Professional Documents
Culture Documents
chapter 2
G.R. No. 171468 August 24, 2011
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP
INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT
SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO.,
INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.
D E C I S I O N
ABAD, J.:
These consolidated petitions involve a cargo owners right to recover damages from the loss of
insured goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP ProVit International,
Inc. (LEP ProVit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California,
where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading,
declaring that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also
owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang
whose captain Viled a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3s Container Yard under Marinas care pending
clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed
petitioners customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and
deliver the same to petitioner New Worlds job site in Makati City.
An examination of the three generator sets in the presence of petitioner New Worlds
representatives, Federal Builders (the project contractor) and surveyors of petitioner New Worlds
insurer, SeaboardEastern Insurance Company (Seaboard), revealed that all three sets suffered
extensive damage and could no longer be repaired. For these reasons, New World demanded
recompense for its loss from respondents NYK, DMT, Advatech, LEP ProVit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the
demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a
formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required
petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories,
with corresponding values, for the processing of the claim. But petitioner New World did not submit
what was required of it, insisting that the insurance policy did not include the submission of such a
list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World Viled an action for speciVic performance and damages
against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil
Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability
with the exception of NYK. The RTC found that the generator sets were damaged during transit
while in the care of NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the
degree of diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World Viled its claim against the vessel owner NYK
beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World Viled its
complaint on October 11, 1994 when the deadline for Viling the action (on or before October 7,
1994) had already lapsed. The RTC held that the one-year period should be counted from the date
the goods were delivered to the arrastre operator and not from the date they were delivered to
petitioners job site.1
As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC held that the latter
cannot be faulted for denying the claim against it since New World refused to submit the itemized
list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated Viling of
the complaint prejudiced Seaboards right to pursue a claim against NYK in the event of
subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 afVirming the RTCs
rulings except with respect to Seaboards liability. The CA held that petitioner New World can still
recoup its loss from Seaboards marine insurance policy, considering a) that the submission of the
itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under
the COGSA did not affect New Worlds right under the insurance policy since it was the Insurance
Code that governed the relation between the insurer and the insured.
Although petitioner New World promptly Viled a petition for review of the CA decision before the
Court in G.R. 171468, Seaboard chose to Vile a motion for reconsideration of that decision. On
August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim against
Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement
that Seaboard asked of New World. Further, the CA held that the one-year prescriptive period for
maritime claims applied to Seaboard, as insurer and subrogee of New Worlds right against the
vessel owner. New Worlds failure to comply promptly with what was required of it prejudiced such
right.
Instead of Viling a motion for reconsideration, petitioner instituted a second petition for review
before the Court in G.R. 174241, assailing the CAs amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in afVirming the RTCs release from liability
of respondents DMT, Advatech, LEP, LEP ProVit, Marina, and Serbros who were at one time or
another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards request from
petitioner New World for an itemized list is a reasonable imposition and did not violate the
insurance contract between them; and 2) whether or not the CA erred in failing to rule that
the one-year COGSA prescriptive period for marine claims does not apply to petitioner New
Worlds prosecution of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP ProVit, Marina
and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively
resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the
vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a
proper subject of a petition for review on certiorari. And petitioner New World has been unable to
make out an exception to this rule.3 Consequently, the Court will not disturb the Vinding of the RTC,
afVirmed by the CA, that the generator sets were totally damaged during the typhoon which beset
the vessels voyage from Hong Kong to Manila and that it was her negligence in continuing with that
journey despite the adverse condition which caused petitioner New Worlds loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code,
does not automatically relieve the common carrier of liability. The latter had the burden of proving
that the typhoon was the proximate and only cause of loss and that it exercised due diligence to
prevent or minimize such loss before, during, and after the disastrous typhoon.4 As found by the
RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboards
additional requirement of an itemized listing of the damage that the generator sets suffered. The
record shows that petitioner New World complied with the documentary requirements evidencing
damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy
insured against all causes of conceivable loss or damage except when otherwise excluded or when
the loss or damage was due to fraud or intentional misconduct committed by the insured. The
policy covered all losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New Worlds loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New
Worlds goods suffered going by the documents that it already submitted, namely, (1) copy of the
Suppliers Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of
Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance
Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal
Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c)
Serbros Carrier Corporation.7 Notably, Seaboards own marine surveyor attended the inspection of
the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in the
policy that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMTs local
agent. Petitioner New World should not be made to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the
ship shall be discharged from all liability in case of loss or damage unless the suit is brought within
one year after delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on
time? The last day for Viling such a suit fell on October 7, 1994. The record shows that petitioner
New World Viled its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to
take, as early as November 16, 1993 or about 11 months before the suit against NYK would have
fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would
have been subrogated to petitioner New Worlds right to recover from NYK. And it could have then
Viled the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on
February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with
corresponding values when it appeared settled that New Worlds loss was total and when the
insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard
against whom a formal claim was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it unsubstantiated by documents if that
were the case, and formally rejected it. That would have at least given petitioner New World a clear
signal that it needed to promptly Vile its suit directly against NYK and the others. Ultimately, the
fault for the delayed court suit could be brought to Seaboards doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the
Philippines shall refuse without just cause to pay or settle claims arising under coverages provided
by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had
within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the claim.
