Fores vs. Miranda

A sale of a public service vehicle without the prior approval of the Public Service Commission is not effective and binding in so far as the responsibility of the registered owner to the public is concerned, and moral damages are not recoverable for breach of a contract of transportation absent proof of bad faith, fraud, or malice on the part of the carrier.

Paz Fores was the registered owner of a passenger jeepney bearing plate No. TPU-1163, Series of 1952, Quezon City, with the name "Doña Paz" painted below its windshield. Ireneo Miranda was a passenger on that jeepney when it met an accident on March 22, 1953. The vehicle was operated as a public utility under the regulatory framework of the Public Service Act (Commonwealth Act No. 146), which requires Commission approval for the sale, alienation, or encumbrance of public service property. The civil liability of common carriers to passengers is governed by the Civil Code of the Philippines, particularly the provisions on common carrier liability (Arts. 1733–1764) and the law on damages (Arts. 2176, 2201, 2208, 2219, 2220, 2224, 2225).

On the morning of March 22, 1953, a passenger jeepney driven by Eugenio Luga was descending the Sta. Mesa bridge at an excessive rate of speed when the driver lost control, causing the vehicle to swerve and hit the bridge wall. Five passengers were injured, including Ireneo Miranda, who suffered a fracture of the upper right humerus. Miranda was taken to the National Orthopedic Hospital for treatment and later underwent a series of operations: the first on May 23, 1953, when wire loops were wound around the broken bones and screwed into place; a second to insert a metal splint; and a third to remove the splint. At the time of trial, Miranda had not yet recovered the use of his right arm. He was a painter by profession and a professor of Fine Arts.

The jeepney carried plate No. TPU-1163, Series of 1952, Quezon City, registered in the name of Paz Fores, and bore the name "Doña Paz" painted below its windshield. The driver, Eugenio Luga, was charged with serious physical injuries through reckless imprudence and, upon pleading guilty, was sentenced accordingly.

Petitioner Fores contended that on March 21, 1953—one day before the accident—she had sold the passenger jeep to a certain Carmen Sackerman. She also attacked the credibility of the two policemen who went to the scene of the incident and disputed the identity of the vehicle. The Court of Appeals rejected these contentions, finding the vehicle's registration and markings sufficient to establish ownership and noting that no evidence to the contrary was introduced by the petitioner.

The Court of First Instance of Manila awarded P10,000 in actual damages. On appeal, the Court of Appeals reduced the actual damages to P2,000, finding that the only evidence on this point consisted of Miranda's bare statement that his expenses and loss of income amounted to P20,000, while acknowledging that he did incur expenses. The appellate court also awarded P3,000 in attorney's fees and P10,000 in moral damages, the latter subsequently reduced to P5,000 by its Resolution of May 5, 1957. Petitioner Fores then brought the present petition for review.

• Identity of Vehicle: Petitioner attacked the credibility of the two policemen who responded to the scene and contended that the evidence did not sufficiently establish that the vehicle involved belonged to her.
• Prior Sale of Vehicle: Petitioner maintained that on March 21, 1953, one day before the accident, she had sold the passenger jeep to a certain Carmen Sackerman, thereby extinguishing her liability as owner.
• PSC Approval Not Required for Bare Sale: Petitioner argued that the rulings in Montoya vs. Ignacio, Timbol vs. Osias, and Medina vs. Cresencia—which held that a transfer without Public Service Commission approval is ineffective—were inapplicable because in those cases the operator conveyed the vehicle together with franchise rights, whereas here the sale allegedly did not include the authority to operate.
• Attorney's Fees Awarded Motu Proprio: Petitioner assailed the P3,000 attorney's fees on the ground that the Court of First Instance did not provide for the same and that no appeal was interposed by the respondent, making it error for the Court of Appeals to award them motu proprio.

• PSC Approval for Sale of Public Service Vehicle: Whether the approval of the Public Service Commission is necessary for the sale of a public service vehicle even without conveying therewith the authority to operate the same.
• Moral Damages for Breach of Transportation Contract: Whether moral damages are recoverable in an action for breach of contract of transportation where the breach was caused by the negligence of the carrier's driver, absent proof of bad faith, fraud, or malice.
• Attorney's Fees Awarded by Appellate Court: Whether the Court of Appeals erred in awarding attorney's fees motu proprio when the trial court did not award them and the respondent did not appeal on that point.
• Adequacy of Actual Damages: Whether the reduction of actual damages from P10,000 to P2,000 by the Court of Appeals was proper.

