CARRIAGE OF GOODS BE SEA ACT (COGSA)

 The Hague/COGSA Act was developed to should ordinarily remain legible until the end of the
protect vessel owners against legal liability to voyage.
shippers for circumstances out of their control.
b) Either the number of packages or pieces, or the
 It was conceived during the post World War I quantity or weight, as the case may be, as furnished in
era when vessel owners had little jurisdiction writing by the shipper.
over their ships once they left port.
c) The apparent order and condition of the goods
 Under the Commonwealth Act No.65, the
Philippines adopted the COGSA. It was *Section 3. (6) )
enacted by the Philippine National The one-year prescriptive period in Section 3(6) applies
Assembly and took effect on October 22, only when there is loss or damage. In case of mis
1936. delivery or conversion, the rules on prescription found in
the Civil Code shall apply.
Terms used under COGSA
Extrajudicial demand for loss or damage does NOT
interrupt the period of prescription. (Dole Phils., Inc. vs.
*Carrier- includes the owner or the charterer who enters Maritime Co. of the Philippines, 148 SCRA 118)
into a contract of carriage with a shipper
Rights and Immunities
*Contract of carriage- applies only to contracts of
Section 4(2) Neither the carrier nor the ship shall be
carriage covered by a bill of lading, or any similar
responsible for loss or damage arising or resulting from
document of title insofar as such document relates to the
----
carriage of goods by sea
(a) Act, neglect, or default of the master, mariner, pilot,
*Goods – includes goods, wares, merchandise, and
or the servants of the carrier in the navigation or in the
articles of every kind whatsoever, except live animals
management of the ship;
and cargo which by the contract of carriage is stated as
being carried on deck and is so carried.
(b) Fire, unless caused by the actual fault or privity of
the carrier;
*Ship – means any vessel used for the carriage of goods
by sea
(c) Perils, dangers, and accidents of the sea or other
navigable waters;
* Carriage of goods - covers the period from the time
when the goods are loaded on to the time when they are
(d) Act of God;
discharged from the ship.
(e) Act of war,
Responsibilities and Liabilities
(f) Act of public enemies;
*Section 3. (1) The carrier shall be bound, before and at
(g) Arrest or restraint of princes, rulers, or people, or
the beginning of the voyage, to exercise due diligence to
seizure under legal process;
—
(h) Quarantine restrictions;
(a)Make the ship seaworthy;
(i) Act or omission of the shipper or owner of the goods,
(b) Properly man, equip, and supply the ship; his agent or representative;
(j) Strikes or lockouts or stoppage or restraint of labor
(c) Make the holds, refrigerating and cooling chambers, from whatever cause, whether partial or
and all other parts of the ship in which goods are carried, general; Provided, That nothing herein contained shall
fit and safe for their reception carriage and preservation. be construed to relieve a carrier from responsibility for
the carrier's own acts;
*Section 3. (2) The carrier shall properly and carefully
load, handle, stow, carry, keep, care for, and discharge (k) Riots and civil commotions
the goods carried.
(l) Saving or attempting to save life or property at sea;
*Section 3. (3) After receiving the goods into his charge (m) Wastage in bulk or weight or any other loss or
the carrier, or the master or agent of the carrier, shall, on damage arising from inherent defect, quality, or vice of
demand of the shipper, issue to the shipper a bill of the goods;
lading showing among other things
(n) Insufficiency of packing;
(a) The leading marks necessary for identification of the
goods as the same are furnished in writing by the shipper (o) Insufficiency of inadequacy of marks;
before the loading of such goods starts, provided such
marks are stamped or otherwise shown clearly upon the (p) Latent defects not discoverable by due diligence; and
goods if uncovered, or on the cases or coverings in
which such goods are contained, in such a manner as
(q) Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents
or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that
neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier nor the fault
or neglect of the agents or servants of the carrier contributed to the loss or damage.
Dole Philippines, Inc. v. Maritime Company of the Philippines, G.R. No. L-61352, Feb. 27, 1987

FACTS: The cargo subject of the instant case was discharged in Dadiangas unto the custody of the consignee/Plaintiff
(DOLE) on December 18, 1971; the corresponding claim for the damages sustained by the cargo was filed by the plaintiff
with the defendant vessel on May 4, 1972. On June 11, 1973 the plaintiff filed a complaint in the CFI Manila embodying 3
causes of action involving 3 separate and different shipments. The third cause of action therein involved the cargo now
subject of this present litigation. On December 11, 1974, Judge Serafin Cuevas issued an Order dismissing the first two
causes of action. The third cause of action which covered the cargo subject of this case now was likewise dismissed but
without prejudice as it was not covered by the settlement. Because of the dismissal of the complaint with respect to the
third cause of action, DOLE instituted this present complaint on January 6, 1975.

The defendant (Maritime) filed an answer pleading inter alia the affirmative defense of prescription provided for under
Section 3, paragraph 6 of the Carriage of Goods by Sea Act. The motion was opposed by the Plaintiff and the Trial
Court, after due consideration, resolved the matter in favor of Maritime and dismissed the complaint, Dole sought a
reconsideration, which was denied, hence, this appeal.

ISSUE: Whether or not whether art 1155 of the Civil Code, providing that the prescription of actions is interrupted by the
making of an extrajudicial written demand by the creditor, is applicable to actions brought under the Carriage of Goods by
Sea Act (COGSA).

HELD: Appeal dismissed.

We have already decided that in a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code
of Civil Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554,
May 27, 1953.)

Similarly, we now hold that in such a case the general provisions of the new Civil Code (Art. 1155) cannot be made to
apply, as such application would have the effect of extending the one-year period of prescription fixed in the law. It is
desirable that matters affecting transportation of goods by sea be decided in as short a time as possible; the application of
the provisions of Article 1155 of the new Civil Code would unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the clear intent and purpose of the law.

Moreover, it would make no difference here even if the Court were to accept the proposition that a written extrajudicial
demand does toll prescription under COGSA. The demand in this instance was filed on 4 May 1972. The effect of that
demand would have been to renew the one-year prescriptive period from that date. Dole instituted Civil Case No 91043
only on 11 June 1973, more than one month after that period had expired. Even on its own argument, its right of action
had prescribed.

The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in
paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his
agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of
the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three
days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person
taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint
survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided,
That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or
the date when the goods should have been delivered.

Asian Terminals Inc v Philam Insurance Co Inc

(1) Has Philam’s action for damages prescribed? (2) Who between Westwind and ATI should be held liable for the
damaged cargoes? and (3) What is the extent of their liability?

ATI shifts the blame to Westwind, whom it charges with negligence in the supervision of the stevedores who unloaded the
cargoes
Westwind contends that sole liability for the damage rests on ATI since it was the latter’s stevedores who operated the
ship’s gear to unload the cargoes
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 transported by them. Subject to certain exceptions enumerated under Article
1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them

Section 2 of the COGSA provides that under every contract of carriage of goods by the sea, the carrier in relation to the
loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and
liabilities and entitled to the rights and immunities set forth in the Act. Section 3 (2) thereof then states that among the
carrier’s responsibilities are to properly load, handle, stow, carry, keep, care for and discharge the goods carried.
At the trial, Westwind’s Operation Assistant, Menandro G. Ramirez, testified on the presence of a ship officer to supervise
the unloading of the subject cargoes.
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier

CA Ruling: The appellate court directed Westwind and ATI to pay Philam, jointly and severally…with interest at the rate
of 12% per annum
HELD: SC affirmed CA ruling with modification on the interest rate at 6% per annum

UNIVERSAL SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELATE COURT and ALLIANCE ASSURANCE COMPANY, LTD., respondents.

FACTS: SEVALCO Limited, owned and operated by the petitioner, shipped from Rotterdam Netherlands, to Bangkok,
Thailand, aboard its M/V "TAIWAN", 2 cargoes of 50 palletized cartons. Upon arrival in Manila, Arturo C. Saavedra,
master of M/V "TAIWAN" filed a marine protest stating that the source of the water could not be definitely ascertained
where it comes from. He was suspecting of some leakage of suction pipes and that hold No. 2 cannot be inspected on
account of the full cargoes inside the hold, rendering it to be inaccessible.

The consignees filed their respective formal claims for loss and damage to their cargoes due to shortage in weight because
the cargoes had been either totally or partially dissolved in saltwater which flooded the vessel where they had been stored.
The insurer paid both claims in the amounts of £I2,180 and £2,547.18 for the loss and damage to their cargoes.

Private respondent, as insurer-subrogee, filed an action in the Court of First Instance of Manila on June 25, 1976 to
recover from the petitioner and its Manila agent, Carlos Go Thong & Company, what it paid the consignees of the cargo.
It was on July 4, 1974 that the cargo arrived in Manila.

ISSUE: Whether or not in private respondent's cause of action has not yet prescribed.

HELD: No. Section 3(6), Title I, of the Carriage of Goods by Sea Act (Commonwealth Act No. 65) which provides that:
the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should have been delivered.

This provision of the law admits of an exception: if the one-year period is suspended by express agreement of the parties
for in such a case, their agreement becomes the law for them.

The exchange of correspondence between the parties and/or their associates/representatives shows that the parties had
mutually agreed to extend the time within which the plaintiff or its predecessors-in-interest may file suit until December
27,1976. When the complaint was filed on June 25, 1976, that deadline had not yet expired.

Cua v Wallem G.R. No. 171337 July 11, 2012

FACTS: Cua filed a civil case for damages against Wallem Inc and Advance Shipping Corp for the payment of damage to
218 tons and for a shortage of 50 tons of shipment of brazilian soybean. He claimed that the loss was due to the
respondents' failure to observe extraordinary diligence in carrying the cargo. Advance Shipping was a foreign corporation
that was the owner and manager of MV Argo Trader that carried the cargo while Wallem was its local agent. Wallem filed
a motion to dismiss raising the ground of prescription under Section 3(6) of the COGSA which provides that "the carrier
and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after
delivery of the goods."

ISSUE: Whether or not prescription has set in.

HELD: In the present case since the cargo was transported from Brazil to the Philippines, the COGSA is the applicable
law. Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or damage to the cargo "unless the
suit is brought within one year after delivery of the goods or the date when the goods should have been delivered."
Jurisprudence, however, recognized the validity of an agreement between the carrier and the shipper/consignee extending
the one year period to file a claim.

The vessel MV Argo Trader arrived in Manila on July 8, 1989; Cua’s complaint for damages was filed before the RTC of
Manila on November 12, 1990. Although the complaint was clearly filed beyond the one-year period, Cua additionally
alleged in his complaint (under paragraph 11) that "the defendants x x x agreed to extend the time for filing of the action
up to November 12, 1990." The allegation of an agreement extending the period to file an action in Cua’s complaint is a
material averment that, under Section 11, Rule 8 of the Rules of Court, must be specifically denied by the respondents;
otherwise, the allegation is deemed admitted.

A review of the pleadings submitted by the respondents discloses that they failed to specifically deny Cua’s allegation of
an agreement extending the period to file an action to November 12, 1990.