And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be
entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the
ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim as
Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment
of the claim is created by the failure of the insurer to pay the claim within the time Vixed in Section
243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the
delay until the claim is fully satisVied at the rate of twice the ceiling prescribed by the Monetary
Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12%
per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9 Section
244 of the Insurance Code also provides for an award of attorneys fees and other expenses incurred
by the assured due to the unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded
as proper an award of 10% of the insurance proceeds as attorneys fees. Such amount is fair
considering the length of time that has passed in prosecuting the claim.11 Pursuant to the Courts
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the
Vinality of judgment until full satisfaction of the claim should likewise be imposed, the interim
period equivalent to a forbearance of credit.1avvphi1
Petitioner New World is entitled to the value stated in the policy which is commensurate to the
value of the three emergency generator sets or US$721,500.00 with double interest plus attorneys
fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals
decision of January 31, 2006 insofar as petitioner New World International Development (Phils.),
Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP
International Philippines, Inc., LEP ProVit International, Inc., Marina Port Services, Inc. and Serbros
Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the
Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern
Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc. US
$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in
accordance with Sections 243 and 244 of the Insurance Code and attorneys fees equivalent to 10%
of the insurance proceeds. Seaboard shall also pay, from Vinality of judgment, a 12% interest per
annum on the total amount due to petitioner until its full satisfaction.
SO ORDERED.
G.R. No. 94149 May 5, 1992
AMERICAN HOME ASSURANCE, COMPANY, petitioner,
vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL MARINE
CORPORATION (Manila), respondents.
PARAS, J.:
This is a petition for review on certiorari which seeks to annul and set aside the (a) decision 1 dated
May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled "American Home Assurance
Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila, Branch 41 and
National Marine Corporation and/or National Marine Corporation (Manila)", dismissing petitioner's
petition for certiorari, and (b) resolution 2 dated June 29, 1990 of the Court of Appeals denying
petitioner's motion for reconsideration.
The undisputed facts of the case are follows:
Both petitioner American Home Assurance Co. and the respondent National Marine Corporation are
foreign corporations licensed to do business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter through its branch. The
National Marine Corporation (Manila) (Rollo, p. 20, Annex L, p.1).
That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of
bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by
herein respondent National Marine Corporation with Registration No. PID-224. The said shipment
was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner
American Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.
On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the Marina
Port Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the
shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The
loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemniVication from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justiViable
reason, said demand was not heeded (Petition, p. 4).
As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper, Inc.
sought recovery from the former. Upon demand and submission of proper documentation,
American Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.
On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the recovery
of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by Viling a
complaint for recovery of sum of money (Petition, p. 4).
Respondent, National Marine Corporation, Viled a motion to dismiss dated August 7, 1989 stating
that American Home Assurance Company had no cause of action based on Article 848 of the Code of
Commerce which provides "that claims for averages shall not be admitted if they do not exceed 5%
of the interest which the claimant may have in the vessel or in the cargo if it be gross average and
1% of the goods damaged if particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary." It contended that based on the allegations of the
complaint, the loss sustained in the case was P35,506.75 which is only .18% of P17,420,000.00, the
total value of the cargo.
On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and
that a particular average presupposes that the loss or damages is due to an inherent defect of the
goods, an accident of the sea, or a force majeure or the negligence of the crew of the carrier, while
claims for damages due to the negligence of the common carrier are governed by the Civil Code
provisions on Common Carriers.