• PSC Approval for Sale of Public Service Vehicle: Yes. A sale of a public service vehicle without the prior approval of the Public Service Commission is not effective and binding insofar as the responsibility of the registered owner to the public is concerned, pursuant to Section 20(g) of the Public Service Act.
• Moral Damages for Breach of Transportation Contract: No. Moral damages are not recoverable for breach of contract of transportation absent proof of bad faith, fraud, or malice on the part of the carrier; mere negligence of the carrier's driver does not suffice under Articles 2219 and 2220 of the Civil Code.
• Attorney's Fees Awarded by Appellate Court: No error. Attorney's fees are included in the concept of actual damages under the Civil Code and may be awarded whenever the court deems it just and equitable, pursuant to Article 2208.
• Adequacy of Actual Damages: No error. The reduction was proper given that the only evidence consisted of respondent's bare statement of P20,000 in expenses and lost income, and the P2,000 award was reasonable considering respondent's profession as a painter and professor of Fine Arts.

• PSC Approval for Sale of Public Service Vehicle: Section 20(g) of the Public Service Act (Commonwealth Act No. 146) prohibits any public service or its owner from selling, alienating, or encumbering its property, franchises, certificates, privileges, or rights, or any part thereof, without the previous approval of the Commission. The law was designed primarily for the protection of the public interest, and until such approval is obtained, the vehicle remains in contemplation of law under the service of the owner or operator standing in the records of the Commission, upon whom the public has a right to rely. The proviso allowing transactions to be "negotiated or completed before its approval" means only that the sale is valid and binding between the parties but not against the public. The phrase "in the ordinary course of its business" in the other proviso could not have been intended to include the sale of the vehicle itself, but at most refers to property such as junked equipment or spare parts. Petitioner's attempt to distinguish Montoya, Timbol, and Medina on the ground that those cases involved conveyance of the vehicle together with franchise rights was rejected, because the statute's language is clear and prohibits the sale of the property itself. No nunc pro tunc authorization was obtained from the Commission before the accident occurred, so the petitioner remained liable.

• Moral Damages for Breach of Transportation Contract: Articles 2219 and 2220 of the Civil Code govern the award of moral damages. Article 2219 allows moral damages in cases of criminal offenses or quasi-delicts causing physical injuries, among others. Article 2220 allows moral damages for breaches of contract where the defendant acted fraudulently or in bad faith. By contrasting these provisions, it is apparent that in breach of contract—including one of transportation—proof of bad faith or fraud is essential, and breach of contract cannot be considered an "analogous case" under Article 2219 because Article 2220 specifically provides for damages caused by contractual breach, and the definition of quasi-delict in Article 2176 expressly excludes cases where there is a pre-existing contractual relation. The exception is Article 1764, which makes a common carrier subject to Article 2206 in case of passenger death, entitling recovery of moral damages; but this exception underscores that where the injured passenger does not die, moral damages are not recoverable unless malice or bad faith is proved. The mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith. The theory that any breach of the carrier's obligation involves breach of confidence and therefore bad faith was rejected as untenable, because it would make the carrier liable for moral damages in every case and eliminate the distinction between negligence and malice. Under Articles 1756 and 1762, the presumption is that common carriers acted negligently, not maliciously. The distinction between fraud, bad faith, or malice and mere negligence is fundamental (Arts. 1170–1172), and Article 2201 differentiates the consequences: an obligor in good faith is liable only for natural and probable damages, while one in fraud or bad faith is liable for all damages reasonably attributable to non-performance. Prior rulings in Castro vs. Acro Taxicab Co. and Layda vs. Court of Appeals were inapplicable because they were predicated on the former law of damages before the new Civil Code limited judicial discretion.

