Bar Notes Transpo

8/10/2019 Bar Notes Transpo

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TRANSPORTATION LAW

Basically the law which governs in transportationlaw are the civil code provisions on commoncarriers. This does not mean, however, that the civilcode solely governs the law on transportation. In

fact, in the civil code itself more particularly inArticle 1766, it is provided that In all matters notregulated by this Code, the rights and obligations ofcommon carriers shall be governed by the Code ofCommerce and by special laws.

When we say special laws, what particular laws arewe referring to? Are they all domestic laws? Whatabout in international transportation? What law shallwe apply?

The civil code provision previously cited made

mention of the Code of Commerce and other speciallaws. When we refer to special laws, we refer tothose laws which have domestic application but arenot necessarily domestic laws. One such law used intransportation law is the Warsaw Convention for airtransportation.

Dean Jose R. Sundiang, in his book Reviewer onCommercial Law made mention of rules on whatlaw should be applied in transportation law. Saidrules are as follows:

Common carriers shall be governed by thefollowing laws:

a. Coastwise Shipping:

1.

New Civil Code (Articles 1732 1766) this is the primary law

2. Code of Commerce governssuppletorily in the absence of CivilCode provisions

b. Carriage from Foreign Ports to PhilippinePorts:

1.

New Civil Codeprimary law

2. Code of Commerceall matters notregulated by the Civil Code

c. Carriage from Philippine Ports to ForeignPorts:

1. The laws of the country to whichthe goods are to be transported(Article 1753 of the Civil Code)

d. Overland Transportation:

1.

Civil Codeprimary law

2. Code of Commercesuppletorily

e. Air Transportation:

1. Civil Code

2.

Code of Commerce

3. For International Carriage Convention for the Unification ofCertain Rules relating to theInternational Carriage by Air or

Warsaw Convention with itsamendments.

Distinguish a Common Carrier from a Private

Carrier.

Particulars Common

Carrier

Private Carrier

1. Character ofthe business

Regardless ifundertaking isa singletransactiononly.

Undertaking isa singletransaction, notpart of ageneralbusiness oroccupation.

2. Employment Holding out tothe public.

Special casefor a privateindividual.

3. Binding

contract tocarry

Not bound to

carry unless itenters a specialagreement.

Bound to carry

for all whooffer suchgoods.

4. Regulation Subject toregulation.

Not subject toregulation.

5. Diligence Extraordinarydiligence.

Diligence of agood father ofa family.

6. Stipulationagainst liability

Cannotstipulate. It is

May validlyenter into


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void andagainst publicpolicy.

stipulation.

SECTION 4. - Common Carriers (n)

SUBSECTION 1. - General Provisions

Art. 1732. Common carriers are persons,corporations, firms or associations engaged in thebusiness of carrying or transporting passengers orgoods or both, by land, water, or air, forcompensation, offering their services to the public.

Common carriers do not refer to the jeepneys,buses, taxis to name a few, which we seeeveryday. Under the civil code, common carriers are

in fact PERSONS, CORPORATIONS, FIRMS ORASSOCIATIONS engaged in the business ofcarrying or transporting passengers or goods orboth, by land, water, or air for compensation,offering their services to the public.

The oft-cited case in bar examinations whichdefines what common carriers really are, is DeGuzman vs. Court of Appeals, which provides:

"The above article (Art. 1732, Civil Code) makes nodistinction between one whose principal business

activity is the carrying of persons or goods or both,and one who does such carrying only as an

ancillary activity (in local idiom, as a 'sideline').Article 1732 x x x avoids making any distinction

between a person or enterprise offeringtransportation service on a regular or scheduledbasis and one offering such service on an

occasional, episodic or unscheduled basis. Neitherdoes Article 1732 distinguish between a carrier

offering its services to the 'general public,' i.e., thegeneral community or population, and one whooffers services or solicits business only from a

narrow segment of the general population. We thinkthat Article 1877 deliberately refrained from

making such distinctions.

Another often cited case is First PhilippineIndustrial Corporation vs. Court of Appeals, whichprovides:

Based on the above definitions and requirements,there is no doubt that petitioner is a common

carrier. It is engaged in the business of transporting

or carrying goods, i.e. petroleum products, for hireas a public employment. It undertakes to carry for

all persons indifferently, that is, to all persons whochoose to employ its services, and transports thegoods by land and for compensation. The fact that

petitioner has a limited clientele does not exclude itfrom the definition of a common carrier.

May a common carrier be converted to a privatecarrier? The answer is yes. In the case of CaltexPhils. vs. Sulpicio Lines, it was ruled:

Charter parties fall into three main categories: (1)Demise or bareboat, (2) time charter, (3) voyage

charter. Does a charter party agreement turn thecommon carrier into a private one? We need toanswer this question in order to shed light on the

responsibilities of the parties.

In this case, the charter party agreement did notconvert the common carrier into a private carrier.The parties entered into a voyage charter, which

retains the character of the vessel as a commoncarrier.

In Planters Products, Inc. vs. Court of Appeals, wesaid:

It is therefore imperative that a public carrier

shall remain as such, notwithstanding the charter ofthe whole or portion of a vessel by one or morepersons, provided the charter is limited to the ship

only, as in the case of a time-charter or voyagecharter. It is only when the charter includes both thevessel and its crew, as in a bareboat or demise thata common carrier becomes private, at least insofar

as the particular voyage covering the charter-partyis concerned. Indubitably, a ship-owner in a time orvoyage charter retains possession and control of theship, although her holds may, for the moment, be

the property of the charterer.

Later, we ruled in Coastwise LighterageCorporation vs. Court of Appeals:

Although a charter party may transform acommon carrier into a private one, the samehowever is not true in a contract of affreightment

xxx


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The provisions of our Civil Code on common

carriers were taken from Anglo-American law.Under American jurisprudence, a common carrier

undertaking to carry a special cargo or chartered toa special person only, becomes a private carrier. Asa private carrier, a stipulation exempting the owner

from liability for the negligence of its agent is notagainst public policy, and is deemed valid.

Such doctrine We find reasonable. The Civil Codeprovisions on common carriers should not be

applied where the carrier is not acting as such butas a private carrier. The stipulation in the charter

party absolving the owner from liability for loss dueto the negligence of its agent would be void only if

the strict public policy governing common carriersis applied. Such policy has no force where thepublic at large is not involved, as in this case of a

ship totally chartered for the use of a single party.(Underscoring supplied.)

Indeed, where the reason for the rule ceases, therule itself does not apply. The general public enters

into a contract of transportation with commoncarriers without a hand or a voice in the

preparation thereof. The riding public merelyadheres to the contract; even if the public wants to,it cannot submit its own stipulations for the

approval of the common carrier. Thus, the law oncommon carriers extends its protective mantle

against one-sided stipulations inserted in tickets,invoices or other documents over which the ridingpublic has no understanding or, worse, no choice.

Compared to the general public, a charterer in acontract of private carriage is not similarly situated.It can -- and in fact it usually does -- enter into afree and voluntary agreement. In practice, the

parties in a contract of private carriage canstipulate the carriers obligations and liabilitiesover the shipment which, in turn, determine theprice or consideration of the charter. Thus, acharterer, in exchange for convenience and

economy, may opt to set aside the protection of thelaw on common carriers. When the chartererdecides to exercise this option, he takes a normal

business risk.

Art. 1733. Common carriers, from the nature oftheir business and for reasons of public policy, arebound to observe extraordinary diligence in thevigilance over the goods and for the safety of the

passengers transported by them, according to all thecircumstances of each case.

Such extraordinary diligence in the vigilance overthe goods is further expressed in Articles 1734

Art. 1734. Common carriers are responsiblefor the loss, destruction, or deterioration of

the goods, unless the same is due to any ofthe following causes only:

(1) Flood, storm, earthquake,

lightning, or other natural disasteror calamity;

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

(3) Act of omission of the shipper orowner of the goods;(4) The character of the goods or

defects in the packing or in thecontainers;

(5) Order or act of competent publicauthority.

, 1735,

Art. 1735. In all cases other than thosementioned in Nos. 1, 2, 3, 4, and 5 of the

preceding article, if the goods are lost,destroyed or deteriorated, common carriersare presumed to have been at fault or to

have acted negligently, unless they provethat they observed extraordinary diligence

as required in Article 1733.

and 1745, Nos. 5, 6, and 7,

Art. 1745. Any of the following or similarstipulations shall be consideredunreasonable, unjust and contrary to public

policy:xxx

(5) That the common carrier shallnot be responsible for the acts or

omission of his or its employees;

(6) That the common carrier's

liability for acts committed bythieves, or of robbers who do not

act with grave or irresistible threat,violence or force, is dispensed withor diminished;


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(7) That the common carrier is not

responsible for the loss, destruction,or deterioration of goods on

account of the defective condition ofthe car, vehicle, ship, airplane orother equipment used in the

contract of carriage.

while the extraordinary diligence for the safety ofthe passengers is further set forth in Articles 1755

Art. 1755. A common carrier is bound tocarry the passengers safely as far as human

care and foresight can provide, using theutmost diligence of very cautious persons,

with a due regard for all the circumstances.

and 1756.