In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:
Before the Court for resolution is a motion for reconsideration Viled by defendant
through counsel dated October 6, 1989.
The record shows that last August 8, 1989, defendant through counsel Viled a motion
to dismiss plaintiff's complaint.
Resolving the said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now under
consideration, defendant prays for the reconsideration of the order of September 18,
1989 and in lieu thereof, another order be entered dismissing plaintiff's complaint.
There appears to be good reasons for the court to take a second look at the issues
raised by the defendant.
xxx xxx xxx
It is not disputed defendants that the loss suffered by the shipment is only .18% or
less that 1% of the interest of the consignee on the cargo Invoking the provision of
the Article 848 of the Code of Commerce which reads:
Claims for average shall not be admitted if they do not exceed Vive
percent of the interest which the claimant may have in the vessels or
cargo if it is gross average, and one percent of the goods damaged if
particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary. (Emphasis supplied)
defendant claims that plaintiff is barred from suing for recovery.
Decisive in this case in whether the loss suffered by the cargo in question is a
"particular average."
Particular average, is a loss happening to the ship, freight, or cargo
which is not be (sic) shared by contributing among all those
interested, but must be borne by the owner of the subject to which it
occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172, citing
Bargett v. Insurance Co. 3 Bosw. [N.Y.] 395).
as distinguished from general average which
is a contribution by the several interests engaged in the maritime
venture to make good the loss of one of them for the voluntary
sacriVice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary
expenses necessarily incurred for the common beneVit and safety of
all (Ibid., citing California Canneries Co. v. Canton Ins. OfVice 25 Cal.
App. 303, 143 p. 549-553).
From the foregoing deVinition, it is clear that the damage on the cargo in question, is
in the nature of the "particular average." Since the loss is less than 1% to the value of
the cargo and there appears to be no allegations as to any agreement defendants and
the consignee of the goods to the contrary, by express provision of the law, plaintiff
is barred from suing for recovery.
WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action.
(Rollo, p. 27; Annex A, pp. 3-4).
The petitioner then Viled a motion for reconsideration of the order of dismissal but same was denied
by the court in its order dated January 26, 1990 (supra).
Instead of Viling an appeal from the order of the court a quo dismissing the complaint for recovery of
a sum of money, American Home Assurance Company Viled a petition for certiorari with the Court of
Appeals to set aside the two orders or respondent judge in said court (Rollo, p. 25).
But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as constituting
plain errors of law and not grave abuse of discretion correctible by certiorari (a Special Civil Action).
If at all, respondent court ruled that there are errors of judgment subject to correction
by certiorari as a mode of appeal but the appeal is to the Supreme Court under Section 17 of the
Judiciary Act of 1948 as amended by Republic Act No. 5440. Otherwise stated, respondent Court
opined that the proper remedy is a petition for review on certiorari with the Supreme Court on pure
questions of law (Rollo, p. 30).
Hence, this petition.
In a resolution dated December 10, 1990, this Court gave due course to the petition and required
both parties to Vile their respective memoranda (Rollo, p. 58).
The procedural issue in this case is whether or not certiorari was the proper remedy in the case
before the Court of Appeals.
The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are Vinal orders within the meaning of
Rule 41, Section 2 of the Rules of Court, subject petition raised questions which if at all, constituting
grave abuse of discretion correctible by certiorari.
Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as ruled by
this Court, an order of dismissal whether right or wrong is a Vinal order, hence, a proper subject of
appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact remains
that respondent Court of Appeals obviously in the broader interests of justice, nevertheless
proceeded to decide the petition for certiorari and ruled on speciVic points raised therein in a
manner akin to what would have been done on assignments of error in a regular appeal, the petition
therein was therefore disposed of on the merits and not on a dismissal due to erroneous choice of
remedies or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence, a review of the decision of the
Court of Appeals on the merits against the petitioner in this case is in order.
On the main controversy, the pivotal issue to be resolved is the application of the law on averages
(Articles 806, 809 and 848 of the Code of Commerce).
Petitioner avers that respondent court failed to consider that respondent National Marine
Corporation being a common carrier, in conducting its business is regulated by the Civil Code
primarily and suppletorily by the Code of Commerce; and that respondent court refused to consider
the Bill of Lading as the law governing the parties.
Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws
as provided for in Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of
Commerce should be applied suppletorily as they provide for the extent of the common carriers'
liability.