This presumed admission is further bolstered by the express admission made by the respondents themselves in their
Memorandum: STATEMENT OF THE CASE 1. This case was filed by [the] plaintiff on 11 November 1990 within the
extended period agreed upon by the parties to file suit. The above statement is a clear admission by the respondents that
there was indeed an agreement to extend the period to file the claim. Thus, Cua timely filed a claim for the damage to and
shortage of the cargo.

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner, vs. HONORABLE JOSE ALEJANDRO,
Presiding Judge of Branch XXVI of the Court of First Instance of Manila and FROTA OCEANICA
BRASILIERA, respondents.

*Can the one-year period within which to file a suit against the carrier and the ship, in case of damage or loss as provided
for in the Carriage of Goods by Sea Act applies to the insurer of the goods.

FACTS: On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911, against the
petitioner before the then Court of First Instance of Manila for recovery of a sum of money under the marine insurance
policy on cargo. Mr. Choa alleged that the goods he insured with the petitioner sustained loss and damage in the amount
of P35,987.26. The vessel SS Frotario which was owned and operated by private respondent Frota Oceanica Brasiliera,
(Frota) discharged the goods at the port of Manila on December 13, 1976. The said goods were delivered to the arrastre
operator E. Razon, Inc., on December 17, 1976 and on the same date were received by the consignee-plaintiff.

On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent Frota and the
arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the event that it is held liable to the
plaintiff.
The private respondents alleged in their separate answers that the petitioner is already barred from filing a claim because
under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the
goods or the date when the goods should have been delivered.

ISSUE: whether or not the prescriptive period of one year under the said Act also applies to an insurer such as herein
petitioner.

HELD: Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to prohibit after
the lapse of the one-year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a
claim against the insurer even after the lapse of one year. This would be the result if we follow the petitioner's argument
that the insurer can, at any time, proceed against the carrier and the ship since it is not bound by the time-bar provision. In
this situation, the one-year limitation will be practically useless. This could not have been the intention of the law which
has also for its purpose the protection of the carrier and the ship from fraudulent claims by having "matters affecting
transportation of goods by sea be decided in as short a time as possible" and by avoiding incidents which would
"unnecessarily extend the period and permit delays in the settlement of questions affecting the transportation." (See The
Yek Tong Fire and Marine Insurance Co., Ltd., v. American President Lines, Inc., 103 Phil. 1125-1126).

Mayer Steel Pipe Corporation and Hongkong Government Supplies Department VS Court of Appeals, South Sea
Surety and Insurance Co., Inc and the Charter Insurance Corporation

Facts: In 1993, Hongkong Government Supplies Department contracted Mayer Steel Pipe Corporation to manufacture and
supply various steel pipes and fittings. Prior to the shipping, Mayer insured these pipes and fitting against all risks with
South Sea Surety and Insurance Co., Inc. and Charter Insurance Corp., with Industrial Inspection Inc. appointed as third-
party inspector
After examining the pipes and fittings, Industrial Inspection certified that they are in good condition. However, when the
goods reached Hongkong, it was discovered that a substantial portion thereof was damaged

Petitioner filed a claim against the respondents for indemnity under the insurance contract and so the respondent Charter
paid Hongkong HK$63,904.75 but petitioner demanded for its balance of HK$299,345.30 for the cost of repair of the
damages. However, the respondent refused to pay
April 17, 1986, the petitioner filed an action against private respondents to recover the said amount. The respondents
defended that they have no obligation to pay the amount claimed by the petitioner because the damage to the goods is due
to factory defects which are not covered by the insurance.

RTC ruled in favor of the insured. However, Court of Appeals set aside the decision of the trial court and dismissed the
complained on the ground of prescription. It held that the action was barred under Sec 3(6) of the Carriage of Goods by
Sea Act (COGSA) since it was filed only on April 17, 1986, more than 2 years from the time the goods were unloaded
from the vessel

Issue: Whether or not the action filed by the petitioners was barred by prescription.
Ruling: Under the provision of Sec 3(6) of COGSA, only the carrier’s liability is extinguished if no suit is brought within
one year. But the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of
carriage but on the contract of insurance.

An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify
another for loss or damage which he may suffer from specified peril. An “all risks” insurance policy covers all kinds of
loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the “all risks”
policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured.
Such obligation prescribes in ten years as provided in accordance with Article 1144 of the New Civil Code.

WALLEM PHILIPPINES SHIPPING, INC., VS S.R. FARMS, INC.,

Facts: On March 25, 1992, Continental Enterprises, Ltd. Loaded on board the vessel M/V “Hui Yang,” a shipment of
Indian Soya Bean Meal weighing 1,100 metric tons, for transportation and delivery from India to Manila, with SR Farms
as consignee. The vessel is owned and operated by Conti-Feed, with petitioner Wallem as its ship agent.

On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port of Manila and was discharged and transferred into
the custody of the receiving barges. Upon checking the cargo, a shortage in the shipment of 80.467 metric tons was found.
Petitioner then filed a Complaint for damages against Conti-Feed and on June 7, 1993, respondent filed an Amended
Complaint impleading herein petitioner as defendant.

Petitioner denied the allegations and argued that respondent’s claim is already barred by laches and/or prescription. RTC
dismissed the petition. The CA reversed the decision of the RTC. Hence, this petition.

Issue: Whether or not the claim against the petitioner was timely filed.

Ruling: NO. The court was not persuaded by the respondents claim that the complaint against petitioner was timely filed
– that the suit for damages was filed on March 11, 1993, which is within 1 year from the time the vessel arrived at the port
of Manila on April 11, 1 993.

As the record shows, the petitioner was not impleaded as defendant in the original complaint filed on March 11, 1993 but
was impleaded on the amended complaint filed on June 7, 1993 which is already more than a year from the date when the
cargo was fully unloaded from the vessel.

The filing of the amended complaint does not retroact to the date of the filing of the original; statute of limitation runs
until the submission of the amendment. Hence, reckoned from April 15, 1992 where the cargo fully unloaded form the
vessel, the one-year prescriptive period had already lapsed.

MITSUI V COURT OF APPEALS

Facts: Mitsui Lines entered into a contract of carriage with Lavine Lounge wear manufacturing Corp to transport goods
of the latter from Manila to France. Mitsui Lines undertook to deliver goods to France 28 days from initial loading.

On July 24, 1991. Mitsui’s vessel loaded Lavine’s container van for carriage at the said port of origin. However, in
Taiwan, the goods were not transshipped immediately with the result that the shipment arrived in France only on
November 14,1991.

The consignee allegedly paid half the value of the said goods on the ground that they did not arrive in France until the “off
season” in that country. The remaining half was charged allegedly to the Lavigne Lounge wear manufacturing which in
turn demanded payment from Mitsui Lines but denied the claim alleging that the claim prescribed under COGSA since it
was filed on May 10, 1993

Issue: Whether Lavines’ action for loss or damages to goods shipped is within the meaning of Art 3(6) of the Carriage of
Goods by Sea Act.

Ruling: No, there was no deterioration, nor disappearance, nor destruction of goods caused by the carrier’s breach of
contract. Whatever reduction there may have been in the value of the goods is not due to their deterioration or
disappearance because they had been damaged in transit.

The question before the court is not the particular sense of damages as it refers to the physical loss or damage of the
shipper’s goods as covered in COGSA but petitioners’ potential liability for the damages it has caused in the general sense
and, as such, the matter governed by the Civil Code, for the breach of contract of carriage with the respondent.

DOMINGO ANG vs COMPANIA MARITIMA

Facts : On September 26, 1963, Ang, as the assignee of a bill of lading held by Yau Yue Commercial Bank Ltd. Of
Hongkong sued Compania Maritim, Maritime Company of the Philippines and C.L. Diokno. He prayed that the
defendants be ordered to pay him the sum of US$130,539.68 with interest from February 9, 1963 plus attorney’s fees and
damages.
Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G Teves under certain conditions 559 packages of
galvanized steel, Durzinc sheets. The merchandise was loaded on May 25, 1961 at Yawata, Japan in the M/S Luzon,
vessel owned and operated by Compania Maritima to be transported to Manila and consigned “to order” of the shipper,
Tokyo Boeki, Ltd., which indorsed the bill of lading issued by Compania Maritima to the order of Yau Yue Commercial
Bank.
Ang further alleged that the defendants, by means of a permit to deliver imported articles, authorized the delivery of the
cargo to Teves who obtained delivery from the Bureau of Customs without the surrender of the bill of lading and in
violation of its terms. Teves dishonored the draft drawn by Yau Yue against him.

The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft’s dishonor and returned
the bill of lading to Yau Yue. The bill of lading was endorsed to Ang.
The defendants filed a motion to dismiss Ang’s complaint on the ground of lack of cause of action. Ang opposed the
motion. Trial Court dismissed the complaint on the grounds of lack of cause of action and prescription since the action
was filed beyond the one-year period provided in COGSA.

Issue: Whether or not Ang’s complaint is based on the COGSA or the Civil Code; whether the case is mis delivery of the
cargo or distinguished as loss

Ruling: The action of Ang is based on the mis delivery of the cargo which should be distinguished from loss thereof. The
one-year period provided for in section 3(6) of COGSA refers to the loss of the cargo, but what is applicable is the 4-year
period prescription for quasi-delicts prescribed in the Civil Code or ten years for violation of a written contracts.

Ang filed the action less than 3 years from the date of the alleged mis delivery of the cargo, it has not yet been prescribed.
Ang, an endorsee of the bill of lading, is a real party in entered with a cause of action for damages

BELGIAN OVERSEAS CAHRTERING AND SHIPPING N.V AND JARDINE DAVIES TRANSPORT
SERVICES INC,. VS PHILIPPINE FIRST INSURANCE CORPORATION

Facts: On June 13, 1990, CMC Trading A.G. shipped on board M/v Ananghel Sky at Hamburg, Germany a total of 242
coils of various steel sheets – for transportation to Manila. These were consigned to the Philippines Steel Trading
Corporation. On July 1990, M/V arrived at the port of Manila. The steels were discharged from the cargo, within
subsequent days, and 4 of these coils were found to be in their damaged state – unfit for the intended purpose. These were
then declared by PSTC as total loss

Petitioners refused to submit to the consignee’s claim. Consequently, Ohil First Insurance Co. Inc. paid to the consignee
and was subrogated to the latter’s rights. PFICI instituted this complaint for recovery of the amount paid to the consignee,
as insured.

Petitioners imputed the damage and/or loss was due to pre-shipment damage. They argued that their liability, if there be
any, should not exceed the limitations of liability provided for in the bill of lading and other pertinent laws. They averred
that they exercised due diligence and foresignt required by law to prevent any damage/loss to said shipment

RTC dismissed the complaint because respondent had failed to prove its claims. CA reversed the ruling from the RTC that
petitioners were liable for the loss or the damage of the goods shipped, because they had failed to overcome the
presumption of negligence imposed on common carriers.

Issues:
a. W/N the consignee/plaintiff filed the required notice of loss with in the time required by law

b. Whether the package limitation of limitation is applicable in this case

Ruling:
a. as stated in same provision, a failure to file a notice of claim within 3 days will not bar recovery if it is nonetheless
filed within 1 year. This one-year prescription period also applies to the shipper, the consignee, the insurer of the
goods or any legal holder of the bill of lading.

