SECOND DIVISION

[G.R. No. 125817. January 16, 2002]

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT OF

APPEALS and DONATO H. GONZALES, respondents.

DECISION

BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public

convenience is sold to another who continues to operate it under
the same certificate of public convenience under the so-called
kabit system, and in the course thereof the vehicle meets an
accident through the fault of another vehicle, may the new owner
sue for damages against the erring vehicle? Otherwise stated, does
the new owner have any legal personality to bring the action, or is
he the real party in interest in the suit, despite the fact that he is not
the registered owner under the certificate of public convenience?

Sometime in 1982 private respondent Donato Gonzales purchased

an Isuzu passenger jeepney from Gomercino Vallarta, holder of a
certificate of public convenience for the operation of public utility
vehicles plying the Monumento-Bulacan route. While private
respondent Gonzales continued offering the jeepney for public
transport services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a certificate of
public convenience for its operation. Thus Vallarta remained on
record as its registered owner and operator.

On 22 July 1990, while the jeepney was running northbound along

the North Diversion Road somewhere in Meycauayan, Bulacan, it
collided with a ten-wheeler-truck owned by petitioner Abelardo Lim
and driven by his co-petitioner Esmadito Gunnaban. Gunnaban
owned responsibility for the accident, explaining that while he was
traveling towards Manila the truck suddenly lost its brakes. To avoid
colliding with another vehicle, he swerved to the left until he
reached the center island. However, as the center island eventually
came to an end, he veered farther to the left until he smashed into a
Ferroza automobile, and later, into private respondent's passenger
jeepney driven by one Virgilio Gonzales. The impact caused severe
damage to both the Ferroza and the passenger jeepney and left
one (1) passenger dead and many others wounded.

Petitioner Lim shouldered the costs for hospitalization of the

wounded, compensated the heirs of the deceased passenger, and
had the Ferroza restored to good condition. He also negotiated with
private respondent and offered to have the passenger jeepney
repaired at his shop. Private respondent however did not accept the
offer so Lim offered him P20,000.00, the assessment of the damage
as estimated by his chief mechanic. Again, petitioner Lim's
proposition was rejected; instead, private respondent demanded a
brand-new jeep or the amount of P236,000.00. Lim increased his bid
to P40,000.00 but private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned; hence, the filing
of the complaint for damages by private respondent against
petitioners.

In his answer Lim denied liability by contending that he exercised

due diligence in the selection and supervision of his employees. He
further asserted that as the jeepney was registered in Vallartas
name, it was Vallarta and not private respondent who was the real
party in interest.[1] For his part, petitioner Gunnaban averred that the
accident was a fortuitous event which was beyond his control.[2]

Meanwhile, the damaged passenger jeepney was left by the

roadside to corrode and decay. Private respondent explained that
although he wanted to take his jeepney home he had no capability,
financial or otherwise, to tow the damaged vehicle.[3]

The main point of contention between the parties related to the

amount of damages due private respondent. Private respondent
Gonzales averred that per estimate made by an automobile repair
shop he would have to spend P236,000.00 to restore his jeepney to its
original condition.[4] On the other hand, petitioners insisted that they
could have the vehicle repaired for P20,000.00.[5]

On 1 October 1993 the trial court upheld private respondent's claim

and awarded him P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees. In
support of its decision, the trial court ratiocinated that as vendee
and current owner of the passenger jeepney private respondent
stood for all intents and purposes as the real party in interest. Even
Vallarta himself supported private respondent's assertion of interest
over the jeepney for, when he was called to testify, he dispossessed
himself of any claim or pretension on the property. Gunnaban was
found by the trial court to have caused the accident since he
panicked in the face of an emergency which was rather palpable
from his act of directing his vehicle to a perilous streak down the fast
lane of the superhighway then across the island and ultimately to the
opposite lane where it collided with the jeepney.

On the other hand, petitioner Lim's liability for Gunnaban's

negligence was premised on his want of diligence in supervising his
employees. It was admitted during trial that Gunnaban doubled as
mechanic of the ill-fated truck despite the fact that he was neither
tutored nor trained to handle such task.[6]

Forthwith, petitioners appealed to the Court of Appeals which, on 17

July 1996, affirmed the decision of the trial court. In upholding the
decision of the court a quo the appeals court concluded that while
an operator under the kabit system could not sue without joining the
registered owner of the vehicle as his principal, equity demanded
that the present case be made an exception.[7] Hence this petition.

It is petitioners' contention that the Court of Appeals erred in

sustaining the decision of the trial court despite their opposition to
the well-established doctrine that an operator of a vehicle continues
to be its operator as long as he remains the operator of record.
According to petitioners, to recognize an operator under the kabit
system as the real party in interest and to countenance his claim for
damages is utterly subversive of public policy. Petitioners further
contend that inasmuch as the passenger jeepney was purchased by
private respondent for only P30,000.00, an award of P236,000.00 is
inconceivably large and would amount to unjust enrichment.[8]

Petitioners' attempt to illustrate that an affirmance of the appealed

decision could be supportive of the pernicious kabit system does not
persuade. Their labored efforts to demonstrate how the questioned
rulings of the courts a quo are diametrically opposed to the policy of
the law requiring operators of public utility vehicles to secure a
certificate of public convenience for their operation is quite
unavailing.

The kabit system is an arrangement whereby a person who has been

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.[9] Although the
parties to such an agreement are not outrightly penalized by law,
the kabit system is invariably recognized as being contrary to public
policy and therefore void and inexistent under Art. 1409 of the Civil
Code.

