Lita Enterprises Inc. v.

Intermediate Appellate Court

Facts:

Spouses Nicasio Ocampo and Francisca Garcia (privaterespondents) purchased in installment from the
Delta Motor SalesCorporation five (5) Toyota Corona Standard cars to be used as taxi. Sincethey had no
franchise to operate taxicabs, they contracted with petitioner LitaEnterprise, Inc., through its
representative Manuel Concordia, for the use ofthe latter’s certificate of public convenience for a
consideration of P1, 000.00and a monthly rental of P200.00/taxicab unit. For the agreement to takeeffect,
the cars were registered in the name of Lita Enterprises, Inc. Thepossession, however, remains with
spouses Ocampo and Garcia whooperated and maintained the same under Acme Taxi, petitioner’s trade
name. A year later, one of the taxicabs, driven by their employee, EmeterioMartin, collided with a
motorcycle. Unfortunately the driver of the motorcycle,Florante Galvez died from the injuries it
sustained. Criminal case was filed against Emeterio Martin, while a civil case wasfiled by the heir of the
victim against Lita Enterprises. In the decision of thelower court Lita Enterprises was held liable for
damages for the amount ofP25, 000.00 and P7, 000.00 for attorney’s fees. A writ of execution for the
decision followed, 2 of the cars of therespondent’s spouses were levied and were sold to a public auction.
On March 1973, respondent Ocampo decided to register his taxicabsin his own name. The manager of
petitioner refused to give him theregistration papers. Thus, making spouses file a complaint against
petitioner.In the decision, Lita Enterprise was ordered to return the three certificate ofregistration not
levied in the prior case. Petitioner now prays that private respondent be held liable to pay theamount
they have given to the heir of Galvez.

Issue:

Whether or not petitioner can recover from private respondent,knowing they are in an arrangement
known as “kabit system”.

Held:

“Kabit system” is defined as, when a person who has been granted acertificate of convenience allows
another person who owns a motor vehicle tooperate under such franchise for a fee. This system is not
penalized as a criminal offense but is recognized as one that is against public policy;therefore it is void
and inexistent. It is fundamental that the court will not aid either of the party to enforcean illegal contract,
but will leave them both where it finds them. Upon thispremise, it was flagrant error on the part of both
trial and appellate courts tohave accorded the parties relief from their predicament. Specifically
Article1412 states that: “If the act in which the unlawful or forbidden cause consists does notconstitute
a criminal offense, the following rules shall be observed: “when thefault, is on the part of both contracting
parties, neither may recover what hehas given by virtue of the contract, or demand the performance of
the other’sundertaking.” The principle of in pari delicto is evident in this case. “the proposition isuniversal
that no action arises, in equity or at law, from an illegal contract; nosuit can be maintained for its specific
performance, or to recover the propertyagreed to sold or delivered, or damages for its property agreed
to be sold ordelivered, or damages for its violation.” The parties in this case are in paridelicto, therefore
no affirmative relief can be granted to them.

Teja Marketing v. Intermediate Appellate Court

Facts:

Pedro Nale bought from Teja Marketing a motorcycle with completeaccessories and a sidecar. A chattel
mortgage was constituted as a securityfor the payment of the balance of the purchase price. The records
of theLand Transportation Commission show that the motorcycle sold to thedefendant was first
mortgaged to the Teja Marketing by Angel Jaucian thoughthe Teja Marketing and Angel Jaucian are one
and the same, because it wasmade to appear that way only as the defendant had no franchise of his
ownand he attached the unit to the plaintiffs MCH Line. The agreement also ofthe parties here was for
the plaintiff to undertake the yearly registration of themotorcycle with the Land Transportation
Commission. The plaintiff, howeverfailed to register the motorcycle on that year on the ground that the
defendantfailed to comply with some requirements such as the payment of theinsurance premiums and
the bringing of the motorcycle to the LTC forstenciling, the plaintiff said that the defendant was hiding
the motorcycle fromhim. Lastly, the plaintiff also explained that though the ownership of themotorcycle
was already transferred to the defendant, the vehicle was stillmortgaged with the consent of the
defendant to the Rural Bank of Camaliganfor the reason that all motorcycle purchased from the plaintiff
on credit wasrediscounted with the bank. Teja Marketing made demands for the payment of the
motorcycle butjust the same Nale failed to comply, thus forcing Teja Marketing to consult alawyer and
file an action for damage before the City Court of Naga in theamount of P546.21 for attorneys fees and
P100.00 for expenses of litigation.Teja Marketing also claimed that as of 20 February 1978, the total
account ofNale was already P2, 731, 05 as shown in a statement of account; includesnot only the balance
of P1, 700.00 but an additional 12% interest per annumon the said balance from 26 January 1976 to 27
February 1978; a 2% servicecharge; and P546.21 representing attorneys fees. On his part, Nale did
notdispute the sale and the outstanding balance of P1,700.00 still payable toTeja Marketing; but contends
that because of this failure of Teja Marketing tocomply with his obligation to register the motorcycle,
Nale suffered damageswhen he failed to claim any insurance indemnity which would amount to no less
than P15,000.00 for the more than 2 times that the motorcycle figured inaccidents aside from the loss of
the daily income of P15.00 as boundary feebeginning October 1976 when the motorcycle was impounded
by the LTC fornot being registered. The City Court rendered judgment in favor of TejaMarketing,
dismissing the counterclaim, and ordered Nale to pay TejaMarketing On appeal to the Court of First
Instance of Camarines Sur, thedecision was affirmed in toto. Nale filed a petition for review with
theIntermediate Appellate Court. On 18 July 1983, the appellate court set asidethe decision under review
on the basis of doctrine of "pari delicto," andaccordingly, dismissed the complaint of Teja Marketing, as
well as thecounterclaim of Nale; without pronouncements as to costs. Hence, thepetition for review was
filed by Teja Marketing and/or Angel Jaucian.