This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593 [1988];
citing Eastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that "the law
of the country to which the goods are to be transported persons the liability of the common carrier
in case of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus, for cargoes
transported to the Philippines as in the case at bar, the liability of the carrier is governed primarily
by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil
Code).
Corollary thereto, the Court held further that under Article 1733 of the Civil Code, common carriers
from the nature of their business and for reasons of public policy are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of passengers transported
by them according to all circumstances of each case. Thus, under Article 1735 of the same Code, in
all cases other than those mentioned in Article 1734 thereof, the common carrier shall be presumed
to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law (Ibid., p. 595).
But more importantly, the Court ruled that common carriers cannot limit their liability for injury or
loss of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law
on averages under the Code of Commerce cannot be applied in determining liability where there is
negligence (Ibid., p. 606).
Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is but
reasonable to conclude that the issue of negligence must Virst be addressed before the proper
provisions of the Code of Commerce on the extent of liability may be applied.
The records show that upon delivery of the shipment in question of Mayleen's warehouse in Manila,
122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called
"percentage method" at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68). Instead of
presenting proof of the exercise of extraordinary diligence as required by law, National Marine
Corporation (NMC) Viled its Motion to Dismiss dated August 7, 1989, hypothetically admitting the
truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was
due to the negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the Viling of a motion to
dismiss on the ground of lack of cause of action carries with it the admission of the material facts
pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such
being the case, it is evident that the Code of Commerce provisions on averages cannot apply.
On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for
loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein.
It is obvious that the case at bar does not fall under any of the exceptions. Thus, American Home
Assurance Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
Accordingly, it is evident that the Vindings of respondent Court of Appeals, afVirming the Vindings and
conclusions of the court a quo are not supported by law and jurisprudence.
PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional Trial Court
of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent National Marine
Corporation is hereby ordered to reimburse the subrogee, petitioner American Home Assurance
Company, the amount of P31,506.75.
SO ORDERED.
outset that metal envelopes in the said state would eventually deteriorate when not properly stored
while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils and of
the proper way of transporting them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But none of these measures
was taken.38 Having failed to discharge the burden of proving that they have exercised the
extraordinary diligence required by law, petitioners cannot escape liability for the damage to the
four coils.39
In their attempt to escape liability, petitioners further contend that they are exempted from liability
under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and
slightly dented" printed on the Bill of Lading as evidence that the character of the goods or defect in
the packing or the containers was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils
was due to the condition noted on the Bill of Lading.40 The aforecited exception refers to cases when
goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods
in transport, defects in packages in which they are shipped, or the natural propensities of animals.
41 None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent
upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it
accepts the goods notwithstanding such condition.42 Thus, petitioners have not successfully proven
the application of any of the aforecited exceptions in the present case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act44 (COGSA), respondent should have Viled its Notice of Loss within three days from delivery. They
assert that the cargo was discharged on July 31, 1990, but that respondent Viled its Notice of Claim
only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim
need not be given if the state of the goods, at the time of their receipt, has been the subject of a joint
inspection or survey. As stated earlier, prior to unloading the cargo, an Inspection Report46 as to the
condition of the goods was prepared and signed by representatives of both parties.47
Second, as stated in the same provision, a failure to Vile a notice of claim within three days will not
bar recovery if it is nonetheless Viled within one year.48 This one-year prescriptive period also
applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.
49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription
as long as the one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario
G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of Commerce states a speciVic
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes
sustained during transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint51 was Viled by
respondent on July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability
should be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5)52 of
COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value
of the subject shipment was declared by petitioners beforehand, as evidenced by the reference to
and the insertion of the Letter of Credit or "L/C No. 90/02447" in the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a
contract by which three parties -- namely, the shipper, the carrier, and the consignee -- undertake
speciVic responsibilities and assume stipulated obligations.56 In a nutshell, the acceptance of the bill
of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for
loss or destruction of a cargo -- unless the shipper or owner declares a greater value58 -- is
sanctioned by law.59 There are, however, two conditions to be satisVied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon by
the parties.60 The rationale for this rule is to bind the shippers by their agreement to the value
(maximum valuation) of their goods.61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a
Vixed amount per package.62 In all matters not regulated by the Civil Code, the right and the
obligations of common carriers shall be governed by the Code of Commerce and special laws.
