Gelisan vs. Alday

The registered owner of a public service vehicle remains responsible to the public and third persons for damages incident to its operation notwithstanding a lease of the vehicle to another, where the lease was not approved by the Public Service Commission; such unapproved lease is not binding on the public, and the registered owner’s liability is joint and several with the lessee/driver. The lease remains valid between the contracting parties, giving the registered owner a right of indemnity against the lessee.

Bienvenido Gelisan owned a freight truck bearing plate No. TH-2377, which the decision treats as a public service vehicle covered by a franchise. Roberto Espiritu hired the truck from Gelisan under a written contract that made Espiritu bear all losses and damages from the carriage of goods. Benito Alday was a trucking operator who had a contract to haul Atlas Fertilizer Corporation’s fertilizers from Pier 4, North Harbor, to its warehouse in Mandaluyong. The decision applies the statutory requirement that a franchise or privilege pertaining thereto may be sold or leased only with approval of the Public Service Commission, a requirement rooted in the personal nature of a franchise and the need to protect the public interest.

Bienvenido Gelisan owned a freight truck bearing plate No. TH-2377. On January 31, 1962, Gelisan and Roberto Espiritu entered into a contract, Exhibit 3-Gelisan, under which Espiritu hired the truck for hauling rice, sugar, flour, and fertilizer at an agreed price of P18.00 per trip within the City of Manila, provided the loads did not exceed 200 sacks. The contract also provided that Espiritu would bear and pay all losses and damages attending the carriage of the goods he hauled. Espiritu’s driver took the truck on February 1, 1962.

Benito Alday was a trucking operator who owned about 15 freight trucks and had known Espiritu since 1948 as a truck operator. Alday had a contract to haul the fertilizers of Atlas Fertilizer Corporation from Pier 4, North Harbor, to its warehouse in Mandaluyong. At the gate of Pier 4, Espiritu offered Alday the use of his truck with a driver and helper at 9 centavos per bag of fertilizer. Alday accepted and instructed his checker, Celso Henson, to let Espiritu haul the fertilizer. Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to Espiritu’s driver and helper with the necessary way bill receipts, Exhibits A and B.

Espiritu did not deliver the fertilizer to the Atlas Fertilizer bodega in Mandaluyong. The signatures appearing on the way bill receipts, Exhibits A and B, of the Alday Transportation were admittedly not the signatures of any representative or employee of Atlas Fertilizer Corporation. Espiritu could not be found, and Alday reported the loss to the Manila Police Department. Espiritu was later arrested and booked for theft.

Alday subsequently saw the truck in question on Sto. Cristo Street and notified the Manila Police Department, which impounded it. Gelisan claimed the truck from the Police Department after he had been notified by his employees that it had been impounded, but because he could not produce the registration papers at the time, the police would not release the truck to him. According to Gelisan, for the release of the truck he paid a premium of P300 to the surety company.

Alday was compelled to pay the value of the 400 bags of fertilizer, amounting to P5,397.33, to Atlas Fertilizer Corporation. On February 12, 1962, he filed a complaint against Espiritu and Gelisan with the Court of First Instance of Manila, docketed as Civil Case No. 49603, for recovery of damages suffered through the criminal acts committed by the defendants. Espiritu failed to file an answer and was declared in default. Gelisan disowned responsibility, claiming that he had no contractual relations with Alday regarding the hauling or delivery of the 400 bags; that Espiritu’s alleged misappropriation or nondelivery was entirely beyond his control and knowledge; that he learned of it for the first time on February 8, 1962, when the truck was impounded by the Manila Police Department at Alday’s instance; and that their written contract of hire expressly provided that Espiritu would bear and pay all losses and damages attending the carriage of goods.

After trial, the Court of First Instance found that Espiritu alone was liable to Alday because Gelisan was not privy to the contract between Espiritu and Alday. On appeal, the Court of Appeals found Gelisan to be the registered owner of the truck and that the lease contract between Gelisan and Espiritu had not been approved by the Public Service Commission.