Art. 1756. In case of death of or injuries to

passengers, common carriers are presumedto have been at fault or to have actednegligently, unless they prove that they

observed extraordinary diligence asprescribed in Articles 1733 and 1755.

SUBSECTION 2. - Vigilance Over Goods

Art. 1734. Common carriers are responsible for the

loss, destruction, or deterioration of the goods,unless the same is due to any of the followingcauses only:

(1) Flood, storm, earthquake, lightning, orother natural disaster or calamity;(2) Act of the public enemy in war, whetherinternational or civil;(3) Act of omission of the shipper or ownerof the goods;(4) The character of the goods or defects inthe packing or in the containers;

(5) Order or act of competent publicauthority.

In Eastern Shipping Lines, Inc. vs. IntermediateAppellate Court, we ruled that since the peril of fire

is not comprehended within the exceptions in Article1734, then the common carrier shall be presumed tohave been at fault or to have acted negligently,

unless it proves that it has observed theextraordinary diligence required by law.

Even if fire were to be considered a natural disasterwithin the purview of Article 1734, it is required

under Article 1739 of the same Code that thenatural disaster must have been the proximate andonly cause of the loss, and that the carrier has

exercised due diligence to prevent or minimize theloss before, during or after the occurrence of the

disaster.

We have held that a common carrier's duty to

observe the requisite diligence in the shipment ofgoods lasts from the time the articles are

surrendered to or unconditionally placed in thepossession of, and received by, the carrier for

transportation until delivered to or until the lapse ofa reasonable time for their acceptance by theperson entitled to receive them. When the goods

shipped either are lost or arrive in damagedcondition, a presumption arises against the carrier

of its failure to observe that diligence, and thereneed not be an express finding of negligence to holdit liable.

Common carriers are obliged to observe

extraordinary diligence in the vigilance over thegoods transported by them. Accordingly, they arepresumed to have been at fault or to have acted

negligently if the goods are lost, destroyed ordeteriorated. There are very few instances when the

presumption of negligence does not attach and theseinstances are enumerated in Article 1734. In thosecases where the presumption is applied, the

common carrier must prove that it exercisedextraordinary diligence in order to overcome thepresumption.

Art. 1735. In all cases other than those mentioned inNos. 1, 2, 3, 4, and 5 of the preceding article, if thegoods are lost, destroyed or deteriorated, commoncarriers are presumed to have been at fault or tohave acted negligently, unless they prove that they

observed extraordinary diligence as required inArticle 1733.

1. Proof of the delivery of goods in goodorder to a common carrier and of their

arrival in bad order at their destinationconstitutes prima facie fault or negligenceon the part of the carrier. If no adequate

explanation is given as to how the loss, thedestruction or the deterioration of the goods


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happened, the carrier shall be held liable

therefor.

2.

From the nature of their business and forreasons of public policy, common carriersare bound to observe extraordinary

diligence over the goods they transportaccording to all the circumstances of each

case. In the event of loss, destruction ordeterioration of the insured goods, commoncarriers are responsible, unless they can

prove that the loss, destruction ordeterioration was brought about by the

causes specified in Article 1734 of the CivilCode. In all other cases, common carriers

are presumed to have been at fault or tohave acted negligently, unless they provethat they observed extraordinary diligence.

Moreover, where the vessel is foundunseaworthy, the shipowner is also

presumed to be negligent since it is taskedwith the maintenance of its vessel. Thoughthis duty can be delegated, still, the

shipowner must exercise close supervisionover its men.

3.

A common carrier is presumed to be atfault or negligent. It shall be liable for the

loss, destruction or deterioration of itscargo, unless it can prove that the sole and

proximate cause of such event is one of thecauses enumerated in Article 1734 of theCivil Code, or that it exercised

extraordinary diligence to prevent orminimize the loss. In the present case, theweather condition encountered by

petitioners vessel was not a storm or anatural disaster comprehended in the law.Given the known weather conditionprevailing during the voyage, the manner ofstowage employed by the carrier wasinsufficient to secure the cargo from the

rolling action of the sea. The carrier took acalculated risk in improperly securing thecargo. Having lost that risk, it cannot now

disclaim any liability for the loss.

Art. 1736. The extraordinary responsibility of thecommon carrier lasts from the time the goods areunconditionally placed in the possession of, andreceived by the carrier for transportation until thesame are delivered, actually or constructively, by

the carrier to the consignee, or to the person whohas a right to receive them, without prejudice to theprovisions of Article 1738.

Art. 1737. The common carrier's duty to observeextraordinary diligence over the goods remains in

full force and effect even when they are temporarilyunloaded or stored in transit, unless the shipper orowner has made use of the right of stoppage intransitu.

What isstoppage in transitu? Article 1526 providesthat this is the remedy of an unpaid seller. Hence:

Art. 1526. Subject to the provisions of this

Title, notwithstanding that the ownership inthe goods may have passed to the buyer, theunpaid seller of goods, as such, has:

(1) A lien on the goods or right to

retain them for the price while he isin possession of them;

(2) In case of the insolvency of thebuyer, a right of stopping the goods

in transitu after he has parted withthe possession of them;

(3) A right of resale as limited bythis Title;

(4) A right to rescind the sale aslikewise limited by this Title.

Where the ownership of the goods has notpassed to the buyer, the unpaid seller has,in addition to his other remedies, a right of

withholding delivery similar to andcoextensive with his rights of lien andstoppage in transitu where the ownershiphas passed to the buyer.

Art. 1738. The extraordinary liability of thecommon carrier continues to be operative evenduring the time the goods are stored in a warehouseof the carrier at the place of destination, until theconsignee has been advised of the arrival of thegoods and has had reasonable opportunity thereafterto remove them or otherwise dispose of them.

Art. 1739. In order that the common carrier may beexempted from responsibility, the natural disaster


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must have been the proximate and only cause of theloss. However, the common carrier must exercisedue diligence to prevent or minimize loss before,during and after the occurrence of flood, storm orother natural disaster in order that the commoncarrier may be exempted from liability for the loss,

destruction, or deterioration of the goods. The sameduty is incumbent upon the common carrier in caseof an act of the public enemy referred to in Article1734, No. 2.

Art. 1740. If the common carrier negligently incursin delay in transporting the goods, a natural disastershall not free such carrier from responsibility.

Art. 1741. If the shipper or owner merelycontributed to the loss, destruction or deteriorationof the goods, the proximate cause thereof being the

negligence of the common carrier, the latter shall beliable in damages, which however, shall beequitably reduced.

Art. 1742. Even if the loss, destruction, ordeterioration of the goods should be caused by thecharacter of the goods, or the faulty nature of thepacking or of the containers, the common carriermust exercise due diligence to forestall or lessen theloss.

Art. 1743. If through the order of public authority

the goods are seized or destroyed, the commoncarrier is not responsible, provided said publicauthority had power to issue the order.

Art. 1744. A stipulation between the commoncarrier and the shipper or owner limiting the liabilityof the former for the loss, destruction, ordeterioration of the goods to a degree less thanextraordinary diligence shall be valid, provided itbe:

(1) In writing, signed by the shipper orowner;

(2) Supported by a valuable considerationother than the service rendered by thecommon carrier; and(3) Reasonable, just and not contrary topublic policy.

Art. 1745. Any of the following or similarstipulations shall be considered unreasonable, unjustand contrary to public policy:

(1) That the goods are transported at the riskof the owner or shipper;(2) That the common carrier will not beliable for any loss, destruction, ordeterioration of the goods;(3) That the common carrier need not

observe any diligence in the custody of thegoods;(4) That the common carrier shall exercise adegree of diligence less than that of a goodfather of a family, or of a man of ordinaryprudence in the vigilance over the movablestransported;(5) That the common carrier shall not beresponsible for the acts or omission of his orits employees;(6) That the common carrier's liability foracts committed by thieves, or of robbers

who do not act with grave or irresistiblethreat, violence or force, is dispensed withor diminished;(7) That the common carrier is notresponsible for the loss, destruction, ordeterioration of goods on account of thedefective condition of the car, vehicle, ship,airplane or other equipment used in thecontract of carriage.

Art. 1746. An agreement limiting the commoncarrier's liability may be annulled by the shipper or

owner if the common carrier refused to carry thegoods unless the former agreed to such stipulation.

Art. 1747. If the common carrier, without just cause,delays the transportation of the goods or changes thestipulated or usual route, the contract limiting thecommon carrier's liability cannot be availed of incase of the loss, destruction, or deterioration of thegoods.

Art. 1748. An agreement limiting the commoncarrier's liability for delay on account of strikes or

riots is valid.

