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

PEDRO DE GUZMAN, petitioner,

vs.

COURT OF APPEALS and ERNESTO CENDANA, respondents.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.

Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale.

He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to

Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing

establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than

regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company

(Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled

milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4

December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks: 150

cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other truck

which was driven by Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since

the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by

armed men who took with them the truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of

Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and

attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the

extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that he could not be held

responsible for the value of the lost goods, such loss having been due to force majeure.

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

holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P

2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common

carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on

the ground of force majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in

transporting return loads of freight "as a casual

occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way

of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

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

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

We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set

forth, be properly characterized as a common carrier.

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

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or

transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.

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

goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732

also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular

or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article

1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or

population, and one who offers services or solicits business only from a narrow segment of the general population. We

think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of

"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially

supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public

Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or

compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general

business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for

freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier

service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the

transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,

ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,

sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar

public services. ... (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a common carrier even though he merely

"back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a

periodic or occasional rather than regular or scheduled manner, and even though private respondent's principal

occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers

a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and

concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for

the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a

person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the

requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of

public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because

he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that

would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The

business of a common carrier impinges directly and intimately upon the safety and well being and property of those

members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon

common carriers for the safety and protection of those who utilize their services and the law cannot allow a common

carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and

authorizations.

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

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

care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of

extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further

expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration

of the goods which they carry, "unless the same is due to any of the following causes only:

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

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

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

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

(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common

carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to

constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,

destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless

they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case —

the hijacking of the carrier's truck — does not fall within any of the five (5) categories of exempting causes listed in

Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the

provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at

fault or to have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence

on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.

Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard

presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in

the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride

with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the

vigilance over the goods carried in the specific context of hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional

specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in

relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

xxx xxx xxx

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

(6) that the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or

irresistible threat, violence or force, is dispensed with or diminished; and

(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on account of the

defective condition of the car vehicle, ship, airplane or other equipment used in the contract of carriage. (Emphasis

supplied)

Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish

such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact

acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of

extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a

robbery which is attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.

The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in

Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar

Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away with

them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for

delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with

grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The

robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for

several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by

the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in

band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the

control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common

carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for

acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous

standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for

the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's

control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3

August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN,

BATANGAS CITY and ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.

D E C I S I O N

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R.

SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293,

which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and

operate oil pipelines. The original pipeline concession was granted in 1967i[1] and renewed by the Energy Regulatory

Board in 1992.ii[2]

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City.

However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local

tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code.iii[3] The respondent City

Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on

the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order

not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of

1993.

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

of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the

Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via

pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts

under Section 133 of the Local Government Code of 1991 x x x x

"Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131,

Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on contractors and other

independent contractors' under Section 143, Paragraph (e) of the Local Government Code does not include the power

to levy on transportation contractors.

"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local

Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be

commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the

license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount of

P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee

is already a revenue raising measure, and not a mere regulatory imposition."iv[4]

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered

engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government

Code.v[5]

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaintvi[6] for tax refund with

prayer for a writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity

as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business

tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and

collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not

include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term

"contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and

collected the said tax, thus meriting the immediate refund of the tax paid.vii[7]

Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of

the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the

transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included

in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like.

Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by

which a product is delivered to its destination.viii[8]

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

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

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly

construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only

by clear and unequivocal provisions of law.

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A) whose concession was

lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any

tax exemption upon the plaintiff.

"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such being

the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other

considerations may be of help:

1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to overburden the

riding public or commuters with taxes. Plaintiff is not a common carrier, but a special carrier extending its services and

facilities to a single specific or "special customer" under a "special contract."

2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local

governments than the previous enactments, to make them economically and financially viable to serve the people and

discharge their functions with a concomitant obligation to accept certain devolution of powers, x x x So, consistent with

this policy even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the

Code."ix[9]

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred

the case to the respondent Court of Appeals for consideration and adjudication.x[10] On November 29, 1995, the

respondent court rendered a decisionxi[11] affirming the trial court's dismissal of petitioner's complaint. Petitioner's

motion for reconsideration was denied on July 18, 1996.xii[12]

Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996.xiii[13]

Petitioner moved for a reconsideration which was granted by this Court in a Resolutionxiv[14] of January 20, 1997. Thus,

the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier

or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of

transporting persons or property from place to place, for compensation, offering his services to the public generally.

Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in

the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering

their services to the public."

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

1. He must be engaged in the business of carrying goods for others as a public employment, and must hold

himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual

occupation;

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his established roads;

and

4. The transportation must be for hire.xv[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in

the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes

to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods

by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of

a common carrier. In De Guzman vs. Court of Appealsxvi[16] we ruled that:

"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the

carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a

'sideline'). Article 1732 x x x avoids making any distinction between a person or enterprise offering transportation

service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.

Neither does Article 1732 distinguish between a carrier offering its services to the 'general public,' i.e., the general

community or population, and one who offers services or solicits business only from a narrow segment of the

general population. We think that Article 1877 deliberately refrained from making such distinctions.

So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of

'public service,' under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially

supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public

Service Act, 'public service' includes:

'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation,

with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes,

any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or

both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express

service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or

freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system

gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless

communications systems, wire or wireless broadcasting stations and other similar public services.' "(Underscoring

Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code

refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land,

sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to

the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the

passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered

common carriers.xvii[17]

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus,

Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize

installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation

capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to

charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural

Resources."

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

"that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the

manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public

utility." (Underscoring Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it

declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is

considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding tax

prescribed by Revenue Regulations No. 13-78, as amended."

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from

the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided

herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy

of the following :

x x x x x x x x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of

passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."

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

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

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on

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

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

Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being

deemed to be exempted from the taxing powers of the local government units. May we know the reason why the

transportation business is being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It

states that local government units may not impose taxes on the business of transportation, except as otherwise

provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the

power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross

annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province.

That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier

business. Local government units may impose taxes on top of what is already being imposed by the National Internal

Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just

provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x xxviii[18]

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of

business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National

Internal Revenue Code.xix[19] To tax petitioner again on its gross receipts in its transportation of petroleum business

would defeat the purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29,

1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.

SUN HOLIDAYS, INC., Respondent.

D E C I S I O N

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 20011 against Sun Holidays, Inc.

(respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C.

Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized

en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort

(Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue of a tour

package-contract with respondent that included transportation to and from the Resort and the point of departure in

Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of the incident that led

to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in the

afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners’ son and his wife

trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco

Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the

rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to the front,

leaving the wheel to one of the crew members.

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

capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute

and the other passengers who reached the surface asked him what they could do to save the people who were still

trapped under the boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the

capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew

members, who were brought to Pisa Island. Eight passengers, including petitioners’ son and his wife, died during the

incident.

At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for Mitsui Engineering &

Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death of their son in the

amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the incident which it considered

to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of P10,000 to petitioners

upon their signing of a waiver.

As petitioners declined respondent’s offer, they filed the Complaint, as earlier reflected, alleging that respondent, as a

common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins

issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00

a.m. of September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to the general public

as they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost diligence in

ensuring the safety of its passengers; contrary to petitioners’ allegation, there was no storm on September 11, 2000 as

the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life

jackets for its passengers. By way of Counterclaim, respondent alleged that it is entitled to an award for attorney’s fees

and litigation expenses amounting to not less than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four conditions to be met

before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is

clearance from the captain and (4) there is clearance from the Resort’s assistant manager.8 He added that M/B Coco

Beach III met all four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong winds and big

waves, suddenly occurred, causing the boat to capsize.10

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

Counterclaim.

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

Court of Appeals.

By Decision of August 19, 2008,13 the appellate court denied petitioners’ appeal, holding, among other things, that the

trial court correctly ruled that respondent is a private carrier which is only required to observe ordinary diligence; that

respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that

the proximate cause of the incident was a squall, a fortuitous event.

Petitioners’ Motion for Reconsideration having been denied by Resolution dated January 16, 2009,14 they filed the

present Petition for Review.15

Petitioners maintain the position they took before the trial court, adding that respondent is a common carrier since by

its tour package, the transporting of its guests is an integral part of its resort business. They inform that another

division of the appellate court in fact held respondent liable for damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a common

carrier; that the Resort’s ferry services for guests cannot be considered as ancillary to its business as no income is

derived therefrom; that it exercised extraordinary diligence as shown by the conditions it had imposed before allowing

M/B Coco Beach III to sail; that the incident was caused by a fortuitous event without any contributory negligence on

its part; and that the other case wherein the appellate court held it liable for damages involved different plaintiffs,

issues and evidence.16

The petition is impressed with merit.