• No Contractual Relation with Alday: Petitioner maintained that he had no contractual relations with Benito Alday as regards the hauling and/or delivery of the 400 bags of fertilizer mentioned in the complaint.
• Lease Contract Exemption: Petitioner argued that the written contract of hire with Roberto Espiritu expressly provided that Espiritu would bear and pay all losses and damages attending the carriage of goods to be hauled by Espiritu, and that this exempted Gelisan from liability to third persons.
• Lack of Knowledge and Control: Petitioner claimed that the alleged misappropriation or nondelivery by Espiritu was entirely beyond his control and knowledge, and that he learned of it for the first time on February 8, 1962, when his truck was impounded by the Manila Police Department at Alday’s instance.
• Scope of Public Service Commission Approval: Petitioner argued that the rule requiring previous approval by the Public Service Commission of the transfer or lease of a motor vehicle may be applied only in cases where there is no positive identification of the owner or driver, or where there are very scant means of identification, but not where the person responsible for damages has been fixed or determined beforehand.
• Subsidiary Liability: Petitioner contended that his liability is only subsidiary.

• Liability of Registered Owner Despite Lease: Whether the registered owner of a public service vehicle is liable to a third person for damages incident to the vehicle’s operation when the vehicle had been leased to another under a contract providing that the lessee bears all losses and damages.
• Effect of Lack of Public Service Commission Approval: Whether a lease of a public service vehicle covered by a franchise, not approved by the Public Service Commission, is binding upon the public and third persons.
• Scope of the Approval Requirement: Whether the requirement of prior Public Service Commission approval for a transfer or lease of a public service vehicle applies only when the owner or driver is not positively identified or where identification is scant, and not when the responsible person has been determined.
• Nature of Liability: Whether the registered owner’s liability is merely subsidiary or joint and several with the lessee/driver.
• Right of Recourse: Whether the registered owner has a right to be indemnified by the lessee for amounts paid under the judgment.

• Liability of Registered Owner Despite Lease: Yes. The registered owner of a public service vehicle is responsible for damages that may arise from consequences incident to its operation or that may be caused to passengers, notwithstanding a lease of the vehicle to another.
• Effect of Lack of Public Service Commission Approval: No. An unapproved transfer or lease of property covered by a franchise is not binding upon the public and third persons; the grantee remains responsible under the franchise.
• Scope of the Approval Requirement: No. The requirement applies even where the person responsible for damages has been identified; the franchise is personal and the Public Service Commission must be given the opportunity to protect the public interest.
• Nature of Liability: No. The registered owner/operator of a public service vehicle is jointly and severally liable with the driver for damages incurred by passengers or third persons, not merely subsidiarily liable.
• Right of Recourse: Yes. The registered owner has a right to be indemnified by the lessee because the lease, although ineffective against the public for lack of approval, is valid and binding between the contracting parties.

• Liability of Registered Owner Despite Lease: The Court has invariably held that the registered owner of a public service vehicle is responsible for damages that may arise from consequences incident to its operation or that may be caused to any of the passengers therein. Gelisan was the registered owner of the freight truck. His claim that he is not liable because of the lease contract with Espiritu, which exempted him from liability to third persons, cannot be sustained. The lease contract had not been approved by the Public Service Commission. Thus, Gelisan remained responsible to Alday for the loss caused by Espiritu’s failure to deliver the fertilizer.
• Effect of Lack of Public Service Commission Approval: It is settled in jurisprudence that if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the public and third persons. The lease between Gelisan and Espiritu was not approved by the Public Service Commission. Consequently, the lease did not shield Gelisan from liability; in contemplation of law, he continued to be responsible under the franchise in relation to the Commission and the public.
• Scope of the Approval Requirement: The petitioner’s argument that the approval requirement applies only where there is no positive identification of the owner or driver, or where identification is scant, was rejected. The reason for the rule, as explained in Montoya vs. Ignacio, is that a franchise is personal in nature; any transfer or lease thereof should be notified to the Public Service Commission so that it may take proper safeguards to protect the public interest. The law requires a public hearing, with notice to all interested parties, to determine whether there are good and reasonable grounds justifying the transfer or lease or whether it is detrimental to public interest. If the property is transferred or leased without the requisite approval, the transfer is not binding against the Public Service Commission, and the grantee continues to be responsible under the franchise in relation to the Commission and the public. The fact that Espiritu was identified as the person responsible for the damages did not remove Gelisan’s liability.
• Nature of Liability: The petitioner’s contention that his liability is only subsidiary was rejected. The Court has consistently considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said vehicles. In Vargas vs. Langcay, the Court held that the Court of Appeals erred in considering the registered owner only subsidiarily liable under Article 103 of the Revised Penal Code. Accordingly, Gelisan was jointly and severally liable with Espiritu.
• Right of Recourse: Gelisan was not without recourse. He had a right to be indemnified by Espiritu for the amount he may be required to pay as damages for the injury caused to Alday. This is because the lease contract, although not effective against the public for not having been approved by the Public Service Commission, is valid and binding between the contracting parties. The Court of Appeals correctly ordered Espiritu to refund Gelisan whatever amount the latter may have paid to Alday by virtue of the judgment.

