UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., vs. COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION

FACTS

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of various raw materials for pharmaceutical manufacturing. UTI issued Bill of Lading No. C320/C15991-2,[5]covering the aforesaid shipment.The subject shipment was insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in the amount ofP1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92[6]and Open Cargo Policy No. HO-022-RIU.

On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40 container van, boarded on APLs vesselM/V Pres. Jackson, Voyage 42, and transshipped to APLsM/V Pres. Taft[8]for delivery to petitioner in favor of the consignee United Laboratories, Inc. (Unilab).

On October 6, 1992, petitioner received the said shipment in its warehouse after it stamped the Permit to Deliver Imported Goods[9]procured by the Champs Customs Brokerage. Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a stripping survey of the shipment located in petitioners warehouse. The survey results stated:

2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed

19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly sealed

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling of 1%[11]

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No. 7614. The materials were noted to be complete and in good order in the gate pass.[14]On the same day, the shipment arrived in Unilabs warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated:

1-p/bag torn on side contents partly spilled

1-s/drum #7 punctured and retaped on bottom side content lacking

5-drums shortship/short delivery

On November 7, 1992, Unilab filed a formal claim[17]for the damage against private respondent and UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in complete and good condition; while private respondent paid the claimed amount on March 23, 1993.

On February 22, 2001, the RTC decided in favor of private respondent and against APL (American President Lines, Ltd.), UTI and petitioner. On appeal, the CA affirmed the RTC decision on April 29, 2004.

Petitioner admits that it is a forwarder but disagrees with the CAs conclusion that it is a common carrier. It also questions the appellate courts findings that it failed to establish that it exercised extraordinary or ordinary diligence in the vigilance over the subject shipment. As to the damages allegedly suffered by private respondent, petitioner counters that they were not sufficiently proven.

ISSUES

WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.

WON PETITIONERS LIABILITY SHOULD BE LIMITED TO $500 PURSUANT TO THE PACKAGE LIMITATION RULE.

RULING

The petition is partly meritorious.

1. Admittedly, petitioner is a freight forwarder. The termfreight forwarder" refers to a firm holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and, in the ordinary courseofits business, (1) to assemble and consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for break-bulk and distribution operations of the shipments; (2) to assume responsibility for the transportation of goods from the place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to the federal law pertaining to common carriers.[23]

A freight forwarders liability is limited to damages arising from its own negligence, including negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise itself.[24]

It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named or on his or her order.[25]It operates both as a receipt and as a contract.It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks, condition, quality, and value. As a contract, it names the contracting parties, which include the consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights and obligations assumed by the parties.[26]

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence.[27]Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.[28]

2. Petitioner failed to rebut the prima facie presumption of negligence in the carriage of the subject shipment. Petitioner failed to prove that it observed the extraordinary diligence and precaution which the law requires a common carrier to exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.

3. However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to the RTC and the CAs findings.

It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting the carriers liability in the absence of a shippers declaration of a higher value in the bill of lading.

In the present case, the shipper did not declare a higher valuation of the goods to be shipped. Petitioners liability should be limited to $500 per steel drum. In this case, as there was only one drum lost, private respondent is entitled to receive only $500 as damages for the loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6%per annumshould also be imposed, plus 25% of the total sum as attorneys fees.

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY vs. PKS SHIPPING COMPANY

FACTS

Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00).DUMC insured the goods for its full value with petitioner Philippine American General Insurance Company (Philamgen).The goods were loaded aboard the dumb bargeLimar Ibelonging to PKS Shipping.On the evening of 22 December 1988, about nine oclock, whileLimar Iwas being towed by respondents tugboat,MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement.

DUMC filed a formal claim with Philamgen for the full amount of the insurance.Philamgen promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the Makati RTC.

In the instant appeal, Philamgen contends that the appellate court has committed a patent error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject cargo.The fact that respondent has a limited clientele, petitioner argues, does not militate against respondents being a common carrier and that the only way by which such carrier can be held exempt for the loss of the cargo would be if the loss were caused by natural disaster or calamity.

ISSUES

WON PKS SHIPPING IS A PRIVATE CARRIER OR A COMMON CARRIER. WHAT IS ITS LIABILITY?

WON IT HAS OBSERVED THE PROPER DILIGENCE (ORDINARY, IF A PRIVATE CARRIER, OR EXTRAORDINARY, IF A COMMON CARRIER) REQUIRED OF IT GIVEN THE CIRCUMSTANCES.

RULING

1. The Civil Code defines common carriers in the following terms:

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

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it defines public service to be

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

The prevailing doctrine on the question is that enunciated in the leading case ofDe Guzman vs. Court of Appeals.[2]Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public Service Act, this Court has held:

The above article makes no distinction between one whoseprincipalbusiness activity is the carrying of persons or goods or both, and one who does such carrying only as anancillaryactivity (in local idiom, as `a sideline).Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on aregular or scheduled basisand one offering such service on anoccasional, episodic or unscheduled basis.Neither does Article 1732 distinguish between a carrier offering its services to the `general public, i.e.,the general community or population, and one who offers services or solicits business only from anarrow segmentof the general population.We think that Article 1732 deliberately refrained from making such distinctions.

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

Much of the distinction between a common or public carrier and a private or special carrier lies in the character of the business, such that if the undertaking is an isolated transaction, not a part of the business or occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited clientele, although involving the carriage of goods for a fee,[3]the person or corporation providing such service could very well be just a private carrier.A typical case is that of a charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the charterer obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages[4]and gets the control of the vessel and its crew.[5]

Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of carrying goods for others, although for a limited clientele, undertaking to carry such goods for a fee.The regularity of its activities in this area indicates more than just a casual activity on its part.[6]Neither can the concept of a common carrier change merely because individual contracts are executed or entered into with patrons of the carrier.Such restrictive interpretation would make it easy for a common carrier to escape liability by the simple expedient of entering into those distinct agreements with clients.