In the present case, the cargo was discharged on July 31, 1990 while the complaint was filed by respondent on July 25,
1991, and so still on the prescriptive period.

b. the stipulation in the bill of lading cannot be the basis for petitioner’s liability. Civil code does not limit the
liability of the common carrier to a fixed amount per package, Thus, the COGSA, w/c is suppletory to the provisions of
the civil code, supplements the latter by establishing a statutory provision limiting the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading.

PUBLIC SERVICE
Commonwealth Act No. 146

Section 13 (a) - The Commission shall have jurisdiction, supervision, and control over all public services and
their franchises, equipment, and other properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of the public force:

Provided, That public service owned or operated by government entities or government-owned or -

controlled corporations shall be regulated by the Commission in the same way as privately-owned public
services, but certificates of public convenience or certificates of public convenience and necessity shall not
be required of such entities or corporations:

And provided, further, That it shall have no authority to require steamboats, motor ships and steamship
lines, whether privately-owned, owned or operated by any Government controlled corporation or
instrumentality to obtain certificate of public convenience or to prescribe their definite routes or lines of
service.

(b) The term “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 railway, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal
irrigation system, gas, electric light, heat and power, water supply power, petroleum, sewerage system,
wire or wireless communication systems, wire or wireless broadcasting stations and other similar public
services:

Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a
motor vehicle and uses it personally and/or enters into a special contract whereby said motor vehicle
is offered for hire or compensation to a third-party or third-parties engaged in agriculture, not itself or
themselves a public service, for operation by the latter for a limited time and for a specific purpose
directly connected with the cultivation of his or their farm, the transportation, processing, and
marketing of agricultural products of such third-party or third-parties shall not be considered as
operating a public service for the purposes of this Act.

(c) The word “person” includes every individual, co-partnership, joint stock company or corporation, whether
domestic or foreign, their lessees, trustees or receivers, as well as any municipality, province, city, government-
owned or -controlled corporation, or agency of the Government of the Philippines, and whatever other persons
or entities that may own or possess or operate public service. (As amended by R.A. Nos. 1270 and 2677).

Section 14. The following are exempted from the provisions of the preceding section:
a. Warehouses;
b. Vehicles drawn by animals and baticas moved by oar or sail, and tugboats and lighters;
c. Airship within the Philippines except as regards the fixing of their maximum rates on freight and
passengers;
d. Radio companies except with respect to the fixing of rates;
e. Public services owned or operated by any instrumentality of the National Government or by any
government-owned or -controlled corporation, except with respect to the fixing of rates. (As amended by
R.A. No. 2031)

Section 15. With the exception of those enumerated in the preceding section, no public service shall operate in
the Philippines without possessing a valid and subsisting certificate from the Public Service Commission,
known as “certificate of public convenience,” or “certificate of convenience and public necessity,” as the case
may be, to the effect that the operation of said service and the authorization to do business will promote the
public interests in a proper and suitable manner.

The Commission may prescribe as a condition for the issuance of the certificate provided in the preceding
paragraph that:
  the service can be acquired by the Republic of the Philippines or by any instrumentality thereof upon
payment of the cost price of its useful equipment, less reasonable depreciation; and likewise, that the
certificate shall be valid only for a definite period of time, and that the violation of any of these
conditions shall produce the immediate cancellation of the certificate without the necessity of any
express action on the part of the Commission.

In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the model,
or other circumstances affecting its value in the market shall be taken into consideration.

The foregoing is likewise applicable to any extension or amendment of certificates actually in force and to those
which may hereafter be issued, to permit to modify itineraries and time schedules of public services, and to
authorizations to renew and increase equipment and properties. (As amended by Com. Act No, 454)

PUBLIC UTILITY vs. PUBLIC SERVICE

PUBLIC UTILITY PUBLIC SERVICE

- a business or service engaged in regularly -
supplying the public with some commodity or
service of public consequences such as
electricity, gas, water, transportation,
telephone or telegraph service.
- privately owned and operated businesses
whose services are essential to the general
public.
- requires a franchise, aside from a certificate
of public necessity and convenience, for its
operation.
includes every person who owns, operates,
manages or controls, for hire or compensation,
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 sen'ice,
steamboat, or steamship line, pontines, ferries,
and water craft engaged in the transportation of
passengers or freight or both, shipyard, marine
railway', 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,
broadcasting stations and other similar public
services.
- requires only a certificate of public
convenience.

NOTE:

The definition in Commonwealth Act of public utility and public service was amended by Public Service
Act (RA 11659) which amendment statutorily defines a public utility as a mere subset of public services, a
recognition that while a public utility is a public service, it is much smaller in scope than the latter, and limits
the same to just three main industries, namely: Transmission of Electricity; Distribution of Electricity; and
Water Works and Sewerage Systems. The bill further provides that no other business or service shall be
classified as a public utility unless otherwise subsequently provided by law, upon recommendation by the
Philippine Competition Commission, in consultation with the National Economic and Development Authority.

CERTIFICATE OF PUBLIC CONVENIENCE

** As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the
proposed facility or service meets reasonable want of the public and supply a need, which the existing facilities
do not adequately supply.

**The existence or non-existence of public convenience and necessity is therefore a question of fact that must
be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary,
in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things,
is to look out for, and protect, the interests of both the public and the existing transport operators.

**There must be proper notice and hearing before the PSC can exercise its power to issue a CPC.
Where to Obtain the CPC or CPCNs:

Body Kind of Public Utility

LTFRB Those engaged in public LAND

transportation services by motorized
vehicles

MARINA Those engaged in operation of domestic and

overseas WATER carriers

CAB Those engaged in AIR commerce and/or

transportation, foreign or domestic

City or Municipal Council Those engaged in providing land

transportation by the use of TRICYCLES
(not trisikad)

Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before
a CPC may be granted, to wit:

a. the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or

joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum
of its stock or paid-up capital must belong entirely to citizens of the Philippines;
b. the applicant must be financially capable of undertaking the proposed service and meeting the
responsibilities incident to its operation; and
c. the applicant must prove that the operation of the public service proposed and the authorization to do
business will promote the public interest in a proper and suitable manner.

CERTIFICATE OF PUBLIC CONVENIENCE vs. CERTIFICATE OF PUBLIC CONVENIENCE AND

NECESSITY

CERTIFICATE OF PUBLIC CERTIFICATE OF PUBLIC

CONVENIENCE (CPC) CONVENIENCE AND NECESSITY

issued by the Commission authorizing the
operation of public service within the
Philippines whenever the Commission finds
that the operation of the public service proposed
will promote the public interests in a proper and
suitable manner;
issued by the Commission upon approval of any
franchise or privilege granted by any political
subdivision of the Philippines when in the
judgment of the Commission, such franchise or
privilege will properly conserve the public
interest.

PRIOR APPLICANT RULE

Where there are various applicants for a public utility over the same territory, all conditions being equal, priority
in the filing of the application for a certificate of public convenience becomes an important factor in the
granting or refusal of a certificate. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455)

OLD OPERATOR RULE

Before permitting a new operator to invade the territory of another already established with a certificate of
public convenience, thereby entering into competition with it, the prior operator must be given an opportunity to
extend its service in order to meet the public. (Javier v. Orlanes, 53 Phil. 468)

THIRD OPERATOR RULE

Where two operators are more than serving the public, there is no reason to permit a third operator to engage in
competition with them. Thus, the fact that it is only one trip and of little consequence, is not sufficient reason to
grant the application. (Yangco v. Esteban, 58 Phil. 346) However, if later on circumstances would change
requiring the operation of new units or extending existing facilities, the third operator rule would be subject to
the prior applicant rule and also as to who may best subserve the public interests.
PROTECTION OF INVESTMENT

It is one of the primary purposes of the Public Service Law to protect and conserve investments, which have
already been made for that purpose by public service operators. (Batangas Trans. Co. v. Orlanes, 52 Phil 455)

LITIMCO vs. LA MALLORCA, GR Nos. L-17041-42, May 18, 1962

FACTS:

Tomas Litimco filed a petition before the Public Service Commission praying for authority to operate a TPU
service on the line Manila-Malolos via Sta. Isabel with the use of 10 units. To the petition, several operators
filed written oppositions. On the date set for hearing, petitioner adduced evidence in support of his petition, but
none of the oppositors submitted evidence in support of their oppositions. Thereafter, the petition was submitted
for decision.

On November 7, 1958, before the Public Service Commission could render its decision, La Mallorca, another
operator, moved to reopen the case stating that if the petition to operate the line proposed be granted it would
work to its prejudice and so it requested a reopening in order that it may file its opposition and present evidence
in support thereof. The motion was granted and, accordingly, the case was set for hearing on January 12, 1959.
However, instead of presenting evidence in support of its opposition, La Mallorca moved for postponement,
only to announce days later that instead of merely objecting to the petition, it decided to file an application
under a separate number (Case No. 63120) requesting for authority to operate the same line applied for by
petitioner by rerouting 4 of its 10 round trip units of the line Malolos-Manila via Guiguinto. To this application,
several oppositions were presented, including petitioner himself, although only the latter presented evidence in
support of his opposition. Because of the identity of the issues involved, the two applications were heard jointly.

After a protracted hearing, the Public Service Commission rendered decision denying petitioner’s application
but granting that of respondents on the ground that the latter has a better right to render the service applied for.
Petitioner interposed the present petition for review.

ISSUE:

Whether or not the priority in filing of the application, other conditions being equal, is an important
factor in determining the rights of public service companies.

HELD:

Yes. There is no doubt that petitioner was the first to apply for the service in the territory in question. Through
his amended application, petitioner has applied for the new service as early as October 24,1958, while
respondent only was awakened and followed suit when it filed its application on January 21,1959, after
petitioner’s application was already submitted for decision. Since it is admitted that petitioner is financially
competent and able to operate the line proposed, for it is a matter of record that he is also an operator of a
bus line from Manila to Malolos via Bulacan, [W]e see no plausible reason why he should not be given
preference to operate the service applied for considering that he is the first one to apply for such line. This is in
accord with the policy constantly adopted by this Court in analogous cases, which we find to be sound, to stave
off any act of discrimination or partiality against any applicant for operation of a new line. While there may be
cases where an applicant, even if ahead in time, was not given the service, it is because it was proven that he
was financially incompetent, or otherwise disqualified, to render the service. If an applicant is qualified
financially, and is able to undertake the service, he should be given the preference as a matter of fairness
and justice. Indeed, this Court has postulated that “priority in the filing of the application for a certificate of
public convenience is, other conditions being equal, an important factor in determining the rights of the
public service companies.” Considering that petitioner has filed his application much ahead in point of
time than respondent, and is financially competent, the action of the Public Service Commission in giving
preference to respondent is not justified.