Art. 1749. A stipulation that the common carrier'sliability is limited to the value of the goodsappearing in the bill of lading, unless the shipper orowner declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may berecovered. by the owner or shipper for the loss,destruction, or deterioration of the goods is valid, if


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it is reasonable and just under the circumstances,and has been fairly and freely agreed upon.

Art. 1751. The fact that the common carrier has nocompetitor along the line or route, or a part thereof,to which the contract refers shall be taken into

consideration on the question of whether or not astipulation limiting the common carrier's liability isreasonable, just and in consonance with publicpolicy.

Art. 1752. Even when there is an agreement limitingthe liability of the common carrier in the vigilanceover the goods, the common carrier is disputablypresumed to have been negligent in case of theirloss, destruction or deterioration.

Art. 1753. The law of the country to which the

goods are to be transported shall govern the liabilityof the common carrier for their loss, destruction ordeterioration.

Art. 1754. The provisions of Articles 1733 to 1753shall apply to the passenger's baggage which is notin his personal custody or in that of his employee.As to other baggage, the rules in Articles 1998 and2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.

SUBSECTION 3. - Safety of Passengers

Art. 1755. A common carrier is bound to carry thepassengers safely as far as human care and foresightcan provide, using the utmost diligence of verycautious persons, with a due regard for all thecircumstances.

Art. 1756. In case of death of or injuries topassengers, common carriers are presumed to havebeen at fault or to have acted negligently, unlessthey prove that they observed extraordinarydiligence as prescribed in Articles 1733 and 1755.

1.

Consequently, in quasi-delict, the

negligence or fault should be clearly

established because it is the basis of the

action, whereas in breach of contract, the

action can be prosecuted merely by proving

the existence of the contract and the fact

that the obligor, in this case the common

carrier, failed to transport his passenger

safely to his destination. In case of death or

injuries to passengers, Art. 1756 of the Civil

Code provides that common carriers are

presumed to have been at fault or to have

acted negligently unless they prove that they

observed extraordinary diligence as definedin Arts. 1733 and 1755 of the Code. This

provision necessarily shifts to the common

carrier the burden of proof.

2.

It is immaterial that the proximate cause ofthe collision between the jeepney and thetruck was the negligence of the truck driver.

The doctrine of proximate cause isapplicable only in actions for quasi-delict,

not in actions involving breach of contract.The doctrine is a device for imputing

liability to a person where there is norelation between him and another party. Insuch a case, the obligation is created by law

itself. But, where there is a pre-existingcontractual relation between the parties, it

is the parties themselves who create theobligation, and the function of the law ismerely to regulate the relation thus created.

Insofar as contracts of carriage areconcerned, some aspects regulated by the

Civil Code are those respecting thediligence required of common carriers with

regard to the safety of passengers as well asthe presumption of negligence in cases ofdeath or injury to passengers.

3. Contrary to the petitioners contention, the

principle of last clear chance isinapplicable in the instant case, as it onlyapplies in a suit between the owners and

drivers of two colliding vehicles. It does notarise where a passenger demands

responsibility from the carrier to enforce itscontractual obligations, for it would be

inequitable to exempt the negligent driverand its owner on the ground that the otherdriver was likewise guilty of negligence.

The common law notion of last clear chancepermitted courts to grant recovery to aplaintiff who has also been negligentprovided that the defendant had the lastclear chance to avoid the casualty and

failed to do so. Accordingly, it is difficult tosee what role, if any, the common law of


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last clear chance doctrine has to play in a

jurisdiction where the common law conceptof contributory negligence as an absolute

bar to recovery by the plaintiff, has itselfbeen rejected, as it has been in Article 2179of the Civil Code.

Art. 1757. The responsibility of a common carrierfor the safety of passengers as required in Articles1733 and 1755 cannot be dispensed with or lessenedby stipulation, by the posting of notices, bystatements on tickets, or otherwise.

Art. 1758. When a passenger is carried gratuitously,a stipulation limiting the common carrier's liabilityfor negligence is valid, but not for willful acts orgross negligence.

The reduction of fare does not justify any limitationof the common carrier's liability.

Art. 1759. Common carriers are liable for the deathof or injuries to passengers through the negligenceor willful acts of the former's employees, althoughsuch employees may have acted beyond the scopeof their authority or in violation of the orders of thecommon carriers.

This liability of the common carriers does not ceaseupon proof that they exercised all the diligence of a

good father of a family in the selection andsupervision of their employees.

Art. 1760. The common carrier's responsibilityprescribed in the preceding article cannot beeliminated or limited by stipulation, by the postingof notices, by statements on the tickets or otherwise.

Art. 1761. The passenger must observe the diligenceof a good father of a family to avoid injury tohimself.

Art. 1762. The contributory negligence of thepassenger does not bar recovery of damages for hisdeath or injuries, if the proximate cause thereof isthe negligence of the common carrier, but theamount of damages shall be equitably reduced.

Art. 1763. A common carrier is responsible forinjuries suffered by a passenger on account of thewillful acts or negligence of other passengers or ofstrangers, if the common carrier's employees

through the exercise of the diligence of a goodfather of a family could have prevented or stoppedthe act or omission.

SUBSECTION 4. - Common Provisions

Art. 1764. Damages in cases comprised in thisSection shall be awarded in accordance with TitleXVIII of this Book, concerning Damages. Article2206 shall also apply to the death of a passengercaused by the breach of contract by a commoncarrier.

1.

Res ipsa loquitur, a doctrine being invoked

by petitioner, holds a defendant liablewhere the thing which caused the injurycomplained of is shown to be under the

latters management and the accident issuch that, in the ordinary course of things,

cannot be expected to happen if those whohave its management or control use propercare. It affords reasonable evidence, in the

absence of explanation by the defendant,that the accident arose from want of care. It

is not a rule of substantive law and, as such,it does not create an independent ground ofliability. Instead, it is regarded as a mode of

proof, or a mere procedural conveniencesince it furnishes a substitute for, and

relieves the plaintiff of, the burden ofproducing specific proof of negligence. Themaxim simply places on the defendant the

burden of going forward with theproof.Resort to the doctrine, however, maybe allowed only when

(a) the event is of a kind which doesnot ordinarily occur in the absenceof negligence;(b) other responsible causes,including the conduct of the plaintiff

and third persons, are sufficientlyeliminated by the evidence; and(c) the indicated negligence is

within the scope of the defendant'sduty to the plaintiff.

Thus, it is not applicable when an unexplainedaccident may be attributable to one of several

causes, for some of which the defendant couldnot be responsible.


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Res ipsa loquitur generally finds relevancewhether or not a contractual relationship

exists between the plaintiff and thedefendant, for the inference of negligencearises from the circumstances and nature of

the occurrence and not from the nature ofthe relation of the parties. Nevertheless, the

requirement that responsible causes otherthan those due to defendants conduct mustfirst be eliminated, for the doctrine to apply,

should be understood as being confinedonly to cases of pure (non-contractual) tort

since obviously the presumption ofnegligence in culpa contractual, as

previously so pointed out, immediatelyattaches by a failure of the covenant or itstenor. In the case of the truck driver, whose

liability in a civil action is predicated onculpa acquiliana, while he admittedly can

be said to have been in control andmanagement of the vehicle which figured inthe accident, it is not equally shown,

however, that the accident could have beenexclusively due to his negligence, a matter

that can allow, forthwith, res ipsa loquiturto work against him.

2. Respondent contends that petitioner'sliability should be based on the actual

insured value of the goods, subject of thiscase. On the other hand, petitioner claimsthat its liability should be limited to the

value declared by the shipper/consignee inthe Bill of Lading.

The records show that the Bills of Lading

covering the lost goods contain thestipulation that in case of claim for loss orfor damage to the shipped merchandise orproperty, "[t]he liability of the commoncarrier x x x shall not exceed the value of

the goods as appearing in the bill oflading." The attempt by respondent to makelight of this stipulation is unconvincing. As

it had the consignees' copies of the Bills ofLading, it could have easily produced those

copies, instead of relying on mereallegations and suppositions. However, itpresented mere photocopies thereof to

disprove petitioner's evidence showing theexistence of the above stipulation.

A stipulation that limits liability is valid aslong as it is not against public policy. In

Everett Steamship Corporation v. Court ofAppeals, the Court stated:

"A stipulation in the bill of lading limitingthe common carrier's liability for loss or

destruction of a cargo to a certain sum,unless the shipper or owner declares agreater value, is sanctioned by law,

particularly Articles 1749 and 1750 of theCivil Code which provides:

Art. 1749. A stipulation that the common

carrier's liability is limited to the value ofthe goods appearing in the bill of lading,unless the shipper or owner declares a

greater value, is binding.'

