Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.

Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines
and National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No.
60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National Development

Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff
Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR
THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22,
1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for
attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development
Company to pay the cross-claimant Maritime Company of the Philippines the total amount that
the Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution
pay to the plaintiff pursuant to the judgment rendered in this case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement entered into
between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
 appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf
and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of
American raw cotton consigned to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A).
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium
lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel
Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese
vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw
cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the
authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed
and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the
negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2,
N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa
Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila,
The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly
endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total
amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or
damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the
defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel.
(Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First
Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00
against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has
prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an
Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On
June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits
(Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against
NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also
filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October
16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's
written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection
or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965
likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set
aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a
decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86
plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid
and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against
NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its
motion to set aside the decision was denied by the trial court in its order dated February 13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial
court.
Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July
25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these
consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980
(Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF
GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM
THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY,
JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED
BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN
PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96,
Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST
PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST
HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF
LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE

RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE
SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD
OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL
OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE
COMPLEMENT OF THE SS DONA NATI

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT
OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT
COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-
PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID
VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO
THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT
OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF
LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO
APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY
TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF
P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS
P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT
TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF
ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121,
Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of
goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of
prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the
case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not
responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the
servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the
findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were
at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act.
Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse
the insurance company for the amount the latter paid to the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-
470 [1987]) where it was held under similar circumstance "that the law of the country to which the goods are to
be transported governs the liability of the common carrier in case of their loss, destruction or deterioration"
(Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to
the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated
by said Code, the rights and obligations of common carrier shall be governed by the Code of commerce and by
laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory
to the provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to
have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it
is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in
foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them according to all circumstances of each case. Accordingly, under Article
1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be
presumed to have been at fault or to have acted negigently, unless it proves that it has observed the
extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no
reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book
Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after
an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if
the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily
responsible for the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or
carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the
captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted
doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or
constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co.,
12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic
trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65)
does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application
"to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I
thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of
the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious
that said law not only recognizes the existence of the Code of Commerce, but more importantly does not
repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have
either the ownership or special property right or beneficial interest in the cargo in question; neither was it
proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not
possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime
Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly
endorsed bills of lading covering the shipments in question and an examination of the invoices in particular,
shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than
MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff
appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo,
it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-
appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator
of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be
liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962
(Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of
Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel,
including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40).
Consequently, under the circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where
both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision,
both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and
Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York
v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of
charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible
from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual
obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent
(Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action
had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45
Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the
shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without
prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per
bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on
averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the
language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability
for injury to a loss of goods where such injury or loss was caused by its own negligence." Negligence of the
captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save
some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the
law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru
and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said
claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court
affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed
despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-
shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was
merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at
Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their
arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964
arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been
saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the
instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or
damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of
Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the
respondent Appellate Court is AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairperson), Padilla, and Sarmiento, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-6055 June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM H. QUASHA, defendant-appellant.

Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.

REYES, J.:

William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of
falsification of a public and commercial document in that, having been entrusted with the preparation and registration of
the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the purpose of
engaging in business as a common carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon,
a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, the truth being that the owner of the portion
of the capital stock subscribed to by Baylon and the money paid thereon were American citizen whose name did not
appear in the article of incorporation, and that the purpose for making this false statement was to circumvent the
constitutional mandate that no corporation shall be authorize to operate as a public utility in the Philippines unless 60 per
cent of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.

The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was effected
by the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose of the
corporation was to carry on the business of a common carrier by air, land or water; that its capital stock was P1,000,000,
represented by 9,000 preferred and 100,000 common shares, each preferred share being of the par value of p100 and
entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one vote; that the amount capital stock
actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert
W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the other five all
Americans; that Baylon's subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500
common shares, of the total par value of P6,500, while the aggregate subscriptions of the American subscribers were for
200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the total par value of P59,000; and
that Baylon and the American subscribers had already paid 25 per cent of their respective subscriptions. Ostensibly the
owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of the corporation, Baylon nevertheless did not
have the controlling vote because of the difference in voting power between the preferred shares and the common shares.
Still, with the capital structure as it was, the article of incorporation were accepted for registration and a certificate of
incorporation was issued by the Securities and Exchange Commission.

There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation.
But it is admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the
corporate stock. In explanation, the accused testified, without contradiction, that in the process of organization Baylon was
made a trustee for the American incorporators, and that the reason for making Baylon such trustee was as follows:

Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total value
of P1,135. Do you know how that came to be?

A. Yes.

The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came
to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was
considerable difficulty to get them all together at one time because they were pilots. They had difficulty in deciding what
their respective share holdings would be. Onstott had invested a certain amount of money in airplane surplus property and
they had obtained a considerable amount of money on those planes and as I recall they were desirous of getting a
corporation formed right away. And they wanted to have their respective shares holdings resolved at a latter date. They
stated that they could get together that they feel that they had no time to settle their respective share holdings. We
discussed the matter and finally it was decided that the best way to handle the things was not to put the shares in the
name of anyone of the interested parties and to have someone act as trustee for their respective shares holdings. So we
looked around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is there someone around
whom we could get right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when
i was sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man and that was what was
done. That is how it came about.

Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal
Code, which read:

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. — The penalty of prision
mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who,
taking advantage of his official position, shall falsify a document by committing any of the following acts:

xxx xxx xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. — The penalty of prision
correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:

xxx xxx xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any
public or official document or letter of exchange or any other kind of commercial document.

Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition, pp.
407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts
must be made with the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the
same author further maintains that even if such wrongful intent is proven, still the untruthful statement will not constitute
the crime of falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful intent to
injure a third person and obligation on the part of the narrator to disclose the truth are thus essential to a conviction for a
crime of falsification under the above article of the Revised Penal Code.

Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of
incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American co-
incorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by him which, as above
stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a malicious
perversion of the truth made with the wrongful intent circumventing section 8, Article XIV of the Constitution, which
provides that " no franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporation or other entities organized under the law of the Philippines,
sixty per centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible though it may appear at first
glance, this opinion loses validity once it is noted that it is predicated on the erroneous assumption that the constitutional
provision just quoted was meant to prohibit the mere formation of a public utility corporation without 60 per cent of its
capital being owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused was under
obligation to disclose the whole truth about the nationality of the subscribed capital stock of the corporation by revealing
that Baylon was a mere trustee or dummy of his American co-incorporators, and that in not making such disclosure
defendant's intention was to circumvent the Constitution to the detriment of the public interests. Contrary to the lower
court's assumption, the Constitution does not prohibit the mere formation of a public utility corporation without the required
formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization for the
operation of a public utility to a corporation already in existence but without the requisite proportion of Filipino capital. This
is obvious from the context, for the constitutional provision in question qualifies the terms " franchise", "certificate", or "any
other form of authorization" with the phrase "for the operation of a public utility," thereby making it clear that the franchise
meant is not the "primary franchise" that invest a body of men with corporate existence but the "secondary franchise" or
the privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can
the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the
articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the
subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no obligation
to make it. In the absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of
the crime with which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the
name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws
implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public
utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation
formed with capital that is entirely alien may subsequently change the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a corporation that intends to
operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That
condition may anytime be attained thru the necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose. And that can be done after the corporation has already come into being and not while it is
still being formed. And at that moment, the corporation must show that it has complied not only with the requirement of the
Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common
carrier by air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service.

Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article 59
of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the simple
reason that the alleged constitutional prohibition which he is charged for having tried to circumvent does not exist,
conviction under that article is out of the question.

The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime
charged. The majority of the court, however, are also of the opinion that, even supposing that the act imputed to the
defendant constituted falsification at the time it was perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens with respect to the right to
operate public utilities in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the Constitution in
so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with
costs de oficio.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and Labrador, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,

vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit
System for EDSA" dated May 6, 1993.