• Registered Owner Liability for Public Service Vehicles — The registered owner of a public service vehicle is responsible for damages that may arise from consequences incident to its operation or that may be caused to passengers. Applied: Gelisan, as registered owner of truck TH-2377, remained liable to Alday for the loss of fertilizer even though Espiritu had leased and operated the truck.
• Unapproved Transfer or Lease of Franchise-Covered Property — If property covered by a franchise is transferred or leased to another without obtaining the requisite approval from the Public Service Commission, the transfer is not binding upon the public and third persons. The grantee continues to be responsible under the franchise in relation to the Commission and the public. Applied: The lease between Gelisan and Espiritu lacked Public Service Commission approval, so it did not shield Gelisan from liability to Alday.
• Joint and Several Liability of Registered Owner/Operator — The registered owner/operator of a public service vehicle is jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of the vehicle. Applied: Gelisan was held jointly and severally liable with Espiritu, not merely subsidiarily liable.
• Validity of Unapproved Lease Between Parties and Right of Indemnity — Although an unapproved lease of franchise-covered property is ineffective against the public, it remains valid and binding between the contracting parties. Applied: Espiritu was ordered to refund Gelisan whatever amount the latter may pay to Alday under the judgment.

• "The Court has invariably held in several decisions that the registered owner of a public service vehicle is responsible for damages that may arise from consequences incident to its operation or that may be caused to any of the passengers therein." — This states the foundational liability rule applied to Gelisan as registered owner.
• "It is settled in our jurisprudence that if the property covered by a franchise is transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the public and third persons." — This is the ratio for rejecting the lease as a defense against Alday.
• "The Court has consistently considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries sustained in the operation of said vehicles." — This rejects subsidiary liability and establishes joint and several liability.
• "since the lease contract in question, although not effective against the public for not having been approved by the Public Service Commission, is valid and binding between the contracting parties." — This supports the registered owner’s right of indemnity against the lessee.

• Montoya vs. Ignacio, 94 Phil. 182 — Cited by the Court of Appeals and affirmed by the Supreme Court as the controlling precedent for the rule that an unapproved transfer or lease of property covered by a franchise is not binding on the public, and the grantee remains responsible under the franchise.
• Vargas vs. Langcay, 116 Phil. 478, 481 — Cited for the rule that the registered owner/operator of a public service vehicle is jointly and severally liable with the driver, and that subsidiary liability under Article 103 of the Revised Penal Code is erroneous.
• Erezo vs. Jepte, 102 Phil. 103 — Cited in Vargas vs. Langcay for the holding that the registered owner is primarily responsible for the damage caused.
• Tamayo vs. Aquino, 105 Phil. 949; 56 Off. Gaz. [36] 5617 — Cited in Vargas vs. Langcay for the holding that the registered owner’s responsibility to the public or to any passenger is direct.
• Juaniza vs. Jose, G.R. No. 50127-28, March 30, 1979, 89 SCRA 306 — Cited in footnote as authority that the registered owner of a public service vehicle is responsible for damages incident to its operation.
• MYC Agro-Industrial Corp. vs. Vda. de Caldo, G.R. No. 57298, Sept. 7, 1984, 132 SCRA 10 — Cited in footnote as additional authority for registered owner liability.

• Article 103, Revised Penal Code — Cited in the Vargas vs. Langcay excerpt as the provision under which the Court of Appeals had wrongly considered the registered owner only subsidiarily liable; the Supreme Court rejected that subsidiary liability and held the registered owner/operator jointly and severally liable.
• Public Service Commission approval requirement (statutory provision not identified by number in the text) — The decision states that the law requires approval by the Public Service Commission before a franchise or any privilege pertaining thereto may be sold or leased; because the lease between Gelisan and Espiritu lacked such approval, it was not binding upon the public and third persons.

Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.