Art. 1750. A contract fixing the sum thatmay be recovered by the owner or shipperfor the loss, destruction, or deterioration of

the goods is valid, if it is reasonable andjust under the circumstances, and has been

freely and fairly agreed upon.'

xxx

In the present case, the stipulation limiting

petitioner's liability is not contrary to publicpolicy. In fact, its just and reasonablecharacter is evident. The

shippers/consignees may recover the fullvalue of the goods by the simple expedientof declaring the true value of the shipmentin the Bill of Lading. Other than the

payment of a higher freight, there wasnothing to stop them from placing theactual value of the goods therein. In fact,they committed fraud against the commoncarrier by deliberately undervaluing the

goods in their Bill of Lading, thus deprivingthe carrier of its proper and just transportfare.

Concededly, the purpose of the limiting

stipulation in the Bill of Lading is to protectthe common carrier. Such stipulationobliges the shipper/consignee to notify the

common carrier of the amount that thelatter may be liable for in case of loss of the


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goods. The common carrier can then take

appropriate measures getting insurance,if needed, to cover or protect itself. This

precaution on the part of the carrier isreasonable and prudent. Hence, ashipper/consignee that undervalues the real

worth of the goods it seeks to transport doesnot only violate a valid contractual

stipulation, but commits a fraudulent actwhen it seeks to make the common carrierliable for more than the amount it declared

in the bill of lading.

3.

Article 1764 vis--vis Article 2206 of theCivil Code holds the common carrier in

breach of its contract of carriage thatresults in the death of a passenger liable topay the following:

(1) indemnity for death,

(2) indemnity for loss of earningcapacity and(3) moral damages.

Petitioners are entitled to indemnity for the

death of Ruelito which is fixed at P50,000.

As for damages representing unearned

income, the formula for its computation is:

Net Earning Capacity = lifeexpectancy x (gross annual income- reasonable and necessary living

expenses).

Life expectancy is determined inaccordance with the formula:

2 / 3 x [80 -- age of deceased at the time ofdeath]

The first factor, i.e., life expectancy, is

computed by applying the formula (2/3 x[80 -- age at death]) adopted in theAmerican Expectancy Table of Mortality or

the Actuarial of Combined ExperienceTable of Mortality.

The second factor is computed bymultiplying the life expectancy by the net

earnings of the deceased, i.e., the totalearnings less expenses necessary in the

creation of such earnings or income and

less living and other incidental expenses.The loss is not equivalent to the entire

earnings of the deceased, but only suchportion as he would have used to supporthis dependents or heirs. Hence, to be

deducted from his gross earnings are thenecessary expenses supposed to be used by

the deceased for his own needs.

In computing the third factor - necessary

living expense, Smith Bell Dodwell ShippingAgency Corp. v. Borja teaches that when, as

in this case, there is no showing that theliving expenses constituted the smaller

percentage of the gross income, the livingexpenses are fixed at half of the grossincome.

Applying the above guidelines, the Court

determines Ruelito's life expectancy asfollows:

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

2/3 x [80 - 28]

2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito

was earning a basic monthly salary of $900which, when converted to Philippine pesoapplying the annual average exchange rateof $1 = P44 in 2000, amounts to P39,600.

Ruelito's net earning capacity is thuscomputed as follows:

Net Earning Capacity = lifeexpectancy x (gross annual income

- reasonable and necessary livingexpenses).

= 35 x (P475,200 - P237,600)

= 35 x (P237,600)

Net Earning Capacity = P8,316,000


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Respecting the award of moral damages,

since respondent common carrier's breachof contract of carriage resulted in the death

of petitioners' son, following Article 1764vis- -vis Article 2206 of the Civil Code,petitioners are entitled to moral damages.

Since respondent failed to prove that it

exercised the extraordinary diligencerequired of common carriers, it is presumedto have acted recklessly, thus warranting

the award too of exemplary damages, whichare granted in contractual obligations if the

defendant acted in a wanton, fraudulent,reckless, oppressive or malevolent manner.

Under the circumstances, it is reasonable toaward petitioners the amount of P100,000

as moral damages and P100,000 asexemplary damages.

Pursuant to Article 2208 of the Civil Code,attorney's fees may also be awarded where

exemplary damages are awarded. TheCourt finds that 10% of the total amount

adjudged against respondent is reasonablefor the purpose.

Finally, Eastern Shipping Lines, Inc. v.Court of Appeals teaches that when an

obligation, regardless of its source, i.e.,law, contracts, quasi-contracts, delicts orquasi-delicts is breached, the contravenor

can be held liable for payment of interest inthe concept of actual and compensatorydamages, subject to the following rules, towit --

1. When the obligation isbreached, and it consists in thepayment of a sum of money, i.e., aloan or forbearance of money, the

interest due should be that whichmay have been stipulated in writing.Furthermore, the interest due shall

itself earn legal interest from thetime it is judicially demanded. In

the absence of stipulation, the rateof interest shall be 12% per annumto be computed from default, i.e.,

from judicial or extrajudicialdemand under and subject to the

provisions of Article 1169 of the

Civil Code.

2. When an obligation, notconstituting a loan or forbearanceof money, is breached, an interest

on the amount of damages awardedmay be imposed at the discretion of

the court at the rate of 6% perannum. No interest, however, shallbe adjudged on unliquidated claims

or damages except when or until thedemand can be established with

reasonable certainty. Accordingly,where the demand is established

with reasonable certainty, theinterest shall begin to run from thetime the claim is made judicially or

extrajudicially (Art. 1169, CivilCode) but when such certainty

cannot be so reasonably establishedat the time the demand is made, theinterest shall begin to run only from

the date the judgment of the court ismade (at which time the

quantification of damages may bedeemed to have been reasonablyascertained). The actual base for

the computation of legal interestshall, in any case, be on the amount

finally adjudged.

3. When the judgment of the court

awarding a sum of money becomesfinal and executory, the rate of legalinterest, whether the case fallsunder paragraph 1 or paragraph 2,

above, shall be 12% per annumfrom such finality until itssatisfaction, this interim periodbeing deemed to be by then anequivalent to a forbearance of

credit. (emphasis supplied).

Since the amounts payable by respondent

have been determined with certainty only inthe present petition, the interest due shall be

computed upon the finality of this decisionat the rate of 12% per annum untilsatisfaction, in accordance with paragraph

number 3 of the immediately cited guidelinein Easter Shipping Lines, Inc.


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Art. 1765. The Public Service Commission may, onits own motion or on petition of any interestedparty, after due hearing, cancel the certificate ofpublic convenience granted to any common carrierthat repeatedly fails to comply with his or its duty to

observe extraordinary diligence as prescribed in thisSection.

Art. 1766. In all matters not regulated by this Code,the rights and obligations of common carriers shallbe governed by the Code of Commerce and byspecial laws.

COGSA(Carriage of Goods by Sea Act)

The Carriage of Goods by Sea Act (COGSA),Public Act No. 521 of the 74th US Congress, wasaccepted to be made applicable to all contracts forthe carriage of goods by sea to and from Philippineports in foreign trade by virtue of CA No. 65.

Section 1 of CA No. 65 states:

Section 1. That the provisions of Public ActNumbered Five hundred and twenty-one ofthe Seventy-fourth Congress of the UnitedStates, approved on April sixteenth,

nineteen hundred and thirty-six, beaccepted, as it is hereby accepted to bemade applicable to all contracts for thecarriage of goods by sea to and fromPhilippine ports in foreign trade: Provided,That nothing in the Act shall be construedas repealing any existing provision of theCode of Commerce which is now in force,or as limiting its application.

Section 1, Title I of CA No. 65 defines the relevantterms in Carriage of Goods by Sea, thus:

Section 1. When used in this Act -

(a) The term "carrier" includes the owner orthe charterer who enters into a contract ofcarriage with a shipper.

(b) The term "contract of carriage" appliesonly to contracts of carriage covered by abill of lading or any similar document of

title, insofar as such document relates to thecarriage of goods by sea, including any billof lading or any similar document asaforesaid issued under or pursuant to acharter party from the moment at whichsuch bill of lading or similar document of

title regulates the relations between a carrierand a holder of the same.

(c) The term "goods" includes goods, wares,merchandise, and articles of every kindwhatsoever, except live animals and cargowhich by the contract of carriage is stated asbeing carried on deck and is so carried.

(d) The term "ship" means any vessel usedfor the carriage of goods by sea.

(e) The term "carriage of goods" covers theperiod from the time when the goods areloaded to the time when they are dischargedfrom the ship.

It is noted that the term carriage of goods coversthe period from the time when the goods are loadedto the time when they are discharged from the ship;thus, it can be inferred that the period of time whenthe goods have been discharged from the ship andgiven to the custody of the arrastre operator is notcovered by the COGSA.