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus
B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications
(DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized
under the laws of Hongkong.

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit
system along EDSA and alleviate the congestion and growing transportation problem in the
metropolis.

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu
Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-
Transfer (BOT) basis.

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project
with DOTC.

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes,"
was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it
took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or Build-
Transfer (BT).

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway,
DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-
496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the
financing and implementation of the project The notice, advertising the prequalification of bidders,
was published in three newspapers of general circulation once a week for three consecutive weeks
starting February 21, 1991.

The deadline set for submission of prequalification documents was March 21, 1991, later extended to
April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell
Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan,
and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser
Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD
Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial
Construction Group, Inc, and F. F. Cruz & co., Inc.

On the last day for submission of prequalification documents, the prequalification criteria proposed by
the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as
follows: (a) Legal aspects — 10 percent; (b) Management/Organizational capability — 30 percent;
and (c) Financial capability — 30 percent; and (d) Technical capability — 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring
that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least
21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least
82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-
applicant meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines
and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two
letters dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA
LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority
to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules
and Regulations of the BOT Law (Rollo, pp. 298-302).

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to
the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted
its bid proposal to DOTC.

Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA
LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law
(Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested approval
for the following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with
Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT
projects, and the prequalification proceedings was not the public bidding contemplated under the law;
(3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized
negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that
congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law
had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).

In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-
negotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78)
inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement
without need of approval by the President pursuant to the provisions of Executive Order No. 380 and
that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the
Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration
and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements,
(Rollo, p. 194).

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak
Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150
million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III
will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from
F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility
(Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger
stations and one depot in 16-hectare government property at North Avenue (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).

Private respondents shall undertake and finance the entire project required for a complete operational
light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion
date is 1,080 days or approximately three years from the implementation date of the contract
inclusive of mobilization, site works, initial and final testing of the system (Supplemental Agreement,
Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall
deliver the use and possession of the completed portion to DOTC which shall operate the same
(Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84).
DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit.
The rentals shall be determined by an independent and internationally accredited inspection firm to
be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon,
private respondent's capital shall be recovered from the rentals to be paid by the DOTC which, in
turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p.
5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of
the project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and
Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957,
Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and for Other Purposes" was signed into law by the President. The law
was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days
thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct
negotiation of BLT contracts.

II

In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL

AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT
CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA
LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS
UNCONSTITUTIONAL;

(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS

NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING
RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A.

NO. 6957 AND, HENCE, IS UNLAWFUL;

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT

CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;

(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR

FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE

GOVERNMENT (Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separately and claimed that:

(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT
Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent;

(5) The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award
of infrastructure projects.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into
by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the
same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.

IV

In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is
limited by the Constitution to Filipino citizens and domestic corporations, not foreign
corporations like private respondent;

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT
or BT Scheme under the law;

(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects under
the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and
existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA
LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter
to operate the system and pay rentals for said use.

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III;
a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . . (Emphasis
supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the rights
of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992]).

The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point
to another point, their loading and unloading at designated places and the movement of the trains at
pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R.
1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2
A.L.R. 2d 1065 [1948]).

The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may
not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning
them themselves.

While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec.
3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion
date, private respondent will immediately deliver possession of the LRT system by way of lease for 25
years, during which period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated
Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of
providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing
and security; and (2) producing and distributing maintenance manuals and drawings for the entire
system (Revised and Restated Agreement, Annex F).

Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash
from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of
DOTC will work under the direction and control of private respondent only during training (Revised
and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that
upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall
have in their employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue operation, DOTC shall be able to
operate the EDSA LRT III on its own and train all new personnel by itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing cost,
plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from
any losses, damages, injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of
the defective condition of equipment or facilities or the defective maintenance of such equipment
facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).

In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It
will have no dealings with the public and the public will have no right to demand any services from it.

It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between
PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint
venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain
a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the
same. Upon due examination of the contract, the Court found that PGMC's participation was not
confined to the construction and setting up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the
highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to
PGMC which actually operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are
owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984,
987 [1946]).

Even the mere formation of a public utility corporation does not ipso facto characterize the corporation
as one operating a public utility. The moment for determining the requisite Filipino nationality is when
the entity applies for a franchise, certificate or any other form of authorization for that purpose (People
v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized
in the BOT Law and its Implementing Rules and Regulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme — A contractual arrangement whereby the

contractor undertakes the construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor operates the facility
over a fixed term during which it is allowed to charge facility users appropriate tolls,
fees, rentals and charges sufficient to enable the contractor to recover its operating and
maintenance expenses and its investment in the project plus a reasonable rate of return
thereon. The contractor transfers the facility to the government agency or local
government unit concerned at the end of the fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign and/or Filipino
constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be in
accordance with the Constitution: Provided, however, That in the case of corporate
investors in the build-operate-and-transfer corporation, the citizenship of each
stockholder in the corporate investors shall be the basis for the computation of Filipino
equity in the said corporation: Provided, further, That, in the case of foreign constructors
[sic], Filipino labor shall be employed or hired in the different phases of the construction
where Filipino skills are available: Provided, furthermore, that the financing of a foreign
or foreign-controlled contractor from Philippine government financing institutions shall
not exceed twenty percent (20%) of the total cost of the infrastructure facility or project:
Provided, finally, That financing from foreign sources shall not require a guarantee by
the Government or by government-owned or controlled corporations. The build-operate-
and-transfer scheme shall include a supply-and-operate situation which is a contractual
agreement whereby the supplier of equipment and machinery for a given infrastructure
facility, if the interest of the Government so requires, operates the facility providing in
the process technology transfer and training to Filipino nationals.

(b) Build-and-transfer scheme — "A contractual arrangement whereby the contractor

undertakes the construction including financing, of a given infrastructure facility, and its
turnover after completion to the government agency or local government unit concerned
which shall pay the contractor its total investment expended on the project, plus a
reasonable rate of return thereon. This arrangement may be employed in the
construction of any infrastructure project including critical facilities which for security or
strategic reasons, must be operated directly by the government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing in infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.

In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The government,
in turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of
return. If payment is to be effected through amortization payments by the government infrastructure
agency or local government unit concerned, this shall be made in accordance with a scheme
proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility. No such
a requirement is imposed in the BT scheme.

There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the
payment by the government of the project cost. The law must not be read in such a way as to rule out
or unduly restrict any variation within the context of the two schemes. Indeed, no statute can be
enacted to anticipate and provide all the fine points and details for the multifarious and complex
situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA
1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).

The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.

As a matter of fact, the burden on the government in raising funds to pay for the project is made
lighter by allowing it to amortize payments out of the income from the operation of the LRT System.

In form and substance, the challenged agreements provide that rentals are to be paid on a monthly
basis according to a schedule of rates through and under the terms of a confirmed Irrevocable
Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and
when full payment shall have been made to and received by private respondent, it shall transfer to
DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only
U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo,
pp. 67, .87).

A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of
a thing for a certain price and for a period which may be definite or indefinite but not longer than 99
years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the
lease period. But if the parties stipulate that title to the leased premises shall be transferred to the
lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a
lease-purchase agreement.

Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the
National Economic and Development Authority as falling under the Investment Priorities Plan of
Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act
(R.A. No. 529), which reads as follows:

Sec. 1. — Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provisions purports
to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines
 measured thereby, be as it is hereby declared against public policy, and null, void, and
of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic projects for agricultural, industrial and
power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National
Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does
not suffice to invalidate the award.

Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls,
amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law.

Petitioners insist that the prequalifications process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international
public bidding where qualified internationally known applicants could fairly participate.

The records show that only one applicant passed the prequalification process. Since only one was
left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant
will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:

Bidding. — Construction projects shall generally be undertaken by contract after

competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and the President of the
Philippines, upon recommendation of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general law
on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects. The
two laws are not inconsistent with each other but are in pari materia and should be read together
accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why
none of the competing firms ever brought the matter before the PBAC, or intervened in this case
before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau
Veritas v. Office of the President, 205 SCRA 705 [1992]).