Issue:

Whether the defendant can recover damages against the plaintiff?

Held:

Unquestionably, the parties herein operated under an arrangement,commonly known as the "kabit
system" whereby a person who has beengranted a certificate of public convenience allows another
person who ownsmotor vehicles to operate under such franchise for a fee. A certificate ofpublic
convenience is a special privilege conferred by the government. Abuseof this privilege by the grantees
thereof cannot be countenanced. The "kabit system" has been identified as one of the root causes of
theprevalence of graft and corruption in the government transportation offices.Although not out rightly
penalized as a criminal offense, the kabit system isinvariably recognized as being contrary to public policy
and, therefore, voidand in existent under Article 1409 of the Civil Code. It is a fundamentalprinciple that
the court will not aid either party to enforce an illegal contract,but will leave both where it finds then.
Upon this premise it would be error toaccord the parties relief from their predicament.

Lim v. Court of Appeals

Facts:

Private respondent herein purchased an Isuzu passenger jeepney from Gomercino Vallarta, a holder of a
certificate of public convenience for the operation of a public utility vehicle. He continued to operate the
public transport business without transferring the registration of the vehicle to his name. Thus, the
original owner remained to be the registered owner and operator of the vehicle. Unfortunately, the
vehicle got involved in a road mishap which caused it severe damage. The ten-wheeler-truck which
caused the accident was owned by petitioner Lim and was driven by co-petitioner Gunnaban. Gunnaban
admitted responsibility for the accident, so that petitioner Lim shouldered the costs of hospitalization of
those wounded, compensation for the heirs of the deceased passenger and the restoration of the other
vehicle involved. He also negotiated for the repair of the private respondent's jeepney but the latter
refused and demanded for its replacement. Hence, private respondent filed a complaint for damages
against petitioners. Meanwhile, the jeepney was left by the roadside to corrode and decay. The trial court
decided in favor of private respondent and awarded him his claim. On appeal, the Court of Appeals
affirmed the decision of the trial court. Hence, petitioner filed this petition.

Issue:

WoN the new owner of a passenger jeepney who continued to operate the same under the so-called
kabit system and in the course thereof met an accident has the legal personality to bring the action for
damages against the erring vehicle.

Held:

YES. According to the Court, the thrust of the law in enjoining the kabit system is not much as to penalize
the parties but to identify the person upon whom responsibility may be fixed in case of an accident with
the end view of protecting the riding public. In the present case, it is once apparent that the evil sought
to be prevented in enjoining the kabit system does not exist. First, neither of the parties to the pernicious
kabit system is being held liable for damages. Second, the case arose from the negligence of another
vehicle in using the public road to whom no representation, or misrepresentation, as regards the
ownership and operation of the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the
registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the
very least by the illegal arrangement. On the contrary, it was private respondent himself who had been
wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of
inequity to deny him his right. Hence, the private respondent has the right to proceed against petitioners
for the damage caused on his passenger jeepney as well as on his business