The argument that the application of petitioner for the operation of the new line calls for the purchase of 10 new
trucks which would result in further depletion of the dollar reserve of our government, while the application for
re-routing of respondent will not entail any further expenditure, is of no consequence, if the operation will
redound to the benefit of the riding public. The operation of a new line as a general proposition always involves
a new investment, which may happen even with old operators. In the course of operation, and with the passing
of time, new equipment and facilities may be found necessary to maintain an efficient service, which additional
expenditure cannot certainly be considered as a cause for disruption of the service. This is a matter of finance,
which concerns exclusively the one who desires to operate the new line. At any rate, the new line merely covers
seven kilometers of new territory, which traverses three sparsely populated barrios, and considering that
respondent did not deem it necessary to cover said territory except after the passing of many years, and only
thought of giving the service when petitioner filed his application. Fairness requires that preference be given to
petitioner.

A certificate of public convenience may be granted to a new operator without giving the old operator an
opportunity to improve its equipment and service.

Fortunato F. Halili v. Ruperto Cruz

G.R. No. L-21061, June 27,1968

FACTS:

Herein respondent filed, on September 19, 1961, with the Public Service Commission an application, praying
for the grant of a certificate of public convenience to operate, under PUB denomination, buses between
Norzagaray (Bulacan) and Piers (Manila), via Novaliehes Road, A. Bonifacio Road, Blumentritt Street, Rizal
Avenue, MacArtluir Bridge, Aduana and 13th Streets; and on the return trip, via Boston Street, MacArtluir
Bridge, Rizal Avenue, Blumentritt, A. Bonifacio Road, and Novaliehes Road. The application was opposed by
De Dios Transportation Co., Inc., Raymundo Transportation Co., Inc., POP Transit Inc., Villa Rey Transit, Inc.,
and by herein petitioner- appellant Fortunato F. Halili who was the operator of the transportation service known
as “Halili Transit.” Petitioner, in his opposition alleged, substantially, that he was an operator of a bus service on
the line applied for, enumerating at the same time the other lines he operated which were traversed by the route
mentioned in respondent’s application; that his service, as well as that of other bus operators on the route, was
more than adequate to meet the demands of the traveling public; that the grant of the application would merely
result in wasteful and ruinous competition, and that the respondent was not financially capable of operating and
maintaining the service proposed by him.

After several hearings in which the parties presented their evidence, oral and documentary, the Public Service
Commission rendered a decision, on February 13, 1963, granting a certificate of public convenience to
respondent Ruperto Cruz to operate 10 buses under PUB denomination on the line Norzagaray (Bulacan)-Piers
(Manila) passing through the routes applied for.

Petitioner contends that “The Public Service Commission erred in failing to give petitioner-appellant the right of
protection to investment to which petitioner-appellant is entitled.”

ISSUE:

Whether or not the protection to investment rule is a paramount consideration in the grant of certificate
of public convenience.

HELD:

Petitioner claims, that the Public Service Commission failed to give him the protection that he is entitled to,
being an old and established public service operator. As a general principle, public utility operators must be
protected from ruinous competition, such that before permitting a new operator to serve in a territory already
served by another operator, the latter should first be given opportunity to improve his equipment and service.
This principle, however, is subject to justifiable exceptions. The primary consideration in the grant of a
certificate of public convenience must always be public convenience. Thus, this Court said:
 “While it is the duty of the government as far as possible to protect public utility operators against unfair
and unjustified competition, it is nevertheless obvious that public convenience must have the first
consideration, x x x.” (Raymundo Transportation Co. v. Perez, 56 Phil. 274)

The public convenience is properly served if passengers who take buses at points in one part of a line are able to
proceed beyond those points without having to change buses. On this point, this Court said:

“It is the convenience of the public that must be taken into account, other things being equal, and
that convenience would be effectuated by passengers who take buses at points in one part of a line
being able to proceed beyond those points without having to change buses and to wait for the arrival
of buses of a competitive operator. We can perceive how under such conditions one public utility
could gain business at the expense of a rival.”

In the instant case, public convenience would be properly served if commuters from Norzagaray going to the
Piers in Manila could go to their destination without the need of changing buses. Certainly, the Public Service
Commission has power to grant a certificate of public convenience to a new operator, and the old operator
cannot with reason complain that it had not been given opportunity to improve its equipment and service, if it is
shown that the old operator has not placed in the service all the units of equipment that it had been authorized to
operate, and also when the old operator has violated, or has not complied with, important conditions in its
certificate. In the instant case, it has been shown that petitioner had not operated all the units that it was
authorized to operate.

Note: The rule where there are various applicants for a public utility over the same territory, is that priority of
application, while an element to be considered, does not necessarily control the granting of a certificate of
public convenience. The question to be considered in such cases is, which applicant can render the best
service, considering the conditions and qualifications of the applicant to furnish the same. But where
other conditions are equal, priority in the filing of the application for a certificate of public convenience
becomes an important factor in the granting or refusal of a certificate. (Cruz v. Marcelo, L-l5301- 01,
March 30, 1962, reiterating the rulings in Pineda v. Carandang, L-l3270-71, March 24, 1960; Benitez v. Santos,
L-12911-12, and Lopez v. Santos, L-l3073-74, February 29, 1960; andBatangas Trans. Co., etal. v. Or lanes, et
ai, 55 Phil. 745)

Additional Service by Old Operators

Raymundo Transportation Co.
G.R. No. L-7880, May 18,1956

FACTS:

Teofilo Cerda is a holder of a certificate of public convenience granted him by the Public Service Commission
to operate a bus service for the transportation of passengers and freight on the line Binangonan (Rizal) to
Manila and vice versa. This certificate is but a conversion into a permanent one of the emergency certificate
previously given him by the Commission way back in 1947. On September 12, 1953, he asked for authority to
increase his present number of trips by eight additional round trips with the use of three additional buses on the
ground that public convenience required the operation of the additional trips. His application was opposed by
Raymundo Transportation Co., A. Gergaray Tanchingco and the Halili Transit alleging that the services they are
rendering on the same line are more than sufficient to satisfy the needs of the traveling public, and hence, there
is no need for the additional trips on the same line.
At the hearing, the applicant presented the testimony of Sisenando Sison, Pedro Fineza, and Fernando Flores, all
residents of Binangonan, Rizal, while on the part of the oppositors, only the first two submitted evidence in
support of their opposition, and on the strength of the evidence submitted, the Commission found that the
preponderance of evidence “justifies the authorization of additional trips on the line although not in the number
asked by the applicant” and granted him authority to operate only four additional round trips with one auto-
truck subject to certain specified conditions. From this decision, oppositor Raymundo Transportation Co.,
interposed the present petition for review.

It is contended for petitioner that the decision of the Public Service Commission is erroneous because if there is
any need for additional service, petitioner should be given the preference of rendering it being an old operator.

HELD:

As to the claim that petitioner should be given the privilege of rendering the additional service because it is
an old operator, suffice it to say that this rule only applies when the old operator offers to meet the increase
in the demand the moment it arises and not after another operator had offered to render the additional
service as was done in the present case. (Angat-Manila Trans. Co., Inc. v. Victoria Vda. de Tengco, 95 Phil.
58) The rule protects those who are vigilant in meeting the needs of the traveling public.

The decision appealed from is affirmed, with costs against petitioner.

The “prior operator” and “protection of investment” rules cannot take precedence over the convenience of the
public.

Intestate Estate of Teofilo M. Tiongson v. The Public Service Commission and Mario Z. Lanuza
G.R. No. L-2470I, December 16,1970

FACTS:

On May 11, 1965, the Public Service Commission decided its Case No. 124626, approving the application of
Mario Z. Lanuza for a certificate of public convenience to install and operate a 20-ton daily capacity ice-plant in
Pagsanjan, Laguna, and to sell the ice to be produced in said municipality as well as in the municipalities of
Longos, Paete, Pakil, Pangil, Siniloan, Famy, Sta. Maria, Cavinti, Magdalena, Majayjay, Nagcarlan, Rizal, Lilio,
Sta. Cruz, Lumban, Pila and Victoria, all in the province of Laguna.

Three existing operators had opposed the application. One of them, Victorino de Pena, who has an ice plant in
Mauban, Quezon, withdrew his opposition after the applicant excluded the municipality of Luisiana from the
territory originally applied for. Another oppositor, Emilio Gomez, did not appeal from the decision of the Public
Service Commission. The petitioner here, the Estate of Teofilo M. Tiongson, remains the only oppositor in the
present appeal.

The petitioner is the grantee of a certificate of public convenience to maintain and operate a 30-ton (increased to
40 tons in 1960 and then to 70 tons in 1964) ice plant in San Pablo City, with authority to sell ice therein as well
as in the municipalities of Sta. Cruz, Rizal, Nagcarlan, Calauan, Victoria, Pila, Lumban, Paete, Pakil, Pangil,
Cavinti, Siniloan, and Alaminos.

ISSUE:
There is no question as to the applicant’s financial capacity. The principal issue is whether there is sufficient
need for ice in the places stated in the decision to justify the establishment of a plant in Pagsanjan with the daily
capacity authorized by the Commission. This issue is essentially one of fact on which, as a rule, the findings of
the Commission are binding on this Court unless it clearly appears that there is no evidence to reasonably
support them.

HELD:
The Court has gone over the record in this regard and found enough support therein for the decision appealed
from. Manuel Zaide is a fish dealer in Paete; Willing Limlengco is a sari-sari and refreshment store-owner in
Pagsanjan; Conrado Almario has a similar business in Lumban; Alfonso Rebong was the municipal mayor of
Victoria since 1960; Ernesto Marina is a businessman in Pila; Jose Acuiza is a businessman and fisherman in
Pakil; Jose Maceda was the municipal secretary of Pagsanjan; and Eligio Lorenzo is a grocery merchant in Sta.
Cruz. They all affirmed the inadequacy and frequent lack of ice supply in their respective localities not only for
home consumption but also for restaurants and refreshment parlors as well as for the fishing industry or
occupation of the inhabitants, particularly in the regions bordering Laguna Bay. It is true their combined
testimony did not cover all the municipalities applied for, but the applicant himself, respondent here,
demonstrated sufficient familiarity with the entire area to be able to give evidence, as he did, on the ice-supply
situation in everyone of them. He did a lot of traveling as owner of three movie-houses in Pagsanjan, Sta. Cruz
and Pila, and in connection with his application in this case, personally conducted a thorough investigation of
the local demands for ice in the municipalities covered by said application. That he is the applicant does not
necessarily affect his credibility; on the contrary, such an investigation was necessary and called for by sound
business policy, for no one would invest capital in the production and sale of any commodity without first
ascertaining the needs of the prospective market.

One significant fact may be noted insofar as the petitioner’s existing ice plant in San Pablo is concerned. The
petitioner formerly operated another plant in Pagsanjan, and each of them had one delivery truck to service the
customers in different municipalities. The Pagsanjan plant, however, was closed in 1952 and transferred to San
Pablo, and since then, the petitioner has been maintaining only one delivery-truck service, with a single dealer-
employee in charge. Under the circumstances, the Public Service Commission correctly remarked that “the
oppositors have not established the adequacy of the service rendered by them in the eighteen (18) municipalities
proposed to be served by the applicant, considering that most of these municipalities are far from the locations
of their ice-plants.