The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract
from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the circumstances, to require the parties to go back
to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red
tape" should be eschewed because it discourages private sector participation, the "main engine" for
national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer — A contractual arrangement whereby a project proponent

is authorized to finance and construct an infrastructure or development facility and upon
its completion turns it over to the government agency or local government unit
concerned on a lease arrangement for a fixed period after which ownership of the
facility is automatically transferred to the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. — Direct negotiation shall be resorted to when there is

only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification and it meets
the prequalification requirements, after which it is required to submit a bid proposal
which is subsequently found by the agency/local government unit (LGU) to be
complying.

(b) If, after advertisement, more than one contractor applied for prequalification but only
one meets the prequalification requirements, after which it submits bid/proposal which is
found by the agency/local government unit (LGU) to be complying.

(c) If, after prequalification of more than one contractor only one submits a bid which is
found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor submit bids but only one is found
by the agency/LGU to be complying. Provided, That, any of the disqualified prospective
bidder [sic] may appeal the decision of the implementing agency, agency/LGUs
prequalification bids and awards committee within fifteen (15) working days to the head
of the agency, in case of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder: Provided, furthermore, That the implementing
agency/LGUs concerned should act on the appeal within forty-five (45) working days
from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the
BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law
authorizes all government infrastructure agencies, government-owned and controlled corporations
and local government units to enter into contract with any duly prequalified proponent for the
financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-
operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec.
3).

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate
of minimum government regulations and procedures and specific government undertakings in support
of the private sector" (Sec. 1). A curative statute makes valid that which before enactment of the
statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and
DOTC may have engendered and committed in entering into the questioned contracts, these have
now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96
SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43
[1922].

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most productive years of the
project.

It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a
period of 25 years, exclusive rights over the depot and the air space above the stations for
development into commercial premises for lease, sublease, transfer, or advertising (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private
respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the
amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC
shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls
from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental
Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).

The terms of the agreements were arrived at after a painstaking study by DOTC. The determination
by the proper administrative agencies and officials who have acquired expertise, specialized skills
and knowledge in the performance of their functions should be accorded respect absent any showing
of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673
[1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable
rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is
better left to the experts and which this Court is not eager to undertake.

That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In
all cases where a party enters into a contract with the government, he does so, not out of charity and
not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems as
well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in
particular that has the power, authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing
to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds
for our decisions on the doctrine of standing are and, why in accordance with these decisions,
petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of
Congress, because they allege no infringement of prerogative as legislators.1 As taxpayers because
petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress
(Art VI, §§24-25 and 29)2 nor an illegal disbursement of public money.3 As this Court pointed out
in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as taxpayer "must specifically prove that he
has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will
sustain a direct injury as a result of the enforcement of the questioned statute or contract. It is not
sufficient that he has merely a general interest common to all members of the public." In that case, it
was held that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease would transfer
the building of the lessor, did not involve a disbursement of public funds so as to give taxpayer
standing to question the legality of the contract. I see no substantial difference, as far as the standing
is of taxpayers to question public contracts is concerned, between the contract there and the build-
lease-transfer (BLT) contract being questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a
Better Philippines v. Aquino8 and In re Bermudez 9 where we dismissed citizens' actions on the
ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a
cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered some
actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is
fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's

allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the
particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be
considered judicially cognizable? Is the line of causation between the illegal conduct
and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of
a favorable ruling too speculative? These questions and any others relevant to the
standing inquiry must be answered by reference to the Art III notion that federal courts
may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk
R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when
adjudication is "consistent with a system of separated powers and [the dispute is one]
traditionally thought to be capable of resolution through the judicial process," Flast v
Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454
US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the
view that this case has no merit I submit with respect that petitioners, as representatives of the public
interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J., dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-
ultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual
arrangements between the private sector and government infrastructure agencies: (a) the Build-
Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion
finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section 3 which
explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies,

including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private contractor
for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer
scheme, subject to the terms and conditions hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,
and Congress has enacted several laws relating to leases. That the BLT scheme was never intended
as a permissible variation "within the context" of the BOT and BT schemes is conclusively established
by the passage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BT schemes the following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)
(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
 (7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-
operate-and-transfer or build-and-transfer scheme."

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in Section
4 of this Act, the concerned head of the infrastructure agency or local government unit
shall forthwith cause to be published, once every week for three (3) consecutive weeks,
in at least two (2) newspapers of general circulation and in at least one (1) local
newspaper which is circulated in the region, province, city or municipality in which the
project is to be constructed a notice inviting all duly prequalified infrastructure
contractors to participate in the public bidding for the projects so approved. In the case
of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed tolls, fees, rentals, and
charges over a fixed term for the facility to be constructed, operated, and maintained
according to the prescribed minimum design and performance standards plans, and
specifications. For this purpose, the winning contractor shall be automatically granted by
the infrastructure agency or local government unit the franchise to operate and maintain
the facility, including the collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the

lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be
given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith

be submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is
null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved
the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was
conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of
said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because
the law itself does not recognize or allow negotiated contracts.
However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to
unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.

That section 5 admits of no exception and that no bidding could be validly had with only one bidder is
likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a
new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation
contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification
requirements, after which it is required to submit a bid/proposal which
subsequently found by the agency/local government unit (LGU) to be
complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements, after
which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
agency, in case of national projects or to the Department of the Interior
and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder Provided, That
the implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that
it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have so
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect,
unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt
will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will not
be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly
implied by the language of the amendment or by the circumstances surrounding its
enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J., dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant case.
I agree with many of the things set out in the majority opinion written by my distinguished brother in
the Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached
by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly
narrow grounds. At the same time; I wish to address briefly one of the points made by Justice
Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts·"
More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as
follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provisions of laws and acts on the matter,
subject to the approval of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and of the President of the
Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or
more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably
the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply
to all "government contracts for infrastructure and other construction projects." But Republic Act No.
6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector" "through the build/operate-
and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and
Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited
field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken
"by administration or force account or by negotiated contract only"

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and
acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon
the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack
of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute,
entering into contracts by negotiation is not permissible in the other (2) categories of cases referred to
in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence"
and "when there is conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree. 1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

 a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property.

b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public
bidding are all above the AAE and the bidders refuse to reduce their
prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going

project and it could be economically prosecuted by the same contractor
provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts
as distinguished from requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques and/or technologies which
are not adequately possessed by a Filipino entity as defined above.

[The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as
from bilateral and other similar sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and the
Asian Development Bank uniformly require projects financed by them to be implemented and carried
out by public bidding. Public bidding is much too important a requirement casually to loosen by a
latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should
be required for the Edsa LRT Project.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing
to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds
for our decisions petitioners do not have the rights to sue, whether as legislators, taxpayers or
citizens. As members of Congress, because they allege no infringement of prerogative as
legislators.1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing
or spending powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public
money.3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as
taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure of
money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the
questioned statute or contract, It is not sufficient that has merely a general interest common to all
members of the public." In that case, it was held that a contract, whereby a local government leased
property to a private party with the understanding that the latter would build a market building and at
the end of the lease would transfer the building of the lessor, did not involve a disbursement of public
funds so as to give taxpayer standing to question the legality of the contract contracts I see no
substantial difference, as far as the standing is of taxpayers is concerned, between the contract there
and the build-lease-transfer (BLT) contract being questioned by petitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the cases5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a
Better Philippines v. Aquino8 and In re Bermudez9 where we dismissed citizens' actions on the
ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a
cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered some
actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is
fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's

allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the
particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be
considered judicially cognizable? Is the line of causation between the illegal conduct
and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of
a favorable ruling too speculative? These questions and any others relevant to the
standing inquiry must be answered by reference to the Art III notion that federal courts
may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk
R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when
adjudication is "consistent with a system of separated powers and [the dispute is one]
traditionally thought to be capable of resolution through the judicial process," Flast v
Cohen, 392 US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454
US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the
view that this case has no merit I submit with respect that petitioners, as representatives of the public
interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J., dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-
ultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual
arrangements between the private sector and government infrastructure agencies: (a) the Build-
Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion
finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section 3 which
explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies,

including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private contractor
for the financing, construction, operation and maintenance of any financially viable
infrastructure facilities through the build-operate-and transfer or build-and-transfer
scheme, subject to the terms and conditions hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,
and Congress has enacted several laws relating to leases. That the BLT scheme was never intended
as a permissible variation "within the context" of the BOT and BT schemes is conclusively established
by the passage of R.A. No. 7718 which amends:

a. Section. 2 by adding to the original BOT and BT schemes the following schemes:

1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-
operate-and-transfer or build-and-transfer scheme.