2. Article 1733 of the Civil Code requires common carriers to observe extraordinary diligence in the vigilance over the goods they carry.In case of loss, destruction or deterioration of goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them.[7]The provisions of Article 1733, notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of the goods due to any of the following causes:

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

(2) Act of the public enemy in war, whether international or civil;

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

(4) The character of the goods or defects in the packing or in the containers; and

(5) Order or act of competent public authority.

The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective vessel masters ofLimar IandMT Iron Eagle, that there was no way by which the barges or the tugboats crew could have prevented the sinking ofLimar I.The vessel was suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the entry of water into the barges hatches.The official Certificate of Inspection of the barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to the seaworthiness ofLimar Iand should strengthen the factual findings of the appellate court.

Findings of fact of the Court of Appeals generally conclude this Court. All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for the loss of the DUMC cargo.

LOURDES J. LARA, ET AL. vs. BRIGIDO R. VALENCIA

FACTS

The deceased was an inspector of the Bureau of Forestry stationed in Davao. The defendant is engaged in the business of exporting logs from his lumber concession in Cotabato. Lara went to said concession upon instructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang. The work Lara of lasted for six days during which he contracted malaria fever.

At that time, there was no available bus that could take him back to Davao and so he requested the defendant if he could take him in his own pick-up. Defendant agreed and, together with Lara, other passengers tagged along, most of them were employees of the Government. Defendant merely accommodated them and did not charge them any fee for the service. It was also their understanding that upon reaching barrio Samoay, the passengers would alight and transfer to a bus that regularly makes the trip to Davao but unfortunately there was none available at the time and so the same passengers, including Lara, again requested the defendant to drive them to Davao. Defendant again accommodated them and upon reaching Km. 96, Lara accidentally fell suffering fatal injuries.

It therefore appears that the deceased, as well his companions who rode in the pick-up of defendant, were merely accommodation passengers who paid nothing for the service and so they can be considered as invited guests within the meaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes to them merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "The rule is established by the weight of authority that the owner or operator of an automobile owes the duty to aninvited guestto exercise reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel. This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or reasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, is only required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence as required of a common carrier by our law (Articles 1755 and 1756, new Civil Code).

ISSUE

WON the defendant failed to observe ordinary care or diligence in transporting the deceased from Parang to Davao on the date in question.

RULING

NO. Even if we admit as true the facts found by the trial court, still we find that the same are not sufficient to show that defendant has failed to take the precaution necessary to conduct his passengers safely to their place of destination for there is nothing there to indicate that defendant has acted with negligence or without taking the precaution that an ordinary prudent man would have taken under similar circumstances. It should be noted that Lara went to the lumber concession of defendant in answer to a call of duty which he was bound to perform because of the requirement of his office and he contracted the malaria fever in the course of the performance of that duty. It should also be noted that defendant was not in duty bound to take the deceased in his own pick-up to Davao because from Parang to Cotabato there was a line of transportation that regularly makes trips for the public, and if defendant agreed to take the deceased in his own car, it was only to accommodate him considering his feverish condition and his request that he be so accommodated. It should also be noted that the passengers who rode in the pick-up of defendant took their respective seats therein at their own choice and not upon indication of defendant with the particularitythat defendant invited the deceased to sit with him in the front seat but which invitation the deceased declined. The reason for this can only be attributed to his desire to be at the back so that he could sit on a bag and travel in a reclining position because such was more convenient for him due to his feverish condition. All the circumstances therefore clearly indicate that defendant had done what a reasonable prudent man would have done under the circumstances.

There is every reason to believe that the unfortunate happening was only due to an unforeseen accident accused by the fact that at the time the deceased was half asleep and must have fallen from the pick-up when it ran into some stones causing it to jerk considering that the road was then bumpy, rough and full of stones.

The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not supported by the evidence. This is a mere surmise made by the trial court considering the time the pick-up left barrio Samoay and the time the accident occured in relation to the distance covered by the pick-up. And even if this is correct, still we say that such speed is not unreasonable considering that they were traveling on a national road and the traffic then was not heavy. We may rather attribute the incident to lack of care on the part of the deceased considering that the pick-up was open and he was then in a crouching position. Indeed, the law provides that "A passenger must observe the diligence of a good father of a family to avoid injury to himself" (Article 1761, new Civil Code), which means that if the injury to the passenger has beenproximatelycaused by his own negligence, the carrier cannot be held liable.

All things considered, we are persuaded to conclude that the accident occurred not due to the negligence of defendant but to circumstances beyond his control and so he should be exempt from liability.

JOSE P. MECENAS, ROMEO P. MECENAS, LILIA P. MECENAS, ORLANDO P. MECENAS, VIOLETA M. ACERVO, LUZVIMINDA P. MECENAS; and OFELIA M. JAVIER vs.HON. COURT OF APPEALS, CAPT. ROGER SANTISTEBAN and NEGROS NAVIGATION CO., INC.,

FACTS

At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil tanker of Philippine registry owned by the Philippine National Oil Company (PNOC) and operated by the PNOC Shipping and Transport Corporation (PNOC Shipping), having unloaded its cargo of petroleum products, left Amlan, Negros Occidental, and headed towards Bataan. At about 1:00 o'clock in the afternoon of that same day, the M/V "Don Juan," an interisland vessel, also of Philippine registry owned and operated by the Negros Navigation Co., Inc. (Negros Navigation) left Manila bound for Bacolod with seven hundred fifty (750) passengers listed in its manifest, and a complete set of officers and crew members.