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

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

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or

transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.

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

goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732

also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular

or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article

1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or

population, and one who offers services or solicits business only from a narrow segment of the general population. We

think that Article 1733 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of

"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially

supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public

Service Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or

compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general

business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for

freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier

service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the

transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration

plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage

system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public

services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly

considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by its

having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be availed of by

anyone who can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to

suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering

tour packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of

respondent’s ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to

have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately refrained from

making distinctions on whether the carrying of persons or goods is the carrier’s principal business, whether it is offered

on a regular basis, or whether it is offered to the general public. The intent of the law is thus to not consider such

distinctions. Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous

businessmen engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities of

common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to

observe extraordinary diligence for the safety of the passengers transported by them, according to all the

circumstances of each case.19 They are bound to carry the passengers safely as far as human care and foresight can

provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.20

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common carrier is

at fault or negligent. In fact, there is even no need for the court to make an express finding of fault or negligence on the

part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised

extraordinary diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage before it

allowed M/B Coco Beach III to sail on September 11, 2000. Respondent’s position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for shipping

on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would also affect the province

of Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected

under such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other

people’s lives at risk. The extraordinary diligence required of common carriers demands that they take care of the

goods or lives entrusted to their hands as if they were their own. This respondent failed to do.

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

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the failure of

the debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted

the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must

have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the

obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.24

To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause of

the loss. And it should have exercised due diligence to prevent or minimize the loss before, during and after the

occurrence of the fortuitous event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned M/B Coco Beach

III. As reflected above, however, the occurrence of squalls was expected under the weather condition of September 11,

2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The

incident was, therefore, not completely free from human intervention.

The Court need not belabor how respondent’s evidence likewise fails to demonstrate that it exercised due diligence to

prevent or minimize the loss before, during and after the occurrence of the squall.

Article 176427 vis-à-vis Article 220628 of the Civil Code holds the common carrier in breach of its contract of carriage that

results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning

capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29

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

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

Life expectancy is determined in accordance with the formula:

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

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 — age at death]) adopted in the

American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total

earnings less expenses necessary in the creation of such earnings or income and less living and other incidental

expenses.32 The loss is not equivalent to the entire earnings of the deceased, but only such portion as he would have

used to support his dependents or heirs. Hence, to be deducted from his gross earnings are the necessary expenses

supposed to be used by the deceased for his own needs.33

In computing the third factor – necessary living expense, Smith Bell Dodwell Shipping Agency Corp. v. Borja34 teaches

that when, as in this case, there is no showing that the living expenses constituted the smaller percentage of the gross

income, the living expenses are fixed at half of the gross income.

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

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

2/3 x [80 - 28]

2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of $90035 which, when converted to

Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,36 amounts to P39,600. Ruelito’s net

earning capacity is thus computed as follows:

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

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

= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carrier’s breach of contract of carriage resulted in

the death of petitioners’ son, following Article 1764 vis-à-vis Article 2206 of the Civil Code, petitioners are entitled to

moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of common carriers, it is

presumed to have acted recklessly, thus warranting the award too of exemplary damages, which are granted in

contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.37

Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral damages and

P100,000 as exemplary damages.381avvphi1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary damages are

awarded. The Court finds that 10% of the total amount adjudged against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of

interest in the concept of actual and compensatory damages, subject to the following rules, to wit —

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of

money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall

itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall

be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the

provisions of Article 1169 of the Civil Code.

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

damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,

shall be adjudged on unliquidated claims or damages except when or until the demand can be established with

reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin

to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot

be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the

judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably

ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,

whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its

satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (emphasis

supplied).

Since the amounts payable by respondent have been determined with certainty only in the present petition, the

interest due shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, in

accordance with paragraph number 3 of the immediately cited guideline in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is rendered in

favor of petitioners ordering respondent to pay petitioners the following: (1) P50,000 as indemnity for the death of

Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito’s loss of earning capacity; (3) P100,000 as moral damages; (4)

P100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys fees; and (6)

the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from the

finality of this decision until full payment.

SO ORDERED.

[G.R. No. 150255. April 22, 2005]

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner, vs. TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE

COMPANY, LTD., and BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, respondents.

D E C I S I O N

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision[1] of the Court of Appeals, as well as its Resolution[2] dated September 28, 2001

denying the motion for reconsideration, which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.