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in Section
4 of this Act, the concerned head of the infrastructure agency or local government unit
shall forthwith cause to be published, once every week for three (3) consecutive weeks,
in at least two (2) newspapers of general circulation and in at least one (1) local
 newspaper which is circulated in the region, province, city or municipality in which the
project is to be constructed a notice inviting all duly prequalified infrastructure
contractors to participate in the public bidding for the projects so approved. In the case
of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed tolls, fees, rentals, and
charges over a fixed term for the facility to be constructed, operated, and maintained
according to the prescribed minimum design and performance standards plans, and
specifications. For this purpose, the winning contractor shall be automatically granted by
the infrastructure agency or local government unit the franchise to operate and maintain
the facility, including the collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the

lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be
given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith

be submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is
null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly
disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing
Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void
because the law itself does not recognize or allow negotiated contracts.

However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to
unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is
likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a
new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation
contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification
requirements submit a bid/proposal which subsequently found by the
agency/local government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification .requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
agency of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification
was made known to the disqualified bidder Provided, That the
implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that
it "shall take effect fifteen (15) after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have so
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect,
unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt
will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will not
be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly
implied by the language of the amendment or by the circumstances surrounding its
 enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J., dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant case.
I agree with many of the things set out in the majority opinion written by my distinguished brother in
the Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached
by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly
narrow grounds. At the same time; I wish to address briefly one of Justice Quiason in the majority
opinion in his effort to meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts·"
More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as
follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provisions of laws and acts on the matter,
subject to the approval of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and of the president of the
Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or
more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion utility and the ownership of the facilities used
to serve the public can be very w1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other construction projects" But Republic Act No. 6957
as amended by Republic Act No. 7718, relates on to "infrastructure projects" which are financed,
constructed, operated and maintained "by the private sector" "through the build/operate-and-transfer
or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable
schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act. No:
7718 must be held, in my view, to be special statutes applicable to a more limited field of
"infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken
"by administration or force account or by negotiated contract only "

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and
acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon
the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack
of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute,
entering into contracts by negotiation is not permissible in the other (2) categories of cases referred to
in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence"
and "when there is conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718. The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed" Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree. 1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where

immediate action is necessary to prevent imminent loss of life and/or
property.

b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public
bidding are all above the AAE and the bidders refuse to reduce their
prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going

project and it could be economically prosecuted by the same contractor
 provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts
as distinguished from requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques and/or technologies which
are not adequately possessed by a Filipino entity as defined above.

[The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as
from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and the
Asian Development Bank uniformly require projects financed by them to be implemented and carried
out by public bidding. Public bidding is much too important a requirement casually to loosen by a
latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should
be required for the Edsa LRT Project.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

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 donot 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. Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. — Article 1732 of the
Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is "whether the given undertaking is a part of the business engaged in by
the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business
transacted." . . . The holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of
the Civil Code, it held thus: "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 distinguished 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 1732 deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN PRESUMPTION OF
NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN PRESUMPTION MADE ABSOLUTE. — Common
carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. Accordingly,
they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated.
There are very few instances when the presumption of negligence does not attach and these instances are enumerated in
Article 1734. In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption . . . The presumption of negligence was raised against
petitioner. It was petitioner's burden to overcome it. Thus, contrary to her assertion, private respondent need not introduce
any evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED FROM
LIABILITY. — In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the provisions of
Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is presumed to have
been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers or
the hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil
Code which provides: "Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy . . . (6) That the common carrier's liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violences or force, is dispensed with or diminished"; In the same case, the Supreme
Court also held that: "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 of irresistible threat, violence of 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."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case, petitioner herself has made the
admission that she was in the trucking business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. — Petitioner presented no other proof
of the existence of the contract of lease. He who alleges a fact has the burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS WITNESSES. — While the
affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in court, he himself was a
witness as could be gleaned from the contents of the petition. Affidavits are not considered the best evidence if the
affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE. — Granting that the
said evidence were not self-serving, the same were not sufficient to prove that the contract was one of lease. It must be
understood that a contract is what the law defines it to be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A. CIPRIANO, doing
business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M. BASCOS, doing
business under the name of BASCOS TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216, the dispositive portion
of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby affirmed in toto. Costs
against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling contract 2 with
Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's 2,000 m/tons of soya bean meal
from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its
obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to
deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of
P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair
Shipping Agency the amount of the lost goods in accordance with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-delivery or
damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed a complaint for
a sum of money and damages with writ of preliminary attachment 4 for breach of a contract of carriage. The prayer for a
Writ of Preliminary Attachment was supported by an affidavit 5 which contained the following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court, whereby a writ of
preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud
his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of carriage since CIPTRADE
leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE was liable to petitioner in the
amount of P11,000.00 for loading the cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco,
Manila on the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that petitioner and
the police exerted all efforts to locate the hijacked properties; that after preliminary investigation, an information for
robbery and carnapping were filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated
petitioner from any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter to pay the
former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS (P156,404.00) as an (sic)
for actual damages with legal interest of 12% per cent per annum to be counted from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is DENIED for
being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP BETWEEN
PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT THE
CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE
THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER'S
MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND
ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and (2) was the hijacking
referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her answer that she did
business under the name A.M. Bascos Trucking and that said admission dispensed with the presentation by private
respondent, Rodolfo Cipriano, of proofs that petitioner was a common carrier. The respondent Court also adopted in toto
the trial court's decision that petitioner was a common carrier, Moreover, both courts appreciated the following pieces of
evidence as indicators that petitioner was a common carrier: the fact that the truck driver of petitioner, Maximo Sanglay,
received the cargo consisting of 400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay;
the fact that the truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo
was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she alleged in this
petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE, was lease of the truck. She cited
as evidence certain affidavits which referred to the contract as "lease". These affidavits were made by Jesus Bascos 8
and by petitioner herself. 9 She further averred that Jesus Bascos confirmed in his testimony his statement that the
contract was a lease contract. 10 She also stated that: she was not catering to the general public. Thus, in her answer to
the amended complaint, she said that she does business under the same style of A.M. Bascos Trucking, offering her
trucks for lease to those who have cargo to move, not to the general public but to a few customers only in view of the fact
that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent
of the business transacted." 12 In this case, petitioner herself has made the admission that she was in the trucking
business, offering her trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is required
to prove the same. 13

But petitioner argues that there was only a contract of lease because they offer their services only to a select group of
people and because the private respondents, plaintiffs in the lower court, did not object to the presentation of affidavits by
petitioner where the transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is instructive. In referring to
Article 1732 of the Civil Code, it held thus:

"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 1732 deliberately refrained from making such distinctions."

Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have dismissed them as
self-serving and petitioner contests the conclusion. We are bound by the appellate court's factual conclusions. Yet,
granting that the said evidence were not self-serving, the same were not sufficient to prove that the contract was one of
lease. It must be understood that a contract is what the law defines it to be and not what it is called by the contracting
parties. 15 Furthermore, petitioner presented no other proof of the existence of the contract of lease. He who alleges a
fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. 17
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. 18 There are very few instances when the presumption of negligence does not attach and these instances
are enumerated in Article 1734. 19 In those cases where the presumption is applied, the common carrier must prove that
it exercised extraordinary diligence in order to overcome the presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability for the loss of
the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being included in the provisions of
Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is presumed to have
been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers or
the hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil
Code which provides:

"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public
policy;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"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."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus Bascos' affidavit, 23 and
Juanito Morden's 24 "Salaysay". However, both the trial court and the Court of Appeals have concluded that these
affidavits were not enough to overcome the presumption. Petitioner's affidavit about the hijacking was based on what had
been told her by Juanito Morden. It was not a first-hand account. While it had been admitted in court for lack of objection
on the part of private respondent, the respondent Court had discretion in assigning weight to such evidence. We are
bound by the conclusion of the appellate court. In a petition for review on certiorari, We are not to determine the probative
value of evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the
hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as
evidence in court, he himself was a witness as could be gleaned from the contents of the petition. Affidavits are not
considered the best evidence if the affiants are available as witnesses. 25 The subsequent filing of the information for
carnapping and robbery against the accused named in said affidavits did not necessarily mean that the contents of the
affidavits were true because they were yet to be determined in the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus, contrary to
her assertion, private respondent need not introduce any evidence to prove her negligence. Her own failure to adduce
sufficient proof of extraordinary diligence made the presumption conclusive against her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We find no reason to disturb the
conclusion that the motion to lift/dissolve the writ of preliminary attachment has been rendered moot and academic by the
decision on the merits.

In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained. The petition is
DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

 THIRD DIVISION

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and PRUDENTIAL
GUARANTEE AND ASSURANCE, INC., respondents.

DECISION
PUNO, J.:

On appeal is the Court of Appeals May 11, 2000 Decision[1] in CA-G.R. CV No. 49195 and February 21,
2001 Resolution[2] affirming with modification the April 6, 1994 Decision[3] of the Regional Trial Court of Manila
which found petitioner liable to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.35[4] was shipped by Marubeni American Corporation of Portland, Oregon on board the vessel
M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in Manila, evidenced by
Bill of Lading No. PTD/Man-4.[5] The shipment was insured by the private respondent Prudential Guarantee
and Assurance, Inc. against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN
11859/90.[6]
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the
petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to
deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 0364[7] for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off
Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges which arrived
ahead of it while weathering out the storm that night.A few days after, the barge developed a list because of a
hole it sustained after hitting an unseen protuberance underneath the water. The petitioner filed a Marine
Protest on August 28, 1990.[8] It likewise secured the services of Gaspar Salvaging Corporation which refloated
the barge.[9] The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on
September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong
current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three other
barges.[10]
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the
total loss of the remaining cargo.[11] A second Marine Protest was filed on September 7, 1990.[12]
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded
on the three other barges.[13] The total proceeds from the sale of the salvaged cargo was P201,379.75.[14]
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter
dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no
avail.
 On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount
of indemnity, attorney's fees and cost of suit.[16] Petitioner filed its answer with counterclaim.[17]
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision
states:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage & Shipping, Inc.
liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date
complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded as and for attorney's
fees. Defendant's counterclaim is hereby DISMISSED.With costs against defendant.[18]

Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court
affirmed the decision of the trial court with modification. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the salvage value
of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against appellant.

SO ORDERED.

Petitioners Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a
Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:[19]
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF THE
PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF
THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCE
AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE CONSIGNEES CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care
and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as 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.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does not hold out
its services to the general public.[20]
We disagree.
 In De Guzman vs. Court of Appeals,[21] we held that the definition of common carriers in Article 1732 of
the 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. We also did not distinguish
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. Further, we ruled that Article 1732 does not
distinguish between a carrier offering its services to the general public, and one who offers services or solicits
business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage [22] and it offers
its barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly a
common carrier. In De Guzman, supra,[23] we considered private respondent Ernesto Cendaa to be a common
carrier even if his principal occupation was not the carriage of goods for others, but that of buying used bottles
and scrap metal in Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular
rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and
publicly known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.[24] The test to determine a common carrier is whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity
or extent of the business transacted.[25] In the case at bar, the petitioner admitted that it is engaged in the
business of shipping and lighterage,[26] offering its barges to the public, despite its limited clientele for carrying
or transporting goods by water for compensation.[27]
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignees goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported
by them.[28] They are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated.[29] To overcome the presumption of negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. There are,
however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due
to any of the following causes only:

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

(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;

(5) Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its
cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the
goods, and that it has exercised due diligence before, during and after the occurrence of the typhoon to
prevent or minimize the loss.[30] The evidence show that, even before the towing bits of the barge broke, it had
already previously sustained damage when it hit a sunken object while docked at the Engineering Island. It
even suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-submerged vessel
was refloated but its hole was patched with only clay and cement. The patch work was merely a provisional
remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to proceed with the voyage, it
recklessly exposed the cargo to further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-
surveyor of Tan-Gatue Adjustment Co., Inc., states:

CROSS-EXAMINATION BY ATTY. DONN LEE:[31]

xxxxxxxxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull out the barge
from the place of the accident, and bring it to the anchor terminal for safety, then after deciding if
the vessel is stabilized, they tried to pull it to the consignees warehouse, now while on route
another accident occurred, now this time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on the bottom
part of the barge.
xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite knowledge of an incoming
typhoon. During the time that the barge was heading towards the consignee's wharf on September 5, 1990,
typhoon Loleng has already entered the Philippine area of responsibility.[32] A part of the testimony of Robert
Boyd, Cargo Operations Supervisor of the petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE:[33]

xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie where she
was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the consignee) as
I have said was in a hurry for their goods to be delivered at their Wharf since they needed badly
the wheat that was loaded in PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxxxxxxxx

CROSS-EXAMINATION BY ATTY. IGNACIO:[34]

xxxxxxxxx

q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I correct?

a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.

q - Despite of the threats of an incoming typhoon as you testified a while ago?

a - It is already in an inner portion of Pasig River. The typhoon would be coming and it would be dangerous if
we are in the vicinity of Manila Bay.

q - But the fact is, the typhoon was incoming? Yes or no?
 a - Yes.

q - And yet as a standard operating procedure of your Company, you have to secure a sort of Certification to
determine the weather condition, am I correct?

a - Yes, sir.

q - So, more or less, you had the knowledge of the incoming typhoon, right?

a - Yes, sir.

q - And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are already inside the
vicinity or inside Pasig entrance, it is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability
for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due diligence
required from a common carrier. More importantly, the officers/employees themselves of petitioner admitted
that when the towing bits of the vessel broke that caused its sinking and the total loss of the cargo upon
reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is not the proximate
cause of the loss of the cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.
 FIRST DIVISION

[G.R. No. 138334. August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL &
TOURS INTERNATIONAL, INC., respondents.

DECISION
YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed Jewels of Europe. The package tour included the countries of
England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioners niece, Meriam Menor, was respondent companys
ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to
deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment
for the package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA)
on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to
take the flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she
discovered that the flight she was supposed to take had already departed the previous day. She
learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor
to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which
included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked
anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave
respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-
refundable.[1] Petitioner was thus constrained to file a complaint against respondent for breach of
contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to
Branch 59 of the Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket.Respondent
was also negligent in informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was informed
of the correct departure date, which was clearly and legibly printed on the plane ticket. The travel
documents were given to petitioner two days ahead of the scheduled trip.Petitioner had only herself
to blame for missing the flight, as she did not bother to read or confirm her flight schedule as printed
on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the tour. Lotus European tour
organizer, Insight International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted industry practice to disallow
refund for individuals who failed to take a booked tour.[3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package tour
that petitioner missed. This tour was independently procured by petitioner after realizing that she
made a mistake in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial
payment of only US$300.00 for the second tour because her niece was then an employee of the
travel agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of
P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision,[4] the dispositive part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand
Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest
thereon at the rate of twelve percent (12%) per annum starting January 16, 1992, the date when
the complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and
for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.[5]

The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut petitioners
testimony. However, petitioner should have verified the exact date and time of departure by looking at
her ticket and should have simply not relied on Menors verbal representation. The trial court thus
declared that petitioner was guilty of contributory negligence and accordingly, deducted 10% from the
amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent because as
a lawyer and well-traveled person, she should have known better than to simply rely on what was told
to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited her right to
the Jewels of Europe tour and must therefore pay respondent the balance of the price for the British
Pageant tour. The dispositive portion of the judgment appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to
the defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed
from the time the counterclaim was filed until the finality of this decision. After this decision becomes final and
executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs against the
plaintiff-appellee.

