospital,shewasvisitedbythedefendantMariano Medina,andinthecourseofhisvisit,sheoverheardhimspeakingtooneofhisbusinspectors,tellingsaidinspectortohave thetiresofthebuschangedimmediatelybecausetheywerealreadyold,andthatasamatteroffact,hehadbeentellingthe drivertochangethesaidtires,butthatthedriverdidnotfollowhisinstructions.Ifthisbetrue,itgoestoprovethatthe driverhadnotbeendiligentandhadnottakenthenecessaryprecautionstoinsurethesafetyofhispassengers.Hadhe changedthetires,speciallythoseinfront,withnewones,ashehadbeeninstructedtodo,probably,despitehisspeeding,as wehavealreadystated,theblowoutwouldnothaveoccurred.Allinall,thereisreasontobelievethatthedriveroperated anddrovehis vehiclenegligently,resultinginthedeathoffourofhispassengers,physical injuriestoothers,andthe completelossanddestructionoftheirgoods,andyetthecriminalcaseagainsthim,onmotionofthefiscalandwithhis consent,wasprovisionallydismissed,becauseaccordingtothefiscal,thewitnessesonwhosetestimonyhewasbankingto supportthecomplaint,eitherfailedorappearorwerereluctanttotestify.Buttherecordofthecasebeforeusshowsthe severalwitnesses,passengers,inthatbus,willinglyandunhesitatinglytestifiedincourttotheeffectofthesaiddriverwas negligent.Inthepublicinteresttheprosecutionofsaiderringdrivershouldbepursued,this,notonlyasamatterofjustice, butforthepromotionofthesafetyofpassengersonpublicutilitybuses.Letacopyofthisdecisionbefurnishedthe DepartmentofJusticeandtheProvincialFiscalofCavite. Inviewoftheforegoing,withthemodificationthat thedamages awardedbythetrial courtareincreasedfromONE THOUSAND(P1,000)PESOSTOSIXTHOUSAND(P6,000)PESOS,andfromSIXHUNDREDPESOSTOEIGHT HUNDRED(P800)PESOS,forthedeathofBataclanandfortheattorney'sfees,respectively,thedecisionappealedisfrom herebyaffirmed,withcosts. Paras,C.J.,Bengzon,Padilla,Reyes,A.,BautistaAngelo,Labrador,Concepcion,Reyes,J.B.L.,Endencia,andFelix,JJ., concur.

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RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L25599April4,1968 HOMEINSURANCECOMPANY,plaintiffappellee, vs. AMERICANSTEAMSHIPAGENCIES,INC.andLUZONSTEVEDORINGCORPORATION,defendants, AMERICANSTEAMSHIPAGENCIES,INC.,defendantappellant. WilliamH.QuashaandAssociatesforplaintiffappellee. Ross,Selph,SalcedoandAssociatesfordefendantappellant. BENGZON,J.P.,J.: "ConsorcioPesquerodelPeruofSouthAmerica"shippedfreightprepaidatChimbate,Peru,21,740jutebagsofPeruvian fishmealthroughSSCrowborough,coveredbycleanbillsofladingNumbers1and2,bothdatedJanuary17,1963.The cargo,consignedtoSanMiguelBrewery,Inc.,nowSanMiguelCorporation,andinsuredbyHomeInsuranceCompanyfor $202,505,arrivedinManilaonMarch7,1963andwasdischargedintothelightersofLuzonStevedoringCompany.When thecargowasdeliveredtoconsigneeSanMiguelBreweryInc.,therewereshortagesamountingtoP12,033.85,causingthe latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies,ownerandoperatorofSSCrowborough. Becausetheothersdeniedliability,HomeInsuranceCompanypaidtheconsigneeP14,870.71theinsurancevalueofthe loss,asfullsettlementoftheclaim.HavingbeenrefusedreimbursementbyboththeLuzonStevedoringCorporationand AmericanSteamshipAgencies,HomeInsuranceCompany,assubrogeetotheconsignee,filedagainstthemonMarch6, 1964beforetheCourtofFirstInstanceofManilaacomplaintforrecoveryofP14,870.71withlegalinterest,plusattorney's fees. Inanswer,LuzonStevedoringCorporationallegedthatitdeliveredwithduediligencethegoodsinthesamequantityand qualitythatithadreceivedthesamefromthecarrier.Italsoclaimedthatplaintiff'sclaimhadprescribedunderArticle366 oftheCodeofCommercestatingthattheclaimmustbemadewithin24hoursfromreceiptofthecargo. AmericanSteamshipAgenciesdeniedliabilitybyallegingthatundertheprovisionsoftheCharterpartyreferredtointhe billsoflading,thecharterer,nottheshipowner,wasresponsibleforanylossordamageofthecargo.Furthermore,itclaimed tohaveexercisedduediligenceinstowingthegoodsandthatasamereforwardingagent,itwasnotresponsibleforlossesor damagestothecargo. OnNovember17,1965,theCourtofFirstInstance,aftertrial,absolvedLuzonStevedoringCorporation,havingfoundthe lattertohavemerelydeliveredwhatitreceivedfromthecarrierinthesameconditionandquality,andorderedAmerican SteamshipAgenciestopayplaintiffP14,870.71withlegalinterestplusP1,000attorney'sfees.Saidcourtcitedthefollowing grounds: (a)ThenonliabilityclaimofAmericanSteamshipAgenciesunderthecharterpartycontractisnottenablebecause Article587oftheCodeofCommercemakestheshipagentalsocivillyliablefordamagesinfavorofthirdpersons duetotheconductofthecaptainofthecarrier; (b)Thestipulationinthecharterpartycontractexemptingtheownerfromliabilityisagainstpublicpolicyunder Article1744oftheCivilCode; (c)Incaseofloss,destructionordeteriorationofgoods,commoncarriersarepresumedatfaultornegligentunder Article1735oftheCivilCodeunless theyproveextraordinarydiligence,andtheycannotbycontractexempt themselvesfromliabilityresultingfromtheirnegligenceorthatoftheirservants;and (d)Whengoodsaredeliveredtothecarrieringoodorderandthesameareinbadorderattheplaceofdestination, thecarrierisprimafacieliable. Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings forth for determinationthislegalissue:Isthestipulationinthecharterpartyoftheowner'snonliabilityvalidsoastoabsolvethe AmericanSteamshipAgenciesfromliabilityforloss? Thebillsoflading,1coveringtheshipmentofPeruvianfishmealprovideatthebackthereofthatthebillsofladingshallbeLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