The prescriptive period for filing an action for theloss or damage of the goods under the COGSA isfound in paragraph (6), Section 3, thus:

6) Unless notice of loss or damage and thegeneral nature of such loss or damage begiven in writing to the carrier or his agent atthe port of discharge before or at the time ofthe removal of the goods into the custody ofthe person entitled to delivery thereof underthe contract of carriage, such removal shall

be prima facie evidence of the delivery bythe carrier of the goods as described in thebill of lading. If the loss or damage is notapparent, the notice must be given withinthree days of the delivery.

Said notice of loss or damage maybeendorsed upon the receipt for the goodsgiven by the person taking delivery thereof.


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The notice in writing need not be given ifthe state of the goods has at the time of theirreceipt been the subject of joint survey orinspection.

In any event the carrier and the ship shall be

discharged from all liability in respect ofloss or damage unless suit is brought withinone year after delivery of the goods or thedate when the goods should have beendelivered: Provided, That if a notice of lossor damage, either apparent or concealed, isnot given as provided for in this section,that fact shall not affect or prejudice theright of the shipper to bring suit within oneyear after the delivery of the goods or thedate when the goods should have beendelivered.

From the provision above, the carrier and the shipmay put up the defense of prescription if the actionfor damages is not brought within one year after thedelivery of the goods or the date when the goodsshould have been delivered. It has been held thatnot only the shipper, but also the consignee or legalholder of the bill may invoke the prescriptiveperiod. However, the COGSA does not mentionthat an arrastre operator may invoke the prescriptiveperiod of one year; hence, it does not cover thearrastre operator.

Prescriptive Period for filing of claims under the

COGSA

Petitioners claim that pursuant to Section 3,paragraph 6 of the Carriage of Goods by SeaAct[44] (COGSA), respondent should have filed itsNotice of Loss within three days from delivery.They assert that the cargo was discharged on July31, 1990, but that respondent filed its Notice ofClaim only on September 18, 1990.

We are not persuaded. First, the above-citedprovision of COGSA provides that the notice ofclaim need not be given if the state of the goods, atthe time of their receipt, has been the subject of ajoint inspection or survey. As stated earlier, prior tounloading the cargo, an Inspection Report as to thecondition of the goods was prepared and signed byrepresentatives of both parties.

Second, as stated in the same provision, a failure tofile a notice of claim within three days will not barrecovery if it is nonetheless filed within one year.This one-year prescriptive period also applies to theshipper, the consignee, the insurer of the goods orany legal holder of the bill of lading.

In Loadstar Shipping Co., Inc. v. Court of Appeals,we ruled that a claim is not barred by prescription aslong as the one-year period has not lapsed. Thus, inthe words of the ponente, Chief Justice Hilario G.Davide Jr.:

Inasmuch as the neither the Civil Code northe Code of Commerce states a specificprescriptive period on the matter, theCarriage of Goods by Sea Act (COGSA)--which provides for a one-year period of

limitation on claims for loss of, or damageto, cargoes sustained during transit--may be

applied suppletorily to the case at bar.

In the present case, the cargo was discharged onJuly 31, 1990, while the Complaint was filed byrespondent on July 25, 1991, within the one-yearprescriptive period.

xxx

There should be a loss or damage to the goods

within the contemplation of Section 3(6) of theCOGSA, in order for the one-year prescriptiveperiod under the COGSA to apply. But if the goodsdid not suffer loss or damage within thecontemplation of Section3 (6) of COGSA, but thereexists between the parties a written contract, theprescriptive period under Article 1144 of the CivilCode which provides for a prescriptive period of tenyears, shall govern.

Package Limitation under the COGSA

Assuming arguendo they are liable for respondentsclaims, petitioners contend that their liability shouldbe limited to US$500 per package as provided in theBill of Lading and by Section 4(5) of COGSA.

On the other hand, respondent argues that Section4(5) of COGSA is inapplicable, because the valueof the subject shipment was declared by petitionersbeforehand, as evidenced by the reference to and the


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insertion of the Letter of Credit or L/C No.

90/02447in the said Bill of Lading.

A bill of lading serves two functions. First, it is areceipt for the goods shipped. Second, it is acontract by which three parties -- namely, the

shipper, the carrier, and the consignee -- undertakespecific responsibilities and assume stipulatedobligations. In a nutshell, the acceptance of the billof lading by the shipper and the consignee, with fullknowledge of its contents, gives rise to thepresumption that it constituted a perfected andbinding contract.

Further, a stipulation in the bill of lading limiting to

a certain sum the common carriers liability for lossor destruction of a cargo -- unless the shipper orowner declares a greater value -- is sanctioned by

law. There are, however, two conditions to besatisfied:

(1) the contract is reasonable and just underthe circumstances, and(2) it has been fairly and freely agreed uponby the parties.

The rationale for, this rule is to bind the shippers bytheir agreement to the value (maximum valuation)of their goods.

It is to be noted, however, that the Civil Code doesnot limit the liability of the common carrier to afixed amount per package. In all matters notregulated by the Civil Code, the right and theobligations of common carriers shall be governedby the Code of Commerce and special laws. Thus,the COGSA, which is suppletory to the provisionsof the Civil Code, supplements the latter byestablishing a statutory provision limiting thecarriers liability in the absence of a shippersdeclaration of a higher value in the bill of lading.The provisions on limited liability are as much a

part of the bill of lading as though physically in itand as though placed there by agreement of theparties.

In the case before us, there was no stipulation in theBill of Lading limiting the carriers liability.Neither did the shipper declare a higher valuation ofthe goods to be shipped. This fact notwithstanding,

the insertion of the words L/C No. 90/02447cannot be the basis for petitioners liability.

First, a notation in the Bill of Lading whichindicated the amount of the Letter of Creditobtained by the shipper for the importation of steelsheets did not effect a declaration of the value of thegoods as required by the bill. That notation was

made only for the convenience of the shipper andthe bank processing the Letter of Credit.

Second, in Keng Hua Paper Products v. Court ofAppeals, we held that a bill of lading was separatefrom the Other Letter of Credit arrangements. Weruled thus:

(T)he contract of carriage, as stipulated in the billof lading in the present case, must be treatedindependently of the contract of sale between theseller and the buyer, and the contract of issuance of

a letter of credit between the amount of goodsdescribed in the commercial invoice in the contractof sale and the amount allowed in the letter of creditwill not affect the validity and enforceability of thecontract of carriage as embodied in the bill oflading. As the bank cannot be expected to lookbeyond the documents presented to it by the sellerpursuant to the letter of credit, neither can thecarrier be expected to go beyond the representationsof the shipper in the bill of lading and to verify theiraccuracy vis--vis the commercial invoice and theletter of credit. Thus, the discrepancy between the

amount of goods indicated in the invoice and theamount in the bill of lading cannot negate

petitioners obligation to private respondent arisingfrom the contract of transportation.

In the light of the foregoing, petitioners liabilityshould be computed based on US$500 per packageand not on the per metric ton price declared in theLetter of Credit. In Eastern Shipping Lines, Inc. v.Intermediate Appellate Court we explained themeaning of package:

When what would ordinarily be consideredpackages are shipped in a container suppliedby the carrier and the number of such unitsis disclosed in the shipping documents, eachof those units and not the container

constitutes the package referred to in theliability limitation provision of Carriage ofGoods by Sea Act.


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Considering, therefore, the ruling in EasternShipping Lines and the fact that the Bill of Ladingclearly disclosed the contents of the containers, thenumber of units, as well as the nature of the steelsheets, the four damaged coils should be consideredas the shipping unit subject to the US$500

limitation.

Registered Owner Rule

1. Presumption that the tortfeasor-driver is the

employee of the registered owner

Simply stated, the issue for the consideration ofthis Court is: whether Filcar, as registered owner ofthe motor vehicle which figured in an accident, may

be held liable for the damages caused to Espinas.

The petition is without merit.

Filcar, as registered owner, is deemed the employerof the driver, Floresca, and is thus vicariously liableunder Article 2176 in relation with Article 2180 ofthe Civil Code

It is undisputed that Filcar is the registered owner ofthe motor vehicle which hit and caused damage toEspinas car; and it is on the basis of this fact that

we hold Filcar primarily and directly liable toEspinas for damages.

As a general rule, one is only responsible for hisown act or omission. Thus, a person will generallybe held liable only for the torts committed byhimself and not by another. This general rule is laiddown in Article 2176 of the Civil Code, whichprovides to wit:

Article 2176. Whoever by act or omissioncauses damage to another, there being fault

or negligence, is obliged to pay for thedamage done. Such fault or negligence, ifthere is no pre-existing contractual relationbetween the parties, is called a quasi-delictand is governed by the provisions of thisChapter.

Based on the above-cited article, the obligation toindemnify another for damage caused by ones actor omission is imposed upon the tortfeasor himself,

i.e., the person who committed the negligent act oromission. The law, however, provides forexceptions when it makes certain persons liable forthe act or omission of another.