In the early case of Dizon v. Octavio[10] the Court explained that

one of the primary factors considered in the granting of a certificate
of public convenience for the business of public transportation is the
financial capacity of the holder of the license, so that liabilities
arising from accidents may be duly compensated. The kabit system
renders illusory such purpose and, worse, may still be availed of by
the grantee to escape civil liability caused by a negligent use of a
vehicle owned by another and operated under his license. If a
registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer
the subject vehicle to another who possesses no property with which
to respond financially for the damage done. Thus, for the safety of
passengers and the public who may have been wronged and
deceived through the baneful kabit system, the registered owner of
the vehicle is not allowed to prove that another person has become
the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine.[11]

It would seem then that the thrust of the law in enjoining the kabit
system is not so much as to penalize the parties but to identify the
person upon whom responsibility may be fixed in case of an
accident with the end view of protecting the riding public. The
policy therefore loses its force if the public at large is not deceived,
much less involved.

In the present case it is at once apparent that the evil sought to be

prevented in enjoining the kabit system does not exist. First, neither of
the parties to the pernicious kabit system is being held liable for
damages. Second, the case arose from the negligence of another
vehicle in using the public road to whom no representation, or
misrepresentation, as regards the ownership and operation of the
passenger jeepney was made and to whom no such representation,
or misrepresentation, was necessary. Thus it cannot be said that
private respondent Gonzales and the registered owner of the
jeepney were in estoppel for leading the public to believe that the
jeepney belonged to the registered owner. Third, the riding public
was not bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself
who had been wronged and was seeking compensation for the
damage done to him. Certainly, it would be the height of inequity to
deny him his right.

In light of the foregoing, it is evident that private respondent has the

right to proceed against petitioners for the damage caused on his
passenger jeepney as well as on his business. Any effort then to
frustrate his claim of damages by the ingenuity with which petitioners
framed the issue should be discouraged, if not repelled.

In awarding damages for tortuous injury, it becomes the sole design

of the courts to provide for adequate compensation by putting the
plaintiff in the same financial position he was in prior to the tort. It is a
fundamental principle in the law on damages that a defendant
cannot be held liable in damages for more than the actual loss
which he has inflicted and that a plaintiff is entitled to no more than
the just and adequate compensation for the injury suffered. His
recovery is, in the absence of circumstances giving rise to an
allowance of punitive damages, limited to a fair compensation for
the harm done. The law will not put him in a position better than
where he should be in had not the wrong happened.[12]

In the present case, petitioners insist that as the passenger jeepney

was purchased in 1982 for only P30,000.00 to award damages
considerably greater than this amount would be improper and
unjustified. Petitioners are at best reminded that indemnification for
damages comprehends not only the value of the loss suffered but
also that of the profits which the obligee failed to obtain. In other
words, indemnification for damages is not limited to damnum
emergens or actual loss but extends to lucrum cessans or the
amount of profit lost.[13]

Had private respondent's jeepney not met an accident it could

reasonably be expected that it would have continued earning from
the business in which it was engaged. Private respondent avers that
he derives an average income of P300.00 per day from his
passenger jeepney and this earning was included in the award of
damages made by the trial court and upheld by the appeals court.
The award therefore of P236,000.00 as compensatory damages is not
beyond reason nor speculative as it is based on a reasonable
estimate of the total damage suffered by private respondent, i.e.
damage wrought upon his jeepney and the income lost from his
transportation business. Petitioners for their part did not offer any
substantive evidence to refute the estimate made by the courts a
quo.

However, we are constrained to depart from the conclusion of the

lower courts that upon the award of compensatory damages legal
interest should be imposed beginning 22 July 1990, i.e. the date of
the accident. Upon the provisions of Art. 2213 of the Civil Code,
interest "cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with
reasonable certainty." It is axiomatic that if the suit were for
damages, unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof, interest at the
rate of six percent (6%) per annum should be from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to be reasonably ascertained).[14]

In this case, the matter was not a liquidated obligation as the

assessment of the damage on the vehicle was heavily debated
upon by the parties with private respondent's demand for
P236,000.00 being refuted by petitioners who argue that they could
have the vehicle repaired easily for P20,000.00. In fine, the amount
due private respondent was not a liquidated account that was
already demandable and payable.

One last word. We have observed that private respondent left his
passenger jeepney by the roadside at the mercy of the elements.
Article 2203 of the Civil Code exhorts parties suffering from loss or
injury to exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission in question.
One who is injured then by the wrongful or negligent act of another
should exercise reasonable care and diligence to minimize the
resulting damage. Anyway, he can recover from the wrongdoer
money lost in reasonable efforts to preserve the property injured and
for injuries incurred in attempting to prevent damage to it.[15]

However we sadly note that in the present case petitioners failed to

offer in evidence the estimated amount of the damage caused by
private respondent's unconcern towards the damaged vehicle. It is
the burden of petitioners to show satisfactorily not only that the
injured party could have mitigated his damages but also the
amount thereof; failing in this regard, the amount of damages
awarded cannot be proportionately reduced.

WHEREFORE, the questioned Decision awarding private respondent

Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees is
MODIFIED. Interest at the rate of six percent (6%) per annum shall be
computed from the time the judgment of the lower court is made
until the finality of this Decision. If the adjudged principal and interest
remain unpaid thereafter, the interest shall be twelve percent (12%)
per annum computed from the time judgment becomes final and
executory until it is fully satisfied.

Costs against petitioners.

SO ORDERED.