The “prior operator ” and “protection of investment ” rules cited by petitioner cannot take precedence over the
convenience of the public. There is no ice plant at present in Pagsanjan; and from the testimony of the witnesses
for the applicant, there exists a great demand for ice not only there but also in certain neighboring
municipalities. There is nothing in the record to show that the petitioner had exerted efforts to meet this demand
before the respondent made his offer to service the areas where ice was needed. Moreover, the respondent is
authorized to produce only 20 tons of ice daily, whereas, the petitioner has been allowed to increase its daily
capacity from 30 to 40 tons in 1960, and recently, in 1964, to 70 tons. This only proves that there is indeed a
great demand for ice in the area applied for by the respondent, and negates the probability of ruinous
competition. On the contrary, the resulting competition will undoubtedly benefit the public through
improvement in the service and reduction in retail prices.

KABIT SYSTEM
 It is an arrangement whereby a person who has been granted a certificate of convenience allows another
person who owns motor vehicles to operate under such franchise or fee.
 Although the parties to such agreement are not outright penalized by law, the kabit system is invariably
recognized as being contrary to public policy and therefore void and inexistent under Article 1409 of the
Civil Code.

CASE
Lita Enterprises v. Second Civil Cases Division, Intermediate Appellate Court,
Nicasio Ocampo and Francisca Garcia
Gr. No. L-64693, April 27, 1984
DOCTRINE: Kabit System
FACTS
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in
installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since
they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the latter’s certificate of public convenience in consideration of an
initial payment of P1, 000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid
cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses
Ocampo who operated and maintained the same under the name Acme Taxi, petitioner’s trade name.
About a year later one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose
driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against
the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the
victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case. Petitioner Lita Enterprises, Inc.
was adjudged liable for damages by the CFI.

This decision having become final, a writ of execution was issued. Two of the vehicles of respondent spouses were levied
upon and sold at public auction. Thereafter, Nicasio Ocampo decided to register his taxicabs in his name. He requested
the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused.
Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Mrs. de Galvez and the Sheriff of Manila for
reconveyance of motor vehicles with damages.

ISSUE : Whether or not petitioner has a cause of action against defendants.

RULING : No.
Unquestionably, the parties herein operated under an arrangement, commonly known as the “kabit system”, whereby a
person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate
under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government.
Abuse of this privilege by the grantees thereof cannot be countenanced. The “kabit system” has been identified as one of
the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief
Justice Makalintal, “this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon
the good faith of the government.

Although not outrightly penalized as a criminal offense, the “kabit system” is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that
the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their
predicament. Article 1412 of the Civil Code denies them such aid. It provides:

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking.

Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his
acts.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription.
As this Court said in Eugenio v. Perdido, “the mere lapse of time cannot give efficacy to contracts that are null void.”

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law
prevails. Under American jurisdiction, the doctrine is stated thus: “The proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The
rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no
affirmative relief of any kind will be given to one against the other.” Although certain exceptions to the rule are provided
by law, we see no cogent reason why the full force of the rule should not be applied in the instant case.

Abelardo Lim and Esmadito Gunnaban vs. CA and Donato H Gonzales

G.R. No. 125817, January 16,2002
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.
RULING
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 maybe 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.

MYC Agro-Industrial Corporation vs. CA

G.R. No. L-52798, September 7, 1984

DOCTRINE: The registered owner or operator of record is the one liable for damages caused by a vehicle regardless of
any alleged sale or lease made thereon.

FACTS
About 4:30 in the afternoon of March 21, 1971, a Toyota truck with Plate No. 12-90-4 CT ‘70 owned by petitioner and
operated by Ceferino Arevalo hit the right center side of a jeepney with Plate No. 24-97-40-3 1970 owned by Nicanor
Silla and operated by Alfredo Rodolfo. There were fifteen (15) passengers of the jeepney, namely: (1) Laureano Lacson,
(2) Salome Bautista, (3) Chona Alcaraz, (4) Ruby Gonzaga, (5) Felicitacion Gonzaga, (6) Epifania Bautista, (7) Avelino
Ignacio, (8) Erlinda Candado, (9) Leniza Alcaraz, (10) Sotera Ramirez, (11) Rosario Ordoñez, (12) Maximina Bautista,
(13) Cornelio Bautista, (14) Hermogena Bautista and (15) Felicidad Alcaraz. The jeepney, at the time of the impact, was
parked at Regiment Street, Anabu, Imus, Cavite. As a consequence, said jeepney turned turtle and was pushed to a
cemented fence owned by Lucila Reyes, pinning down to death Carlito Pakingan, Hipolito Caldo, Azucena Camaclang-
Navarrete and Fortunato Bonifacio. Likewise, the passengers: Laureano Lacson, Salome Bautista and Chona Alcaraz died
because of the injuries sustained in this incident; the other passengers suffered various
injuries on the different parts of their bodies.

The aforementioned jeepney and the wall fence were also damaged.

Complaint for damages was filed by the owner of the wall fence, the aforementioned victims and the heirs of the deceased
victims against petitioner MYC-AGRO-INDUSTRIAL CORPORATION, the registered owner of the Toyota truck;
Ceferino Arevalo, the driver of said truck; and, Benedicto Kalaw-Katigbak, the general manager of petitioner corporation.

In its responsive pleading, petitioner admitted ownership of the Toyota truck but alleged that the same, together with nine
(9) other units were leased to the Jaguar Transportation, Inc. and that Ceferino Arevalo, as well as Benedicto Kalaw-
Katigbak are not its (petitioner) employees. Thereafter, Petitioner, defendant in the damage suit, filed a third-party
complaint against Jaguar Transportation Company.

Third-party Jaguar pleads that its liability is only secondary and that it had already complied with its obligation under its
contract of lease with petitioner when it secured a third-party liability insurance from Federal Insurance Company, Inc. It
then filed a fourth-party complaint against Federal Insurance Company, Inc., F. E. Zuellig, Inc. and Casto Madamba,
claiming that Jaguar had obtained an insurance policy from Federal Insurance Company, Inc. of which F. E. Zuellig is its
general manager, and fourth-party defendant Casto Madamba is the general agent of defendant Federal Insurance
Company, Inc.

In its answer to the fourth-party complaint, the fourth-party defendants alleged that Jaguar has no cause of action against
them because F. E. Zuellig is only the general manager of Federal Insurance Company, Inc.; that Casto Madamba is only
the general agent of Federal Insurance Company, Inc., and that the proper party in interest is herein petitioner, the
registered owner of the Toyota truck.

Ceferino Arevalo, driver of the truck in question was named defendant in Criminal Case No. 53-71 of the then Court of
First Instance of Cavite, Branch V. Upon arraignment, he pleaded guilty to the crimes of multiple homicide, multiple
serious physical injuries, multiple less serious physical injuries, slight physical injuries and damage to property thru
reckless imprudence.

Evidence is clear that the death of seven (7) persons and the injuries suffered by private respondents were due to the
negligence and reckless operation of the Toyota truck, owned by herein petitioner and driven by Ceferino Arevalo. On
March 21, 1971, when the accident happened, subject vehicle was registered in the name of petitioner which, however,
would want to exculpate itself from liability because of the contract of lease with sale (Exhibit "1") allegedly executed on
December 1, 1970 between it and Jaguar Transportation Company. Petitioner claims that because of the lease contract
with sale to Jaguar it had no more control over the vehicle; that Ceferino Arevalo is not its employee but that of Jaguar.

After trial, the lower court rendered judgment ordering "defendants MYC Agro-Industrial Corporation and Ceferino
Arevalo jointly and severally to pay to plaintiffs actual damages, exemplary damages and attorney’s fees and dismissed
the complaint against Benedicto Katigbak, the counterclaim and the third- and fourth-party complaint.

ISSUE
Who should be liable: MYC Agro Industrial Corporation or Jaguar Transportation Company.?

RULING
The court cannot uphold the contention of petitioner.

In the first place, Jaguar’s answer to third party complaint tendered no genuine or real issue.

Secondly, Jaguar’s representative did not even appear in court after impleading fourth party defendants and its President,
Benedicto Katigbak, did not adduce evidence in his behalf.

Thirdly, the sign MYC which stands for petitioner still appears on subject vehicle and, as aptly observed by the appellate
court "the agreement which allegedly transferred the truck from MYC to Jaguar failed to provide for a chattel mortgage to
secure said transfer. The well-known practice is that motor vehicles acquired through installment payments are secured by
a chattel mortgage over the vehicle sold. None exists in the instant case."

Finally, it is undisputed that the registered owner of the Toyota truck is petitioner. As held in Vargas v. Langcay, 6 SCRA
174," [t]he registered owner/operator of a passenger vehicle is jointly and severally liable with the driver for damages
incurred by passengers or third persons as a consequence of injuries (or death) sustained in the operation of said vehicles.
Regardless of who the actual owner of a vehicle is, the operator of record continues to be the operator of the vehicles as
regards the public and third persons, and as such is directly and primarily responsible for the consequences incident to its
operation, so that, in contemplation of law, such owner/operator of record is the employer of the driver, the actual operator
and employer being considered merely as his agent."

"Y" TRANSIT CO, INC.

vs.
NLRC AND YUJUICO TRANSIT EMPLOYEES UNION (ASSOCIATED LABOR UNION),
MANUEL VILLARTA
G.R. No. 88195-96 January 27, 1994

DOCTRINE: There being no prior BOT approval in the transfer of property, transferee only
held the property as agents.

FACTS
Sometime in June and July 1979, the Yujuico Transit Employees Union (Associated labor Union) filed two (2)
consolidated complaints against Yujuico Transit Co., Inc. for Unfair Labor Practice and violations of Presidential Decrees
Nos. 525, 1123, 1614 and 851 (non-payment of living allowances).

On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner "Y" Transit Co., Inc. for P3,485,400.00. On
July 23, 1981, the Labor Arbiter rendered a decision dismissing the complaint for unfair labor practice but holding
Yujuico Transit Co., Inc. liable under the aforementioned Presidential Decrees in the amount of P142, 790.49. On
February 9, 1982, a writ of execution for the said amount was issued by the Labor Arbiter. On June 14, 1982, an alias writ
of execution was issued and levy was made upon the ten (10) buses. Thereafter, "Y" Transit Co., Inc. filed Affidavits of
Third-Party Claim.

Private respondents herein opposed the Third party claim on the ground that the transactions leading to the transfer of the
buses to "Y" Transit Co., Inc. were void because they lacked the approval of the BOT as required by the Public Service
Act. They also argued that the buses were still registered in the name of Yujuico Transit Co. which was, therefore, still the
lawful owner thereof.

The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the buses and that the BOT, by its subsequent acts had
approved the transfer. Accordingly, the Third-Party Claim was granted and the release of all the buses levied for
execution was ordered.

On appeal, the NLRC reversed the labor arbiter's decision on the ground that the transfer of the buses lacked the BOT
approval. It ordered the reinstatement of the levy and the auction of properties.

ISSUE
Whether the levy on the buses, which have been allegedly, transferred to a third party, herein petitioner.