One exception is an employer who is made

vicariously liable for the tort committed by hisemployee. Article 2180 of the Civil Code states:

Article 2180. The obligation imposed byArticle 2176 is demandable not only for

ones own acts or omissions, but also forthose of persons for whom one isresponsible.

x x x x

Employers shall be liable for the damages

caused by their employees and householdhelpers acting within the scope of theirassigned tasks, even though the former arenot engaged in any business or industry.

x x x x

The responsibility treated of in this articleshall cease when the persons hereinmentioned prove that they observed all thediligence of a good father of a family to

prevent damage.

Under Article 2176, in relation with Article 2180, ofthe Civil Code, an action predicated on anemployees act or omission may be institutedagainst the employer who is held liable for thenegligent act or omission committed by hisemployee.

Although the employer is not the actual tortfeasor,the law makes him vicariously liable on the basis ofthe civil law principle ofpater familiasfor failure to

exercise due care and vigilance over the acts ofones subordinates to prevent damage to another. Inthe last paragraph of Article 2180 of the Civil Code,the employer may invoke the defense that heobserved all the diligence of a good father of afamily to prevent damage.

As its core defense, Filcar contends that Article2176, in relation with Article 2180, of the CivilCode is inapplicable because it presupposes the


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existence of an employer-employee relationship.According to Filcar, it cannot be held liable underthe subject provisions because the driver of itsvehicle at the time of the accident, Floresca, is notits employee but that of its Corporate Secretary,Atty. Flor.

We cannot agree. It is well settled that in case ofmotor vehicle mishaps, the registered owner of themotor vehicle is considered as the employer of thetortfeasor-driver, and is made primarily liable forthe tort committed by the latter under Article 2176,in relation with Article 2180, of the Civil Code.

In Equitable Leasing Corporation v. Suyom, weruled that in so far as third persons are concerned,the registered owner of the motor vehicle is theemployer of the negligent driver, and the actual

employer is considered merely as an agent of suchowner.

In that case, a tractor registered in the name ofEquitable Leasing Corporation (Equitable) figuredin an accident, killing and seriously injuring severalpersons. As part of its defense, Equitable claimedthat the tractor was initially leased to Mr. EdwinLim under a Lease Agreement, which agreementhas been overtaken by a Deed of Sale entered intoby Equitable and Ecatine Corporation (Ecatine).Equitable argued that it cannot be held liable for

damages because the tractor had already been soldto Ecatine at the time of the accident and thenegligent driver was not its employee but ofEcatine.

In upholding the liability of Equitable, as registeredowner of the tractor, this Court said that regardlessof sales made of a motor vehicle, the registeredowner is the lawful operator insofar as the publicand third persons are concerned; consequently, it isdirectly and primarily responsible for theconsequences of its operation. The Court further

stated that [i]n contemplation of law, theowner/operator of record is the employer of thedriver, the actual operator and employer being

considered as merely its agent. Thus, Equitable, asthe registered owner of the tractor, was consideredunder the law on quasi delict to be the employer ofthe driver, Raul Tutor; Ecatine, Tutors actualemployer, was deemed merely as an agent ofEquitable.

Thus, it is clear that for the purpose of holding theregistered owner of the motor vehicle primarily anddirectly liable for damages under Article 2176, inrelation with Article 2180, of the Civil Code, theexistence of an employer-employee relationship, asit is understood in labor relations law, is not

required. It is sufficient to establish that Filcar is theregistered owner of the motor vehicle causingdamage in order that it may be held vicariouslyliable under Article 2180 of the Civil Code.

Rationale for holding the registered ownervicariously liable

The rationale for the rule that a registered owner isvicariously liable for damages caused by theoperation of his motor vehicle is explained by theprinciple behind motor vehicle registration, which

has been discussed by this Court in Erezo, and citedby the CA in its decision:

The main aim of motor vehicle registration is toidentify the owner so that if any accident happens,or that any damage or injury is caused by thevehicle on the public highways, responsibilitytherefor can be fixed on a definite individual, theregistered owner. Instances are numerous wherevehicles running on public highways causedaccidents or injuries to pedestrians or other vehicleswithout positive identification of the owner or

drivers, or with very scant means of identification.It is to forestall these circumstances, soinconvenient or prejudicial to the public, that themotor vehicle registration is primarily ordained, inthe interest of the determination of personsresponsible for damages or injuries caused on publichighways.

Thus, whether there is an employer-employeerelationship between the registered owner and thedriver is irrelevant in determining the liability of theregistered owner who the law holds primarily and

directly responsible for any accident, injury or deathcaused by the operation of the vehicle in the streetsand highways.

As explained by this Court in Erezo, the generalpublic policy involved in motor vehicle registrationis the protection of innocent third persons who mayhave no means of identifying public roadmalefactors and, therefore, would find it difficult if not impossibleto seek redress for damages they


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may sustain in accidents resulting in deaths, injuriesand other damages; by fixing the person heldprimarily and directly liable for the damagessustained by victims of road mishaps, the lawensures that relief will always be available to them.

To identify the person primarily and directlyresponsible for the damages would also prevent asituation where a registered owner of a motorvehicle can easily escape liability by passing on theblame to another who may have no means to answerfor the damages caused, thereby defeating theclaims of victims of road accidents. We take notethat some motor vehicles running on our roads aredriven not by their registered owners, but byemployed drivers who, in most instances, do nothave the financial means to pay for the damagescaused in case of accidents.

These same principles apply by analogy to the caseat bar. Filcar should not be permitted to evade itsliability for damages by conveniently passing on theblame to another party; in this case, its CorporateSecretary, Atty. Flor and his alleged driver,Floresca. Following our reasoning in Equitable, theagreement between Filcar and Atty. Flor to assignthe motor vehicle to the latter does not bind Espinaswho was not a party to and has no knowledge of theagreement, and whose only recourse is to the motorvehicle registration.

Neither can Filcar use the defenses available underArticle 2180 of the Civil Code - that the employeeacts beyond the scope of his assigned task or that itexercised the due diligence of a good father of afamily to prevent damage - because the motorvehicle registration law, to a certain extent,modified Article 2180 of the Civil Code by makingthese defenses unavailable to the registered ownerof the motor vehicle. Thus, for as long as Filcar isthe registered owner of the car involved in thevehicular accident, it could not escape primary

liability for the damages caused to Espinas.

The public interest involved in this case must not beunderestimated. Road safety is one of the mostcommon problems that must be addressed in thiscountry. We are not unaware of news of roadaccidents involving reckless drivers victimizing ourcitizens. Just recently, such pervasive recklessnessamong most drivers took the life of a professor ofour state university. What is most disturbing is that

our existing laws do not seem to deter these roadmalefactors from committing acts of recklessness.

We understand that the solution to the problem doesnot stop with legislation. An effectiveadministration and enforcement of the laws must be

ensured to reinforce discipline among drivers and toremind owners of motor vehicles to exercise duediligence and vigilance over the acts of their driversto prevent damage to others.

Thus, whether the driver of the motor vehicle,Floresca, is an employee of Filcar is irrelevant inarriving at the conclusion that Filcar is primarilyand directly liable for the damages sustained byEspinas. While Republic Act No. 4136 or the LandTransportation and Traffic Code does not containany provision on the liability of registered owners in

case of motor vehicle mishaps, Article 2176, inrelation with Article 2180, of the Civil Codeimposes an obligation upon Filcar, as registeredowner, to answer for the damages caused toEspinas car. This interpretation is consistent withthe strong public policy of maintaining road safety,thereby reinforcing the aim of the State to promotethe responsible operation of motor vehicles by itscitizens.

This does not mean, however, that Filcar is leftwithout any recourse against the actual employer of

the driver and the driver himself. Under the civillaw principle of unjust enrichment, the registeredowner of the motor vehicle has a right to beindemnified by the actual employer of the driver ofthe amount that he may be required to pay asdamages for the injury caused to another.

The set-up may be inconvenient for the registeredowner of the motor vehicle, but the inconveniencecannot outweigh the more important public policybeing advanced by the law in this case which is theprotection of innocent persons who may be victims

of reckless drivers and irresponsible motor vehicleowners.

2. Lease of Vehicles

The sole issue submitted for resolution is whetherthe registered owner of a financially leased vehicleremains liable for loss, damage, or injury caused bythe vehicle notwithstanding an exemption provisionin the financial lease contract.


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Petitioner contends that the lease contract betweenBG Hauler and petitioner specifically provides thatBG Hauler shall be liable for any loss, damage, orinjury the leased oil tanker may cause even ifpetitioner is the registered owner of the said oil

tanker. Petitioner claims that the Court of Appealserred in holding petitioner solidarily liable with BGHauler despite having found the latter liable underthe lease contract.

For their part, the spouses Baylon counter that thelease contract between petitioner and BG Haulercannot bind third parties like them. The spousesBaylon maintain that the existence of the leasecontract does not relieve petitioner of directresponsibility as the registered owner of the oiltanker that caused the death of their daughter.