SO ORDERED.[6]

Upon denial of her motion for reconsideration,[7] petitioner filed the instant petition under Rule 45
on the following grounds:
I

It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and
setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of
unavailed Jewels of Europe tour she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence which is
higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner and private
respondent were both negligent, the petitioner cannot be considered to be equally, or worse, more guilty than
the private respondent. At best, petitioners negligence is only contributory while the private respondent [is
guilty] of gross negligence making the principle of pari delicto inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not indivisible and
the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of
breach of contract of carriage.[8]

Petitioner contends that respondent did not observe the standard of care required of a common
carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent
than respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment
of its obligation. If she were negligent at all, the same is merely contributory and not the proximate
cause of the damage she suffered. Her loss could only be attributed to respondent as it was the direct
consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to
another for a fixed price.[9] Such person or association of persons are regarded as carriers and are
classified as private or special carriers and common or public carriers. [10] A common carrier is defined
under Article 1732 of the Civil Code as 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.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf. Respondents services as a
travel agency include procuring tickets and facilitating travel permits or visas as well as booking
customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company,
this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely
as an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it that petitioner was properly
booked with the airline for the appointed date and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service of arranging
and facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast,
the object of a contract of carriage is the transportation of passengers or goods. It is in this sense
that the contract between the parties in this case was an ordinary one for services and not one of
carriage. Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the
degree of care required in the performance of the latters obligation under the contract. For reasons of
public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as
human care and foresight can provide using the utmost diligence of very cautious persons and with
due regard for all the circumstances.[11] As earlier stated, however, respondent is not a common
carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil Code. [12] This
connotes reasonable care consistent with that which an ordinarily prudent person would have
observed when confronted with a similar situation. The test to determine whether negligence attended
the performance of an obligation is: did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner
of the wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors
alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation.
The lower court applied the presumption under Rule 131, Section 3 (e) [14] of the Rules of Court that
evidence willfully suppressed would be adverse if produced and thus considered petitioners
uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains
that petitioners assertion is belied by the evidence on record. The date and time of departure was
legibly written on the plane ticket and the travel papers were delivered two days in advance precisely
so that petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join
the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise
to an inference unfavorable to the former. Menor was already working in France at the time of the
filing of the complaint,[15] thereby making it physically impossible for respondent to present her as a
witness. Then too, even if it were possible for respondent to secure Menors testimony, the
presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for
obtaining Menors testimony belonged to both parties, considering that Menor was not just
respondents employee, but also petitioners niece. It was thus error for the lower court to invoke the
presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally omitted but is simply
unavailable, or when the same could have been obtained by both parties. [16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred with
the negligence of petitioner and resultantly caused damage to the latter. Menors negligence was not
sufficiently proved, considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden
of proving it and a mere allegation cannot take the place of evidence. [17] If the plaintiff, upon whom
rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no obligation to prove his exception or defense. [18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane ticket[19] issued
to petitioner clearly reflected the departure date and time, contrary to petitioners contention. The
travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered
to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It arranged petitioners hotel
accommodation as well as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the flight.
Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to
take ordinary care of her concerns. This undoubtedly would require that she at least read the
documents in order to assure herself of the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure
to exercise due care and prudence in the performance of the obligation as the nature of the obligation
so demands.[20] There is no fixed standard of diligence applicable to each and every contractual
obligation and each case must be determined upon its particular facts. The degree of diligence
required depends on the circumstances of the specific obligation and whether one has been negligent
is a question of fact that is to be determined after taking into account the particulars of each case. [21]
The lower court declared that respondents employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are generally
conclusive upon this court, the rule is subject to certain exceptions, as when the trial court
overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance
which will affect the result of the case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must bear
her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay
respondent the amount of P12,901.00 representing the balance of the price of the British Pageant
Package Tour, with legal interest thereon at the rate of 6% per annum, to be computed from the time
the counterclaim was filed until the finality of this Decision. After this Decision becomes final and
executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim
period being deemed to be by then an equivalent to a forbearance of credit.[23]
SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
 FIRST DIVISION

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS SHIPPING

COMPANY, respondent.

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV No.
56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional Trial Court
(RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner insurance corporation
against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags of cement
worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the goods
for its full value with petitioner Philippine American General Insurance Company (Philamgen). The goods were
loaded aboard the dumb barge Limar I belonging to PKS Shipping. On the evening of 22 December 1988,
about nine oclock, while Limar I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a
couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo
of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly made
payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping
company refused to pay, prompting Philamgen to file suit against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been caused
either by a fortuitous event, in which case the ship owner was not liable, or through the negligence of the
captain and crew of the vessel and that, under Article 587 of the Code of Commerce adopting the Limited
Liability Rule, the ship owner could free itself of liability by abandoning, as it apparently so did, the vessel with
all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the trial
court. The appellate court ruled that evidence to establish that PKS Shipping was a common carrier at the time
it undertook to transport the bags of cement was wanting because the peculiar method of the shipping
companys carrying goods for others was not generally held out as a business but as a casual occupation. It
then concluded that PKS Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The appellate court, moreover, found
that the loss of the goods was sufficiently established as having been due to fortuitous event, negating any
liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent error in ruling
that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues, does not militate against respondents being a common
carrier and that the only way by which such carrier can be held exempt for the loss of the cargo would be if the
loss were caused by natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the
Philippine area of responsibility and that, even if it did, respondent would not be exempt from liability because
its employees, particularly the tugmaster, have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen seeks is
not a review on points or errors of law but a review of the undisputed factual findings of the RTC and the
appellate court. In any event, PKS Shipping points out, the findings and conclusions of both courts find support
from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of whether it
is a private carrier or a common carrier and, in either case, to the other question of whether or not it has
observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common carrier) required of it
given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent with
those of the trial court, may not at liberty be reviewed by this Court in a petition for review under Rule 45 of the
Rules of Court.[1] The conclusions derived from those factual findings, however, are not necessarily just
matters of fact as when they are so linked to, or inextricably intertwined with, a requisite appreciation of the
applicable law. In such instances, the conclusions made could well be raised as being appropriate issues in a
petition for review before this Court. Thus, an issue whether a carrier is private or common on the basis of the
facts found by a trial court or the appellate court can be a valid and reviewable question of law.
The Civil Code defines common carriers in the following terms:

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

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

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

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

The above article makes no distinction between one 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
1732 deliberately refrained from making such distinctions.