KABIT SYSTEM:
The kabit system is an arrangement whereby a person who has been granted a certificate of public
convenience allows other persons who own motor vehicles to operate them under his license, sometimes
for a fee or percentage of the earnings. Although the parties to such an agreement are not outrightly
penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore
void and inexistent under Art. 1409 of the Civil Code. In the early case of Dizon v. Octavio the Court
explained that one of the primary factors considered in the granting of a certificate of public convenience
for the business of public transportation is the financial capacity of the holder of the license, so that
liabilities arising from accidents may be duly compensated. The kabit system renders illusory such
purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent
use of a vehicle owned by another and operated under his license. If a registered owner is allowed to
escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer
the subject vehicle to another who possesses no property with which to respond financially for the
damage done. Thus, for the safety of passengers and the public who may have been wronged and
deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove
that another person has become the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine. It would seem then that the thrust of the law in enjoining
the kabit system is not so much as to penalize the parties but to identify the person upon whom
responsibility may be fixed in case of an accident with the end view of protecting the riding public. The
policy therefore loses its force if the public at large is not deceived, much less involved.

Sps. Hernandez v. Sps. Dolor

Facts:

• At about 3:00 p.m., Lorenzo Menard "Boyet" Dolor, Jr. was driving an owner-type jeepney owned
by her mother, Margarita, towards Anilao, Batangas. As he was traversing the road at Barangay Anilao
East, Mabini, Batangas, his vehicle collided with a passenger jeepney driven by petitioner Juan Gonzales
and owned by his co-petitioner Francisco Hernandez, which was travelling towards Batangas City.
• Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio,
Rene Castillo and Joseph Sandoval, who were also on board the owner-type jeep, which was totally
wrecked, suffered physical injuries. The collision also damaged the passenger jeepney of Francisco
Hernandez and caused physical injuries to its passengers, namely, Virgie Cadavida, Fiscal Artemio Reyes
and Francisca Corona.
• Consequently, respondents commenced an action 4 for damages against petitioners alleging that
driver Juan Gonzales was guilty of negligence and lack of care and that the Hernandez spouses were guilty
of negligence in the selection and supervision of their employees.
• Petitioners countered that the proximate cause of the death and injuries sustained by the
passengers of both vehicles was the recklessness of Boyet Dolor, the driver of the owner-type jeepney,
who was driving in a zigzagging manner under the influence of alcohol. Petitioners also alleged that
Gonzales was not the driver-employee of the Hernandez spouses as the former only leased the passenger
jeepney on a daily basis. The Hernandez spouses further claimed that even if an employer-employee
relationship is found to exist between them, they cannot be held liable because as employers they
exercised due care in the selection and supervision of their employee.

Issue:

WoN spouses Hernandez are solidarily liable with Juan Gonzales although they were not in the passenger
jeepney driven by the latter when the accident happened

Held:

YES.
• Article 2180 states that the obligation imposed by article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.
• Moreover, Article 2180 should be read with Article 2194 of the same Code, which categorically
states that the responsibility of two or more persons who are liable for quasi-delict is solidary. In other
words, the liability of joint tortfeasors is solidary. Verily, under Article 2180 of the Civil Code, an employer
may be held solidarily liable for the negligent act of his employee.
• The next question is whether Julian Gonzales is an employee of the Hernandez spouses. An
affirmative answer will put to rest any issue on the solidary liability of the Hernandez spouses for the acts
of Julian Gonzales. The Hernandez spouses maintained that Julian Gonzales is not their employee since
their relationship relative to the use of the jeepney is that of a lessor and a lessee. They argue that Julian
Gonzales pays them a daily rental of P150.00 for the use of the jeepney. In essence, petitioners are
practicing the "boundary system" of jeepney operation albeit disguised as a lease agreement between
them for the use of the jeepney.
• We hold that an employer-employee relationship exists between the Hernandez spouses and
Julian Gonzales.
• Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary
system" on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public
Service Law, but also to place the riding public at the mercy of reckless and irresponsible drivers —
reckless because the measure of their earnings depends largely upon the number of trips they make and,
hence, the speed at which they drive; and irresponsible because most if not all of them are in no position
to pay the damages they might cause.

National Development Co. v. Court of Appeals

Facts:

• In accordance with a memorandum agreement entered into between defendants NDC and MCP
(Maritime Company of the Philippines) on September 13, 1962, defendant NDC as the first preferred
mortgagee of three ocean going vessels including one with the name 'Doña Nati' appointed defendant
MCP as its agent to manage and operate said vessel for and in its behalf and account
• On February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel 'Doña
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. 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
• En route to Manila the vessel Doña Nati figured in a collision 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
• 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

Issue:

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.