63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter
by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's
declaration of a higher value in the bill of lading.64 The provisions on limited liability are as much a
part of the bill of lading as though physically in it and as though placed there by agreement of the
parties.65
In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's liability.
Neither did the shipper declare a higher valuation of the goods to be shipped. This fact
notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for petitioners'
liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by
the shipper for the importation of steel sheets did not effect a declaration of the value of the goods
as required by the bill.67 That notation was made only for the convenience of the shipper and the
bank processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate
from the Other Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the
contract of issuance of a letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract of carriage as embodied in the bill of
lading. As the bank cannot be expected to look beyond the documents presented to it by the
seller pursuant to the letter of credit, neither can the carrier be expected to go beyond the
representations of the shipper in the bill of lading and to verify their accuracy vis--vis the
commercial invoice and the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's
obligation to private respondent arising from the contract of transportation."70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package
and not on the per metric ton price declared in the Letter of Credit.71 In Eastern Shipping Lines, Inc.
v. Intermediate Appellate Court,72 we explained the meaning of packages:
"When what would ordinarily be considered packages are shipped in a container supplied
by the carrier and the number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the 'package' referred to in the liability
limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly
disclosed the contents of the containers, the number of units, as well as the nature of the steel
sheets, the four damaged coils should be considered as the shipping unit subject to the US$500
limitation.1wphi1.nt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners'
liability is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the
Viling of the Complaint on July 25, 1991 until the Vinality of this Decision, and 12 percent thereafter
until fully paid. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-48757 May 30, 1988
MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Of`ice for respondents.
SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila 1 an action against the
petitioner for damages based on culpa contractual. The antecedent facts, as found by the
respondent Court, 2 are undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305
tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT
"Batman" (Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that
agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the
scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When about half of the
scrap iron was already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of Mariveles,
Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted the
shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and
Vired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7).<re||
an1w> The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga,
Bataan, for treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump
the scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28,
1972, p. 31). The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later
on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken custody of
the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)
On the basis of the above Vindings, the respondent Court rendered a decision, the dispositive portion
of which states:
WHEREFORE, the decision appealed from is hereby reversed and set aside and a
new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum
of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's fees.
Costs against defendant-appellee Ganzon. 3
In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals
are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE
CONTRACT OF TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM COMMENCING
FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN
FACT AND IN LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS
EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY THE
LOCAL GOVERNMENT OFFICIAL WITHOUT HIS PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE TO A
FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES AS A
CONSEQUENCE THEREOF. 4
The petitioner, in his Virst assignment of error, insists that the scrap iron had not been
unconditionally placed under his custody and control to make him liable. However, he completely
agrees with the respondent Court's Vinding that on December 1, 1956, the private respondent
delivered the scraps to Captain Filomeno Niza for loading in the lighter "Batman," That the
petitioner, thru his employees, actually received the scraps is freely admitted. SigniVicantly, there is
not the slightest allegation or showing of any condition, qualiVication, or restriction accompanying
the delivery by the private respondent-shipper of the scraps, or the receipt of the same by the
petitioner. On the contrary, soon after the scraps were delivered to, and received by the petitioner-
common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession and control of
the common carrier, and upon their receipt by the carrier for transportation, the contract of
carriage was deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility
for the loss, destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such
extraordinary responsibility would cease only upon the delivery, actual or constructive, by the
carrier to the consignee, or to the person who has a right to receive them. 5 The fact that part of the
shipment had not been loaded on board the lighter did not impair the said contract of
transportation as the goods remained in the custody and control of the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of
this presumption, the court is not even required to make an express Vinding of fault or negligence
before it could hold the petitioner answerable for the breach of the contract of carriage. Still, the
petitioner could have been exempted from any liability had he been able to prove that he observed
extraordinary diligence in the vigilance over the goods in his custody, according to all the
circumstances of the case, or that the loss was due to an unforeseen event or to force majeure. As it
was, there was hardly any attempt on the part of the petitioner to prove that he exercised such
extraordinary diligence.