governedbyandsubjecttothetermsandconditionsofthecharterparty,ifany,otherwise,thebillsofladingprevailoverall theagreements.2Ontheofthebillsarestamped"Freightprepaidaspercharterparty.Subjecttoallterms,conditionsand exceptionsofcharterpartydatedLondon,Dec.13,1962." Aperusal ofthecharterparty3referredtoshowsthat whilethepossessionandcontrol oftheshipwerenotentirely transferredtothecharterer,4thevesselwascharteredtoitsfullandcompletecapacity(Exh.3).Furthermore,the,charter hadtheoptiontogonorthorsouthorviceversa,5loading,stowinganddischargingatitsriskandexpense.6Accordingly, thecharterpartycontractisoneofaffreightmentoverthewholevesselratherthanademise.Assuch,theliabilityofthe shipownerforactsornegligenceofitscaptainandcrew,wouldremainintheabsenceofstipulation. Section2,paragraph2ofthecharterparty,providesthattheownerisliableforlossordamagetothegoodscausedby personalwantofduediligenceonitspartoritsmanagertomakethevesselinallrespectsseaworthyandtosecurethatshe beproperlymanned,equippedandsuppliedorbythepersonalactordefaultoftheowneroritsmanager.Saidparagraph, however,exemptstheownerofthevesselfromanylossordamageordelayarisingfromanyothersource,evenfromthe neglectorfaultofthecaptainorcreworsomeotherpersonemployedbytheowneronboard,forwhoseactstheowner wouldordinarilybeliableexceptforsaidparagraph.. Regardingthestipulation,theCourtofFirst Instancedeclaredthecontractas contrarytoArticle587oftheCodeof Commercemakingtheshipagentcivillyliableforindemnitiessufferedbythirdpersonsarisingfromactsoromissionsof thecaptaininthecareofthegoodsandArticle1744oftheCivilCodeunderwhichastipulationbetweenthecommon carrierandtheshipperorownerlimitingtheliabilityoftheformerforlossordestructionofthegoodstoadegreelessthan extraordinarydiligenceisvalidprovideditbereasonable,justandnotcontrarytopublicpolicy.Thereleasefromliabilityin thiscasewasheldunreasonableandcontrarytothepublicpolicyoncommoncarriers. The provisions of our Civil Code on common carriers were taken from AngloAmerican law.7 Under American jurisprudence,acommoncarrierundertakingtocarryaspecialcargoorcharteredtoaspecialpersononly,becomesa privatecarrier.8Asaprivatecarrier,astipulationexemptingtheownerfromliabilityforthenegligenceofitsagentisnot againstpublicpolicy,9andisdeemedvalid. SuchdoctrineWefindreasonable.TheCivilCodeprovisionsoncommoncarriersshouldnotbeappliedwherethecarrieris notactingassuchbutasaprivatecarrier.Thestipulationinthecharterpartyabsolvingtheownerfromliabilityforlossdue tothenegligenceofitsagentwouldbevoidonlyifthestrictpublicpolicygoverningcommoncarriersisapplied.Such policyhasnoforcewherethepublicatlargeisnotinvolved,asinthecaseofashiptotallycharteredfortheuseofasingle party. Andfurthermore,inacharteroftheentirevessel,thebillofladingissuedbythemastertothecharterer,asshipper,isinfact andlegalcontemplationmerelyareceiptandadocumentoftitlenotacontract,forthecontractisthecharterparty.10The consignee may not claim ignorance of said charter party because the bills of lading expressly referred to the same. Accordingly,theconsigneesunderthebillsofladingmustlikewiseabidebythetermsofthecharterparty.Andasstated, recoverycannotbehadthereunder,forlossordamagetothecargo,againsttheshipowners,unlessthesameisdueto personalactsornegligenceofsaidowneroritsmanager,asdistinguishedfromitsotheragentsoremployees.Inthiscase,no suchpersonalactornegligencehasbeenproved. WHEREFORE,thejudgmentappealedfromisherebyreversedandappellantisabsolvedfromliabilitytoplaintiff.Nocosts. Soordered. Reyes,J.B.L.,Makalintal,Zaldivar,Sanchez,Castro,AngelesandFernando,JJ.,concur. DizonJ.,tooknopart. Concepcion,C.J.,isonleave.

LAW ON TRANSPORTATION MarielAngelaPiedadSoriano

RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L28512February28,1973 PEDROR.DAVILAandPRECIOSAC.TIRO,plaintiffsappellants, vs. PHILIPPINEAIRLINES,defendantappellant. Dizon,DeGuzmanandVitugandPedroR.Davilaforplaintiffsappellants. SiguionReyna,Montecillo,BeloandOngsiakofordefendantappellant. MAKALINTAL,J.: InCivilCaseNo.5728oftheCourtofFirstInstanceofIloilo(PedroR.DavilaandPreciosaC.Tirol,plaintiffs,vs. PhilippineAirLines,Inc.,defendant)judgmentwasrenderedorderingthedefendanttopaytheplaintiffsvarioussumsof money,asfollows: (1)ForthedeathofPedroT.Davila,Jr.theamountofP6,000.00; (2)ForthelossoftheearningcapacityofthedeceasedattherateofP12,000.00perannumforfive(5) yearsintheamountofSixtyThousandPesos.(P60,000.00); (3)FormoraldamagesinfavoroftheplaintiffsTenThousandPesos(P10,000.00); (4)ForexemplarydamagesintheamountofTenThousandPesos(P10,000.00); (5)ForactualdamagestheamountofFiveThousandPesos(P5,000.00)brokendowntoasfollows:A rolexwatch valued at P600.00; a pistol worthP300.00; burial expenses P600.00; for the lot and the mausoleumP3,500.00; (6)ForAttorney'sfeestheamountofTenThousandPesos(P10,000.00)oratotalamountofOneHundred andOneThousandPesos(P101,000.00) Topaythecostsofthisproceedings. BothpartiesappealeddirectlytothisCourtinviewoftheaggregateoftheamountsawarded,thejudgmenthavingbeen renderedbeforetheeffectivityofRep.ActNo.5440.Inthisappealtheplaintiffsseekanincreaseinsaidamounts,andthe defendant,completeexonerationfrom,oratleastmitigationof,liability. The case arose from the tragic crash of a passenger plane of the defendant which took the lives of all its crew and passengers.Theplane,identifiedas PIC133,wasaDC3typeofaircraft,manufacturedin1942andacquiredbythe defendantin1948.Ithadflownalmost18,000hoursatthetimeofitsillfatedflight.Despiteitsage,however,ithadbeen certifiedasairworthybytheCivilAeronauticsAdministration.OnNovember23,1960,at5:30intheafternoon,ittookoff fromtheManduriaoAirport,Iloilo,onitswaytoManila,with33peopleonboard,includingtheplane'scomplement.Itdid notreachitsdestination,butcrashedatMt.Baco,Mindoro,onehourandfifteenminutesaftertakeoff.Amassivesearch wasundertakenbythedefendantandbyotherpartiesassoonasitwasrealizedthattheplane'sarrivalinManilawas overdue.Theplaintiffs,parentsofPedroT.Davila,Jr.,whowasoneofthepassengers,hadnodefinitenewsofwhathad happenedtotheirson,gettingwhatinformationtheycouldonlyfromconflictingnewspaperreports,untiltheyreceived,on December19,1960,aletterofcondolencefromthedefendant'spresidentAndresSoriano,informingthemthattheirsonhad diedinthecrash.AnditwasonlyonDecember29thathisbodywasrecoveredantakenbacktoIloilo. Theissuesbeforethetrialcourt,andnowbeforeUsinthisappeal,arewhetherornotthedefendantisliableforviolationof itscontractofcarriageandifso,forhowmuch.TheprovisionsoftheCivilCodeonthissubstantivequestionofliabilityare clearandexplicit.Article1733bindscommoncarriers,"fromthenatureoftheirbusinessandbyreasonsofpublicpolicy,... toobserveextraordinarydiligenceinthevigilance...forthesafetyofthepassengerstransportedbythemaccordingtoallthe circumstancesofeachcase."Article1755establishesthestandardofcarerequiredofacommoncarrier,whichis,"tocarry thepassengerssafelyasfarashumancareandforesightcanprovide,usingtheutmostdiligenceofverycautiouspersons, withdueregardforallthecircumstances."Article1756fixestheburdenofproofbyprovidingthat"incaseofdeathofor injuriestopassengers,commoncarriersarepresumedtohavebeenatfaultortohaveactednegligently,unlesstheyprove thattheyobservedextraordinarydiligenceasprescribedinArticles1733and1755."Lastly,Article1757statesthat"the responsibilityofacommoncarrierforthesafetyofpassengers...cannotbedispensedwithorlessenedbystipulation,bytheLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

