G.R. No.

L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles
and scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap
material, respondent would bring such material to Manila for resale. He utilized two
(2) six-wheeler trucks which he owned for hauling the material to Manila. On the
return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than
regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty
filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1
December 1970, respondent loaded in Makati the merchandise on to his trucks: 150
cartons were loaded on a truck driven by respondent himself, while 600 cartons
were placed on board the other truck which was driven by Manuel Estrada,
respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men
who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the
Court of First Instance of Pangasinan, demanding payment of P 22,150.00, the
claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner
argued that private respondent, being a common carrier, and having failed to
exercise the extraordinary diligence required of him by the law, should be held
liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued
that he could not be held responsible for the value of the lost goods, such loss
having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private
respondent to be a common carrier and holding him liable for the value of the
undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had
erred in considering him a common carrier; in finding that he had habitually offered
trucking services to the public; in not exempting him from liability on the ground of
force majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that
respondent had been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors the
following conclusions of the Court of Appeals:
1.

that private respondent was not a common carrier;

2.

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

3.
that respondent was not liable for the value of the undelivered cargo. (Rollo,
p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana
may, under the facts earlier set forth, be properly characterized as a common
carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also
carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733
deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such back-hauling was done on a periodic or
occasional rather than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate
of public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or firm acts as a common carrier, without regard to
whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary
certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with
applicable statutory requirements. The business of a common carrier impinges
directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of
those who utilize their services and the law cannot allow a common carrier to render
such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2
are held to a very high degree of care and diligence ("extraordinary diligence") in
the carriage of goods as well as of passengers. The specific import of extraordinary
diligence in the care of goods transported by a common carrier is, according to
Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and
7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for
the loss, destruction or deterioration of the goods which they carry, "unless the
same is due to any of the following causes only:
(1)
(2)
(3)
(4)
(5)

Flood, storm, earthquake, lightning or other natural disaster or calamity;

Act of the public enemy in war, whether international or civil;
Act or omission of the shipper or owner of the goods;
The character-of the goods or defects in the packing or-in the containers; and
Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a
closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735, which
provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific
cause alleged in the instant case the hijacking of the carrier's truck does not
fall within any of the five (5) categories of exempting causes listed in Article 1734. It
would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with
under the provisions of Article 1735, in other words, that the private respondent as
common carrier is presumed to have been at fault or to have acted negligently. This
presumption, however, may be overthrown by proof of extraordinary diligence on
the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence
in the care of petitioner's goods. Petitioner argues that in the circumstances of this
case, private respondent should have hired a security guard presumably to ride with
the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however,
that in the instant case, the standard of extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage brigands
in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the
duty of extraordinary diligence in the vigilance over the goods carried in the specific
context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is,
under Article 1733, given additional specification not only by Articles 1734 and 1735
but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy:
xxx

xxx

xxx

(5)
that the common carrier shall not be responsible for the acts or omissions of
his or its employees;
(6)
that the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished; and
(7)
that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle, ship,
airplane or other equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not
be allowed to divest or to diminish such responsibility even for acts of strangers
like thieves or robbers, except where such thieves or robbers in fact acted "with
grave or irresistible threat, violence or force." We believe and so hold that the limits
of the duty of extraordinary diligence in the vigilance over the goods carried are
reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private
respondent which carried petitioner's cargo. The record shows that an information
for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno,
Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with
them the second truck, driven by Manuel Estrada and loaded with the 600 cartons
of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave,
if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers
were armed with firearms. The robbers not only took away the truck and its cargo
but also kidnapped the driver and his helper, detaining them for several days and
later releasing them in another province (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The Court of First Instance
convicted all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded
as a fortuitous event. It is necessary to recall that even common carriers are not
made absolute insurers against all risks of travel and of transport of goods, and are
not held liable for acts or events which cannot be foreseen or are inevitable,
provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise
which was lost because of an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the
Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