92-63132[3] holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping

Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable

for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V Alexander Saveliev (a

vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel Pipe Corporation (Little

Giant),[4] were insured against all risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-

3747-TIS.[5]

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA) assigned it a place of berth at

the outside breakwater at the Manila South Harbor.[6]

Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the cargoes from the

shipside, and to deliver them to its (the consignees) warehouse at Cainta, Rizal,[7] in turn engaged the services of TVI to send a barge

and tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVIs tugboat Lailani towed the barge Erika V to shipside.[8]

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left and returned to the port

terminal.[9] At 9:00 p.m., arrastre operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel

unto the barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an approaching storm, the

unloading unto the barge of the 37 coils was accomplished.[10] No tugboat pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,[11] the crew of the barge abandoned it and transferred to the vessel.

The barge pitched and rolled with the waves and eventually capsized, washing the 37 coils into the sea.[12] At 7:00 a.m., a tugboat

finally arrived to pull the already empty and damaged barge back to the pier.[13]

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved futile.[14]

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5,246,113.11. Little Giant thereupon

executed a subrogation receipt[15] in favor of Industrial Insurance.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its representative Inchcape (the

defendants) before the RTC of Manila, for the recovery of the amount it paid to Little Giant plus adjustment fees, attorneys fees, and

litigation expenses.[16]

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. 1 was raised in

Metro Manila.[17]

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for unloading the cargoes outside of the

breakwater notwithstanding the storm signal.[18] The dispositive portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the defendants to pay plaintiff

jointly and severally the sum of P5,246,113.11 with interest from the date the complaint was filed until fully satisfied, as well as the

sum of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount recoverable from the defendants as attorneys

fees plus the costs of suit. The counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit.[19]

To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing the finding

that they are common carriers and the award of excessive attorneys fees of more than P1,000,000. And they argued that they were

not motivated by gross or evident bad faith and that the incident was caused by a fortuitous event. [20]

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. [21]

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto the decision of the trial

court, [22] it finding that all the defendants were common carriers Black Sea and TVI for engaging in the transport of goods and

cargoes over the seas as a regular business and not as an isolated transaction,[23] and Schmitz Transport for entering into a contract

with Little Giant to transport the cargoes from ship to port for a fee.[24]

In holding all the defendants solidarily liable, the appellate court ruled that each one was essential such that without each others

contributory negligence the incident would not have happened and so much so that the person principally liable cannot be

distinguished with sufficient accuracy.[25]

In discrediting the defense of fortuitous event, the appellate court held that although defendants obviously had

nothing to do with the force of nature, they however had control of where to anchor the vessel, where discharge will

take place and even when the discharging will commence.[26]

The defendants respective motions for reconsideration having been denied by Resolution[27] of September 28, 2001, Schmitz

Transport (hereinafter referred to as petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee Little Giant, hence, the

transportation contract was by and between Little Giant and TVI.[28]

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were required to file their respective

Comments.[29]

By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in good order, hence, it cannot

be faulted, it having had no control and supervision thereover.[30]

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and transferred them unto the barge

upon the instruction of petitioner.[31]

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence on the part of petitioner

Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the

obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which

though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of

the debtor to comply with his obligation, must be independent of human will; (2) it must be impossible to foresee the event which

constitute the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it

impossible for the debtor to fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the

aggravation of the injury resulting to the creditor.[32]

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature.

Human intervention is to be excluded from creating or entering into the cause of the mischief. When the effect is found to be in part

the result of the participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then

humanized and removed from the rules applicable to the acts of God.[33]

The appellate court, in affirming the finding of the trial court that human intervention in the form of contributory negligence by all

the defendants resulted to the loss of the cargoes,[34] held that unloading outside the breakwater, instead of inside the breakwater,

while a storm signal was up constitutes negligence.[35] It thus concluded that the proximate cause of the loss was Black Seas

negligence in deciding to unload the cargoes at an unsafe place and while a typhoon was approaching.[36]

From a review of the records of the case, there is no indication that there was greater risk in loading the cargoes outside the

breakwater. As the defendants proffered, the weather on October 26, 1991 remained normal with moderate sea condition such that

port operations continued and proceeded normally.[37]

The weather data report,[38] furnished and verified by the Chief of the Climate Data Section of PAG-ASA and marked as a common

exhibit of the parties, states that while typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea

condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the

defendants were negligent in not unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the morning[39] is, however,

a material fact which the appellate court failed to properly consider and appreciate[40] the proximate cause of the loss of the

cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea conditions notwithstanding, the loss could have

been avoided. But the barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.