postingofnotices,bystatementsontickets,orotherwise." TherouteprescribedbytheCivilAeronauticsAdministrationfortheflightofplanePIC113intheafternoonofNovember 23, 1960 was IloiloRomblonManila, the latter stage, denominated as airway "Amber I," being a straight lane from RomblontoManila.Theprescribedelevationoftheflightwas6,000ft.Theplanereporteditspositionaftertakeoffand againwhenitwasabeamtheRoxashomer.However,itdidnotinterceptairway"AmberI"overRomblonasitwassupposed todo,andthepilotdidnotgivehispositionthenalthoughRomblonwasacompulsorycheckingpoint.Thefactwasthatthe planehaddeviatedfromtheprescribedrouteby32milestothewestwhenitcrashedatMt.Baco.Thereadingofthe altimeteroftheplanewhenitswreckagewasfoundwas6,800ft. ThereisasuggestionthatinthecourseoftheflightbetweenRomblonandMindorotheaircraftwasdriftedwestwardbythe crosswindsthenblowingintheregion.Thedefendant,however,hasnotgivenadefiniteexplanationastowhy,ifsuchwas the case, thepilot failedtomakethenecessarycorrectioninhis flight tocompensateforthedrift. Accordingtothe defendant's witness, Maj. Mijares, Chief of the Aviation Safety Division of the Civil Aeronautics Administration and ChairmanoftheCAAInvestigatingCommittee,therewasanavigationalerror,towhichseveralfactorscontributed:"the weatherobservationatthattimefromtheWeatherBureauwasnotsogoodbetweenMt.BacoandRomblonandthewind aloftwasquitestrong,whichwouldbealsooneofthecausesforthedriftingoftheaircraft;andtheotherstrongprobability, Iwouldsay,wouldbethemalfunctionoftheaircraft'snavigationalinstrument."Hefurtherexplainedthat"acrosswindcan drifttheplaneifthepilotwillnotmakethenecessarycorrection,ifhisnavigationalinstrumentismalfunctioningandthe visualreferenceoutsidetheaircraftcouldnotmakethenecessarycorrections." ThereisnothinginthetestimonyofMaj.Mijarestoshowjusthowstrongthecrosswindswereintheregionatthetime, althoughintheinvestigationoftheaccidentbytheSenateCommitteeontransportationtherewastestimonythatthecross windshadavelocityofeither20to25knotsor25to35knotsanhour.Consideringtherelativelyshortdistancefrom RomblontoMt.Bacoandthebriefspanoftimeitwouldtaketoflythatdistance,crosswindswiththevelocitystatedcould nothavepossiblydeviatedtheplanebyasmuchas32miles. Thedefendantpointsoutthatthenavigationalinstrumentonboardtheplaneconsistedoftwo(2)setsofautomaticdirection finders(ADF)which,whenfoundafterthecrash,showedareadingthattheaircraftwasheadingnorth,whichwasthe properflightdirection.Thispoint,however,isofnovitalsignificanceinthiscasesinceitdoesnotexplainwhytheaircraft was32milesoffitsprescribedrouteinthefirstplace.Itissuggestedthatthepilotdidnotnoticethedriftofhisplane becauseofpoorvisibilityduetothickclouds,whichpreventedhimfrommakingthecorrespondingcorrectiononthebasis ofvisualreferencestotheterrainoutside.ButaccordingtoMaj.MijareshimselfthereportfromtheWeatherBureauatthe timeshowedthatvisibilitywas15milesbetweenRomblonandMt.Bacoandthat thecloudsfrom2,700to7,000ft. elevationwere"scattered."Andtheprofileoftheprobableweathercrosssectionalongairway"AmberI"duringtheflight (Exh.33A)showsthatat6,000ft.theairlanewasclearandfreeofclouds.Thesuggestionthereforethatthepilotwas practicallyflyingblindandconsequentlyfailedtonoticethedriftoftheaircraftisnotjustifiedbytheevidence.Indeedeven theinvestigatingteamofthedefendantunderthechairmanshipofCapt.JaimeManzanoconcludedinitsreportthat"based onthelimitedevidencesavailable,theboardisoftheopinionthattheprobablecausewastheinabilityofthepilotto intersectairway"AmberI"overRomblonandtomaintaintrackwithinitsdesignatedairwaylaneforreasonsunknown." Whatisundisputedthereforeisthatthepilotdidnotfollowtherouteprescribedforhisflight,atleastbetweenRomblonand Manila.SinceuptothatpointoverRomblon,wherehewassupposedtointersectairway"AmberI"theweatherwasclear, themostreasonableconclusionisthathisfailuretodosowasintentional,andthatheprobablywantedtoflyonastraight linetoManila.Itwasaviolationofaircrafttrafficrulestowhich,underthecircumstances,theaccidentmaybedirectly attributable. Inanycase,absentasatisfactoryexplanationonthepartofthedefendantastohowandwhytheaccidentoccurred,the presumptionisthatitwasatfault,underArticle1756oftheCivilCode. Thenextquestionrelatestotheamountofdamagesthatshouldbeawardedtotheplaintiffs,parentsofthedeceased.The trialcourtfixedtheindemnityforhisdeathintheamountofP6,000.00.Pursuanttocurrentjurisprudenceonthepointit shouldbeincreasedtoP12,000.00.1 Thedeceasedwasemployedasmanagerofaradiostation2,fromwhichhewasearningP8,400.00ayear,consistingofa monthlysalaryofP600.00andallowanceofP100.00.Asalawyerandjuniorpartnerofhisfatherinthelawoffice,hehad anannualincomeofP3,600.00.FromfarminghewasgettinganaverageofP3,000.00.Allinallthereforethedeceasedhad grossearningsofP15,000.00ayear. AccordingtoArticle2206,paragraph(1),oftheCivilCode,"thedefendantshallbeliableforthelossoftheearning capacityofthedeceasedandindemnityshallbepaidtotheheirsofthelatter."ThisArticle,whilereferringto"damagesforLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

