ABELARDO LIM AND ESMADITO GUNNABAN, PETITIONERS, VS. COURT OF APPEALS AND DONATO H. GONZALES, RESPONDENTS.

Lim versus Court of Appeals

The Case

This is a petition for review of a decision of the Court of Appeals affirming an award of damages in favor of a passenger jeepney owner whose vehicle was wrecked in a highway collision. The jeepney owner, Donato Gonzales, had bought the vehicle from the holder of a certificate of public convenience but never transferred the registration to his name, so that the jeepney continued to be operated under the so-called kabit system. The truck owner and driver, Abelardo Lim and Esmadito Gunnaban, resist liability on the ground that Gonzales is not the registered owner and therefore not the real party in interest. The case matters because it draws the precise boundary of the kabit doctrine: the Court holds that the policy against the kabit system protects the riding public from deception, and where no member of the public was deceived or involved, the unregistered owner may sue in his own name for the damage to his property.

Procedural History

Gonzales filed a complaint for damages against Lim and Gunnaban in the Regional Trial Court of Malolos, Bulacan. On the first of October 1993 the trial court ruled for Gonzales, awarding him 236,000 pesos as compensatory damages with legal interest from the date of the accident, plus 30,000 pesos as attorney's fees. It held that as vendee and current owner of the jeepney Gonzales was the real party in interest, and it found Gunnaban negligent for panicking in an emergency, while Lim was liable for want of diligence in supervising his employees.

Lim and Gunnaban appealed to the Court of Appeals, which on the seventeenth of July 1996 affirmed the trial court. The appellate court conceded that an operator under the kabit system could not ordinarily sue without joining the registered owner as his principal, but held that equity demanded an exception in this case. The petitioners then came to the Supreme Court by petition for review.

Facts

Sometime in 1982 Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, who held a certificate of public convenience for public utility vehicles plying the Monumento to Bulacan route. Gonzales continued to operate the jeepney for public transport, but he did not have the registration transferred to his name and did not secure a certificate of public convenience for himself. Vallarta therefore remained the registered owner and operator on record.

On the twenty-second of July 1990, while the jeepney was running northbound along the North Diversion Road in Meycauayan, Bulacan, it collided with a ten-wheeler truck owned by Abelardo Lim and driven by Esmadito Gunnaban. Gunnaban admitted responsibility: while traveling toward Manila the truck suddenly lost its brakes, and to avoid another vehicle he swerved to the left until he reached the center island, then veered farther left, smashing into a Ferroza automobile and then into Gonzales's passenger jeepney. The impact severely damaged both vehicles and left one passenger dead and many others wounded.

Lim shouldered the hospitalization of the wounded, compensated the heirs of the deceased passenger, and had the Ferroza restored. He offered to repair the jeepney at his shop, then offered 20,000 pesos, then 40,000 pesos, but Gonzales rejected every offer and demanded a brand-new jeep or 236,000 pesos. Negotiations collapsed and the complaint followed. Meanwhile the damaged jeepney was left by the roadside to corrode and decay, Gonzales explaining that he had no capability, financial or otherwise, to tow it home.

Issues

• Whether or not the buyer of a passenger jeepney operated under the kabit system, who is not the registered owner under the certificate of public convenience, is the real party in interest and may sue for damages against the erring vehicle.
• Whether or not the award of 236,000 pesos as compensatory damages is excessive and amounts to unjust enrichment, considering that the jeepney was purchased for only 30,000 pesos.
• Whether or not legal interest on the award should run from the date of the accident or only from the date of the judgment.
• Whether or not the damages should be reduced because the injured party failed to minimize his loss.

Applicable Provisions

Article 1409 of the Civil Code provides:

Contracts whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy are inexistent and void from the beginning.

This is the provision under which the Court declares the kabit arrangement void and inexistent, even as it refuses to let that nullity defeat the claim of the unregistered owner against a third-party tortfeasor.

Article 2213 of the Civil Code provides:

Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

This governs the second and third issues, because the damage to the jeepney was disputed and unliquidated until the trial court fixed it in judgment.

Article 2203 of the Civil Code provides:

The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question.

This is the basis of the Court's reminder on mitigation, which it applies but does not use to reduce the award because the petitioners offered no proof of the amount that could have been saved.

Ruling

On the first issue, the Court held that Gonzales is the real party in interest and may sue. The kabit system, it explained, is an arrangement whereby a person granted a certificate of public convenience allows other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings. Such an arrangement is contrary to public policy and therefore void and inexistent under Article 1409. But the thrust of the law in enjoining the kabit system is not so much to penalize the parties as to identify the person upon whom responsibility may be fixed in case of an accident, with the end view of protecting the riding public. That policy loses its force where the public at large is not deceived and much less involved. Here, neither party to the kabit arrangement was being held liable; the case arose from the negligence of another vehicle to whom no representation about ownership was made and to whom none was necessary; and the riding public was not bothered or inconvenienced. It was Gonzales himself who had been wronged. To deny him his right would be the height of inequity.

On the second issue, the Court held that the award is not excessive. Indemnification for damages comprehends not only the value of the loss suffered but also the profits the obligee failed to obtain. In other words, it is not limited to damnum emergens, or actual loss, but extends to lucrum cessans, or the amount of profit lost. Had the jeepney not met the accident it could reasonably be expected to have continued earning, and Gonzales's average income of 300 pesos per day was included in the award. The 236,000 pesos is thus a reasonable estimate of the damage to the jeepney plus the income lost, and the petitioners offered no substantive evidence to refute it.

On the third issue, the Court modified the judgment. Since the suit was for unliquidated damages, not known until ascertained by the courts after proof, interest at six percent per annum should run from the date of the judgment of the trial court, not from the date of the accident. The amount due was not a liquidated account already demandable and payable, as the assessment of damage was heavily debated.

On the fourth issue, the Court noted that Gonzales left his jeepney by the roadside at the mercy of the elements, contrary to his duty to minimize the loss. But the petitioners failed to offer in evidence the estimated amount of damage caused by that unconcern. It is their burden to show not only that the injured party could have mitigated his damages but also the amount thereof; failing in this, the award cannot be proportionately reduced.

Doctrine

• The kabit system is contrary to public policy and void and inexistent under Article 1409 of the Civil Code, but its purpose is to fix responsibility for accidents and protect the riding public, not to penalize the parties.
• Where no member of the public was deceived or involved, and the suit arises from the negligence of a third-party vehicle, the unregistered owner under the kabit system is the real party in interest and may recover damages for injury to his vehicle and business.
• Compensatory damages cover both damnum emergens, the actual loss, and lucrum cessans, the profit lost; the injured party is entitled to no more than just and adequate compensation.
• Interest on unliquidated damages under Article 2213 runs only from the date of the judgment ascertaining the amount, not from the date of the accident.
• Mitigation under Article 2203 does not reduce an award unless the defendant proves both the failure to mitigate and the amount that could have been saved.

Disposition

The petition was denied in substance and the decision was modified: Gonzales recovered 236,000 pesos as compensatory damages and 30,000 pesos as attorney's fees, with interest at six percent per annum computed from the date of the trial court's judgment until finality, and twelve percent per annum thereafter until fully satisfied, with costs against the petitioners.

Remember This

The kabit system is void, but the unregistered owner may still sue a third-party tortfeasor when no member of the riding public was deceived or involved. Examiners use this case to test the real party in interest rule, the damnum emergens and lucrum cessans distinction, and the rule that interest on unliquidated damages runs from judgment.