It is in the second and third assignments of error where the petitioner maintains that he is exempt
from any liability because the loss of the scraps was due mainly to the intervention of the municipal
ofVicials of Mariveles which constitutes a caso fortuito as deVined in Article 1174 of the Civil Code. 7
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that
the loss of the scraps was due to an "order or act of competent public authority," and this contention
was correctly passed upon by the Court of Appeals which ruled that:
... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the
power to issue the disputed order, or that it was lawful, or that it was issued under
legal process of authority. The appellee failed to establish this. Indeed, no authority
or power of the acting mayor to issue such an order was given in evidence. Neither
has it been shown that the cargo of scrap iron belonged to the Municipality of
Mariveles. What we have in the record is the stipulation of the parties that the cargo
of scrap iron was accilmillated by the appellant through separate purchases here
and there from private individuals (Record on Appeal, pp. 38-39). The fact remains
that the order given by the acting mayor to dump the scrap iron into the sea was
part of the pressure applied by Mayor Jose Advincula to shakedown the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.
Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we
cannot, however, allow. In any case, the intervention of the municipal ofVicials was not In any case, of
a character that would render impossible the fulVillment by the carrier of its obligation. The
petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron.
Moreover, there is absence of sufVicient proof that the issuance of the same order was attended with
such force or intimidation as to completely overpower the will of the petitioner's employees. The
mere difViculty in the fullVilment of the obligation is not considered force majeure. We agree with the
private respondent that the scraps could have been properly unloaded at the shore or at the
NASSCO compound, so that after the dispute with the local ofVicials concerned was settled, the
scraps could then be delivered in accordance with the contract of carriage.
There is no incompatibility between the Civil Code provisions on common carriers and Articles
361 8 and 362 9 of the Code of Commerce which were the basis for this Court's ruling in Government
of the Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For
Art. 1735 of the Civil Code, conversely stated, means that the shipper will suffer the losses and
deterioration arising from the causes enumerated in Art. 1734; and in these instances, the burden of
proving that damages were caused by the fault or negligence of the carrier rests upon him. However,
the carrier must Virst establish that the loss or deterioration was occasioned by one of the excepted
causes or was due to an unforeseen event or to force majeure. Be that as it may, insofar as Art. 362
appears to require of the carrier only ordinary diligence, the same is .deemed to have been modiVied
by Art. 1733 of the Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by
us. Besides, these were not sufViciently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.
This decision is IMMEDIATELY EXECUTORY.
G.R. No. L-9840 April 22, 1957
LU DO & LU YM CORPORATION, petitioner-defendant,
vs.
I. V. BINAMIRA, respondent-plaintiff.
Ross, Selph, Carrascoso and Janda for petitioner.
I. V. Binamira in his own behalf.
BAUTISTA ANGELO, J.:
On April 4, 1954, plaintiff Viled an action in the Court of First Instance of Cebu against defendant to
recover the sum of P324.63 as value of certain missing shipment, P150 as actual and compensatory
damages, and P600 as moral and pecuniary damages. After trial, the court rendered judgment
ordering defendant to pay plaintiff the sum of P216.84, with legal interest. On appeal, the Court of
Appeals afVirmed the judgment, hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S
"FERNSIDE" at New York, U.S.A., six cases of Vilms and/or photographic supplies consigned to the
order of respondent I. V. Binamira. For this shipment, Bill of Lading No. 29 was issued. The ship
arrived at the port of Cebu on September 23, 1951 and discharged her cargo on September 23, and
24, 1951, including the shipment in question, placing it in the possession and custody of the
arrastre operator of said port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo.
During the discharge, good order cargo was separated from the bad order cargo on board the ship,
and a separate list of bad order cargo was prepared by Pascual Villamor, checker of the stevedoring
company. All the cargo unloaded was received at the pier by the Visayan Cebu Terminal Company
Inc, arrastre operator of the port. This terminal company had also its own checker, Romeo Quijano,
who also recorded and noted down the good cargo from the bad one. The shipment in question, was
not included in the report of bad order cargo of both checkers, indicating that it was discharged
from the, ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent took
delivery of his six cases of photographic supplies from the arrastre operator. He discovered that the
cases showed signs of pilferage and, consequently, he hired marine surveyors, R. J. del Pan &
Company, Inc., to examine them. The surveyors examined the cases and made a physical count of
their contents in the presence of representatives of petitioner, respondent and the stevedoring
company. The surveyors examined the cases and made a physical count of their contents in the
presence of representatives of petitioner, respondent and the stevedoring company. The Vinding of
the surveyors showed that some Vilms and photographic supplies were missing valued at P324.63.