On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City" and the "Don Juan" collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of the island of Mindoro. When the collision occurred, the sea was calm, the weather fair and visibility good. As a result of this collision, the M/V "Don Juan" sank and hundreds of its passengers perished. Among the ill-fated passengers were the parents of petitioners, the spouses Perfecto Mecenas and Sofia Mecenas, whose bodies were never found despite intensive search by petitioners.

On 29 December 1980, petitioners filed a complaint in the then Court- of First Instance of Quezon City against private respondents Negros Navigation and Capt. Roger Santisteban, the captain of the "Don Juan" without, however, impleading either PNOC or PNOC Shipping. Petitioners prayed for actual damages of not less than P100,000.00 as well as moral and exemplary damages in such amount as the Court may deem reasonable to award to them. Another complaint was filed in the same court by Lilia Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death of her husband Manuel Ciocon.

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's decision to the Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing a compromise agreement reached by them with Negros Navigation; the Court of Appeals granted the motion by a resolution dated 5 September 1988, subject to the reservation made by Lilia Ciocon that she could not be bound by the compromise agreement and would enforce the award granted her by the trial court.

ISSUE

WON Negros Navigation and Capt. Santisteban were grossly negligent during the events which culminated in the collision with "Tacloban City" and the sinking of the "Don Juan" and the resulting heavy loss of lives. (Consequently, WON petitioners were entitled to award of moral and exemplary damages.)

RULING

We begin by noting that both the trial court and the Court of Appeals considered the action brought by the sons and daughters of the deceased Mecenas spouses against Negros Navigation as based on quasi-delict. We believed that action is more appropriately regarded as grounded on contract, the contract of carriage between the Mecenas spouses as regular passengers who paid for their boat tickets and Negros Navigation; the surviving children while not themselves passengers are in effect suing the carrier in representation of their deceased parents.3Thus, the suit filed by the widow Lilia Ciocon was correctly treated by the trial and appellate courts as based on contract (vis-a-vis Negros Navigation) and as well on quasi-delict (vis-a-vis PNOC and PNOC Shipping). In an action based upon a breach of the contract of carriage, the carrier under our civil law is liable for the death of passengers arising from the negligence or willful act of the carrier's employees although such employees may have acted beyond the scope of their authority or even in violation of the instructions of the carrier,4which liability may include liability for moral damages.5It follows that petitioners would be entitled to moral damages so long as the collision with the "Tacloban City" and the sinking of the "Don Juan" were caused or attended by negligence on the part of private respondents.

In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to Article 2232 of the Civil Code:

Article 2332. In contracts and quasi-contracts, the court may exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.6

Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon whether or not private respondents acted recklessly, that is, with gross negligence.

Our own review of the record in the case at bar requires us to answer this in the affirmative.

We believe that the behaviour of the captain of the "Don Juan" in tills instance-playing mahjong "before and up to the time of collision constitutes behaviour that is simply unacceptable on the part of the master of a vessel to whose hands the lives and welfare of at least seven hundred fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or around the time of actual collision is quite immaterial; there is, both realistically speaking and in contemplation of law, no such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom the law imposes the duty of extraordinary diligence-

[t]he duty to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.14

The record doesnotshow that was the first or only time that Capt. Santisteban had entertained himself during a voyage by playing mahjong with his officers and passengers; Negros Navigation in permitting, or in failing to discover and correct such behaviour, must be deemed grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision, "to institute appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a euphemism for failure to maintain the sea-worthiness or the water-tight integrity of the "Don Juan." The record shows that the "Don Juan" sank within ten (10) to fifteen (15) minutes after initial contact with the "Tacloban City.15While the failure of Capt. Santisteban to supervise his officers and crew in the process of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of his vessel after collision, did not cause the collision by themselves, such failures doubtless contributed materially to the consequent loss of life and, moreover, were indicative of the kind and level of diligence exercised by Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact between the two (2) vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to inform Capt. Santistebannot only of the "imminent danger of collision" but even of "the actual collision itself"

There is also evidence that the "Don Juan" was carrying more passengers than she had been certified as allowed to carry. The total number of persons on board the "Don Juan" on that ill-starred night of 22 April 1 980 was1,004, or 140 persons more than the maximum lumber that could be safely carried by the "Don Juan," per its own Certificate of Inspection.18We note in addition, thatonly 750 passengers had been listed in its manifestfor its final voyage; in other words, at least 128 passengers on board had not even been entered into the "Don Juan's" manifest. The "Don Juan's" Certificate of Inspection showed that she carried life boat and life raft accommodationsfor only 864 persons, the maximum number of persons she was permitted to carry; in other words, she did not carry enough boats and life rafts for all the persons actually on board that tragic night of 22 April 1980.

We hold that under these circumstances, a presumption of gross negligence on the part of the vessel (her officers and crew) and of its ship-owner arises; this presumption was never rebutted by Negros Navigation.

We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in connection with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan" leading to the death of hundreds of passengers. We find no necessity for passing upon the degree of negligence or culpability properly attributable to PNOC and PNOC Shipping or the master of the "Tacloban City," since they were never impleaded here.

The Court is aware that petitioners here merely asked for the restoration of the P 400.000.00 award of the trial court. We underscore once more, however, the firmly settled doctrine that this Court may consider and resolved all issues which must be decided in order to render substantial justice to the parties, including issues not explicity raised by the party affected. In the case at bar, as inKapalaran Bus Line v. Coronado, et al.,30both the demands of sustantial justice and the imperious requirements of public policy compel us to the conclusion that the trial court's implicit award of moral and exemplary damages was erronoeusly deledted and must be restored and augmented and brought more nearely to the level required by public policy and substantial justice.