Held:
PHILIPPINE LAWS.
• 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 damaged due to a
collision which was found to have been caused by the negligence or fault of both captains of the colliding
vessels.
• It is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually
occurred in foreign waters.
• 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 cases other than those mentioned is Article 1734
thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, 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 court's 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

Both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded that in case of collision, both the owner and the agent are civilly responsible for the acts of the
captain; 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 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.

Nostradamus Villanueva vs. Priscilla R. Domingo, et al.

[G.R. No. 144274, 20 September 2004, 438 SCRA 485]

Facts:
A car driven by Renato Ocfemia hit a car driven by Leandro Domingo. The registered owner of Ocfemia’s
vehicle was Nostradamus Villanueva, although Villanueva has traded/swapped the vehicle for a Pajero
owned by Albert Jaucian/Auto Palace Car Exchange.

The Assistant City Prosecutor of Manila recommended the filing of an Information for reckless
imprudence resulting to damage to property and physical injuries.

The trial court found Villanueva liable and ordered him to pay damages. The Court of Appeals affirmed
the trial court but deleted the award for attorney’s and appearance fees. Villanueva files a petition for
review with the Supreme Court.

Issue:

Whether a registered owner of a vehicle may be held liable for damages arising from an accident involving
the said vehicle while it was being operated by the employee of the vehicle’s buyer without the latter’s
consent and knowledge

Held/Ratio:

Yes, a registered owner of any vehicle is directly and primarily liable to the public and third persons while
it is being operated. The petition for review is denied and the Court of Appeals decision is affirmed.

The public has a right to assume that the registered owner is the actual owner, to make it easier for them
to enforce actions for injuries caused to them by vehicles negligently operated. However, the registered
owner may recover from the person to whom he had sold, assigned, or conveyed the vehicle via a third-
party complaint.

The registered owner of any vehicle, even if not used for a public service, should be primarily responsible
to the public or third persons while the vehicle is being driven on the streets.
The main aim of registration is to identify the owner so that if any accident happens, responsibility can
be fixed on a definite individual–the registered owner. The primary purpose is to make certain that the
violator shall not escape because of lack of means to discover him.

The law, with its aim in mind, does not relieve him directly of the responsibility that the law places upon
him as an incident or consequence of registration. If a registered owner is allowed to prove who the
supposed transferee is, it would be easy for him to escape responsibility and transfer it to an indefinite
person or to one who possesses no property with which to respond financially for the injury or damage.
Whether the driver is authorized by the actual owner is irrelevant in determining the liability of the
registered owner. To require so would defeat the purpose of the enactment of motor vehicle registration.
The registered owner is the operator with respect to the public and third persons. The owner of record is
the employer of the driver, the actual owner being considered merely as his agent.

G.R. No. 157917 August 29, 2012

PERENA vs. ZARATE

FACTS
In 1996, Spouses Zarate contracted Pereña, owner of school service van to transport their son Aaron to
school. One day, to avoid traffic, Alfaro (driver) deviated from their usual route and took a shortcut. At
the time, the railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other
persons manning the crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open
to traversing motorists. At about the time the van was to traverse the railroad crossing, a train, operated
by Alano, was travelling northbound. As the train neared the railroad crossing, Alfaro drove the van
eastward across the railroad tracks, closely tailing a large passenger bus. His view of the oncoming train
was blocked because he overtook the passenger bus on its left side. The train hit the rear end of the van,
and the impact threw nine of the 12 students in the rear, including Aaron, out of the van which
instantaneously killed him.
Spouses Zarate filed an action for damages against Alfaro, the Pereñas, PNR and Alano.

ISSUES
W/N the petitioners breached the contract of carriage.