deathcausedbycrimeorquasidelict,"isexpresslymadeapplicablebyArticle1764"tothedeathofapassengercausedby thebreachofcontractbyacommoncarrier." Thedeceased,PedroDavila,Jr.,wassingleand30yearsofagewhenhedied.Atthatageone'snormallifeexpectancyis 331/3years,accordingtotheformula(2/3x[8030])adoptedbythisCourtinthecaseofVillaReyTransit,Inc.vs.Court ofAppeals3onthebasisoftheAmericanExpectancyTableofMortalityortheActuarialofCombinedExperienceTableof Mortality.However,althoughthedeceasedwasinrelativelygoodhealth,hismedicalhistoryshowsthathehadcomplained ofandbeentreatedforsuchailmentsasbackaches,chestpainsandoccasionalfeelingsoftiredness.Itisreasonabletomake anallowanceforthesecircumstancesandconsider,forpurposesofthiscase,areductionofhislifeexpectancyto25years. InthesamecaseofVillaRevenueTransitthisCourtstated: "...earningcapacity,asanelementofdamagestoone'sestateforhisdeathbywrongfulactisnecessarilyhisnetearning capacityorhiscapacitytoacquiremoney,lessthenecessaryexpenseforhisownliving.Statedotherwise,theamount recoverableisnotlossoftheentireearnings,butratherthelossofthatportionoftheearningswhichthebeneficiarywould havereceived.Inotherwords,onlynetearnings,notgrossearnings,aretobeconsidered,thatis,thetotaloftheearnings lessexpensesnecessaryinthecreationofsuchearningsorincomeandlesslivingandotherincidentalexpenses." Consideringthefactthatthedeceasedwasgettinghisincomefromthree(3)differentsources,namelyfrommanaginga radiostation,fromlawpracticeandfromfarming,theexpensesincidentaltothegenerationofsuchincomewerenecessarily morethanifhehadonlyonesource.Togetherwithhislivingexpenses,adeductionofP600.00amonth,orP7,200.00a year,seemstoUsreasonable,leavinganetyearlyincomeofP7,800.00.Thisamount,multipliedby25years,orP195,000.00 istheamountwhichshouldbeawardedtotheplaintiffsinthisparticularrespect. Actuallossessustainedconsistofthefollowing,asfoundbythetrialcourt:"RolexWatchP600.00;pistolP300.00; BurialExpensesP600.00;andcostofcemeterylotandmausoleumP3,500.00." UnderArticle2206,inrelationtoArticle1764,oftheCivilCode,theparentsofthedeceasedareentitledtomoraldamages fortheirmentalanguish.ThetrialcourtawardedP10,000.00inthisconcept,andWefindnojustificationtochangethe award,consideringthelongperiodofuncertaintyandsufferingtheplaintiffsunderwentfromNovember23,whentheplane crashoccurred,toDecember19,whentheyreceivedaletterfromthedefendant'spresidentconfirmingthedeathoftheir son,andagaintothefollowingDecember29,whenhisbodywasfinallyrecoveredandtakenbacktothem. WithrespecttotheawardofP10,000.00asexemplarydamages,itisOuropinionthatthesameshouldbeeliminated. AccordingtoArticle2232oftheCivilCode,incontractsandquasicontractsthecourtmayawardexemplarydamagesifthe defendantactedinawanton,fraudulent,reckless,oppressiveormalevolentmanner.Thefailureofthedefendanthereto exerciseextraordinarydiligence,asrequiredbylaw,doesnotamounttoanyoneofthecircumstancescontemplatedinthe saidprovision. Thetrialcourthasawardedattorney'sfeesofP10,000.00.Wedonotfindthisawardgroundlessortheamountthereof unreasonable. ThetotalofthedifferentitemsaboveenumeratedisP232,000.00.Thejudgmentofthecourtaquoisthereforemodified accordinglyandthedefendantisorderedtopaythesaidamounttotheplaintiffs,withlegalinterestthereonfromthefinality ofthisjudgment.Withcostsagainstthedefendant. Concepcion,C.J.,Zaldivar,Castro,Fernando,Teehankee,Barredo,Makasiar,AntonioandEsguerra,JJ.,concur.

LAW ON TRANSPORTATION MarielAngelaPiedadSoriano

RepublicofthePhilippines SUPREMECOURT Manila ENBANC G.R.No.L6577374April30,1987 COMMISSIONEROFINTERNALREVENUE,petitioner, vs. BRITISHOVERSEASAIRWAYSCORPORATIONandCOURTOFTAXAPPEALS,respondents. Quasha,Asperilla,Ancheta,Pea,Valmonte&MarcosforrespondentBritishAirways. MELENCIOHERRERA,J.: PetitionerCommissionerofInternalRevenue(CIR)seeksareviewoncertiorariofthejointDecisionoftheCourtofTax Appeals(CTA)inCTACasesNos.2373and2561,dated26January1983,whichsetasidepetitioner's assessmentof deficiencyincometaxesagainstrespondentBritishOverseasAirwaysCorporation(BOAC)forthefiscalyears1959to1967, 196869to197071,respectively,aswellasitsResolutionof18November,1983denyingreconsideration. BOACisa100%BritishGovernmentownedcorporationorganizedandexistingunderthelawsoftheUnitedKingdomItis engagedintheinternationalairlinebusinessandisamembersignatoryoftheInterlineAirTransportAssociation(IATA). Assuchitoperatesairtransportationserviceandsellstransportationticketsovertheroutesoftheotherairlinemembers. Duringtheperiodscoveredbythedisputedassessments,itisadmittedthatBOAChadnolandingrightsfortrafficpurposes inthePhilippines,andwasnotgrantedaCertificateofpublicconvenienceandnecessitytooperateinthePhilippinesbythe CivilAeronauticsBoard(CAB),exceptforaninemonthperiod,partlyin1961andpartlyin1962,whenitwasgranteda temporarylandingpermitbytheCAB.Consequently,itdidnotcarrypassengersand/orcargotoorfromthePhilippines, althoughduringtheperiodcoveredbytheassessments,itmaintainedageneralsalesagentinthePhilippinesWamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengersandcargoes.1 G.R.No.65773(CTACaseNo.2373,theFirstCase) On7May1968,petitionerCommissionerofInternalRevenue(CIR,forbrevity)assessedBOACtheaggregateamountof P2,498,358.56fordeficiencyincometaxescoveringtheyears1959to1963.ThiswasprotestedbyBOAC.Subsequent investigationresultedintheissuanceofanewassessment,dated16January1970fortheyears1959to1967intheamountof P858,307.79.BOACpaidthisnewassessmentunderprotest. On7October1970,BOACfiledaclaimforrefundoftheamountofP858,307.79,whichclaimwasdeniedbytheCIRon16 February1972.Butbeforesaiddenial,BOAChadalreadyfiledapetitionforreviewwiththeTaxCourton27January1972, assailingtheassessmentandprayingfortherefundoftheamountpaid. G.R.No.65774(CTACaseNo.2561,theSecondCase) On17November1971,BOACwasassesseddeficiencyincometaxes,interests,andpenaltyforthefiscalyears19681969to 19701971intheaggregateamountofP549,327.43,andtheadditionalamountsofP1,000.00andP1,800.00ascompromise penaltiesforviolationofSection46(requiringthefilingofcorporationreturns)penalizedunderSection74oftheNational InternalRevenueCode(NIRC). On25November1971,BOACrequestedthattheassessmentbecountermandedandsetaside.Inaletter,dated16February 1972,however,theCIRnotonlydeniedtheBOACrequestforrefundintheFirstCasebutalsoreissuedintheSecondCase thedeficiencyincometaxassessmentforP534,132.08fortheyears1969to197071plusP1,000.00ascompromisepenalty underSection74oftheTaxCode.BOAC'srequestforreconsiderationwasdeniedbytheCIRon24August1973.This promptedBOACtofiletheSecondCasebeforetheTaxCourtprayingthatitbeabsolvedofliabilityfordeficiencyincome taxfortheyears1969to1971. ThiscasewassubsequentlytriedjointlywiththeFirstCase. On26January1983,theTaxCourtrenderedtheassailedjointDecisionreversingtheCIR.TheTaxCourtheldthatthe proceedsofsalesofBOACpassageticketsinthePhilippinesbyWarnerBarnesandCompany,Ltd.,andlaterbyQantas Airways,duringtheperiodinquestion,donot constituteBOACincomefromPhilippinesources "sincenoserviceof carriageofpassengersorfreightwasperformedbyBOACwithinthePhilippines"and,therefore,saidincomeisnotsubject toPhilippineincometax.TheCTApositionwasthatincomefromtransportationisincomefromservicessothattheplace whereservicesarerendereddeterminesthesource.Thus,inthedispositiveportionofitsDecision,theTaxCourtorderedLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