RULING
The following facts have been established before the NLRC: that the transfer of ownership from Yujuico Transit Co., Inc.
to Jesus Yujuico, and from Jesus Yujuico to "Y" Transit Co., Inc. lacked the prior approval of the BOT as required by
Section 20 of the Public Service Act; that the buses were transferred to "Y" Transit Co., Inc. during the pendency of the
action; and that until the time of the execution, the buses were still registered in the name of Yujuico Transit Co., Inc.

In Montoya v. Ignacio, we held:

. . . The law really requires the approval of the Public Service Commission in order that a franchise, or any
privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee. The
reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be notified to the
Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In
fact, the law requires that, before approval is granted, there should be a public hearing
with notice to all interested parties in order that the commission may determine if there are good and reasonable
grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is
detrimental to public interest. Such being the reason and philosophy behind this requirement, it follows that if the
property covered by the franchise is transferred, or leased to another without obtaining the requisite approval, the
transfer is not binding against Public Service Commission and in contemplation of law, the grantee continues to
be responsible under the franchise in relation to the Commission and to the public. . . .

It may be argued that Section 16, paragraph (h) provides in its last part that "nothing herein contained shall be
construed to prevent the sale, alienation, or lease by any public utility of any of its property in the ordinary course
of business," which gives the impression that the approval of Public Service Commission is but a mere formality
which does not affect the effectivity of the transfer or lease of the property belonging to a public utility. But such
provision only means that even if the approval has not been obtained the transfer or lease is valid and binding
between the parties although not effective against the public and the Public Service Commission. The approval is
only necessary to protect public interest. (Emphasis ours)

There being no prior BOT approval in the transfer of property from Yujuico Transit Co., Inc. to Jesus Yujuico, it only
follows that as far as the BOT and third parties are concerned, Yujuico Transit Co., Inc. still owned the properties. and
Yujuico, and later, "Y" Transit Co., Inc. only held the same as agents of the former. In Tamayo v. Aquino, the Supreme
Court stated, thus:

. . . In operating the truck without transfer thereof having been approved by the Public Service Commission, the
transferee acted merely as agent of the registered owner and should be responsible to him (the registered owner)
for any damages that he may cause the latter by his negligence.

Conversely, where the registered owner is liable for obligations to third parties and vehicles registered under his name are
levied upon to satisfy his obligations, the transferee of such vehicles cannot prevent the levy by asserting his ownership
because as far as the law is concerned, the one in whose name the vehicle is registered remains to be the owner and the
transferee merely holds the vehicles for the registered owner. Thus, "Y" Transit Co., Inc. cannot now argue that the buses
could not be levied upon to satisfy the money judgment in favor of herein respondents. However, this does not deprive the
transferee of
the right to recover from the registered owner any damages which may have been incurred by the former since the transfer
or lease is valid and binding between the parties.

ANGEL JEREOS
vs.
HON. COURT OF APPEALS, SOLEDAD RODRIGUEZ, et al.
G.R. No. L-48747 September 30, 1982
DOCTRINE: Actual owner of passenger jeep is liable solidarily with registered owner in a
civil action based on quasi-delict.

FACTS
Private respondent, Domingo Pardorla, Jr. is the holder of a certificate of public convenience for the operation of a
jeepney line in Iloilo City. On February 23, 1971, one of his jeepneys, driven by Narciso Jaravilla, hit Judge Jesus S.
Rodriguez and his wife, Soledad, while they were crossing Bonifacio Drive, Iloilo City, causing injuries to them, which
resulted in the death of Judge Rodriguez. Narciso Jaravilla was prosecuted and, on his plea of guilty, was convicted of the
crime of Homicide and Physical Injuries through Reckless Imprudence and sentenced accordingly. Thereafter, Soledad
Rodriguez and her children filed with the Court of First Instance of Iloilo an action for damages against Narciso Jaravilla,

Domingo Pardorla, Jr., and Angel Jereos, the actual owner of the jeepney. Domingo Pardorla, Jr., upon the other hand,
claimed that he was only the franchise owner and has nothing to do with the actual operation and supervision of the
passenger jeepney in question which is under the actual control, operation and supervision of Angel Jereos who operates
the same under the "kabit system."

ISSUE
Who should be liable? The actual owner of passenger jeep or the franchise holder?
RULING
Finally, the petitioner, citing the case of Vargas vs. Langcay, contends that it is the registered owner of the vehicle, rather
than the actual owner, who must be jointly and severally liable with the driver of the passenger vehicle for damages
incurred by third persons as a consequence of injuries or death sustained in the operation of said vehicle.

The contention is devoid of merit. While the Court therein ruled that the registered owner or operator of a passenger
vehicle is jointly and severally liable with the driver of the said vehicle for damages incurred by passengers or third
persons as a consequence of injuries or death sustained in the operation of the said vehicle, the Court did so to correct the
erroneous findings of the Court of Appeals that the liability of the registered owner or operator of a passenger vehicle is
merely subsidiary, as contemplated in Art. 103 of the Revised Penal Code. In no case did the Court exempt the actual
owner of the passenger
vehicle from liability. On the contrary, it adhered to the rule followed in the cases of Erezo vs.
Jepte, Tamayo vs. Aquino, and De Peralta vs. Mangusang, among others, that the registered owner or operator has the
right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury
caused.

The right to be indemnified being recognized, recovery by the registered owner or operator may be made in any form-
either by a cross-claim, third-party complaint, or an independent action. The result is the same.

BA FINANCE CORPORATION vs. HON. COURT OF APPEALS

G.R. No. 98275 November 13, 1992
DOCTRINE: The registered owner of a certificate of public convenience is liable to the public for the injuries or
damages suffered by passengers or third persons caused by the operation of said vehicle even though the same had been
transferred to a third person.

FACTS
On March 6, 1983, an accident occurred involving petitioner's Isuzu ten-wheeler truck then driven by an employee of
Lino Castro.

The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck, was at fault when the
mishap occurred in as much as he was found guilty beyond reasonable doubt of reckless imprudence resulting in triple
homicide with multiple physical injuries with damage to property in a decision rendered on February 16, 1984 by the
Presiding Judge of Branch 6 of the Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for
damages in as much as the truck was registered in its name during the incident in question, following the doctrine laid
down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102 Phil. 103 [1957]). In the
same breadth, Rock Component Philippines, Inc. was ordered to reimburse petitioner for any amount that the latter may
be adjudged liable to pay herein private respondents as expressly stipulated in the contract of lease between petitioner and
Rock Component Philippines, Inc.

Petitioner asseverates that it should not have been haled to court and ordered to respond for the damage in the manner
arrived at by both the trial and appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below would
indicate that petitioner was not the employer of the negligent driver who was under the control an supervision of Lino
Castro at the time of the accident, apart from the fact that the Isuzu truck was in the physical possession of Rock
Component Philippines by virtue of the lease agreement.

ISSUE
Whether petitioner can be held responsible to the victim albeit the truck was leased to Rock
Component Philippines when the incident occurred

RULING
In previous decisions, the court already has held that the registered owner of a certificate of public convenience is liable to
the public for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even
though the same had been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182 50 Off. Gaz., 108; Roque vs.
Malibay Transit, Inc., G.R. No. L-8561, November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz.,
[10], 4606.) The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public
Service Law, the public has the right to assume or presumed that the registered owner is the actual owner thereof, for it
would be difficult with the public to enforce the actions that they may have for injuries caused to them by the vehicles
being negligently operated if the public should be required to prove who actual the owner is. How would the public or
third persons know against whom to enforce their rights in case of subsequent transfer of the vehicles? We do not imply
by this doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability
to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily
responsible to the public or to the third persons for injuries caused the latter while the vehicle is being driven on the
highways or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to
plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-
appellant was no longer an owner of the vehicle at the time of the damage because he had previously sold it to another.

The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or
injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public that the motor vehicle
registration is primarily obtained, in the interest of the determinations of persons responsible for damages or injuries
caused on public highways.

One of the principle purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of
accident; and another is that the knowledge that means of detection are always available my act as a deterrent from lax
observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules
of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the
displayed number becomes a "share and delusion," if courts would entertain such defenses as that put forward by appellee
in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they
should be allowed to pace a "middleman" between them and the public, and escape liability by the manner in which they
recompense their servants. (King vs. Breham Automobile Co., Inc. 145 S. W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed
at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and
lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do
so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places
upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by
proving who the
supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said
responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond
financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to
discover or identify the person actually causing the injury or damage. He has no means other then by a recourse to the
registration in the Motor Vehicles Office to determine who the owner is.
The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity
to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered
owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third
person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person.

The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We
do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party
complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience
is the price he pays for failure to comply with the registration that the law demands and requires.

If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold
to another, there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case
where the subject vehicle was merely leased by petitioner to Rock Component Philippines, Inc., with petitioner retaining
ownership over the vehicle.

RECENT CASES ON REGISTERED OWNER RULE

1. PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc., G.R. No. 162267, July 4, 2008

Facts: A Mitsubishi Lancer car owned by United Coconut Planters Bank (UCPB), insured with UCPB General Insurance
Co., was traversing the Laurel Highway, Barangay Balintawak, Lipa City. It was driven by Flaviano Isaac with Conrado
Geronimo, the Asst. Manager of said bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck, owned by
defendants-appellants PCI Leasing &Finance, Inc. allegedly leased to and operated by defendant-appellant Superior Gas
& Equitable Co., Inc. (SUGECO) and driven by its employee, defendant appellant Renato Gonzaga.

The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the rear part of the car. The
driver and passenger suffered physical injuries. However, the driver defendant-appellant Gonzaga continued on its way to
its destination and did not bother to bring his victims to the hospital.

As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were made by plaintiff-appellee
for the payment of the aforesaid amounts. However, no payment was made. PCI Leasing and Finance, Inc., (petitioner)
interposed the defense that it could not be held liable for the collision, since the driver, Gonzaga, was not its employee,
but that of its co-defendant SUGECO. In fact, it was SUGECO, that was the actual operator of the truck, pursuant to a
Contract of Lease signed by petitioner and SUGECO. Petitioner, however, admitted that it was the owner of the truck in
question.
The RTC rendered judgment in favor of UCPB General Insurance and ordered PCI Leasing and Gonzaga, to pay jointly
and severally the former. The CA affirmed with the lower court’s decision.

Issue: Whether petitioner, as registered owner of a motor vehicle that figured in a quasi-delict may be held liable, jointly
and severally, with the driver thereof, for the damages caused to third parties.

Ruling: Yes. Under the Public Service Act, if the property covered by a franchise is transferred or leased to another
without obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continued to be responsible under the franchise in relation to the operation of the
vehicle, such as damaged or injury to third parties due to collisions.

"'One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of
accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax
observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules
of safety shall not escape because of lack of means to discover him.' The purpose of the statute is thwarted, and the
displayed number becomes a 'snare and delusion,' if courts would entertain such defenses as that put forward by appellee
in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they
should be allowed to place a 'middleman' between them and the public, and escape liability by the manner in which they
recompense their servants." (King vs. Brenham Automobile Co., 145 S.W. 278, 279.)