RULING
Yes. Pereñas’ defense that they exercised the diligence of a good father of the family in the selection and
supervision of Alfaro is misplaced in an action for breach of contract of carriage.
In Contract of Carriage, the carrier is classified either as a private/special carrier or as a common/public
carrier. A private carrier is one who, without making the activity a vocation, or without holding himself or
itself out to the public as ready to act for all who may desire his or its services, undertakes, by special
agreement in a particular instance only, to transport goods or persons from one place to another either
gratuitously or for hire. The diligence required of a private carrier is only ordinary, that is, the diligence of
a good father of the family. In contrast, a common carrier is a 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 such services to the public. A common carrier is required to observe
extraordinary diligence, and is presumed to be at fault or to have acted negligently in case of the loss of
the effects of passengers, or the death or injuries to passengers.
A common carrier as provided by Article 1732 of the Civil Code coincides with the notion of public service
under the Public Service Act, which supplements the law on common carriers found in the Civil Code.
Public service, according to Section 13, paragraph (b) of the Public Service Act, includes:
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 clientèle, whether permanent or occasional, and done for the
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, 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. x x x.
The test for a common carrier is the undertaking that the activity engaged in by the carrier and that he
held out to the general public that it is his business or occupation. If the undertaking is a single transaction,
not a part of the general business or occupation engaged in, as advertised and held out to the general
public, the individual or the entity rendering such service is a private, not a common, carrier. The question
must be determined by the character of the business actually carried on by the carrier.
Therefore, a school bus service is to be regarded as a common carrier due to the fact that the school bus
service was: (a) engaged in transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the method by which the
business was conducted; and (c) transporting students for a fee. Despite catering to limited clients, the
Pereñas operated as a common carrier because they held themselves out as a ready transportation to
the students of a particular school living within or near where they operated the service and for a fee.
The common carrier is bound to observe extraordinary diligence in transporting its passengers. Article
1755 of the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances. To successfully fend off liability in an action upon the death or injury to
a passenger, the common carrier must prove his or its observance of that extraordinary diligence;
otherwise, the legal presumption that he or it was at fault or acted negligently would stand.
The Pereñas, acting as a common carrier, is presumed to be negligent at the time of the accident because
death had occurred to their passenger. The Pereñas presented insufficient evidence to overturn the
presumption of negligence. Therefore, the Pereñas are jointly and severally liable for damages with
Alfaro and PNR.

FEB LEASING AND FINANCECORPORATION (now BPI LEASING CORPORATION),

- versus -
SPOUSES SERGIO P. BAYLON and MARITESS VILLENA-BAYLON,BG HAULER, INC., and
MANUEL Y. ESTILLOSO,

FACTS:
An Isuzu oil tanker running along Del Monte Avenue, Quezon City and bearing plate number TDY 712 hit
Loretta V. Baylon, daughter of respondent spouses Baylon. At the time of the accident, the oil tanker was
registered in the name of petitioner FEB Leasing and Finance Corporation. The oil tanker was leased to
BG Hauler and was being driven by the latter’s driver, M. Estilloso. The oil tanker was insured by FGU
Insurance.
Spouses Baylon filed with the RTC a Complaint for damages against petitioner, BG Hauler, the driver, and
FGU Insurance. Petitioner FEB contended that the lease contract between BG Hauler and petitioner
specifically provides that BG Hauler shall be liable for any loss, damage, or injury the leased oil tanker
may cause even if petitioner is the registered owner of the said oil tanker. It further claimed that the CA
erred in holding petitioner solidarily liable with BG Hauler despite having found the latter liable under the
lease contract.
RTC found FEB Leasing, BG Hauler, and driver jointly and severally liable; While, the insurer’s obligation
has been satisfactorily fulfilled upon payment of P450, 000.00. CA affirmed with RTC.

ISSUE: Whether registered owner (FEB Leasing) of a financially leased vehicle remains liable for loss,
damage, or injury caused by the vehicle notwithstanding an exemption provision in the financial lease
contract.
RULING:
YES. Under Section 5 of Republic Act No. 4136, as amended, all motor vehicles used or operated on or
upon any highway of the Philippines must be registered with the Bureau of Land Transportation (now
Land Transportation Office) for the current year. Furthermore, any encumbrances of motor vehicles must
be recorded with the Land Transportation Office in order to be valid against third parties.
In accordance with the law on compulsory motor vehicle registration, this Court has consistently ruled
that, with respect to the public and third persons, the registered owner of a motor vehicle is directly and
primarily responsible for the consequences of its operation regardless of who the actual vehicle owner
might be. Well-settled is the rule that the registered owner of the vehicle is liable for quasi-delicts
resulting from its use.
The policy behind the rule is to enable the victim to find redress by the expedient recourse of identifying
the registered vehicle owner in the records of the LTO. The registered owner can be reimbursed by the
actual owner, lessee or transferee who is known to him. Unlike the registered owner, the innocent victim
is not privy to the lease, sale, transfer or encumbrance of the vehicle. Hence, the victim should not be
prejudiced by the failure to register such transaction or encumbrance.
In this case, petitioner admits that it is the registered owner of the oil tanker that figured in an accident
causing the death of Loretta. As the registered owner, it cannot escape liability for the loss arising out of
negligence in the operation of the oil tanker. Its liability remains even if at the time of the accident, the
oil tanker was leased to BG Hauler and was being driven by the latter’s driver, and despite a provision in
the lease contract exonerating the registered owner from liability.