WHEREFORE, the Petition for Review oncertiorariis hereby GRANTED and the Decision of the Court of Appeals insofar as it redurce the amount of damages awarded to petitioners to P100,000.00 is hereby REVERSED and SET ASIDE. The award granted by the trial court is hereby RESTORED and AUGMENTED as follows:

(a) P 126,000.00 for actual damages;

(b) P 60,000.00 as compensatory damages for wrongful death;

(c) P 307,000.00 as moral damages;

(d) P 307,000.00 as exemplary damages making a total of P 800,000.00; and

(e) P 15,000.00 as attorney's fees

CLEMENTE BRIASvs. THE PEOPLE OF THE PHILIPPINES and HONORABLE COURT OF APPEALS

FACTS

The evidence of the prosecution tends to show that in the afternoon of January 6, 1957, Juanito Gesmundo bought a train ticket at the railroad station in Tagkawayan, Quezon for his 55-year old mother Martina Bool and his 3-year old daughter Emelita Gesmundo, who were bound for Barrio Lusacan, Tiaong, same province. At about 2:00 p.m., Train No. 522 left Tagkawayan with the old woman and her granddaughter among the passengers. At Hondagua the train's complement were relieved, with Victor Millan taking over as engineman, Clemente Brias as conductor, and Hermogenes Buencamino as assistant conductor. Upon approaching Barrio Lagalag in Tiaong at about 8:00 p.m. of that same night, the train slowed down and the conductor shouted 'Lusacan', 'Lusacan'. Thereupon, the old woman walked towards the left front door facing the direction of Tiaong, carrying the child with one hand and holding her baggage with the other. When Martina and Emelita were near the door, the train suddenly picked up speed. As a result the old woman and the child stumbled and they were seen no more. Next morning, the Tiaong police received a report that two corpses were found along the railroad tracks at Barrio Lagalag.

The Court of First Instance of Quezon convicted defendant-appellant Clemente Brias for double homicide thru reckless imprudence but acquitted Hermogenes Buencamino and Victor Millan.

Court of Appeals affirmed the judgment of the lower court. During the pendency of the criminal prosecution in the Court of First Instance of Quezon, the heirs of the deceased victims filed with the same court, a separate civil action for damages against the Manila Railroad Company.

ISSUE

WON PETITIONER WAS NEGLIGENT UNDER THE FACTS AS FOUND BY THE COURT.

RULING

YES. It is a matter of common knowledge and experience about common carriers like trains and buses that before reaching a station or flagstop they slow down and the conductor announces the name of the place. It is also a matter of common experience that as the train or bus slackens its speed, some passengers usually stand and proceed to the nearest exit, ready to disembark as the train or bus comes to a full stop. This is especially true of a train because passengers feel that if the train resumes its run before they are able to disembark, there is no way to stop it as a bus may be stopped.

It was negligence on the conductor's part to announce the next flag stop when said stop was still a full three minutes ahead. As the respondent Court of Appeals correctly observed, "the appellant's announcement was premature and erroneous.

That the announcement was premature and erroneous is shown by the fact that immediately after the train slowed down, it unexpectedly accelerated to full speed. Petitioner-appellant failed to show any reason why the train suddenly resumed its regular speed. The announcement was made while the train was still in Barrio Lagalag.

The proximate cause of the death of the victims was the premature and erroneous announcement of petitioner' appelant Brias. This announcement prompted the victims to stand and proceed to the nearest exit. Without said announcement, the victims would have been safely seated in their respective seats when the train jerked as it picked up speed. The connection between the premature and erroneous announcement of petitioner-appellant and the deaths of the victims is direct and natural, unbroken by any intervening efficient causes.

Petitioner-appellant also argues that it was negligence per se for Martina Bool to go to the door of the coach while the train was still in motion and that it was this negligence that was the proximate cause of their deaths.

We have carefully examined the records and we agree with the respondent court that the negligence of petitioner-appellant in prematurely and erroneously announcing the next flag stop was the proximate cause of the deaths of Martina Bool and Emelita Gesmundo. Any negligence of the victims was at most contributory and does not exculpate the accused from criminal liability.

HERMINIO L. NOCUM vs. LAGUNA TAYABAS BUS COMPANY

FACTS

Appeal of the Laguna Tayabas Bus Co., defendant in the Court below, from a judgment of the said court (Court of First Instance of Batangas) in its Civil Case No. 834, wherein appellee Herminio L. Nocum was plaintiff, sentencing appellant to pay appellee the sum of P1,351.00 for actual damages and P500.00 as attorney's fees with legal interest from the filing of the complaint plus costs. Appellee, who was a passenger in appellant's Bus No. 120 then making a trip within the barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of the explosion of firecrackers, contained in a box, loaded in said bus and declared to its conductor as containing clothes and miscellaneous items by a co-passenger.

ISSUE

WON the appellant (Laguna Tayabas Bus Company) did not observe the extraordinary or utmost diligence of a very cautious person required by the law for common carriers.

RULING

NO.

It is undisputed that before the box containing the firecrackers were allowed to be loaded in the bus by the conductor, inquiry was made with the passenger carrying the same as to what was in it, since its "opening ... was folded and tied with abaca." (Decision p. 16, Record on Appeal.) According to His Honor, "if proper and rigid inspection were observed by the defendant, the contents of the box could have been discovered and the accident avoided. Refusal by the passenger to have the package opened was no excuse because, as stated by Dispatcher Cornista, employees should call the police if there were packages containing articles against company regulations." That may be true, but it is Our considered opinion that the law does not require as much. Article 1733 is not as unbending as His Honor has held, for it reasonably qualifies the extraordinary diligence required of common carriers for the safety of the passengers transported by them to be "according to all the circumstances of each case." In fact, Article 1755 repeats this same qualification: "A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,with due regard for all the circumstances."