G.R. No. 186312

June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of
Pasig City for damages arising from the death of their son Ruelito C. Cruz (Ruelito)
who perished with his wife on September 11, 2000 on board the boat M/B Coco
Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro
where the couple had stayed at Coco Beach Island Resort (Resort) owned and
operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave
his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they boarded M/B Coco Beach III,
which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto
Galera and into the open seas, the rain and wind got stronger, causing the boat to
tilt from side to side and the captain to step forward to the front, leaving the wheel
to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came one
after the other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat.
Upon seeing the captain, Matute and the other passengers who reached the surface
asked him what they could do to save the people who were still trapped under the
boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang,
Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on those two
boats were 22 persons, consisting of 18 passengers and four crew members, who
were brought to Pisa Island. Eight passengers, including petitioners son and his
wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility
for the incident which it considered to be a fortuitous event. It nevertheless offered,
as an act of commiseration, the amount of P10,000 to petitioners upon their signing
of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier
reflected, alleging that respondent, as a common carrier, was guilty of negligence in
allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins issued
by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. 6
In its Answer,7 respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B
Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily
requires four conditions to be met before a boat is allowed to sail, to wit: (1) the sea
is calm, (2) there is clearance from the Coast Guard, (3) there is clearance from the
captain and (4) there is clearance from the Resorts assistant manager. 8 He added
that M/B Coco Beach III met all four conditions on September 11, 2000, 9 but a
subasco or squall, characterized by strong winds and big waves, suddenly occurred,
causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated
September 2, 2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal,
holding, among other things, that the trial court correctly ruled that respondent is a
private carrier which is only required to observe ordinary diligence; that respondent
in fact observed extraordinary diligence in transporting its guests on board M/B

Coco Beach III; and that the proximate cause of the incident was a squall, a
fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated
January 16, 2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.
Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resorts ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it
had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and
that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing
respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or

wireless communications systems, wire or wireless broadcasting stations and other

similar public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its
main business as to be properly considered ancillary thereto. The constancy of
respondents ferry services in its resort operations is underscored by its having its
own Coco Beach boats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no
moment. It would be imprudent to suppose that it provides said services at a loss.
The Court is aware of the practice of beach resort operators offering tour packages
to factor the transportation fee in arriving at the tour package price. That guests
who opt not to avail of respondents ferry services pay the same amount is likewise
inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers"
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a
regular basis, or whether it is offered to the general public. The intent of the law is
thus to not consider such distinctions. Otherwise, there is no telling how many other
distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities of
common carriers.
Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the safety
of the passengers transported by them, according to all the circumstances of each
case.19 They are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of carriage, it is
presumed that the common carrier is at fault or negligent. In fact, there is even no
need for the court to make an express finding of fault or negligence on the part of
the common carrier. This statutory presumption may only be overcome by evidence
that the carrier exercised extraordinary diligence. 21
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11,
2000. Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect the province of
Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of
PAGASA, squalls are to be expected under such weather condition. 23
A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not
impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that

constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal manner; and
(d) the obligor must have been free from any participation in the aggravation of the
resulting injury to the creditor. 24
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence of
squalls was expected under the weather condition of September 11, 2000.
Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it
capsized and sank.26 The incident was, therefore, not completely free from human
intervention.
The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in
breach of its contract of carriage that results in the death of a passenger liable to
pay the following: (1) indemnity for death, (2) indemnity for loss of earning capacity
and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and
necessary living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death] 30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80
age at death]) adopted in the American Expectancy Table of Mortality or the
Actuarial of Combined Experience Table of Mortality. 31
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental
expenses.32 The loss is not equivalent to the entire earnings of the deceased, but
only such portion as he would have used to support his dependents or heirs. Hence,
to be deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs. 33
In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja34teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as
follows:

Life expectancy =

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

2/3 x [80 - 28]
2/3 x [52]

Life expectancy =

35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net earning
capacity is thus computed as follows:
Net Earning
Capacity