[41] The loss thus falls outside the act of God doctrine.

The proximate cause of the loss having been determined, who among the parties is/are responsible therefor?

Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner is a common carrier. For it undertook to

transport the cargoes from the shipside of M/V Alexander Saveliev to the consignees warehouse at Cainta, Rizal. As the appellate

court put it, as long as a person or corporation holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is

already considered a common carrier regardless if [it] owns the vehicle to be used or has to hire one.[42] That petitioner is a common

carrier, the testimony of its own Vice-President and General Manager Noel Aro that part of the services it offers to its clients as a

brokerage firm includes the transportation of cargoes reflects so.

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company. I also handle the various

division heads of the company for operation matters, and all other related functions that the President may assign to me from time to

time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the Honorable Court if you came to

know the company by the name Little Giant Steel Pipe Corporation?

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you perform in behalf of this company?

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-charged of the delivery of the goods

to their warehouses. We also handled the clearances of their shipment at the Bureau of Customs, Sir.

x x x

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards to this shipment? What work

did you do with this shipment?

A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the] cargo[es] from lighter to BASECO

then to the truck and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform, what equipment do (sic) you

require or did you use in order to effect this unloading, transfer and delivery to the warehouse?

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and on this we hired or we sub-

contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic) of the barges. Also, in BASECO compound we are leasing

cranes to have the cargo unloaded from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the consignees

warehouse, Sir.

Q: And whose trucks do you use from BASECO compound to the consignees warehouse?

A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

x x x

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for the barges of Transport Ventures

Incorporated in this particular operation?

A: Firstly, we dont own any barges. That is why we hired the services of another firm whom we know [al]ready for quite sometime,

which is Transport Ventures, Inc. (Emphasis supplied)[43]

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez

Brokerage, Inc. v. The Honorable Court of Appeals,[44] held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of

the Civil Code, to wit,

Art. 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.

x x x

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such

carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker

whose principal function is to prepare the correct customs declaration and proper shipping documents as required by law is bereft of

merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.[45]

And in Calvo v. UCPB General Insurance Co. Inc.,[46] this Court held that as the transportation of goods is an integral part of a

customs broker, the customs broker is also a common carrier. For to declare otherwise would be to deprive those with whom [it]

contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is

part and parcel of petitioners business.[47]

As for petitioners argument that being the agent of Little Giant, any negligence it committed was deemed the negligence of its

principal, it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting the transportation of the

cargoes from the shipside and into Little Giants warehouse, however, petitioner was discharging its own personal obligation under a

contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler[48] to provide the barge and the tugboat.

In their Service Contract,[49] while Little Giant was named as the consignee, petitioner did not disclose that it was acting on

commission and was chartering the vessel for Little Giant.[50] Little Giant did not thus automatically become a party to the Service

Contract and was not, therefore, bound by the terms and conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can maintain a cause of action for

negligence.[51]

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe extraordinary diligence, it was still

required to observe ordinary diligence to ensure the proper and careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner

contravene the tenor thereof, are liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the

obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith,

the provisions of articles 1171 and 2202, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father

of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the same situation exercised by TVI?[52]

This Court holds not.

TVIs failure to promptly provide a tugboat did not only increase the risk that might have been reasonably anticipated during the

shipside operation, but was the proximate cause of the loss . A man of ordinary prudence would not leave a heavily loaded barge

floating for a considerable number of hours, at such a precarious time, and in the open sea, knowing that the barge does not have

any power of its own and is totally defenseless from the ravages of the sea. That it was nighttime and, therefore, the members of the

crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one such tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739[53] of the Civil Code, prove that it exercised due

diligence to prevent or minimize the loss, before, during and after the occurrence of the storm in order that it may be exempted from

liability for the loss of the goods.

While petitioner sent checkers[54] and a supervisor[55] on board the vessel to counter-check the operations of TVI, it failed to take

all available and reasonable precautions to avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge

despite the deteriorating sea conditions, it should have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable[56] for the loss of the cargoes. The following pronouncement of the

Supreme Court is instructive:

The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that

contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to

ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an

independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of

carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of Article 2176 and related

provisions, in conjunction with Article 2180 of the Civil Code. x x x [O]ne might ask further, how then must the liability of the common

carrier, on one hand, and an independent contractor, on the other hand, be described? It would be solidary. A contractual obligation

can be breached by tort and when the same act or omission causes the injury, one resulting in culpa contractual and the other in

culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where tort is

that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted

the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have been breached

by tort, thereby allowing the rules on tort to apply. [57]

As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or unconditionally placed in

its possession and received for transportation until they were delivered actually or constructively to consignee Little Giant.[58]

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the services rendered by the carrier.