In this particular case before Us, it must be considered that while it is true the passengers of appellant's bus should not be made to suffer for something over which they had no control, as enunciated in the decision of this Court cited by His Honor,1fairness demands that in measuring a common carrier's duty towards its passengers, allowance must be given to the reliance that should be reposed on the sense of responsibility of all the passengers in regard to their common safety. It is to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co-passengers, not to speak of his own. Not to be lightly considered must be the right to privacy to which each passenger is entitled. He cannot be subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary, as in the case at bar. In other words, inquiry may be verbally made as to the nature of a passenger's baggage when such is not outwardly perceptible, but beyond this, constitutional boundaries are already in danger of being transgressed. Calling a policeman to his aid, as suggested by the service manual invoked by the trial judge, in compelling the passenger to submit to more rigid inspection, after the passenger had already declared that the box contained mere clothes and other miscellaneous, could not have justified invasion of a constitutionally protected domain. Police officers acting without judicial authority secured in the manner provided by law are not beyond the pale of constitutional inhibitions designed to protect individual human rights and liberties. Withal, what must be importantly considered here is not so much the infringement of the fundamental sacred rights of the particular passenger herein involved, but the constant threat any contrary ruling would pose on the right of privacy of all passengers of all common carriers, considering how easily the duty to inspect can be made an excuse for mischief and abuse. Of course, when there are sufficient indications that the representations of the passenger regarding the nature of his baggage may not be true, in the interest of the common safety of all, the assistance of the police authorities may be solicited, not necessarily to force the passenger to open his baggage, but to conduct the needed investigation consistent with the rules of propriety and, above all, the constitutional rights of the passenger. It is in this sense that the mentioned service manual issued by appellant to its conductors must be understood.

Appellant further invokes Article 1174 of the Civil Code which relieves all obligors, including, of course, common carriers like appellant, from the consequence of fortuitous events. The courta quoheld that "the breach of contract (in this case) was not due to fortuitous event and that, therefore, the defendant is liable in damages." Since We hold that appellant has succeeded in rebutting the presumption of negligence by showing that it has exercised extraordinary diligence for the safety of its passengers, "according to the circumstances of the (each) case", We deem it unnecessary to rule whether or not there was any fortuitous event in this case.

BATANGAS LAGUNA TAYABAS BUS COMPANY & ARMANDO PON vs. INTERMEDIATE APPELLATE COURT, THE HEIRS OF PAZ VDA. DE PAMFILO, THE HEIRS OF NORMA NERI, and BAYLON SALES and NENA VDA. DE ROSALES

FACTS

The collision between Bus No. 1046 of the Batangas Laguna Tayabas Bus Company (BLTB, for brevity) driven by Armando Pon and Bus No. 404 of Superlines Transportation Company (Superlines, for brevity) driven by Ruben Dasco took place at the highway traversing Barangay Isabong, Tayabas, Quezon in the afternoon of August 11, 1978, which collision resulted in the death of Aniceto Rosales, Francisco Pamfilo and Romeo Neri and in several injuries to Nena Rosales (wife of Anecito) and Baylon Sales, all passengers of the BLTB Bus No. 1046. The evidence shows that as BLTB Bus No. 1046 was negotiating the bend of the highway, it tried to overtake a Ford Fiera car just as Bus No. 404 of Superlines was coming from the opposite direction. Seeing thus, Armando Pon (driver of the BLTB Bus) made a belated attempt to slacken the speed of his bus and tried to return to his proper lane. It was an unsuccessful try as the two (2) buses collided with each other.

Nena Vda. de Rosales and Baylon Sales and the surviving heirs of the deceased Francisco Pamfilo, Aniceto Rosales and Romeo Neri instituted separate cases in the Court of First Instance of Marinduque against BLTB and Superlines together with their respective drivers praying for damages, attorney's fees and litigation expenses plus costs. Criminal cases against the drivers of the two buses were filed in the Court of First Instance of Quezon.

Defendants BLTB and Superlines, together with their drivers Pon and Dasco, denied liability by claiming that they exercised due care and diligence and shifted the fault, against each other.

It is argued by petitioners that if the intention of private respondents were to file an action based onculpa contractualor breach of contract of carriage, they could have done so by merely impleading BLTB and its driver Pon. As it was in the trial court, private respondents filed an action againstallthe defendants basing their action onculpa aquilianaor tort.

ISSUE

WON THE ACTIONS OF PRIVATE RESPONDENTS ARE BASED ONCULPA CONTRACTUAL

RULING

Petitioners' contentions deserve no merit. A reading of the respondent court's decision shows that it anchored petitioners' liability both onculpa contractual and culpa aquiliana.

It is settled that the proximate cause of the collision resulting in the death of three and injuries to two of the passengers of BLTB was thesole negligenceof the driver of the BLTB Bus, whorecklessly operatedand drove said bus in a lane where overtaking is not allowed by Traffic Rules and Regulations. Such negligence and recklessness is binding against petitioner BLTB, more so when we consider the fact that in an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible for the payment of the damages sought by the passenger. By the contract of carriage, the carrier BLTB assumed the express obligation to transport the passengers to their destination safely and to observe extraordinary diligence with a due regard for all the circumstances, and any injury that might be suffered by its passengers is right away attributable to the fault or negligence of the carrier (Art. 1756, New Civil Code).