Net Earning
Capacity

= life expectancy x (gross annual income - reasonable and

necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach
of contract of carriage resulted in the death of petitioners son, following Article
1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to moral
damages.
Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount
of P100,000 as moral damages andP100,000 as exemplary damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded
where exemplary damages are awarded. The Court finds that 10% of the total
amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for payment of interest
in the concept of actual and compensatory damages, subject to the following rules,
to wit
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the

date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty
only in the present petition, the interest due shall be computed upon the finality of
this decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines,
Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and
SET ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay
petitioners the following: (1) P50,000 as indemnity for the death of Ruelito Cruz;
(2) P8,316,000 as indemnity for Ruelitos loss of earning capacity; (3) P100,000 as
moral damages; (4) P100,000 as exemplary damages; (5) 10% of the total amount
adjudged against respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.
SO ORDERED.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of
Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the
decision of the Regional Trial Court of Batangas City, Branch 84, in Civil
Case No. 4293, which dismissed petitioners' complaint for a business tax
refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No.
387, as amended, to contract, install and operate oil pipelines. The
original pipeline concession was granted in 1967 1 and renewed by the
Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with
the Office of the Mayor of Batangas City. However, before the mayor's
permit could be issued, the respondent City Treasurer required petitioner
to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code 3. The respondent City Treasurer
assessed a business tax on the petitioner amounting to P956,076.04
payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid
the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the
respondent City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator
with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt
from paying tax on gross receipts under Section 133 of the
Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h)
of the Local Government Code. Therefore, the authority to
impose tax "on contractors and other independent contractors"
under Section 143, Paragraph (e) of the Local Government
Code does not include the power to levy on transportation
contractors.
The imposition and assessment cannot be categorized as a
mere fee authorized under Section 147 of the Local

Government Code. The said section limits the imposition of

fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is
violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to
the cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere regulatory
imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest
contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section 133
(j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas
City a complaint 6 for tax refund with prayer for writ of preliminary
injunction against respondents City of Batangas and Adoracion Arellano in
her capacity as City Treasurer. In its complaint, petitioner alleged, inter
alia, that: (1) the imposition and collection of the business tax on its gross
receipts violates Section 133 of the Local Government Code; (2) the
authority of cities to impose and collect a tax on the gross receipts of
"contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally
and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot
be exempt from taxes under Section 133 (j) of the Local Government Code
as said exemption applies only to "transportation contractors and persons
engaged in the transportation by hire and common carriers by air, land
and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks,
trains, ships and the like. Respondents further posit that the term
"common carrier" under the said code pertains to the mode or manner by
which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the
complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent
contractor.
. . . the exemption to tax claimed by the plaintiff has become
unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of
the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession
under Republic Act 387. (Exhibit A) whose concession was

lately renewed by the Energy Regulatory Board (Exhibit B). Yet

neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise
holders under Sec. 137 of the Local Tax Code. Such being the
situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may
be of help:
1. That the exemption granted under
Sec. 133 (j) encompasses onlycommon
carriers so as not to overburden the
riding public or commuters with
taxes. Plaintif is not a common carrier,
but a special carrier extending its
services and facilities to a single
specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was
basically enacted to give more and
effective local autonomy to local
governments than the previous
enactments, to make them economically
and financially viable to serve the
people and discharge their functions
with a concomitant obligation to accept
certain devolution of powers, . . . So,
consistent with this policy even
franchise grantees are taxed (Sec. 137)
and contractors are also taxed under
Sec. 143 (e) and 151 of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition
for review. On February 27, 1995, we referred the case to the respondent
Court of Appeals for consideration and adjudication. 10 On November 29,
1995, the respondent court rendered a decision 11 affirming the trial
court's dismissal of petitioner's complaint. Petitioner's motion for
reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a
Resolution dated November 11, 1996. 13 Petitioner moved for a
reconsideration which was granted by this Court in a Resolution 14 of
January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding
that (1) the petitioner is not a common carrier or a transportation
contractor, and (2) the exemption sought for by petitioner is not clear
under the law.
There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out
to the public as engaged in the business of transporting persons or
property from place to place, for compensation, offering his services to
the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business
of carrying goods for others as a public
employment, and must hold himself out
as ready to engage in the
transportation of goods for person
generally as a business and not as a
casual occupation;
2. He must undertake to carry goods of
the kind to which his business is
confined;
3. He must undertake to carry by the
method by which his business is
conducted and over his established
roads; and
4. The transportation must be for
hire. 15
Based on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as a
public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports
the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business
activity is the carrying of persons or goods or both,
and one who does such carrying only as an
ancillary activity (in local idiom, as a "sideline").
Article 1732 . . . avoids making any distinction
between a person or enterprise offering
transportation service on a regular or scheduled
basis and one offering such service on
an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a
carrier offering its services to the "general
public," i.e., the general community or population,