2. Metro Manila Transit Corporation v. Reynaldo Cuevas and Junnel Cuevas, represented by Reynaldo
Cuevas, GR No. 167797, June 15, 2015

Facts: Metro Manila Transit Corporation (MMTC) and Mina’s Transit Corporation (Mina’s Transit) entered into an
agreement to sell dated August 31, 1990, whereby the latter bought several bus units from the former at a stipulated price.
They agreed that MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime
Mina’s Transit could operate the buses within Metro Manila.

On October 14, 1994, one of the buses subject of the agreement to sell hit and damaged a Honda Motorcycle owned by
Reynaldo and driven by Junnel. Reynaldo and Junnel sued MMTC and Mina’s Transit for damages in the Regional Trial
Court (RTC).

MMTC denied liability claiming that although it retained the ownership of the bus, the actual operator and employer of
the bus driver was Mina’s Transit; and that, in support of its cross-claim against Mina’s Transit, a provision in the
agreement to sell mandated Mina’s Transport to hold it free from liability arising from the use and operation of the bus
units.

The RTC ordered MMTC and Mina’s Transit to pay damages in favor of herein respondents. It concluded that the
proximate cause of the mishap was the negligence of the bus driver. It did not rule however on the propriety of the cross-
claim. On appeal, the CA affirmed the RTC’s decision.

Issue: Whether or not MMTC was liable for the injuries sustained by the respondents despite the provision in the
agreement to sell that shielded it from liability.

Ruling: Yes. In view of MMTC’s admission in its pleadings that it had remained the registered owner of the bus at the
time of the incident, it could not escape liability for the personal injuries and property damage suffered by the Cuevases.
This is because of the registered-owner rule, whereby the registered owner of the motor vehicle involved in a vehicular
accident could be held liable for the consequences.

The Court has reiterated the registered-owner rule in other rulings, like in Filcar Transport Services v. Espinas, to wit:

x x x It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the
employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in
relation with Article 2180, of the Civil Code.

In Equitable Leasing Corporation v. Suyom, we ruled that in so far as third persons are concerned, the registered owner of
the motor vehicle is the employer of the negligent driver, and the actual employer is considered merely as an agent of such
owner.

MMTC could not evade liability by passing the buck to Mina’s Transit. The stipulation in the agreement to sell did not
bind third parties like the Cuevases, who were expected to simply rely on the data contained in the registration certificate
of the erring bus.

Although the registered-owner rule might seem to be unjust towards MMTC, the law did not leave it without any remedy
or recourse. According to Filcar Transport Services v. Espinas, MMTC could recover from Mina’s Transit, the actual
employer of the negligent driver, under the principle of unjust enrichment, by means of a cross-claim seeking
reimbursement of all the amounts that it could be required to pay as damages arising from the driver’s negligence.
 3. R Transport Corporation v. Luisito G. Yu, GR No. 174161, February 18, 2015

Facts: At around 8:45 in the morning, Loreta J. Yu, after having alighted from a passenger bus in front of Robinson’s
Galleria along the north-bound lane of Epifanio de los Santos Avenue (EDSA), was hit and run over by a bus driven by
Antonio P. Gimena, who was then employed by petitioner R Transport Corporation. Loreta was immediately rushed to
Medical City Hospital where she was pronounced dead on arrival. The husband of the deceased, respondent Luisito G.
Yu, filed a Complaint for damages before the Regional Trial Court (RTC) of Makati City against petitioner R Transport,
Antonio Gimena, and Metro Manila Transport Corporation (MMTC) for the death of his wife.

The trial court rendered judgment in favor of respondent Yu ruling that petitioner R Transport failed to prove that it
exercised the diligence required of a good father of a family in the selection and supervision of its driver, who, by its
negligence, ran over the deceased resulting in her death. The CA affirmed the Decision of the RTC with modification that
defendant Antonio Gimena is made solidarily liable for the damages caused to respondent. According to the appellate
court, considering that the negligence of Antonio Gimena was sufficiently proven by the records of the case, and that
no evidence of whatever nature was presented by petitioner to support its defense of due diligence in the selection and
supervision of its employees, petitioner, as the employer of Gimena, may be held liable for the damage caused.

R Transport Corporation asserts that contrary to the findings of the courts below, the bus from which the victim alighted is
actually the proximate cause of the victim’s death for having unloaded its passengers on the lane where the subject bus
was traversing. Moreover, petitioner reiterates its argument that since it is not the registered owner of the bus which
bumped the victim, it cannot be held liable for the damage caused by the same.

Issue: Whether or not the actual owner of a common carrier can be held solidarily liable with the registered owner.

Ruling: Yes. Under Article 2180 of the New Civil Code, employers are liable for the damages caused by
their employees acting within the scope of their assigned tasks. Once negligence on the part of the employee is
established, a presumption instantly arises that the employer was remiss in the selection and/or supervision
of the negligent employee. To avoid liability for the quasi- delict committed by its employee, it is incumbent upon the
employer to rebut this presumption by presenting adequate and convincing proof that it exercised the care and
diligence of a good father of a family in the selection and supervision of its employees.

The Court held that the records of this case are bereft of any proof showing the exercise by petitioner of the required
diligence. Provided further, no evidence of whatever nature was ever presented depicting petitioner’s due diligence in
the selection and supervision of its driver, Gimena, despite several opportunities to do so. Hence, considering
that the negligence of driver Gimena was sufficiently proven by the records of the case, and that no evidence of whatever
nature was presented by petitioner to support its defense of due diligence in the selection and supervision of its
employees, petitioner, as the employer of Gimena, may be held liable for damages arising from the death of respondent
Yu’s wife.

4. Mariano Mendoza et al vs Spouses Leonora and Gabriel Gomez, GR No. 160110, June 18, 2014

Facts: On March 7, 1997, Isuzu Elf Truck, owned by respondent Leonora J. Gomez and driven by Antenojenes Perez, was
hit by a Mayamy Transportation bus, registered under the name of petitioner Elvira Lim and driven by petitioner Mariano
Mendoza. Apparently, Mendoza encroached upon the opposite lane which resulted in the mishap.

Information for reckless imprudence resulting in damage to property and multiple physical injuries was filed against
Mendoza. Mendoza, however, eluded arrest, thus, respondents filed a separate complaint for damages against Mendoza
and Lim . In court, petitioner Lim testified that the bus was actually owned by one Cirilo Enriquez, and was only attached
to Mayamy under the “kabit” system. Respondents then impleaded both Lim and Enriquez.

The RTC found Mendoza liable for direct personal negligence under Art. 2176 of the CC, and also found Lim vicariously
liable under Art. 2180 of the same Code. As regards Lim, the RTC relied on the Cert of Registration issued by the LTO in
including that she is the registered owner of the bus in question. The CA affirmed the RTC’s decision with the exception
of the unrealized income.

Issue: Whether or not the defense of diligence in the selection and supervision of employees is still a valid defense under
the motor vehicle registration law.

Ruling: No. There is no doubt that Mendoza was negligent. Mendoza’s employer, Lim, may also be held liable under the
doctrine of of vicarious liability or imputed negligence. Under such doctrine, a person who has not and the basis for
damages in the action under said article is the direct and primary negligence of the employer in the selection or
supervision, or both, of his employee.

Lim, being the registered owner is deemed the employer of the negligent driver, and is thus vicariously liable. In so far as
third persons are concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the
actual employer is considered merely as an agent of such owner. Thus, whether there is an employer-employee
relationship between the registered owner and the driver is irrelevant in determining the liability of the registered owner
who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the
vehicle in the streets and highways.

Further, with the enactment of the motor vehicle registration law, the defenses available under Article 2180 of the Civil
Code – that the employee acts beyond the scope of his assigned task or that it exercised the due diligence of a good father
of a family to prevent damage – are no longer available to the registered owner of the motor vehicle, because the motor
vehicle registration law, to a certain extent, modified Article 2180.

As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.

5. Nostradamus Villanueva v. Priscilla R. Domingo and Leandro Luis R. Domingo, GR No. 144274,
September 20, 2004

Facts: Priscilla Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 with Plate No. NDW 781
with co-respondent Leandro Luis Domingo as authorized driver. Petitioner Nostradamus Villanueva was then the
registered “owner” of a green Mitsubishi Lancer bearing Plate No. PHK 201. On Oct. 22, 1991, following a green traffic
light, Priscilla Domingo silver Lancer then driven by Leandro Domingo was cruising the middle lane of South Super
highway at moderate speed when suddenly, the green Mitsubishi Lancer driven by Renato Dela Cruz Ocfemia darted from
Vito Cruz St. towards the South Super highway directly into the path of Domingo’s car thereby hitting and bumping its
left front portion. As a result of the impact, NDW781 hit two parked vehicles at the roadside, the second hitting another
car parked in front of it. Traffic accident report found Ocfemia driving with expired license and positive for alcoholic
breath. The Manila Asst. Prosecutor recommended filing of information for reckless imprudence resulting to damage to
property and physical injuries.

The original complaint was amended twice: first impleading Auto Palace Car Exchange as commercial agent and/or
buyer-seller and second, impleading Albert Jaucian as principal defendant doing business under the name and style of
Auto Palace Car Exchange. Except Ocfemia, all defendants filed separate answers to the complaint. Petitioner
Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was
swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. Linda Gonzales declared that her presence at
the scene of the accident was upon the request of the actual owner of the Mitsubishi Lancer PHK 201, Albert Jaucian for
whom she had been working as agent/seller. Auto Palace Car Exchange represented by Albert Jaucian claimed that he was
not the registered owner of the car. Moreover, it could not be held subsidiarily liable as employer of Ocfemia because the
latter was off-duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his
employment.

The RTC found petitioner Villanueva liable and ordered him to pay respondent actual, moral and exemplary damages plus
appearance and attorney’s fees. In conformity with equity and the ruling in First Malayan Lending and Finance Corp.vs
CA, Albert Jaucian is hereby ordered to indemnify Villanueva for whatever amount the latter is hereby ordered to pay
under the judgment. CA upheld trial court’s decision but deleted the award for appearance and attorney’s fees as the same
was not justified in the body of the decision.

Issue: Whether or not the registered owner of a motor vehicle be held liable for damages arising from a vehicular accident
involving his motor vehicle while being operated by the employee of its buyer without the latter’s consent and knowledge.

Ruling: Yes. The registered owner of any vehicle is directly and primarily responsible for the public and third persons
while it is being operated. The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte.

The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law,
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.

6. Greenstar Express, Inc. v. Universal Robina Corp. GR No. 205090, October 17, 2016
Facts: L-300 van, owned by Unoversal Robina and Nissin Universal Robina Corporation and driven by Renante
Bicomong, NURC’s Operations Manager, in Maharlika Highway, Laguna. As a result of the collision, Bicomong died
instantly, while the passenger bus owned by Greenstar sustained damages. Greenstar and Fruto filed a case for damages
against the respondents, based on the negligence of Bicomong, an employee of the respondents. During trial, it was
established that Bicomong used the L300, a vehicle owned by the respondents, in transporting bulky material to his home,
despite the fact that he himself was issued an executive car. The incident also happened on a holiday, and the employee
did not use the vehicle for official company use.