On the other hand, BG Hauler and the driver arguethat at the time petitioner and BG Hauler enteredinto the lease contract, Republic Act No. 5980 wasstill in effect. They point out that the amendatorylaw, Republic Act No. 8556, which exempts fromliability in case of any loss, damage, or injury tothird persons the registered owners of vehiclesfinancially leased to another, was not yet enacted atthat time.

In point is the 2008 case of PCI Leasing and

Finance, Inc. v. UCPB General Insurance Co.,Inc.[16] There, we held liable PCI Leasing andFinance, Inc., the registered owner of an 18-wheelerFuso Tanker Truck leased to Superior Gas &Equitable Co., Inc. (SUGECO) and being driven bythe latter's driver, for damages arising from acollision. This despite an express provision in thelease contract to the effect that the lessee,SUGECO, shall indemnify and hold the registeredowner free from any liabilities, damages, suits,claims, or judgments arising from SUGECO's use ofthe leased motor vehicle.

In the instant case, Section 5.1 of the lease contractbetween petitioner and BG Hauler provides:

Sec. 5.1. It is the principle of this Lease thatwhile the title or ownership of theEQUIPMENT, with all the rightsconsequent thereof, are retained by theLESSOR, the risk of loss or damage of theEQUIPMENT from whatever source

arising, as well as any liability resultingfrom the ownership, operation and/orpossession thereof, over and above thoseactually compensated by insurance, arehereby transferred to and assumed by theLESSEE hereunder which shall continue in

full force and effect.

If it so wishes, petitioner may proceed against BGHauler to seek enforcement of the latter'scontractual obligation under Section 5.1 of the leasecontract. In the present case, petitioner did not file across-claim against BG Hauler. Hence, this Courtcannot require BG Hauler to reimburse petitionerfor the latter's liability to the spouses Baylon.However, as the registered owner of the oil tanker,petitioner may not escape its liability to thirdpersons.

Under Section 5 of Republic Act No. 4136, asamended, all motor vehicles used or operated on orupon any highway of the Philippines must beregistered with the Bureau of Land Transportation(now Land Transportation Office) for the currentyear. Furthermore, any encumbrances of motorvehicles must be recorded with the LandTransportation Office in order to be valid againstthird parties.

In accordance with the law on compulsory motor

vehicle registration, this Court has consistentlyruled that, with respect to the public and thirdpersons, the registered owner of a motor vehicle isdirectly and primarily responsible for theconsequences of its operation regardless of who theactual vehicle owner might be. Well-settled is therule that the registered owner of the vehicle is liablefor quasi-delicts resulting from its use. Thus, even ifthe vehicle has already been sold, leased, ortransferred to another person at the time the vehiclefigured in an accident, the registered vehicle ownerwould still be liable for damages caused by the

accident. The sale, transfer or lease of the vehicle,which is not registered with the Land TransportationOffice, will not bind third persons aggrieved in anaccident involving the vehicle. The compulsorymotor vehicle registration underscores theimportance of registering the vehicle in the name ofthe actual owner.

The policy behind the rule is to enable the victim tofind redress by the expedient recourse of identifying


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the registered vehicle owner in the records of theLand Transportation Office. The registered ownercan be reimbursed by the actual owner, lessee ortransferee who is known to him. Unlike theregistered owner, the innocent victim is not privy tothe lease, sale, transfer or encumbrance of the

vehicle. Hence, the victim should not be prejudicedby the failure to register such transaction orencumbrance. As the Court held in PCI Leasing:

The burden of registration of the lease contract isminuscule compared to the chaos that may result ifregistered owners or operators of vehicles are freedfrom such responsibility. Petitioner pays the pricefor its failure to obey the law on compulsoryregistration of motor vehicles for registration is apre-requisite for any person to even enjoy theprivilege of putting a vehicle on public roads.

In the landmark case of Erezo v. Jepte, the Courtsuccinctly laid down the public policy behind therule, thus:

The main aim of motor vehicle registrationis to identify the owner so that if anyaccident happens, or that any damage orinjury is caused by the vehicle on the publichighways, responsibility therefor can befixed on a definite individual, the registeredowner. Instances are numerous where

vehicles running on public highways causedaccidents or injuries to pedestrians or othervehicles without positive identification ofthe owner or drivers, or with very scantmeans of identification. It is to forestallthese circumstances, so inconvenient orprejudicial to the public, that the motorvehicle registration is primarily ordained, inthe interest of the determination of personsresponsible for damages or injuries causedon public highways.

x x x

Were a registered owner allowed to evaderesponsibility by proving who the supposedtransferee or owner is, it would be easy forhim, by collusion with others or, orotherwise, to escape said responsibility andtransfer the same to an indefinite person, orto one who possesses no property withwhich to respond financially for the damage

or injury done. A victim of recklessness onthe public highways is usually withoutmeans to discover or identify the personactually causing the injury or damage. Hehas no means other than by a recourse to theregistration in the Motor Vehicles Office to

determine who is the owner. The protectionthat the law aims to extend to him wouldbecome illusory were the registered ownergiven the opportunity to escape liability bydisproving his ownership. If the policy ofthe law is to be enforced and carried out, theregistered owner should not be allowed toprove the contrary to the prejudice of theperson injured, that is to prove that a thirdperson or another has become the owner, sothat he may be thereby be relieved of theresponsibility to the injured person.

In this case, petitioner admits that it is the registeredowner of the oil tanker that figured in an accidentcausing the death of Loretta. As the registeredowner, it cannot escape liability for the loss arisingout of negligence in the operation of the oil tanker.Its liability remains even if at the time of theaccident, the oil tanker was leased to BG Hauler andwas being driven by the latter's driver, and despite aprovision in the lease contract exonerating theregistered owner from liability.

3. Stolen Vehicles

The registered owner is not liable if the vehiclewas taken from his garage without his knowledgeand consent. To hold the registered owner liablewould be absurd as it would be holding liable theowner of a stolen vehicle for an accident caused bythe person who stole such vehicle.

Kabit System

When a passenger jeepney covered by a certificateof public convenience is sold to another whocontinues to operate it under the same certificate ofpublic convenience under the so-called kabitsystem, and in the course thereof the vehicle meetsan accident through the fault of another vehicle,may the new owner sue for damages against theerring vehicle? Otherwise stated, does the newowner have any legal personality to bring the action,or is he the real party in interest in the suit, despite


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the fact that he is not the registered owner under thecertificate of public convenience?

xxx

The kabit system is an arrangement whereby a

person who has been granted a certificate of publicconvenience allows other persons who own motorvehicles to operate them under his license,sometimes for a fee or percentage of the earnings.Although the parties to such an agreement are notoutrightly penalized by law, the kabit system isinvariably recognized as being contrary to publicpolicy and therefore void and inexistent under Art.1409 of the Civil Code.

In the early case of Dizon v. Octavio the Courtexplained that one of the primary factors considered

in the granting of a certificate of public conveniencefor the business of public transportation is thefinancial capacity of the holder of the license, sothat liabilities arising from accidents may be dulycompensated. The kabit system renders illusorysuch purpose and, worse, may still be availed of bythe grantee to escape civil liability caused by anegligent use of a vehicle owned by another andoperated under his license. If a registered owner isallowed to escape liability by proving who thesupposed owner of the vehicle is, it would be easyfor him to transfer the subject vehicle to another

who possesses no property with which to respondfinancially for the damage done. Thus, for thesafety of passengers and the public who may havebeen wronged and deceived through the banefulkabit system, the registered owner of the vehicle isnot allowed to prove that another person hasbecome the owner so that he may be therebyrelieved of responsibility. Subsequent cases affirmsuch basic doctrine.

It would seem then that the thrust of the law inenjoining the kabit system is not so much as to

penalize the parties but to identify the person uponwhom responsibility may be fixed in case of anaccident with the end view of protecting the ridingpublic. The policy therefore loses its force if thepublic at large is not deceived, much less involved.

In the present case it is at once apparent that the evilsought to be prevented in enjoining the kabitsystem does not exist. First, neither of the parties tothe pernicious kabit system is being held liable for

damages. Second, the case arose from thenegligence of another vehicle in using the publicroad to whom no representation, ormisrepresentation, as regards the ownership andoperation of the passenger jeepney was made and towhom no such representation, or misrepresentation,

was necessary. Thus it cannot be said that privaterespondent Gonzales and the registered owner of thejeepney were in estoppel for leading the public tobelieve that the jeepney belonged to the registeredowner. Third, the riding public was not botherednor inconvenienced at the very least by the illegalarrangement. On the contrary, it was privaterespondent himself who had been wronged and wasseeking compensation for the damage done to him.Certainly, it would be the height of inequity to denyhim his right.

In light of the foregoing, it is evident that privaterespondent has the right to proceed againstpetitioners for the damage caused on his passengerjeepney as well as on his business. Any effort thento frustrate his claim of damages by the ingenuitywith which petitioners framed the issue should bediscouraged, if not repelled.