and one who offers services or solicits business

only from a narrow segment of the general
population. We think that Article 1877 deliberately
refrained from making such distinctions.
So understood, the concept of "common carrier"
under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the
law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
every person that now or hereafter may
own, operate. manage, or control in the
Philippines, for hire or compensation,
with general or limited clientele,
whether permanent, occasional or
accidental, and done for general
business purposes, any common carrier,
railroad, street railway, traction railway,
subway motor vehicle, either for freight
or passenger, or both, with or without
fixed route and whatever may be its
classification, freight or carrier service
of any class, express service,
steamboat, or steamship line, pontines,
ferries and water craft, engaged in the
transportation of passengers or freight
or both, shipyard, marine repair shop,
wharf or dock, ice plant, icerefrigeration plant, canal, irrigation
system gas, electric light heat and
power, water supply and power
petroleum, sewerage system, wire or
wireless communications systems, wire
or wireless broadcasting stations and
other similar public services. (Emphasis
Supplied)
Also, respondent's argument that the term "common carrier" as used in
Section 133 (j) of the Local Government Code refers only to common
carriers transporting goods and passengers through moving vehicles or
vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers"
in the Civil Code makes no distinction as to the means of transporting, as
long as it is by land, water or air. It does not provide that the
transportation of the passengers or goods should be by motor vehicle. In
fact, in the United States, oil pipe line operators are considered common
carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner
is considered a "common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier.
A pipe line shall have the preferential right to
utilize installations for the transportation of
petroleum owned by him, but is obligated to utilize
the remaining transportation capacity pro rata for
the transportation of such other petroleum as may
be offered by others for transport, and to charge
without discrimination such rates as may have
been approved by the Secretary of Agriculture and
Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility.
Pertinent portion of Article 7 thereof provides:
that everything relating to the exploration for and
exploitation of petroleum . . . and everything
relating to the manufacture, refining, storage,
or transportation by special methods of petroleum,
is hereby declared to be a public utility. (Emphasis
Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a
"common carrier." In BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire
that is engaged only in transporting petroleum
products, it is considered a common carrier under
Republic Act No. 387 . . . . Such being the case, it is
not subject to withholding tax prescribed by
Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a
"common carrier" and, therefore, exempt from the business tax as
provided for in Section 133 (j), of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing
Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the
following:
xxx xxx xxx
(j) Taxes on the gross
receipts of transportation
contractors and persons
engaged in the
transportation of
passengers or freight by
hire and common carriers by

air, land or water, except as

provided in this Code.
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95,
line
1. It states: "SEC. 121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local
Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the
business of transportation. This appears to be one
of those being deemed to be exempted from the
taxing powers of the local government units. May
we know the reason why the transportation
business is being excluded from the taxing powers
of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception
contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units
may not impose taxes on the business of
transportation, except as otherwise provided in
this code.
Now, Mr. Speaker, if the Gentleman would care to
go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on
business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are
enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker,
is the imposition of taxes by local government units
on the carrier business. Local government units
may impose taxes on top of what is already being
imposed by the National Internal Revenue Code
which is the so-called "common carriers tax." We do
not want a duplication of this tax, so we just
provided for an exception under Section 125 [now
Sec. 137] that a province may impose this tax at a
specific rate.
MR. AQUINO (A.). Thank you for that clarification,
Mr. Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of
the local government unit the imposition of business tax against common
carriers is to prevent a duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its
gross sales/earnings under the National Internal Revenue Code. 19 To tax
petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the
respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP No.
36801 is REVERSED and SET ASIDE.
SO ORDERED.