The RTC ruled in favor of the respondents. It held that for the employer to be liable for the damages caused by his
employee, the latter must have caused the damage in the course of doing his assigned tasks or in the-performance of his
duties. In this case, Bicomong was not in the performance of his duty on the day of the accident because it was a holiday;
there were no plants of the company in Quezon and Laguna; the deceased was issued an executive car for his own use,
and merely preferred using the L300 for transporting bulky materials to his home. Because the accident occurred outside
Bicomong’s assigned tasks, defendant employers cannot be held liable to the plaintiffs, even assuming that it is the fault of
defendants’ employee that was the direct and proximate cause of their damages. The CA affirmed the RTC judgment.

Issue:

Whether or not URC, the respondents are liable for the negligence of their employee even though the accident occurred
not in the performance of the employee’s duty to the company.

Ruling:

No. In Caravan Travel and Tours International, Inc. v. Abejar, the Court made the following relevant pronouncement: The
resolution of this case must consider two (2) rules: First, Article 2180's specification that employers shall be liable for the
damages caused by their employees... acting within the scope of their assigned tasks. Second, the operation of the
registered-owner rule that registered owners are liable for death or injuries caused by the operation of their vehicles.

Therefore, the appropriate approach is that in cases where both the registered-owner rule and Article 2180 apply, the
plaintiff must first establish that the employer is the registered owner of the vehicle in question. Once the plaintiff
successfully proves ownership, there arises a disputable presumption that the requirements of Article 2180 have been
proven. As a consequence, the burden of proof shifts to the defendant to show that no liability under Article 2180 has
arisen.

This it can do by presenting proof of any of the following: ·

 first, that it had no employment relationship with Bautista; ·

 second, that Bautista acted outside the scope of his assigned tasks; or ·

 third, that it exercised the diligence of a good father of a family in the selection and supervision of Bautista.

In the present case, it has been established that on the day of the collision - or on February 25, 2003 –URC was the
registered owner of the URC van, although it appears that it was designated for use by NURC, as it was officially assigned
to the latter's Logistics Manager, Florante Soro-Soro (Soro-Soro); that Bicombings the Operations Manager of NURC and
assigned to the First Cavite Industrial Estate; that there was no work as the day was declared a national holiday; that
Bicomong was on his way home to his family in Quezon province; that the URC van was not assigned to Bicomong as
well, but solely for Soro-Soro' official use. Applying the pronouncement in the Caravan Travel and Tours case, it
must be said that when by evidence the ownership of the van and Bicomong's employment were proved, the
presumption of negligence on respondents' part attached, as the registered owner of the van and as
Bicomong's employer. The burden of proof then shifted to respondents to show that no liability under Article 2180 arose.
This may be done by proof of any of the following:

1. That they had no employment relationship with Bicomong; or

2. That Bicomong acted outside the scope of his assigned tasks; or

3. That they exercised the diligence of a godfather of a family in the selection and supervision of Bicomong.

Respondents succeeded in overcoming the presumption of negligence, having shown that when the collision took place,
Bicomong was not in the performance of his work; that he was in possession of a service vehicle that did not belong to
his employer NURC, but to URC, and which vehicle was not officially assigned to him, but to another employee; that
his use of the URC van was unauthorized - even if he had used the same vehicle in furtherance of a personal undertaking
in the past; that the accident occurred on a holiday and while Bicomong was on his way home to his family in Quezon
province; and that Bicomong had no official business whatsoever in his hometown in Quezon, or in Laguna where the
collision occurred, his area of operations being limited to the Cavite area.
On the other hand, the evidence suggests that the collision could have been avoided if Sayson exercise care and
prudence, given the circumstances and information that he had immediately prior to the accident. From the trial
court's findings and evidence on record, it would appear that immediately prior to the collision, which took place very
early in the morning - or at around 6:50 a.m., Sayson saw that the URC van was traveling fast Quezon-bound on the
shoulder of the opposite lane about 250 meters away from him;that at this point, Sayson was driving the Greenstar bus
Manila-bound at 60 kilometers per hour; that Says Knew that the URC van was traveling fast as it was creating dust
clouds from traversing the shoulder of the opposite lane; that Sayson saw the URC van get back into its proper lane but
directly toward him; that despite being apprised of the foregoing information, Sayson, instead of slowing
down,maintained his speed and tried to swerve the Greenstar bus, but found it difficult to do so at his speed;that the
collision or point of impact occurred right in the middle of the road; and that Sayson absconded from the scene
immediately after the collision.

From the foregoing facts, one might think that from the way he was driving immediately before the collision took place,
Bicomong could have fallen asleep or ill at the wheel, which led him to gradually steer the URC van toward the shoulder
of the highway; and to get back to the road after realizing his mistake, Bicomong must have overreacted, thus
overcompensating or over steering to the left, or toward the opposite lane and right into Sayson's bus. Given
the premise of dozing off or falling ill, this explanation is not far-fetched.The collision occurred very early in the
morning in Alaminos, Laguna. Sayson himself testified that he found Bicomong driving on the service road or shoulder of
the highway 250meters away, which must have been unpaved, as it caused dust clouds to rise on the heels of the URC
van. And these dust clouds stole Sayson's attention, leading him to conclude that the van was running at high speed. At
any rate, the evidence places the point of impact very near the middle of the road or just within Sayson's lane.

In other words, the collision took place with Bicomong barely encroaching on Sayson's lane. This means that prior to and
at the time of collision, Sayson did not take any defensive maneuver to prevent the accident and minimize the impending
damage to life and property, which resulted in the collision in the middle of the highway, where a vehicle would normally
be traversing. If Sayson took defensive measures,the point of impact should have occurred further inside his lane or not at
the front of the bus - but at its side, which should have shown that Sayson either slowed down or swerved to the right to
avoid a collision.

The collision was certainly foreseen and avoidable but Sayson took no measures to avoid it. Rather than exhibit concern
for the welfare of his passengers and the driver of the oncoming vehicle, who might have fallen asleep or suddenly fallen
ill at the wheel, Sayson coldly and uncaringly stood his ground, closed his eyes, and left everything to fate, without due
regard for the consequences. Such a suicidal mindset cannot be tolerated, for the grave danger it poses to the public and
passengers availing of petitioners' services. To Add insult to injury, Sayson hastily fled the scene of the collision
instead of rendering assistance to the victims - thus exhibiting a selfish, cold-blooded attitude and utter lack of concern
motivated by the self- centered desire to escape liability, inconvenience, and possible detention by the authorities, rather
than secure the well-being of the victims of his own negligent act.

The doctrine of last clear chance provides that where both parties are negligent but the negligent act of one is appreciably
later in point of time than that of the other, or where it is impossible to determine whose fault or negligence brought about
the occurrence of the incident, the one who had the last clear opportunity to avoid the impending harm but failed to do so,
is chargeable with the consequences arising therefrom. Stated Differently, the rule is that the antecedent negligence of a
person does not preclude recovery of damages caused by the supervening negligence of the latter, who had the last fair
chance to prevent the impending harm by the exercise of due diligence.

Boundary System

It is an arrangement in which the drivers (and their conductors) of jeepneys or busses, for the use thereof, within a
specified number of hours, with the gasoline burned for their account, give to the owner-operator a fixed amount of the
daily earnings derived from their operation, their day’s earnings being the excess over the amount paid for the gasoline
and use of vehicles. (National Labor Union v. Dinglasan, L-7945, March 23, 1956; Doce v. Workmen’s Compensation
Commission, L-91417, December 22, 1958)

The relationship between jeepney owners/operators on one hand and jeepney drivers on the other under the
boundary system is that of employer-employee and not of lessor-lessee. (Martinez v. NLRC, G.R. No. 117495, May 29,
1997)

Note:

The Provincial Bus Operators Association Of The Philippines (PBOAP), The Southern Luzon Bus Operators Association,
Inc. (SO-LUBOA), The Inter City Bus Operators Association (Interboa), And The City Of San Jose Del Monte Bus
Operators Association (Csjdmboa), Petitioners, V. Department Of Labor And Employment (DOLE) And Land
Transportation Franchising And Regulatory Board (LTFRB), Respondents

G.R. No. 202275. July 17, 2018

The Supreme Court has given the Department of Labor and Employment (DOLE) and the Land Transportation
Franchising and Regulatory Board (LTFRB) the go signal to implement a part-fixed, part-performance based
compensation system for public-utility bus (PUB) drivers and conductors to ensure road safety and counter their risk-
taking behavior.

The compensation scheme approved by the DOLE to cover PUB drivers and conductors mandates a fixed salary not lower
than the applicable minimum wage in the region.

On the other hand, the performance-based component shall be based on the net income of the operator or bus company
and employee safety records covering road accidents, commission on traffic violations and observance of road courtesies.

All PUB drivers and conductors shall be entitled to other mandatory compensation such as but not limited to overtime,
night shift differential, rest day, holiday, birthday, and service incentive leave pay.

Spouses Hernandez v. Spouses Dolor, 435 SCRA 668, July 30, 2004

Facts:

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, his vehicle collided with a passenger jeepney driven by petitioner Juan Gonzales
and owned by his co-petitioner Francisco Hernandez. Boyet and his passenger died. Passengers 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.

Respondents commenced an action for damages 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 who was driving in a zigzagging manner under the influence of alcohol.

During the trial, the following were established: 1. The owner type jeep was travelling at a moderate speed 2. The
passenger jeepney was travelling fast when it bumped into the owner 3. Petitioner Juan Gonzales obtained his professional
driver’s license only 3 months before the accident occurred. 4. Hernandez spouses leases the jeep to the driver on a daily
basis.

Hernandez spouses are contending that they should not be impleaded in the case since they were not in the jeep during the
accident. They also claimed that there is no employer-employee relationship that exists between them and the driver since
they only lease the jeep to the latter.

The Trial Court held rendered the decision in favor of the victims and held Hernandez spouses solidarily liable. The CA
affirmed the decision but with a few modifications on the amount of the damages.

Issue: Whether or not Hernandez spouses are solidarily liable with Juan Gonzales.

Ruling:

Yes. They are still answerable under several provisions of the Civil Code namely Article 2180 and Article 2176. While the
above provisions do not expressly provide for the solidary liability, they should be read in consonance with Article 2180 –
one can be liable for the acts or omission of another whom he is responsible for, meaning that an employer is accountable
for the actions of his employees. Article 2194 categorically states that responsibility of two or more persons who are liable
for quasi-delict is solidary.

The Hernandez spouses maintained that Julian Gonzales is not their employee because the latter pays them daily for the
use of the jeepney. They argued that they are practicing a lease agreement using the “boundary system”. SC held that there
exists an employer-employee relationship because by agreeing with spouses Hernandez, there would be a violation of the
Public Service Law and the riding public is placed at the mercy of reckless and irresponsible drivers because most drivers
are in no position to pay for damages when accidents occur.