As ruled by the CA: It is well settled that a driver abandoning his proper lane for the purpose of overtaking another vehicle in ordinary situation has the duty to see that the road is clear and not to proceed if he cannot do so in safety (People v. Enriquez, 40 O.G. No. 5, 984).

... Before attempting to pass the vehicle ahead, the rear driver must see that the road is clear and if there is no sufficient room for a safe passage, or the driver ahead does not turn out so as to afford opportunity to pass, or if, after attempting to pass, the driver of the overtaking vehicle finds that he cannot make the passage in safety, the latter must slacken his speed so as to avoid the danger of a collision, even bringing his car to a stop if necessary. (3-4 Huddy Encyclopedia of Automobile Law, Sec. 212, p. 195).

The above rule becomes more particularly applicable in this case when the overtaking took place on an ascending curved highway divided into two lanes by a continuous yellow line. Appellant Pon should have remembered that:

When a motor vehicle is approaching or rounding a curve there is special necessity for keeping to the right side of the road and the driver has not the right to drive on the left hand side relying upon having time to turn to the right if a car is approaching from the opposite direction comes into view. (42 C.J. 42 906).

Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation. (Art. 2165, Civil Code).

In failing to observe these simple precautions, BLTB's driver undoubtedly failed to act with the diligence demanded by the circumstances.

_______

Petitioners also contend that "a common carrier is not an absolute insurer against all risks of travel and are not liable for acts or accidents which cannot be foreseen or inevitable and that responsibility of a common carrier for the safety of its passenger prescribed in Articles 1733 and 1755 of the New Civil Code is not susceptible of a precise and definite formulation." (p. 13, Rollo) Petitioners' contention holds no water because they had totally failed to point out any factual basis for their defense offorce majeurein the light of the undisputed fact that the cause of the collision was thesole negligenceandrecklessnessof petitioner Armando Pon. For the defense of force majeureor act of God to prosper the accident must be due to natural causes and exclusively without human intervention.

LIABILITY OF THE APPELLANTS (APPELLATE COURT as affirmed by the SC)

For his own negligence in recklessly driving the truck owned by his employer, appellant Armando Pon is primarily liable (Article 2176, Civil Code).

On the other hand the liability of Pon's employer, appellant BLTB, is also primary, direct and immediate in view of the fact that the death of or injuries to its passengers was through the negligence of its employee (Marahan v. Mendoza, 24 SCRA 888, 894), and such liability does not cease even upon proof that BLTB had exercised all the diligence of a good father of a family in the selection and supervision of its employees (Article 1759, Civil Code).

The common carrier's liability for the death of or injuries to its passengers is based on its contractual obligation to carry its passengers safely to their destination. That obligation is so serious that the Civil Code requires "utmost diligence of very cautious person (Article 1755, Civil Code). They are presumed to have been at fault or to have acted negligently unless they prove that they have observed extraordinary diligence" (Article 1756, Civil Code). In the present case, the appellants have failed to prove extraordinary diligence. Indeed, this legal presumption was confirmed by the fact that the bus driver of BLTB was negligent. It must follow that both the driver and the owner must answer for injuries or death to its passengers.

The liability of BLTB is also solidarily with its driver (Viluan v. Court of Appeals, 16 SCRA 742, 747) even though the liability of the driver springs from quasi delict while that of the bus company from contract. (pp. 17-19, Rollo)

PHILIPPINE AIRLINES, INC. vs. COURT OF APPEALS and PEDRO ZAPATOS

FACTSOn 25 November 1976, private respondent filed a complaint for damages for breach of contract of carriage2against Philippine Airlines, Inc. (PAL). According to him, on 2 August 1976, he was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message that the airport was closed due to heavy rains and inclement weather and that he should proceed to Cotabato City instead.

Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take the next flight to Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz City on 5 August 1975.3The Station Agent likewise informed them that Flight 560 bound for Manila would make a stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats available as there were already confirmed passengers for Manila; and, that the basis for priority would be the check-in sequence at Cebu.

Private respondent chose to return to Cebu but was not accommodated because he checked-in as passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in the accommodation, but the Station Agent refused private respondent's demand explaining that the latter's predicament was not due to PAL's own doing but to be aforce majeure.4

Private respondent was left at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL personnel.6PAL neither provided private respondent with transportation from the airport to the city proper nor food and accommodation for his stay in Cotabato City.

The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel that he would not use the free ticket because he was filing a case against PAL.7In Iligan City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by crossing the bay in a launch.8His personal effects including the camera, which were valued at P2,000.00 were no longer recovered.

On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate private respondent.9It alleged that there was simply no more seat for private respondent on Flight 560 since there were only six (6) seats available and the priority of accommodation on Flight 560 was based on the check-in sequence in Cebu.

PAL vigorously maintains that private respondent's principal cause of action was its alleged denial of private respondent's demand for priority over the confirmed passengers on Flight 560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to attend to the needs of the diverted passengers; and, that the question of negligence was not and never put in issue by the pleadings or proved at the trial.

Contrary to the above arguments, private respondent's amended complaint touched on PAL's indifference and inattention to his predicament.

With regard to the award of damages affirmed by the appellate court, PAL argues that the same is unfounded. It asserts that it should not be charged with the task of looking after the passengers' comfort and convenience because the diversion of the flight was due to a fortuitous event, and that if made liable, an added burden is given to PAL which is over and beyond its duties under the contract of carriage. It submits that granting arguendothat negligence exists, PAL cannot be liable in damages in the absence of fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and possible business losses; and, that private respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL issued.