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

Much of the distinction between a common or public carrier and a private or special carrier lies in the
character of the business, such that if the undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited
clientele, although involving the carriage of goods for a fee,[3] the person or corporation providing such service
could very well be just a private carrier. A typical case is that of a charter party which includes both the vessel
and its crew, such as in a bareboat or demise, where the charterer obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages[4] and gets the control of the vessel and its
crew.[5] Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS Shipping
has engaged itself in the business of carrying goods for others, although for a limited clientele, undertaking to
carry such goods for a fee. The regularity of its activities in this area indicates more than just a casual activity
on its part.[6] Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it easy for a
common carrier to escape liability by the simple expedient of entering into those distinct agreements with
clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence demanded
of common carriers, Article 1733 of the Civil Code requires common carriers to observe extraordinary diligence
in the vigilance over the goods they carry. In case of loss, destruction or deterioration of goods, common
carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise
rests on them.[7] The provisions of Article 1733, notwithstanding, common carriers are exempt from liability for
loss, destruction, or deterioration of the goods due to any of the following causes:

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

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

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

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

(5) Order or act of competent public authority.[8]

The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective
vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or the tugboats crew
could have prevented the sinking of Limar I. The vessel was suddenly tossed by waves of extraordinary height
of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the entry of water into the
barges hatches. The official Certificate of Inspection of the barge issued by the Philippine Coastguard and the
Coastwise Load Line Certificate would attest to the seaworthiness of Limar I and should strengthen the factual
findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized exceptions
from the rule - (1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (3) when the
inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is a grave abuse of discretion in the appreciation of facts; (5) when the appellate court, in
making its findings, went beyond the issues of the case and such findings are contrary to the admissions of
both appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a misapprehension
of facts; (7) when the Court of Appeals failed to notice certain relevant facts which, if properly considered,
would justify a different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the
findings of fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for the
loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
 SECOND DIVISION

[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.

DECISION
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 1967[1] and renewed by the Energy
Regulatory Board in 1992.[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.[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."[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.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint [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.[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.[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."[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. [10]On November 29,
1995, the respondent court rendered a decision[11] affirming the trial court's dismissal of petitioner's
complaint. Petitioner's motion for reconsideration was denied on July 18, 1996.[12]
 Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11,
1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a Resolution [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.[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 Appeals[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.[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 :

xxxxxxxxx

(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 x[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.[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.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.
 THIRD DIVISION

[G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees.The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, are
binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons
Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals. [1] The Court of
Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the complaint with
cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal
rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for demurrage
to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]
 The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or
shipment for the general public. Its services are available only to specific persons who enter into a special
contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in this capacity
that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire
with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI)
as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the
MV VLASONS I to make one (1) voyage to load steel products at Iligan City and discharge them at North Harbor,
Manila, under the following terms and conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen (15)
days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours, Sundays and
Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for losses/damages
except on proven willful negligence of the officers of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party
Agreement shall form part of this Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI Charter Party
which stands for Freight In and Out including Stevedoring and Trading, which means that the handling, loading and
unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it
states, Charterers to load, stow and discharge the cargo free of risk and expenses to owners. x x x (Underscoring
supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage, exercise due
diligence to make the vessel seaworthy and properly manned, equipped and supplied and to make the holds and all other
parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation. Owners shall not be
liable for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by want of due diligence
on the part of the owners to make the vessel seaworthy, and to secure that the vessel is properly manned, equipped and
supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk or
weight or any other loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency of packing;
xxx; latent defects not discoverable by due diligence; any other cause arising without the actual fault or privity of Owners
or without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for split, chafing
and/or any damage unless caused by the negligence or default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV VLASONS I loaded at
plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total
of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in
the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of
the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August
13, 1974, when the vessels three (3) hatches containing the shipment were opened by plaintiffs agents, nearly all the skids
of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by
stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven
(11) days due to the heavy rain which interrupted the unloading operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the Manila
Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a
report of its ocular inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting
and rusting of the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted
torn at various extents; that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that
rusting of the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit F). It was also
reported that MASCOs surveyors drew at random samples of bad order packing materials of the tinplates and delivered
the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued
Report No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of packing materials xxx shows that
wetting was caused by contact with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for
damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on October 3,
1974, plaintiff formally demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its
complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of the act,
neglect and default of the master and crew in the management of the vessel as well as the want of due diligence on the
part of the defendant to make the vessel seaworthy and to make the holds and all other parts of the vessel in which the
cargo was carried, fit and safe for its reception, carriage and preservation -- all in violation of defendants undertaking
under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was seaworthy in
all respects for the carriage of plaintiffs cargo; that said vessel was not a common carrier inasmuch as she was under
voyage charter contract with the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan
City to Manila, the MV VLASONS I encountered very rough seas, strong winds and adverse weather condition, causing
strong winds and big waves to continuously pound against the vessel and seawater to overflow on its deck and hatch
covers; that under the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the officers of said MV VLASONS I exercised due diligence
and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter Party provides that loading
and discharging of the cargo was on FIOST terms which means that the vessel was free of risk and expense in connection
with the loading and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of
the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any
other cause arising without the actual fault or privity of defendant and without the fault of the agents or servants of
defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo in Manila were
negligent and did not exercise due care in the discharge of the cargo; and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs
claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that it had complied with all its
duties and obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire Contract,
plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per day for
demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from
the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant attorneys
fees and all expenses of litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following findings which were set forth
in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available for hire only
under special contracts of charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV VLASONS I was
covered by the required seaworthiness certificates including the Certification of Classification issued by an international
classification society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of Transportation (Exh.
5); International Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate
also from the Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the
Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh.
9). That being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a higher degree of
seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the MV
VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact, subject
voyage was the vessels first voyage after the drydocking. The evidence shows that the MV VLASONS I was seaworthy
and properly manned, equipped and supplied when it undertook the voyage. It had all the required certificates of
seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered by
hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water tight. Furthermore,
under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The provisions
of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in case of loss or
damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly due to the wetting and
rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates sweat by themselves when
packed even without being in contract (sic) with water from outside especially when the weather is bad or raining. The
rust caused by sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be
held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the character of the goods x x x. All the 1,769 skids of the tinplates could not have been damaged by
water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft
paper lining and corrugated cardboards could not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch
openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus allowing rainwater to enter
the hatches. It was proven that the stevedores merely set up temporary tents to cover the hatch openings in case of rain so
that it would be easy for them to resume work when the rains stopped by just removing the tent or canvas. Because of this
improper covering of the hatches by the stevedores during the discharging and unloading operations which were
interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the
NANYOSAI [sic] Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant carrier has no
liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan City to
Manila causing sea water to splash on the ships deck on account of which the master of the vessel (Mr. Antonio C.
Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a force majeure that
would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract that it was
to insure the cargo because it did not. Had plaintiff complied with the requirement, then it could have recovered its loss or
damage from the insurer. Plaintiff also violated the charter party contract when it loaded not only steel products, i.e. steel
bars, angular bars and the like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof, fixed the freight
at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen (15)
days. Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also showed that the
plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage
of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making
plaintiff liable to pay defendant for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character of
the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage
from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and
VSI filed separate motions for reconsideration. In a Resolution[5] dated October 20, 1993, the appellate court
denied both motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On
motion of VSI, the Court ordered on February 14, 1994 the consolidation of these petitions.[6]
 The Issues

In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were
admissible in evidence and constituted evidence of the vessels seaworthiness at the beginning of
the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for cargo
damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on their
own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs
tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors of the
CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from P88,000.00
to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorneys fees and
expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist[s] a
presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a private
carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai Charter, are
valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.
 The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a
private carrier. The resolution of this preliminary question determines the law, standard of diligence and burden
of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as 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. It has been held that the true test of a common carrier is the
carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its transportation
service for a fee. [11] A carrier which does not qualify under the above test is deemed a private
carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold himself
out to carry goods for the general public. The most typical, although not the only form of private carriage, is the
charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the use and
service of all or some part of a ship for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only for those it chose under a special contract of charter
party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a common but a private
carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their respective liability for
damage to the cargo, are determined primarily by stipulations in their contract of private carriage or charter
party. [15]Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven
Brothers Shipping Corporation, [16] the Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would be
binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy
embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be
responsible for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI Charter
Party, which was incorporated in the parties contract of transportation, further provided that the shipowner shall
not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness, unless the same was
caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was properly
manned, equipped and supplied, and to make the holds and all other parts of the vessel in which cargo [was]
carried, fit and safe for its reception, carriage and preservation. [18] The NANYOZAI Charter Party also provided
that [o]wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master or crew.[19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment
was caused by VSIs willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy
and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by
the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly
stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event, force
majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding article if
proofs against him show that they occurred on account of his negligence or his omission to take the precautions usually
adopted by careful persons, unless the shipper committed fraud in the bill of lading, making him to believe that the goods
were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima
facie presumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier
was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carriers custody does not put
the burden of proof on the carrier.

Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of the goods
committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof of loss of, or
damage to, cargo while in the carriers possession does not cast on it the burden of proving proper care and diligence on its
part or that the loss occurred from an excepted cause in the contract or bill of lading. However, in discharging the burden
of proof, plaintiff is entitled to the benefit of the presumptions and inferences by which the law aids the bailor in an action
against a bailee, and since the carrier is in a better position to know the cause of the loss and that it was not one involving
its liability, the law requires that it come forward with the information available to it, and its failure to do so warrants an
inference or presumption of its liability. However, such inferences and presumptions, while they may affect the burden of
coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and, where the carrier comes
forward with evidence explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach thereof and that
such breach was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost or damaged while
in the carriers possession does not cast on it the burden of proving seaworthiness. x x x Where the contract of carriage
exempts the carrier from liability for unseaworthiness not discoverable by due diligence, the carrier has the preliminary
burden of proving the exercise of due diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position in
relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and
Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation of Clause 12
is not even correct), it argues that a careful examination of the evidence will show that VSI miserably failed to
comply with any of these obligations as if defendant-appellee [VSI] had the burden of proof.[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1)
whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the
charter party; (2) whether the damage to the cargo should be attributed to the willful negligence of the officers
and crew of the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was
caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The findings
of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the
trial court and the Court of Appeals coincide, the same are binding on this Court. [22] We stress that, subject to
some exceptional instances, [23] only questions of law -- not questions of fact -- may be raised before this Court
in a petition for review under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find
no reason to disturb the lower courts factual findings, as indeed NSC has not successfully proven the
application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for
the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the
contract of voyage charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first voyage after
drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all
requirements for trading as cargo vessel. [25] The Court of Appeals itself sustained the conclusion of the trial
court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial and
the appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the
negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the
carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas
to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of
Appeals for failing to consider such claim as an uncontroverted fact [26] and denies that MV Vlasons I was
equipped with new canvas covers in tandem with the old ones as indicated in the Marine Protest xxx. [27] We
disagree.
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition to the
new one used primarily to make the ships hatches watertight. The foregoing are clear from the marine protest
of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships boatswain, Jose
Pascua. The salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before departure,
the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9, 1974, while in the vicinity
of the western part of Negros and Panay, we encountered very rough seas and strong winds and Manila office was advised
by telegram of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather condition
changed to worse and strong winds and big waves continued pounding the vessel at her port side causing sea water to
overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give way while the
new canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-secured the
canvass covering back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage, we were
again exposed to moderate seas and heavy rains; that while approaching Fortune Island, we encountered again rough seas,
strong winds and big waves which caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx [28]
And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we
place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a stopper so
that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put on
top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers?
 A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give way
and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, xxx we
find no reason not to sustain the conclusion of the lower court based on overwhelming evidence, that the MV
VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof
plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages from NSCs pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12,
1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew
of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in
unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a
passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate
for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified
thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the
vessel upon notice from the National Steel Corporation in order to conduct the inspection of the
cargo. During the course of the investigation, did you chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier
but majority of the tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript of
stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of
the hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed at the
opening of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the
tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the
middle with the whole side separated down to the hatch, the size of the hatch and it is soaks [sic]
at the middle because of those weather and this can be used only to temporarily protect the cargo
from getting wet by rains.
 Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch
tent was not good enough to hold all of it to prevent the water soaking through the canvas and
enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak
into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure
adopted by its stevedores in discharging the cargo particularly in this tent covering of the
hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did
not mind at all, so, I called the attention of the representative of the National Steel but nothing
was done, just the same. Finally, I wrote a letter to them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately
about the stevedores negligence on the first day of unloading, pointing out that he wrote his letter to petitioner
only seven days later. [32] The Court is not persuaded. Angliongtos candid answer in his aforequoted testimony
satisfactorily explained the delay. Seven days lapsed because he first called the attention of the stevedores,
then the NSCs representative, about the negligent and defective procedure adopted in unloading the
cargo. This series of actions constitutes a reasonable response in accord with common sense and ordinary
human experience. Vicente Angliongto could not be blamed for calling the stevedores attention first and then
the NSCs representative on location before formally informing NSC of the negligence he had observed,
because he was not responsible for the stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for the stevedores it had hired and the
performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSCs shipment. We do not think so. Such negligence according to the trial court is evident
in the stevedores hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred during the discharging of
the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was
proven that the stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains stopped by just removing said tents
or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling
attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days and the improper closing
of the hatches which allowed continuous heavy rain water to leak through and drip to the tinplates covers and [Vicente
Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally closed
down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22 August
1974 while discharging operations were still going on (Exhibit 13-A). [33]

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC
may seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the
discharge operations. A stevedore company engaged in discharging cargo xxx has the duty to load the cargo
xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence xxx and where
the officers and members and crew of the vessel do nothing and have no responsibility in the discharge of
cargo by stevedores xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence
of the stevedores xxx [34] as in the instant case.

Do Tinplates Sweat?
 The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by
themselves when packed even without being in contact with water from outside especially when the weather is
bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater which
the stevedores negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to
the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore,
NSCs failure to insure the cargo will not affect its right, as owner and real party in interest, to file an action
against VSI for damages caused by the latters willful negligence. We do not find anything in the charter party
that would make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSCs
obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the
certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
[36]
5. Certificate of Approval for Conversion issued by the Bureau of Customs.
NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules
of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true copies as
required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in the
performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an original
certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect
that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for inspection x x
x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo
vessel, is in seaworthy condition, meets all requirements, fitted and equipped for trading as a cargo vessel was
cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim, therefore,
is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a
common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the
willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing the
genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading and
unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the vessel. On the other
hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running days, this
means days when the ship would be run continuously, and holidays are not excepted. A qualification of weather
permitting excepts only those days when bad weather reasonably prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included. [42] The running of laytime was thus
made subject to the weather, and would cease to run in the event unfavorable weather interfered with the
unloading of cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day laytime
allowed it did not lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC
qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to have
found and affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court
arrived at this erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24,
1974, the only day of unloading unhampered by unfavorable weather or rain which was August 22,
1974. Based on our previous discussion, such finding is a reversible error. As mentioned, the respondent
appellate court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by
half.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award of
attorneys fees under Article 2208 of the Civil Code when x x x 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
x x x. [44] Moreover, attorneys fees may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a premium on ones right to litigate or
seek judicial redress of legitimate grievances. [45]

Epilogue
 At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the
cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage was
brought about during the unloading process when rain and seawater seeped through the cargo due to the fault
or negligence of the stevedores employed by it.Basic is the rule that factual findings of the trial court, when
affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions,
NSC has not satisfactorily shown that this case is one of them. Second, the agreement between the parties --
the Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon the shipper,
not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties entered
into a contract of private charter, not one of common carriage. Basic too is the doctrine that courts cannot
relieve a party from the effects of a private contract freely entered into, on the ground that it is allegedly one-
sided or unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed
upon in consideration of many factors, not the least of which is the transport price which is determined not only
by the actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or
damage to the cargo. In recognition of such factors, the parties even stipulated that the shipper should insure
the cargo to protect itself from the risks it undertook under the charter party. That NSC failed or neglected to
protect itself with such insurance should not adversely affect VSI, which had nothing to do with such failure or
neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, Melo, and Francisco, JJ., concur.