petitionertocreditBOACwiththesumofP858,307.79,andtocancelthedeficiencyincometaxassessmentsagainstBOAC intheamountofP534,132.08forthefiscalyears196869to197071. Hence,thisPetitionforReviewoncertiorarioftheDecisionoftheTaxCourt. TheSolicitorGeneral,inrepresentationoftheCIR,hasaptlydefinedtheissues,thus: 1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC)fromsalesofticketsinthePhilippinesforairtransportation,whilehavingnolandingrightshere, constituteincomeofBOACfromPhilippinesources,and,accordingly,taxable. 2.WhetherornotduringthefiscalyearsinquestionBOACsaresidentforeigncorporationdoingbusiness inthePhilippinesorhasanofficeorplaceofbusinessinthePhilippines. 3.Inthealternativethatprivaterespondentmaynotbeconsideredaresidentforeigncorporationbuta nonresidentforeigncorporation,thenitisliabletoPhilippineincometaxattherateofthirtyfivepercent (35%)ofitsgrossincomereceivedfromallsourceswithinthePhilippines. UnderSection20ofthe1977TaxCode: (h)thetermresidentforeigncorporationengagedintradeorbusinesswithinthePhilippinesorhavingan officeorplaceofbusinesstherein. (i)Theterm"nonresidentforeigncorporation"appliestoaforeigncorporationnotengagedintradeor businesswithinthePhilippinesandnothavinganyofficeorplaceofbusinesstherein ItisourconsideredopinionthatBOACisaresidentforeigncorporation.Thereisnospecificcriterionastowhatconstitutes "doing"or"engagingin"or"transacting"business.Eachcasemustbejudgedinthelightofitspeculiarenvironmental circumstances.Thetermimpliesacontinuityofcommercialdealingsandarrangements,andcontemplates,tothatextent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecutionofcommercialgainorforthepurposeandobjectofthebusinessorganization.2"Inorderthataforeign corporationmayberegardedasdoingbusinesswithinaState,theremustbecontinuityofconductandintentiontoestablish acontinuousbusiness,suchastheappointmentofalocalagent,andnotoneofatemporarycharacter.3 BOAC,duringtheperiodscoveredbythesubjectassessments,maintainedageneralsalesagentinthePhilippines,That generalsalesagent,from1959to1971,"wasengagedin(1)sellingandissuingtickets;(2)breakingdownthewholetripinto seriesoftripseachtripintheseriescorrespondingtoadifferentairlinecompany;(3)receivingthefarefromthewhole trip;and(4)consequentlyallocatingtothevariousairlinecompaniesonthebasisoftheirparticipationintheservices renderedthroughthemodeofinterlinesettlementasprescribedbyArticleVIoftheResolutionNo.850oftheIATA Agreement."4Thoseactivitieswereinexerciseofthefunctionswhicharenormallyincidentto,andareinprogressive pursuitof,thepurposeandobjectofitsorganizationasaninternationalaircarrier.Infact,theregularsaleoftickets,its mainactivity,istheverylifebloodoftheairlinebusiness,thegenerationofsalesbeingtheparamountobjective.There shouldbenodoubtthenthatBOACwas"engagedin"businessinthePhilippinesthroughalocalagentduringtheperiod coveredbytheassessments.Accordingly,itisaresidentforeigncorporationsubjecttotaxuponitstotalnetincomereceived intheprecedingtaxableyearfromallsourceswithinthePhilippines.5 Sec.24.Ratesoftaxoncorporations.... (b)Taxonforeigncorporations.... (2) Resident corporations.A corporationorganized, authorized, orexistingunder thelaws of any foreign country, except a foreign fife insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income receivedintheprecedingtaxableyearfromallsourceswithinthePhilippines.(Emphasissupplied) Next,weaddressourselvestotheissueofwhetherornottherevenuefromsalesofticketsbyBOACinthePhilippines constitutesincomefromPhilippinesourcesand,accordingly,taxableunderourincometaxlaws. TheTaxCodedefines"grossincome"thus: "Grossincome"includesgains,profits,andincomederivedfromsalaries,wagesorcompensationfor personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business,commerce,sales,ordealingsinproperty,whetherrealorpersonal,growingoutoftheownership oruseoforinterestinsuchproperty;alsofrominterests,rents,dividends,securities,orthetransactionsof anybusinesscarriedonforgainorprofile,orgains,profits,andincomederivedfromanysourcewhatever (Sec.29[3];Emphasissupplied) Thedefinitionisbroadandcomprehensivetoincludeproceedsfromsalesoftransportdocuments."Thewords'incomefrom anysourcewhatever'disclosealegislativepolicytoincludeallincomenotexpresslyexemptedwithintheclassoftaxableLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

incomeunderourlaws."Incomemeans"cashreceivedoritsequivalent";itistheamountofmoneycomingtoaperson withinaspecifictime...;itmeanssomethingdistinctfromprincipalorcapital.For,whilecapitalisafund,incomeisaflow. Asusedinourincometaxlaw,"income"referstotheflowofwealth.6 The records show that the Philippine gross income of BOAC for the fiscal years 196869 to 197071 amounted to P10,428,368.00.7 Didsuch"flowofwealth"comefrom"sourceswithinthePhilippines", Thesourceofanincomeistheproperty,activityorservicethatproducedtheincome.8Forthesourceofincometobe consideredascomingfromthePhilippines,itissufficientthattheincomeisderivedfromactivitywithinthePhilippines.In BOAC'scase,thesaleofticketsinthePhilippinesistheactivitythatproducestheincome.Theticketsexchangedhandshere andpaymentsforfareswerealsomadehereinPhilippinecurrency.ThesiteofthesourceofpaymentsisthePhilippines. Theflowofwealthproceededfrom,andoccurredwithin,Philippineterritory,enjoyingtheprotectionaccordedbythe Philippinegovernment.Inconsiderationofsuchprotection,theflowofwealthshouldsharetheburdenofsupportingthe