In the case at bar, Bill of Lading No. 2 covering the shipment provides that delivery be made to the port of discharge or so near

thereto as she may safely get, always afloat.[59] The delivery of the goods to the consignee was not from pier to pier but from the

shipside of M/V Alexander Saveliev and into barges, for which reason the consignee contracted the services of petitioner. Since Black

Sea had constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its duty.[60]

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorneys fees in an amount over P1,000,000.00 to Industrial Insurance, for lack of factual and legal basis,

this Court sets it aside. While Industrial Insurance was compelled to litigate its rights, such fact by itself does not justify the award of

attorneys fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith would be reflected in a partys persistence in

a case other than an erroneous conviction of the righteousness of his cause.[61] To award attorneys fees to a party just because the

judgment is rendered in its favor would be tantamount to imposing a premium on ones right to litigate or seek judicial redress of

legitimate grievances.[62]

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial Insurance in its voluntary

but unsuccessful efforts to locate and retrieve the lost cargo. They do not constitute actual damages.[63]

As for the court a quos award of interest on the amount claimed, the same calls for modification following the ruling in Eastern

Shipping Lines, Inc. v. Court of Appeals[64] that when the demand cannot be reasonably established at the time the demand is made,

the interest shall begin to run not from the time the claim is made judicially or extrajudicially but from the date the judgment of the

court is made (at which the time the quantification of damages may be deemed to have been reasonably ascertained).[65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation, and Transport Venture

Incorporation jointly and severally liable for the amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per

annum of the amount due should be computed from the promulgation on November 24, 1997 of the decision of the trial court.

Costs against petitioner.

SO ORDERED.

i

ii[2] Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of petitioner First Philippine Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp. 95-100).

iiiess. The municipality may impose taxes on the following business:

xxx xxx xxx(e) On contractors and other independent contractors, in accordance with the following schedule:With gross receipts for the preceding Amount of Tax Per AnnumCalendar year in the amount:x x x x x xP2,000,000.00 or more at a rate not exceeding fifty

Percent (50%) of one (1%)

iv[4] Letter Protest dated January 20, 1994, Rollo, pp. 110-111.

v[5] Letter of respondent City Treasurer, Rollo, p. 112.

vi[6] Complaint, Annex "C", Rollo, pp. 51-56.

vii[7] Rollo, pp. 51-57.

viii[8] Answer, Annex "J", Rollo, pp. 122-127.

ix[9] RTC Decision, Rollo, pp. 58-62.

x[10] Rollo, p. 84.

xi[11] CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and Justice Eduardo G. Montenegro; Rollo, pp. 33-47.

xii[12] Rollo, p. 49.

xiii[13] Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious."As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not

offering its services to the public."Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms or

association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.

"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that petitioner is not offering its services to the public.

"We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly construed against the taxpayer. The present understanding of the concept of "common carriers" does not include carriers of petroleum using pipelines. It is highly unconventional to say that the business of transporting petroleum through pipelines involves "common carrier" business. The Local Government Code intended to give exemptions from local taxation to common carriers transporting goods and passengers through moving vehicles or vessels and not through pipelines. The term common carrier under Section 133 (j) of the Local Government Code must be given its simple and ordinary or generally accepted meaning which would definitely not include operators of pipelines."

xiv[14] G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds of the motion for reconsideration, dated December 23, 1996, filed by counsel for petitioner, of the resolution of November 11, 1996 which denied the petition for review on certiorari, the Court Resolved:

(a) to GRANT the motion for reconsideration and to REINSTATE the petition; and(b) to require respondent to COMMENT on the petition, within ten (10) days from notice.

xv[15] Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.

xvi[16] 168 SCRA 617-618 [1998].

xvii[17] Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct 131.

xviii[18] Journal and Record of the House of Representatives, Fourth Regular Session, Volume 2, pp. 87-89, September 6, 1990; Underscoring Ours.

xix[19] Annex "D" of Petition, Rollo, pp. 101-109.