• Attorney's Fees Awarded by Appellate Court: Attorney's fees are included in the concept of actual damages under the Civil Code and may be awarded whenever the court deems it just and equitable, pursuant to Article 2208. The Court of Appeals did not err in awarding them even though the trial court had not done so and the respondent had not appealed on that point.

• Adequacy of Actual Damages: The Court of Appeals correctly reduced the actual damages from P10,000 to P2,000 because the only evidence consisted of respondent's bare statement that his expenses and loss of income amounted to P20,000, without further substantiation. Nevertheless, it was undeniable that respondent incurred expenses, and given his profession as a painter and professor of Fine Arts, the P2,000 award was not excessive (Arts. 2224 and 2225, Civil Code).

• Approval of Public Service Commission for Transfer of Public Service Property — Under Section 20(g) of the Public Service Act (Commonwealth Act No. 146), the sale, alienation, mortgage, encumbrance, or lease of the property, franchises, certificates, privileges, or rights of a public service operator requires the prior approval of the Public Service Commission. A transfer made without such approval is valid and binding between the parties but is not effective and binding insofar as the responsibility of the grantee under the franchise in relation to the public is concerned. Until approval is obtained, the vehicle remains, in contemplation of law, under the service of the registered owner. A nunc pro tunc authorization may retroact to the date of transfer but cannot prejudice intervening rights.

• Moral Damages in Breach of Contract of Transportation — Moral damages are not recoverable in actions predicated on breach of contract of transportation absent proof of bad faith, fraud, or malice on the part of the carrier. The mere negligence or carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith. This rule derives from the contrast between Articles 2219 (quasi-delicts and criminal offenses) and 2220 (breaches of contract in bad faith) of the Civil Code, and from the definition of quasi-delict in Article 2176, which expressly excludes cases involving a pre-existing contractual relation. The exception is Article 1764, which allows moral damages when the passenger dies, making the exceptional character of death cases all the more evident.

• Distinction Between Actions Ex Contractu and Quasi Ex Delicto — An action for breach of contract of transportation cannot be treated simultaneously as an action in tort. In an action ex contractu, the carrier is presumed liable upon mere proof of injury to the passenger, the passenger is relieved from proving fault, and the carrier may not escape liability by proving due diligence in the selection and supervision of employees (Art. 1759). In a quasi-delict action, the plaintiff must prove fault or negligence, and the defendant may escape liability by proving due diligence. The difference in conditions, defenses, and proof compels differentiation between the two actions.

• "The law was designed primarily for the protection of the public interest; and until the approval of the public Service Commission is obtained the vehicle is, in contemplation of law, still under the service of the owner or operator standing in the records of the Commission which the public has a right to rely upon." — This passage articulates the rationale for requiring Public Service Commission approval of transfers of public service property: protection of the public's reliance on the registered owner.

• "To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation." — This statement crystallizes the Court's holding that moral damages for breach of contract require proof of bad faith or malice, and that awarding them absent such proof exceeds judicial authority.

• "The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and negligence (as mere carelessness) is too fundamental in our law to be ignored." — This passage underscores the doctrinal separation between malice and negligence as bases for different measures of damages, central to the Court's refusal to infer bad faith from mere negligence of a carrier's driver.

• "a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached through negligence of the carrier's employees." — This formulation establishes the evidentiary standard for proving bad faith in carrier liability cases, requiring more than a finding of negligent breach.