government. Atransportationticketisnotamerepieceofpaper.Whenissuedbyacommoncarrier,itconstitutesthecontractbetween the ticketholder and the carrier.It gives rise to theobligationof the purchaser of theticket topaythe fare and the correspondingobligationofthecarriertotransportthepassengeruponthetermsandconditionssetforththereon.The ordinaryticketissuedtomembersofthetravelingpublicingeneralembraceswithinitstermsalltheelementstoconstituteit avalidcontract,bindinguponthepartiesenteringintotherelationship.9 True,Section37(a)oftheTaxCode,whichenumeratesitemsofgrossincomefromsourceswithinthePhilippines,namely: (1)interest,(21)dividends,(3)service,(4)rentalsandroyalties,(5)saleofrealproperty,and(6)saleofpersonalproperty, doesnotmentionincomefromthesaleofticketsforinternationaltransportation.However,thatdoesnotrenderitlessan incomefromsourceswithinthePhilippines.Section37,byitslanguage,doesnotintendtheenumerationtobeexclusive.It merelydirectsthatthetypesofincomelistedthereinbetreatedasincomefromsourceswithinthePhilippines.Acursory readingofthesectionwillshowthatitdoesnotstatethatitisanallinclusiveenumeration,andthatnootherkindofincome maybesoconsidered."10 BOAC,however,wouldimpressuponthisCourtthatincomederivedfromtransportationisincomeforservices,withthe resultthattheplacewheretheservicesarerendereddeterminesthesource;andsinceBOAC'sserviceoftransportationis performedoutsidethePhilippines,theincomederivedisfromsourceswithoutthePhilippinesand,therefore,nottaxable underourincometaxlaws.TheTaxCourtupholdsthatstandinthejointDecisionunderreview. TheabsenceofflightoperationstoandfromthePhilippinesisnotdeterminativeofthesourceofincomeorthesiteof incometaxation.Admittedly,BOACwasanofflineinternationalairlineatthetimepertinenttothiscase.Thetestof taxabilityisthe"source";andthesourceofanincomeisthatactivity...whichproducedtheincome.11Unquestionably,the passagedocumentationsinthesecasesweresoldinthePhilippinesandtherevenuetherefromwasderivedfromaactivity regularlypursuedwithinthePhilippines.businessaAndeveniftheBOACticketssoldcoveredthe"transportofpassengers andcargotoandfromforeigncities",12itcannotalterthefactthatincomefromthesaleofticketswasderivedfromthe Philippines. The word "source" conveys one essential idea, that of origin, and the origin of theincome hereinis the Philippines.13 It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioneddeficiencyincometaxassessmentsinthesecases,or,from1959to1967,196869to197071.For,pursuantto PresidentialDecreeNo.69,promulgatedon24November,1972,internationalcarriersarenowtaxedasfollows: ...Provided,however,Thatinternationalcarriersshallpayataxof2percentontheircrossPhilippine billings.(Sec.24[b][21,TaxCode). PresidentialDecreeNo.1355,promulgatedon21April,1978,providedastatutorydefinitionoftheterm"grossPhilippine billings,"thus: ..."GrossPhilippinebillings"includesgrossrevenuerealizedfromupliftsanywhereintheworldbyany internationalcarrierdoingbusinessinthePhilippinesofpassagedocumentssoldtherein,whetherfor passenger,excessbaggageormailprovidedthecargoormailoriginatesfromthePhilippines.... TheforegoingprovisionensuresthatinternationalairlinesaretaxedontheirincomefromPhilippinesources.The2%tax ongrossPhilippinebillingsisanincometax.Ifithadbeenintendedasanexciseorpercentagetaxitwouldhavebeenplace underTitleVoftheTaxCodecoveringTaxesonBusiness. Lastly,wefindasuntenabletheBOACargumentthatthedismissalforlackofmeritbythisCourtoftheappealinJALvs. CommissionerofInternalRevenue(G.R.No.L30041)onFebruary3,1969,isresjudicatatothepresentcase.TherulingLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

bytheTaxCourtinthatcasewastotheeffectthatthemeresaleoftickets,unaccompaniedbythephysicalactofcarriageof transportation,doesnotrenderthetaxpayerthereinsubjecttothecommoncarrier'stax.AselucidatedbytheTaxCourt, however,thecommoncarrier'staxisanexcisetax,beingataxontheactivityoftransporting,conveyingorremoving passengersandcargofromoneplacetoanother.Itpurportstotaxthebusinessoftransportation.14Beinganexcisetax,the samecanbeleviedbytheStateonlywhentheacts,privilegesorbusinessesaredoneorperformedwithinthejurisdictionof thePhilippines.Thesubjectmatterofthecaseunderconsiderationisincometax,adirecttaxontheincomeofpersonsand otherentities"ofwhateverkindandinwhateverformderivedfromanysource."Sincethetwocasestreatofadifferent subjectmatter,thedecisioninonecannotberesjudicatatotheother. WHEREFORE,theappealedjointDecisionoftheCourtofTaxAppealsisherebySETASIDE.Privaterespondent,the BritishOverseasAirwaysCorporation(BOAC),isherebyorderedtopaytheamountofP534,132.08asdeficiencyincome taxforthefiscalyears196869to197071plus5%surcharge,and1%monthlyinterestfromApril16,1972foraperiodnot toexceedthree(3)yearsinaccordancewiththeTaxCode.TheBOACclaimforrefundintheamountofP858,307.79is herebydenied.Withoutcosts. SOORDERED. SeparateOpinions TEEHANKEE,C.J.,concurring: IconcurwiththeCourt'smajorityjudgmentupholdingtheassessmentsofdeficiencyincometaxesagainstrespondent BOACforthefiscalyears19591969to19701971andthereforesettingasidetheappealedjointdecisionofrespondent CourtofTaxAppeals.IjustwishtopointoutthattheconflictbetweenthemajorityopinionpennedbyMr.JusticeFeliciano astothepropercharacterizationofthetaxableincomederivedbyrespondentBOACfromthesalesinthePhilippinesof ticketsfoeBOACformtheissuedbyitsgeneralsalesagentinthePhilippinesgasbecomemootafterNovember24,1972. BoothopinionsstatethatbyamendmentthroughP.D.No.69,promulgatedonNovember24,1972,ofsection24(b)(2)ofthe TaxCodeprovidingdortherateofincometaxonforeigncorporations,internationalcarrierssuchasrespondentBOAC, havesincethenbeentaxedatareducedrateof2%ontheirgrossPhilippinebillings.Thereis,therefore,nolongerant sourceofsubstantialconflictbetweenthetwoopinionsastothepresent2%taxontheirgrossPhilippinebillingscharged againstsuchinternationalcarriersashereinrespondentforeigncorporation. FELICIANO,J.,dissenting: Withgreatrespectandreluctance,irecordmydissentfromtheopinionofMme.JusticeA.A.MelencioHerreraspeaking forthemajority.Inmyopinion,thejointdecisionoftheCourtofTaxAppealsinCTACasesNos.2373and2561,dated26 January1983,iscorrectandshouldbeaffirmed. ThefundamentalissueraisedinthispetitionforreviewiswhethertheBritishOverseasAirwaysCorporation(BOAC),a foreignairlinecompanywhichdoesnotmaintainanyflightoperationstoandfromthePhilippines,isliableforPhilippine incometaxationinrespectof"salesofairtickets"inthePhilippinesthroughageneralsalesagent,relatingtothecarriageof passengersandcargobetweentwopointsbothoutsidethePhilippines. 