METRO MANILA TRANSIT CORPORATION, PETITIONER, VS. REYNALDO CUEVAS AND JUNNEL CUEVAS, REPRESENTED BY REYNALDO CUEVAS, RESPONDENTS.

Metro Manila Transit Corporation versus Cuevas

The Case

This is a petition for review brought by Metro Manila Transit Corporation, which the Court calls MMTC, against Reynaldo Cuevas and his son Junnel Cuevas. The Cuevases sued for damages after a bus hit and damaged Reynaldo's motorcycle and badly injured Junnel. The bus was registered in the name of MMTC, but it had already been sold to Mina's Transit Corporation under an agreement to sell, and Mina's Transit was the one actually operating it. The case matters because it gathers into one ruling two rules every examinee must know: the registered-owner rule, under which the registered owner is primarily and directly liable to the public, and the registered owner's right to recover what it pays from the actual employer of the negligent driver by way of a cross-claim.

Procedural History

The Cuevases filed a complaint for damages in the Regional Trial Court in Cavite against MMTC and Mina's Transit. MMTC answered, setting up a cross-claim against Mina's Transit based on a provision in the agreement to sell that bound Mina's Transit to hold MMTC free from liability arising from the use and operation of the buses. Mina's Transit, in turn, filed a third-party complaint against its insurer, Perla Compania de Seguros. After trial, the Regional Trial Court rendered judgment on September 17, 1999, holding MMTC and Mina's Transit solidarily liable for actual damages, moral damages, exemplary damages, and attorney's fees, with costs. The trial court found that the bus driver's negligence was the proximate cause of the mishap, and that his employers were solidarily liable under Article 2180 of the Civil Code. It dismissed the third-party complaint for lack of evidence, but it did not rule at all on the cross-claim. MMTC appealed, and the Court of Appeals affirmed the trial court's decision. MMTC then came to the Supreme Court on a petition for review, raising the sole issue of whether it was liable despite the stipulation in the agreement to sell that shielded it from liability.

Facts

On August 31, 1990, MMTC and Mina's Transit entered into an agreement to sell under which Mina's Transit bought several bus units from MMTC at a stipulated price. The parties agreed that MMTC would retain ownership of the buses until certain conditions were met, but in the meantime Mina's Transit could operate the buses within Metro Manila.

On October 14, 1994, one of those buses, bearing plate number NXM-449-TB-pil 94, was travelling along the South Superhighway in Makati. It was driven by Jessie Rillera. Following and then attempting to overtake the motorcycle of Junnel Cuevas on the right side of the lane, the driver swiped the motorcycle as he accelerated. Junnel was thrown to the road and his right leg was severely fractured; he underwent several operations and could not walk without crutches. The motorcycle, owned by his father Reynaldo, was extensively damaged.

The Cuevases sued MMTC and Mina's Transit. MMTC admitted in its pleadings that it remained the registered owner of the bus at the time of the incident, but insisted that the actual operator and employer of the driver was Mina's Transit, and that the agreement to sell obliged Mina's Transit to hold it free from liability arising from the use and operation of the bus.

Issues

• Whether or not MMTC, as the registered owner of the bus, is liable for the injuries and damage caused by the negligent driving of a driver who was not its employee, despite the stipulation in the agreement to sell shielding it from liability.
• Whether or not MMTC may recover from Mina's Transit, by way of its cross-claim, the amounts it is ordered to pay the Cuevases.

Applicable Provisions

Article 2176 of the Civil Code, which the Court cites through its ruling in Filcar Transport Services versus Espinas, defines the source of the obligation arising from the driver's fault:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

This is the provision under which the registered owner is made primarily liable for the tort of the driver.

Article 2180 of the Civil Code, also cited through Filcar, fixes the liability of the employer for the negligent acts of his employees:

The obligation imposed by the preceding article is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company. Guardians are liable for damages caused by minors or incapacitated persons who are under their authority and live in their company. The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

This is the provision that makes the registered owner, treated in law as the employer of the driver, vicariously liable to third persons.

Section 8 of Rule 6 of the Rules of Court defines the cross-claim that MMTC set up against Mina's Transit:

A cross-claim is any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

This is the procedural vehicle by which the registered owner may pass on its liability to the actual employer of the negligent driver.

Ruling

On the first issue, the Court held that MMTC could not escape liability. Because MMTC admitted in its pleadings that it remained the registered owner of the bus at the time of the incident, the registered-owner rule applied. The Court traced that rule to its 1957 ruling in Erezo versus Jepte, which explained that registration is required, not to transfer ownership, but to permit the use and operation of the vehicle on public highways, and chiefly to identify the owner so that responsibility for accidents can be fixed on a definite individual. The Court also relied on Filcar Transport Services versus Espinas, quoting its teaching that the registered owner is considered the employer of the tortfeasor-driver and is made primarily liable under Article 2176 in relation with Article 2180, and that the existence of an employer-employee relationship in the labor-law sense is not required. The actual employer is deemed merely the agent of the registered owner. The stipulation in the agreement to sell did not bind third parties like the Cuevases, who were expected to rely simply on the data in the registration certificate of the erring bus.

On the second issue, the Court held that the law did not leave MMTC without a remedy. Following Filcar, MMTC could recover from Mina's Transit, the actual employer of the negligent driver, under the principle of unjust enrichment, by means of a cross-claim seeking reimbursement of all amounts it could be required to pay. The Court found it a cause of concern that the trial court ignored the cross-claim, and that the Court of Appeals committed the same oversight. The omission was unwarranted because Mina's Transit did not dispute the cross-claim, did not specifically deny the agreement to sell on which it was based, and presented no controverting evidence. The trial court should have granted the cross-claim to prevent a multiplicity of suits and to spare the parties further expense and bother. The Court reminded both lower courts that a cross-claim is like the complaint and the counterclaim, which the court must rule upon.

Doctrine

• Under the registered-owner rule, the registered owner of a motor vehicle involved in a vehicular accident is primarily and directly liable for the injuries and damage caused by its operation, under Article 2176 in relation with Article 2180 of the Civil Code.
• For this purpose, the registered owner is considered the employer of the negligent driver, and the actual employer is deemed merely its agent. No employer-employee relationship in the labor-law sense need be established.
• A stipulation between the registered owner and the actual operator or buyer does not bind third persons injured by the vehicle, who may rely on the registration certificate.
• The registered owner is not without recourse: it may recover from the actual employer of the negligent driver, under the principle of unjust enrichment, by way of a cross-claim under Section 8 of Rule 6 of the Rules of Court.
• Courts must rule on a cross-claim; failing to do so is error, because a cross-claim is like the complaint and the counterclaim that the court must resolve, and ruling on it prevents a multiplicity of suits.

Disposition

The Court affirmed the decision of the Court of Appeals, with the modification that MMTC's cross-claim against Mina's Transit was granted, and Mina's Transit was ordered to reimburse MMTC whatever amounts the latter shall pay to the Cuevases under the judgment of the trial court, with no pronouncement on costs.

Remember This

Memorize the line: the registered owner is the employer of the driver in so far as the public and third persons are concerned, but it may recover what it pays from the actual employer by cross-claim. Examiners use this case to test the registered-owner rule against a sale or lease of the vehicle, and to test whether a court's failure to rule on a cross-claim is reversible error.