In awarding damages for tortuous injury, it becomesthe sole design of the courts to provide for adequatecompensation by putting the plaintiff in the samefinancial position he was in prior to the tort. It is a

fundamental principle in the law on damages that adefendant cannot be held liable in damages for morethan the actual loss which he has inflicted and that aplaintiff is entitled to no more than the just andadequate compensation for the injury suffered. Hisrecovery is, in the absence of circumstances givingrise to an allowance of punitive damages, limited toa fair compensation for the harm done. The lawwill not put him in a position better than where heshould be in had not the wrong happened.

In the present case, petitioners insist that as the

passenger jeepney was purchased in 1982 for onlyP30,000.00 to award damages considerably greaterthan this amount would be improper and unjustified.Petitioners are at best reminded that indemnificationfor damages comprehends not only the value of theloss suffered but also that of the profits which theobligee failed to obtain. In other words,indemnification for damages is not limited todamnum emergens or actual loss but extends tolucrum cessans or the amount of profit lost.


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Had private respondent's jeepney not met anaccident it could reasonably be expected that itwould have continued earning from the business inwhich it was engaged. Private respondent avers thathe derives an average income of P300.00 per day

from his passenger jeepney and this earning wasincluded in the award of damages made by the trialcourt and upheld by the appeals court. The awardtherefore of P236,000.00 as compensatory damagesis not beyond reason nor speculative as it is basedon a reasonable estimate of the total damagesuffered by private respondent, i.e. damage wroughtupon his jeepney and the income lost from histransportation business. Petitioners for their part didnot offer any substantive evidence to refute theestimate made by the courts a quo.

Arrastre Operator

Is an arrastre operator legally liable for the loss of ashipment in its custody? If so, what is the extent ofits liability?

The relationship therefore between the consigneeand the arrastre operator must be examined. Thisrelationship is much akin to that existing betweenthe consignee or owner of shipped goods and the

common carrier, or that between a depositor and awarehouseman. In the performance of itsobligations, an arrastre operator should observe thesame degree of diligence as that required of acommon carrier and a warehouseman as enunciatedunder Article 1733 of the Civil Code and Section3(b) of the Warehouse Receipts Law, respectively.Being the custodian of the goods discharged from a

vessel, an arrastre operators duty is to take goodcare of the goods and to turn them over to the partyentitled to their possession.

In the performance of its job, an arrastre operator isbound by the management contract it had executedwith the Bureau of Customs. However, amanagement contract, which is a sort of astipulation pour autrui within the meaning of Article1311 of the Civil Code, is also binding on aconsignee because it is incorporated in the gate passand delivery receipt which must be presented by theconsignee before delivery can be effected to it. Theinsurer, as successor-in-interest of the consignee, is

likewise bound by the management contract.Indeed, upon taking delivery of the cargo, aconsignee (and necessarily its successor-in- interest)tacitly accepts the provisions of the managementcontract, including those which are intended to limitthe liability of one of the contracting parties, the

arrastre operator.

However, a consignee who does not avail of theservices of the arrastre operator is not bound by themanagement contract.

"Indeed, the provision in the management contractregarding the declaration of the actual invoice valuebefore the arrival of the goods must be understoodto mean a declaration before the arrival of the goodsin the custody of the arrastre operator, whether it bedone long before the landing of the shipment at port,

or immediately before turn-over thereof to thearrastre operators custody. What is essential isknowledge beforehand of the extent of the risk to beundertaken by the arrastre operator, as determinedby the value of the property committed to its carethat it may define its responsibility for loss ordamage to such cargo and to ascertain compensationcommensurate to such risk assumed x x x."

In the same case, the Court added that the advancenotice of the actual invoice of the goods entrusted tothe arrastre operator is "for the purpose of

determining its liability, that it may obtaincompensation commensurable to the risk it assumes,(and) not for the purpose of determining the degreeof care or diligence it must exercise as a depositoryor warehouseman" since the arrastre operator shouldnot discriminate between cargoes of substantial andsmall values, nor exercise care and caution only forthe handling of goods announced to it beforehand tobe of sizeable value, for that would be spurning thepublic service nature of its business.

On the same provision limiting the arrastre

operators liability, the Court held in NorthernMotors, Inc. v. Prince Line:

"Appellant claims that the above quoted provision isnull and void, as it limits the liability of appellee forthe loss, destruction or damage of any merchandise,to P500.00 per package, contending that to sustainthe validity of the limitation would be to encourageacts of conversion and unjust enrichment on the partof the arrastre operator. Appellant, however,


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overlooks the fact that the limitation of appelleesliability under said provision, is not absolute orunqualified, for if the value of the merchandise isspecified or manifested by the consignee, and thecorresponding arrastre charges are paid on the basisof the declared value, the limitation does not apply.

Consequently, the questioned provision is neitherunfair nor abitrary, as contended, because theconsignee has it in his hands to hold, if he sowishes, the arrastre operator responsible for the fullvalue of his merchandise by merely specifying it inany of the various documents required of him, inclearing the merchandise from the customs. Forthen, the appellee arrastre operator, by reasons ofthe payment to it of a commensurate charge basedon the higher declared value of the merchandise,could and should take extraordinary care of thespecial or valuable cargo. In this manner, there

would be mutuality. What would, indeed, be unfairand arbitrary is to hold the arrastre operator liablefor the full value of the merchandise after theconsignee has paid the arrastre charges only (on) abasis much lower than the true value of the goods."

Passengers Baggages

1. Baggage in the custody of the passenger ortheir employeetreated as a necessary deposit.

2.Baggage in the custody of the carrierArticles1733 to 1753 of the Civil Code shall apply. Takenote of presumption of negligence and theextraordinary diligence on the part of the commoncarrier.

Successive Carriers

1. In Maritime Law

Article 373 Code of Commerce. The carrier whomakes the delivery of the merchandise to theconsignee by virtue of combined agreements orservices with other carriers shall assume theobligations of those who proceeded him in theconveyance, reserving his right to proceed againstthe latter if he was not the party directly responsiblefor the fault which gave rise to the claim of theshipper or consignee.

2. Air Carriers

It is significant to note that the contract of airtransportation was between petitioner and

respondent, with the former endorsing to PAL theHong Kong-to-Manila segment of the journey. Suchcontract of carriage has always been treated in thisjurisdiction as a single operation. Thisjurisprudential rule is supported by the WarsawConvention, to which the Philippines is a party, andby the existing practices of the International AirTransport Association (IATA).

Article 1, Section 3 of the Warsaw Conventionstates:

"Transportation to be performed by severalsuccessive air carriers shall be deemed, forthe purposes of this Convention, to be oneundivided transportation, if it has beenregarded by the parties as a single operation,whether it has been agreed upon under theform of a single contract or of a series ofcontracts, and it shall not lose itsinternational character merely because onecontract or a series of contracts is to beperformed entirely within a territory subjectto the sovereignty, suzerainty, mandate, or

authority of the same High ContractingParty."

Article 15 of IATA-Recommended Practicesimilarly provides:

"Carriage to be performed by severalsuccessive carriers under one ticket, orunder a ticket and any conjunction ticketissued therewith, is regarded as a singleoperation."

Maritime Law

Limited Liability Rule

The Limited Liability Rule has been explained to bethat of the real and hypothecary doctrine inmaritime law where the shipowner or ship agent's


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liability is held as merely co-extensive with hisinterest in the vessel such that a total loss thereofresults in its extinction. In this jurisdiction, this ruleis provided in three articles of the Code ofCommerce. These are:

Art. 587. The ship agent shall also be civillyliable for the indemnities in favor of thirdpersons which may arise from the conductof the captain in the care of the goods whichhe loaded on the vessel; but he may exempthimself therefrom by abandoning the vesselwith all her equipment and the freight itmay have earned during the voyage.

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Art. 590. The co-owners of the vessel shall

be civilly liable in the proportion of theirinterests in the common fund for the resultsof the acts of the captain referred to in Art.587.

Each co-owner may exempt himself fromthis liability by the abandonment, before anotary, of the part of the vessel belonging tohim.

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Art. 837. The civil liability incurred byshipowners in the case prescribed in thissection, shall be understood as limited to thevalue of the vessel with all itsappurtenances and freightage served duringthe voyage.

Article 837 specifically applies to cases involvingcollision which is a necessary consequence of theright to abandon the vessel given to the shipowneror ship agent under the first provision - Article 587.Similarly, Article 590 is a reiteration of Article 587,

only this time the situation is that the vessel is co-owned by several persons. Obviously, theforerunner of the Limited Liability Rule under theCode of Commerce is Article 587. Now, the latter isquite clear on which indemnities may be confined orrestricted to the value of the vessel pursuant to thesaid Rule, and these are the - "indemnities in favorof third persons which may arise from the conductof the captain in the care of the goods which heloaded on the vessel." Thus, what is conte

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