1.TheSolicitorGeneralhasdefinedasoneoftheissueinthiscasethequestionof: 2.Whetherornotduringthefiscalyearsinquestion1BOAC[was]aresidentforeigncorporationdoing businessinthePhilippinesor[had]anofficeorplaceofbusinessinthePhilippines. Itisimportanttonoteattheoutsetthattheanswertotheabovequotedissueisnotdeterminativeofthelialibityofthe BOACtoPhilippineincometaxationinrespectoftheincomehereinvolved.TheliabilityofBOACtoPhilippineincome taxationinrespectofsuchincomedepends,notonBOAC'sstatusasa"residentforeigncorporation"oralternatively,asa "nonresident foreign corporation," but rather on whether or not such income is derived from "source within the Philippines." A"residentforeigncorporation"orforeigncorporationengagedintradeorbusinessinthePhilippinesorhavinganofficeor placeofbusinessinthePhilippinesissubjecttoPhilippineincometaxationonlyinrespectofincomederivedfromsources withinthePhilippines.Section24(b)(2)oftheNationalInternalRevenueCODE("TaxCode"),asamendedbyRepublic ActNo.2343,approved20June1959,asitexistedupto3August1969,readasfollows: (2)Residentcorporations.AforeigncorporationengagedintradeorbusinesswithinthePhilippines (expectforeignlifeinsurancecompanies)shallbetaxableasprovidedinsubsection(a)ofthissection. Section24(a)oftheTaxCodeinturnprovides:LAW ON TRANSPORTATION MarielAngelaPiedadSoriano

Rateoftaxoncorporations.(a)Taxondomesticcorporations....andaliketaxshallbelivied, collected,andpaidannuallyuponthetotalnetincomereceivedinthepreceedingtaxableyearfromall sourceswithinthePhilippinesbyeverycorporationorganized,authorized,orexistingunderthelawsof anyforeigncountry:....(Emphasissupplied) RepublicActNo.6110,whichtookeffecton4August1969,madethisevenclearerwhenitamendedoncemoreSection24 (b)(2)oftheTaxCodesoastoreadasfollows: (2)ResidentCorporations. Acorporation,organized,authorizedorexistingunderthelawsofany foreigncounrty,exceptforeignlifeinsurancecompany,engagedintradeorbusinesswithinthePhilippines, shallbetaxableasprovidedinsubsection(a)ofthissectionuponthetotalnetincomereceivedinthe precedingtaxableyearfromallsourceswithinthePhilippines.(Emphasissupplied) ExactlythesameruleisprovidedbySection24(b)(1)oftheTaxCodeuponnonresidentforeigncorporations.Section24 (b)(1)asamendedbyRepublicActNo.3825approved22June1963,readasfollows: (b)Taxonforeigncorporations.(1)Nonresidentcorporations.Thereshallbelevied,collectedand paidforeachtaxableyear,inlieuofthetaximposedbytheprecedingparagraphupontheamountreceived byeveryforeigncorporationnotengagedintradeorbusinesswithinthePhilippines,fromallsources withinthePhilippines,asinterest,dividends,rents,salaries,wages,premium,annuities,compensations, remunerations,emoluments,orotherfixedordeterminativeannualorperiodicalgains,profitsandincome ataxequal tothirtypercentumofsuchamount:provided,however,that premiumsshallnotinclude reinsurancepremiums.2 Clearly, whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident foreign corporation,ornotdoingbusinessinthePhilippinesandthereforeanonresidentforeigncorporation,itisliabletoincome taxonlytotheextentthatitderivesincomefromsourceswithinthePhilippines.Thecircumtancesthataforeigncorporation isresidentinthePhilippinesyieldsnoinferencethatalloranypartofitsincomeisPhilippinesourceincome.Similarly,the nonresidentstatusofaforeigncorporationdoesnotimplythatithasnoPhilippinesourceincome.Conversely,thereceipt ofPhilippinesourceincomecreatesnopresumptionthattherecipientforeigncorporationisaresidentofthePhilippines. Thecriticalissue,forpresentpurposes,isthereforewhetherofnotBOACisderivingincomefromsourceswithinthe Philippines. 2.Forpurposesofincometaxation,itiswelltobearinmindthatthe"sourceofincome"relatesnottothephysicalsourcing ofaflowofmoneyorthephysicalsitusofpaymentbutrathertothe"property,activityorservicewhichproducedthe income."InHowdenandCo.,Ltd.vs.CollectorofInternalRevenue,3thecourtdealtwiththeissueoftheapplicablesource rulerelatingtoreinsurancepremiumspaidbyalocalinsurancecompanytoaforeignreinsurancecompanyinrespectof riskslocatedinthePhilippines.TheCourtsaid: Thesourceofanincomeistheproperty,activityorservicesthatproducedtheincome.Thereinsurance premiumsremittedtoappellantsbyvirtueofthereinsurancecontract,accordingly,hadfortheirsourcethe undertakingtoindemnifyCommonwealthInsuranceCo.againstliability.Saidundertakingistheactivity thatproducedthereinsurancepremiums,andthesametookplaceinthePhilippines.[T]hereinsurance, theliabilitiesinsuredandtheriskoriginallyunderwrittenbyCommonwealthInsuranceCo.,uponwhich thereinsurancepremiumsandindemnitywerebased,wereallsituatedinthePhilippines.4 TheCourtmaybeseentobesayingthatitistheunderlyingprestationwhichisproperlyregardedastheactivitygivingrise totheincomethatissoughttobetaxed.IntheHowdencase,thatunderlyingprestationwastheindemnificationofthelocal insurancecompany.SuchindemnificationcouldtakeplaceonlyinthePhilippineswheretheriskswerelocatedandwhere paymentfromtheforeignreinsurance(incasethecasualtyinsuredagainstoccurs)wouldbereceivedinPhilippinepesos underthereinsurancepremiumspaidbythelocalinsurancecompaniesconstitutedPhilippinesourceincomeoftheforeign reinsurances. Theconceptof"sourceofincome"forpurposesofincometaxationoriginatedintheUnitedStatesincometaxsystem.The phrase"sourceswithintheUnitedStates"wasfirstintroducedintotheU.S.taxsystemin1916,andwassubsequently embodiedinthe1939U.S.TaxCode.Asiscommonlyknown,ourTaxCode(CommonwealthAct466,asamended)was patternedafterthe1939U.S.TaxCode.ItthereforeseemsusefultorefertoastandardU.S.textonfederalincometaxation: TheSupremeCourthassaid,inadefinitionmuchquotedbutoftendebated,thatincomemaybederived fromthreepossiblesourcesonly:(1)capitaland/or(2)laborand/or(3)thesaleofcapitalassets.Whilethe threeelementsofthisattemptatdefinitionneednotbeacceptedasallinclusive,theyserveasuseful guidesinanyinquiryintowhetheraparticularitemisfrom"sourcewithintheUnitedStates"andsuggestLAW ON TRANSPORTATION MarielAngelaPiedadSoriano