ISSUE

WON PAL WAS NEGLIGENT IN CARING FOR ITS STRANDED PASSENGERS

RULING

The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations as in the case at bar. What we said in one case once again must be stressed,i.e., the relation of carrier and passenger continues until the latter has been landed at the port of destination and has left the carrier's premises.22Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached their final destination. On this score, PAL grossly failed considering the then ongoing battle between government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger to the place.

While we find PAL remiss in its duty of extending utmost care to private respondent while being stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him about his non-accommodation on Flight 560, or that it was inattentive to his queries relative thereto.

Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable considering the fortuitous event and that there was a sequence to be observed in the booking,i.e., in the order the passengers checked-in at their port of origin. His intransigence in fact was the main cause for his having to stay at the airport longer than was necessary.

Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent, the records are bereft of evidence to support the same. Thus, the ruling of respondent Court of Appeals in this regard is without basis.27On the contrary, private respondent was attended to not only by the personnel of PAL but also by its Manager."

WHEREFORE the decision appealed from is AFFIRMED with modification however that the award of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos (P10,000.00) while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to Five Thousand Pesos (P5,000.00). The award of actual damages in the amount Five Thousand Pesos (P5,000.00) representing business losses occasioned by private respondent's being stranded in Cotabato City is deleted.

CONRADA VDA. DE ABETO, CARMELO ABETO, CECILIA ABETO, CONCEPCION ABETO, MARIA ABETO, ESTELA ABETO, PERLA ABETO, PATRIA ABETO and ALBERTO ABETO vs. PHILIPPINE AIR LINES, INCORPORATED

FACTS

Plaintiff's evidence shows that about 5:30 in the afternoon of November 23, 1960, Judge Quirico Abeto, with the necessary tickets, boarded the Philippine Air Lines' PI-C133 plane at the Mandurriao Airport, Iloilo City for Manila. He was listed as the No. 18 passenger in its Load Manifest (Exhibit A). The plane which would then take two hours from Iloilo to Manila did not reach its destination and the next day there was news that the plane was missing. After three weeks, it was ascertained that the plane crashed at Mt. Baco, Province of Mindoro. All the passengers, including Judge Abeto, must have been killed instantly and their remains were scattered all over the area. Among the articles recovered on the site of the crash was a leather bag with the name "Judge Quirico Abeto."

When defendant-appellant would not hear demands for settlement of damages, plaintiffs-appellees were compelled to hire counsel for the institution and prosecution of this case.

Defendant-appellant tried to prove that the plane crash at Mt. Baco was beyond the control of the pilot. The plane at the time of the crash was airworthy for the purpose of conveying passengers across the country as shown by the certificate of airworthiness issued by the Civil Aeronautics Administration (CAA). There was navigational error but no negligence or malfeasance on the part of the pilot.

Further, deviation from its prescribed route was due to the bad weather conditions between Mt. Baco and Romblon and strong winds which caused the plane to drift to Mt. Baco. Under the circumstances, appellant argues that the crash was a fortuitous event and, therefore, defendant-appellant cannot be held liable under the provisions of Article 1174 of the New Civil Code. Besides, appellant tried to prove that it had exercised all the cares, skill and diligence required by law on that particular flight in question.

ISSUE

WON THE DEFENDANT IS LIABLE FOR VIOLATION OF ITS CONTRACT OF CARRIAGE.

RULING

The provisions of the Civil Code on this question of liability are clear and explicit. Article 1733 binds common carriers, "from the nature of their business and by reasons of public policy, ... to observe extraordinary diligence in the vigilance ... for the safety of the passengers transported by them according to all the circumstances of each case." Article 1755 establishes the standard of care required of a common carrier, which is, "to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances." Article 1756 fixes the burden of proof by providing that "in case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extra-ordinary diligence as prescribed in Articles 1733 and 1755." Lastly, Article 1757 states that "the responsibility of a common carrier for the safety of passengers ... cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise."

The prescribed airway of plane PI-C133 that afternoon of November 23, 1960, with Capt. de Mesa, as the pilot, was Iloilo-Romblon-Manila, denominated as airway "Amber l," and the prescribed elevation of the flight was 6,000 ft. The fact is, the plane did not take the designated route because it was some 30 miles to the west when it crashed at Mt. Baco. According to defendant's witness, Ramon A. Pedroza, Administrative Assistant of the Philippine Air Lines, Inc., this tragic crash would have not happened had the pilot continued on the route indicated.

At any rate, in the absence of a satisfactory explanation by appellant as to how the accident occurred, the presumption is, it is at fault.

In an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought for by the passenger. By the contract of carriage, the carrier assumes the express obligation to transport the passenger to his destination safely and to observe extraordinary diligence with a due regard for all the circumstances, and any injury that might be suffered by the passenger is right away attributable to the fault or negligence of the carrier (Art. 1756, New Civil Code). This is an exception to the general rule that negligence must be proved. (Batangas Transportation Company vs. Caguimbal, 22 SCRA 171.)

MALAYAN INSURANCE CO., INC. vs. PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC.

FACTS

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the formers products to its customers, dealers or salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines First thereby insured Wyeths nutritional, pharmaceutical and other products usual or incidental to the insureds business while the same were being transported or shipped in the Philippines.

Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by Wyeths representative/s.4Nevertheless, it was admittedly signed by Reputables representatives, the terms thereof faithfully observed by the parties and, as previously stated, the same contract of carriage had been annually executed by the parties every year since 1989.

The contract also required Reputable to secure an insurance policy on Wyeths goods.7Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeths products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996.8In its complaint, Philippines First stated that Reputable is a "private corporation engaged in the business of a common carrier." In its answer,9Reputable claimed that it is a private carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeths representative and that the cause of the loss was force majeure, i.e., the hijacking incident.

Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan for P1,000,000.00 with respect to the lost products under the latters Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or hijacking.10

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party liability.

ISSUES

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk of loss or damage, for any cause whatsoever, including that due to theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to Philippines First.

RULING

1. Reputable is a private carrier. Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and considered conclusive between the parties, save for certain exceptional and meritorious circumstances, none of which are present in this case.18

Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeths goods should be dispensed with, or at least diminished.

In this case, the pleader or the plaintiff who alleged that Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against Reputable whose nature of business is in question. It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under the terms of the contract of carriage. Philippines First is not in any position to make any admission, much more a definitive pronouncement, as to the nature of Reputables business and there appears no other connection between Philippines First and Reputable which suggests mutual familiarity between them. Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private or special carrier. The settled rule is that mere allegation is not proof.

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.28A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only.29For all intents and purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.

2. Reputable is bound by the terms of the contract of carriage. The extent of a private carriers obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public policy. "The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public at large is not involved."30

Thus, being a private carrier, the extent of Reputables liability is fully governed by the stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure while the goods/products are in transit and until actual delivery to Wyeths customers, salesmen and dealers.

3. Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified other insurance clause".32In rendering inapplicable said provisions in the SR Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayans complete absolution in case the other insurance would be sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-rated contribution between the two insurers. Being the later provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.

The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in case of double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that there is no double insurance in this case inasmuch as Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayans stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing the insurance contract in question.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"). In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or damage." This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code,37which states that "where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayans SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

4. Reputable is not solidarily liable with Malayan. There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party[- ]liability does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy:43(Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.

LOADMASTERS CUSTOMS SERVICES, INC. vs. GLODEL BROKERAGE CORPORATIONand R&B INSURANCE CORPORATION

FACTS

OnAugust 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor ofColumbiato insure the shipment of 132 bundles of electric copper cathodes against All Risks.

Columbiaengaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants.Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes toColumbias warehouses/plants in Bulacan andValenzuelaCity.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers and accompanied by its employed truck helpers.Of the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the destination.One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes.Because of this incident,Columbiafiled with R&B Insurance a claim for insurance indemnity in the amount ofP1,903,335.39. R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel.

ISSUES

WON GLODEL AND LOADMASTERS ARE COMMON CARRIERS.

WON PETITIONER LOADMASTERS CAN BE HELD LIABLE TO RESPONDENTGLODEL DESPITE THE FACT THAT GLODEL DID NOT FILE A CROSS-CLAIM AGAINST LOADMASTERS

WON LOADMASTERS CAN BE LEGALLY CONSIDERED AS AN AGENT OF RESPONDENT GLODEL

RULING

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.[9]Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance. As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.

1. YES. Under Article 1732 of the Civil Code,common carriersare persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business of transporting goods by land, through its trucking service.It is acommon carrieras distinguished from aprivate carrierwherein thecarriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.[10]The distinction is significant in the sense that the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers.[11]

In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel was private in character.There is no showing that Loadmasters solely and exclusively rendered services to Glodel. In fact, Loadmastersadmittedthat it is a common carrier.[12]

In the same vein, Glodel is also considered a common carrier within the context of Article 1732.In its Memorandum,[13]it states that it is a corporation duly organized and existing under the laws of the Republic of thePhilippinesand is engaged in the business of customs brokering.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code.When the Court speaks of extraordinary diligence, itis that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights.[15]This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment.[16]Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently.[17]This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods.

LIABILITY OF GLODEL AND LOADMASTERS: Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R & B Insurance for the loss of the subject cargo.Under Article 2194 of the New Civil Code, the responsibility of two or more persons who are liable for a quasi-delict is solidary.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment.As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse.

Whenever an employees negligence causes damage or injury to another, there instantly arises a presumptionjuris tantumthat the employer failed to exercisediligentissimi patris familiesin the selection(culpa in eligiendo)or supervision(culpa in vigilando)of its employees.[20]To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.[21]In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary diligence.It failed to ensure that Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the designated destination.It should have been more prudent in entrusting the goods to Loadmasters by taking precautionary measures, such as providing escorts to accompany the trucks in delivering the cargoes.Glodel should, therefore, be held liable with Loadmasters.Its defense offorce majeureis unavailing.

2. Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service as the latter is primarily liable for the loss of the subject cargo.In this case, however, it cannot succeed in seeking judicial sanction against Loadmasters because the records disclose that it did not properly interpose a cross-claim against the latter.Glodel did not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable in favor of R&B Insurance.Under the Rules, a compulsory counterclaim,or a cross-claim, not set up shall be barred.[25]Thus, a cross-claim cannot be set up for the first time on appeal.

3. At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and Loadmasters, as erroneously found by the CA.Article 1868 of the Civil Code provides: By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.The elements of a contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.[22]

Accordingly, there can be no contract of agency between the parties.Loadmasters never represented Glodel.Neither was it ever authorized to make such representation.It is a settled rule that the basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it.[23]Such mutual intent is not obtaining in this case.

SPOUSES DANTE CRUZ and LEONORA CRUZ vs. SUN HOLIDAYS, INC.

FACTS

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

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

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

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

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

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers, including petitioners son and his wife, died during the incident.

Petitioners allege that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.6

In its Answer,7respondent denied being a common carrier, alleging that its boats are not available to the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners allegation, there was no storm on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its passengers.

ISSUES

WON RESPONDENT IS A COMMON CARRIER.

WON RESPONDENT WAS GUILTY OF NEGLIGENCE, THUS, IN BREACH OF ITS CONTRACT OF CARRIAGE

RULING

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

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

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

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

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

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