• Montoya vs. Ignacio, 50 Off. Gaz. No. 1, p. 108 — Followed. Held that a transfer of a public service vehicle without Public Service Commission approval is not effective and binding insofar as the responsibility of the grantee to the public is concerned. The proviso in Section 20(g) means the sale is valid between the parties but not against the public.
• Timbol vs. Osias, G.R. No. L-7547, April 30, 1955 — Followed. Same doctrine as Montoya regarding ineffectiveness of transfer without PSC approval vis-à-vis the public.
• Medina vs. Cresencia, 99 Phil. 506 — Followed. Same doctrine regarding PSC approval for transfers of public service property.
• Indalecio de Torres vs. Vicente Ona, 63 Phil. 594 — Cited as enlightening. Held that motor vehicles used in the performance of public service are public service property, subject to the Public Service Commission's full jurisdiction and control.
• Bachrach Motor Co. vs. Zamboanga Transportation Co., 52 Phil. 244 — Cited for the doctrine that a nunc pro tunc authorization may retroact to the date of transfer, but such outcome cannot prejudice rights intervening in the meantime.
• Cangco vs. Manila Railroad Co., 38 Phil. 768 — Cited for the rule that in an action for breach of contract of transportation, the carrier is presumed liable upon mere proof of injury, and the passenger is relieved from proving fault.
• Prado vs. Manila Electric Co., 51 Phil. 900 — Cited in support of the rule that a carrier may not escape liability by proving due diligence in the selection and supervision of employees in actions ex contractu.
• Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523 — Followed. Held that moral damages are not recoverable in damage actions predicated on breach of contract of transportation.
• Necesito vs. Paras, 104 Phil. 75 — Followed and distinguished. Cited for the rule that moral damages are not recoverable for breach of transportation contract; also cited for the exception under Article 1764 where the passenger dies, in which case moral damages are recoverable.
• Castro vs. Acro Taxicab Co., G.R. No. 49155, December 14, 1948 — Overruled as inapplicable. These rulings were predicated on the former law of damages before the new Civil Code limited judicial discretion in awarding moral damages.
• Layda vs. Court of Appeals, 90 Phil. 724 — Overruled as inapplicable. Same basis as Castro—predicated on the former law of damages before the new Civil Code.

• Section 20(g), Commonwealth Act No. 146 (Public Service Act) — Prohibits the sale, alienation, mortgage, encumbrance, or lease of the property, franchises, certificates, privileges, or rights of a public service operator without prior approval of the Public Service Commission. Applied to hold that the petitioner's alleged sale of the jeepney without PSC approval did not relieve her of liability to the public.
• Article 2176, Civil Code of the Philippines — Defines quasi-delict as fault or negligence causing damage where there is no pre-existing contractual relation between the parties. Cited to show that quasi-delict excludes contractual breaches, thereby barring treatment of a transportation contract action as a tort action.
• Article 2201, Civil Code of the Philippines — Distinguishes damages for an obligor in good faith (natural and probable consequences) from an obligor in fraud or bad faith (all damages reasonably attributable to non-performance). Cited to underscore the fundamental distinction between negligence and malice.
• Article 2208, Civil Code of the Philippines — Provides that attorney's fees may be awarded when the court deems it just and equitable. Applied to uphold the Court of Appeals' award of P3,000 in attorney's fees.
• Article 2219, Civil Code of the Philippines — Enumerates cases where moral damages may be recovered, including criminal offenses resulting in physical injuries and quasi-delicts causing physical injuries. Cited to show that breach of contract is not among the enumerated or analogous cases.
• Article 2220, Civil Code of the Philippines — Provides that moral damages may be awarded for breaches of contract where the defendant acted fraudulently or in bad faith. Applied as the controlling provision requiring proof of bad faith or malice for moral damages in contractual breach.
• Article 1756, Civil Code of the Philippines — Presumes common carriers to have been at fault or to have acted negligently in case of death or injuries to passengers. Cited to show that the presumption is one of negligence, not malice.
• Article 1759, Civil Code of the Philippines — Provides that a common carrier may not escape liability for injuries to passengers by proving due diligence in the selection and supervision of employees. Cited to distinguish the defense available in actions ex contractu from those in quasi-delict.
• Article 1762, Civil Code of the Philippines — Provides that contributory negligence of the passenger does not bar recovery if the proximate cause is the carrier's negligence, but damages shall be equitably reduced. Cited for its reference to the carrier's "negligence."
• Article 1764, Civil Code of the Philippines — Makes a common carrier subject to Article 2206 in case of passenger death, entitling recovery of moral damages. Cited as the exception that proves the rule: moral damages are recoverable for death but not for non-fatal injuries absent bad faith.
• Articles 2224 and 2225, Civil Code of the Philippines — Govern actual or compensatory damages. Cited to uphold the P2,000 actual damages award as reasonable.
• Articles 1170–1172, Civil Code of the Philippines — Distinguish the consequences of fraud, bad faith, malice, and negligence in contractual obligations. Cited to support the fundamental distinction between negligence and malice.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Endencia, JJ., concurred.