aninvestigationintothenatureandlocationoftheactivitiesorpropertywhichproducetheincome.Ifthe incomeisfromlabor(services)theplacewherethelaborisdoneshouldbedecisive;ifitisdoneinthis counrty,theincomeshouldbefrom"sourcewithintheUnitedStates."Iftheincomeisfromcapital,the placewherethecapitalisemployedshouldbedecisive;ifitisemployedinthiscountry,theincomeshould befrom"sourcewithintheUnitedStates".Iftheincomeisfromthesaleofcapitalassets,theplacewhere thesaleismadeshouldbelikewisedecisive.Muchconfusionwillbeavoidedbyregardingtheterm "source"inthisfundamentallight.Itisnotaplace;itisanactivityorproperty.Assuch,ithasasitusor location; and if that situs or location is within the United States the resulting income is taxable to nonresidentaliensandforeigncorporations.TheintentionofCongressinthe1916andsubsequentstatutes wastodiscardthe1909and1913basisoftaxingnonresidentaliensandforeigncorporationsandtomake thetestoftaxabilitythe"source",orsitusoftheactivitiesorpropertywhichproducetheincome.... Thus,ifincomeistotaxed,therecipientthereofmustberesidentwithinthejurisdiction,orthepropertyor activitiesoutofwhichtheincomeissueorisderivedmustbesituatedwithinthejurisdictionsothatthe source of the income maybe said to havea situs in this country. The underlying theory is that the considerationfortaxationisprotectionoflifeandpropertyandthattheincomerightlytobelevieduponto defraytheburdensoftheUnitedStatesGovernmentisthatincomewhichiscreatedbyactivitiesand propertyprotectedbythisGovernmentorobtainedbypersonsenjoyingthatprotection.5 3.Weturnnowtothequestionwhatisthesourceofincomeruleapplicableintheinstantcase.Therearetwopossibly relevantsourceofincomerulesthatmustbeconfronted;(a)thesourceruleapplicableinrespectofcontractsofservice;and (b)thesourceruleapplicableinrespectofsalesofpersonalproperty. Whereacontractfortherenditionofserviceisinvolved,theapplicablesourcerulemaybesimplystatedasfollows:the incomeissourcedintheplacewheretheservicecontractedforisrendered.Section37(a)(3)ofourTaxCodereadsas follows: Section37.IncomeforsourceswithinthePhilippines. (a)GrossincomefromsourceswithinthePhilippines.Thefollowingitemsofgrossincomeshallbe treatedasgrossincomefromsourceswithinthePhilippines: xxxxxxxxx (3) Services. Compensation for labor or personal services performed in the Philippines;...(Emphasissupplied) Section37(c)(3)oftheTaxCode,ontheotherhand,dealswithincomefromsourceswithoutthePhilippinesinthe followingmanner: (c)GrossincomefromsourceswithoutthePhilippines.Thefollowingitemsofgrossincomeshallbe treatedasincomefromsourceswithoutthePhilippines: (3)CompensationforlabororpersonalservicesperformedwithoutthePhilippines;...(Emphasissupplied) ItshouldnotbesupposedthatSection37(a)(3)and(c)(3)oftheTaxCodeapplyonlyinrespectofservicesrenderedby individualnaturalpersons;theyalsoapplytoservicesrenderedbyorthroughthemediumofajuridicalperson.6Further,a contractofcarriageoroftransportationisassimilatedinourTaxCodeandRevenueRegulationstoacontractforservices. Thus,Section37(e)oftheTaxCodeprovidesasfollows: (e)Incomeform sources partlywithinandpartlywithoutthePhilippines.Items ofgross income, expenses,lossesanddeductions,otherthanthosespecifiedinsubsections(a)and(c)ofthissectionshall beallocatedorapportionedtosourceswithinorwithoutthePhilippines,undertherulesandregulations prescribedbytheSecretaryofFinance....Gains,profits,andincomefrom(1)transportationorother services rendered partlywithinand partlywithout the Philippines, or (2) from the sale of personnel property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced(inwholeorinpart)bythetaxpayerwithoutandsoldwithinthePhilippines,shallbetreatedas derivedpartlyfromsourceswithinandpartlyfromsourceswithoutthePhilippines....(Emphasissupplied) ItshouldbenotedthattheaboveunderscoredportionofSection37(e)wasderivedfromthe1939U.S.TaxCodewhich "wasbaseduponarecognitionthattransportationwasaserviceandthatthesourceoftheincomederivedtherefromwasto betreatedasbeingtheplacewheretheserviceoftransportationwasrendered.7 Section37(e)oftheTaxCodequotedabovecarriesastrongwellnighirresistible,implicationthatincomederivedfrom transportationorotherservicesrenderedentirelyoutsidethePhilippinesmustbetreatedasderivedentirelyfromsources withoutthePhilippines.ThisimplicationisreinforcedbyaconsiderationofcertainprovisionsofRevenueRegulationsNo.2LAW ON TRANSPORTATION MarielAngelaPiedadSoriano

entitled"IncomeTaxRegulations"asamended,firstpromulgatedbytheDepartmentofFinanceon10February1940. Section155ofRevenueRegulationsNo.2(implementingSection37oftheTaxCode)providesinpartasfollows: Section155.Compensationforlabororpersonnelservices.Grossincomefromsourceswithinthe PhilippinesincludescompensationforlabororpersonalserviceswithinthePhilippinesregardlessofthe residenceofthepayer,oftheplaceinwhichthecontractforserviceswasmade,oroftheplaceofpayment (Emphasissupplied) Section163ofRevenueRegulationsNo.2(stillrelatingtoSection37oftheTaxCode)dealswithaparticularspeciesof foreigntransportationcompaniesi.e.,foreignsteamshipcompaniesderivingincomefromsourcespartlywithinand partlywithoutthePhilippines: Section163Foreignsteamshipcompanies.Thereturnofforeignsteamshipcompanieswhosevessels touchpartsofthePhilippinesshouldincludeasgrossincome,thetotalreceiptsofalloutgoingbusiness whetherfreightorpassengers.Withthegrossincomethusascertained,theratioexistingbetweenitandthe grossincomefromallports,bothwithinandwithoutthePhilippinesofallvessels,whethertouchingofthe Philippinesornot,shouldbedeterminedasthebasisuponwhichallowabledeductionsmaybecomputed, .(Emphasissupplied) AnothertypeofutilityorserviceenterpriseisdealtwithinSection164ofRevenueRegulationsNo.2(againimplementing Section37oftheTaxCode)withprovidesasfollows: Section 164. Telegraph and cable services. A foreign corporation carrying on the business of transmissionoftelegraphorcablemessages betweenpointsinthePhilippinesandpointsoutsidethe Philippinesderivesincomepartlyformsourcewithinandp