It appears from the evidence that the six cases of Vilms and photographic supplies were discharged
from the ship at the port of Cebu by the stevedoring company hired by petitioner as agent of the
carrier. All the unloaded cargo, including the shipment in question, was received by the Visayan
Cebu Terminal Company Inc., the arrastre operator appointed by the Bureau of Customs. It also
appears that during the discharge, the cargo was checked both by the stevedoring company hired by
petitioner as well as by the arrastre operator of the port, and the shipment in question, when
discharged from the ship, was found to be in good order and condition. But after it was delivered to
respondent three days later, the same was examined by a marine surveyor who found that some
Vilms and supplies were missing valued at P324.63.
The question now to be considered is: Is the carrier responsible for the loss considering that the
same occurred after the shipment was discharged from the ship and placed in the possession and
custody of the customs authorities?
The Court of Appeals found for the afVirmative, making on this point the following comment:
In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in
the same condition in which it received them. Except where the loss, destruction or
deterioration of the merchandise was due to any of the cases enumerated in Article 1734 of
the new Civil Code, a carrier is presumed to have been at fault and to have acted negligently,
unless it could prove that it observed extraordinary diligence in the care and handling of the
goods (Article 1735, supra). Such presumption and the liability of the carrier attach until the
goods are delivered actually or constructively, to the consignee, or to the person who has a
right to receive them (Article 1736, supra), and we believe delivery to the customs
authorities is not the delivery contemplated by Article 1736, supra, in connection with
second paragraph of Article 1498, supra, because, in such a case, the goods are then still in
the hands of the Government and their owner could not exercise dominion whatever over
them until the duties are paid. In the case at bar, the presumption against the carrier,
represented appellant as its agent, has not been successfully rebutted.
It is now contended that the Court of Appeals erred in its Vinding not only because it made wrong
interpretation of the law on the matter, but also because it ignored the provisions of the bill of
lading covering the shipment wherein it was stipulated that the responsibility of the carrier is
limited only to losses that may occur while the cargo is still under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for
the loss, destruction or deterioration of the goods it assumes to carry from one place to another
unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil Code,
and that, if the goods are lost, destroyed or deteriorated, for causes other that those mentioned, the
common carrier is presumed to have been at fault or to have acted negligently, unless it proves that
it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this
extraordinary liability lasts from the time the goods are placed in the possession of the carrier until
they are delivered to the consignee, or "to the person who has the right to receive them" (Article
1736, Idem.), but these provisions only apply when the loss, destruction or deterioration takes place
while the goods are in the possession of the carrier, and not after it has lost control of them. The
reason is obvious. While the goods are in its possession, it is but fair that it exercise extraordinary
diligence in protecting them from damage, and if loss occurs, the law presumes that it was due to its
fault or negligence. This is necessary to protect the interest the interest of the owner who is at its
mercy. The situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to the
person who has a right to receive them", contemplated in Article 1736, because in such case the
goods are still in the hands of the Government and the owner cannot exercise dominion over them,
we believe however that the parties may agree to limit the liability of the carrier considering that
the goods have still to through the inspection of the customs authorities before they are actually
turned over to the consignee. This is a situation where we may say that the carrier losses control of
the goods because of a custom regulation and it is unfair that it be made responsible for what may
happen during the interregnum. And this is precisely what was done by the parties herein. In the
bill of lading that was issued covering the shipment in question, both the carrier and the consignee
have stipulated to limit the responsibility of the carrier for the loss or damage that may because to
the goods before they are actually delivered by insert in therein the following provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or
misdelivery, or loss of or damage to the goods occurring while the goods are not in the
actual custody of the Carrier. . . . (Emphasis ours.)
(Paragraph 1, Exhibit "1")
2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the goods
shall be considered to be delivered and at their own risk and expense in every respect when
taken into the custody of customs or other authorities. The Carrier shall not be required to
give any notiVication of disposition of the goods. . . . (Emphasis ours.)
(Paragraph 12, Exhibit "1")
3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at
ship's tackle . . . and delivery beyond ship's tackle shall been tirely at the option of the
Carrier and solely at the expense of the shipper or consignee.
(Paragraph 22, Exhibit "1")
It therefore appears clear that the carrier does not assume liability for any loss or damage to the
goods once they have been "taken into the custody of customs or other authorities", or when they
have been delivered at ship's tackle. These stipulations are clear. They have been adopted precisely
to mitigate the responsibility of the carrier considering the present law on the matter, and we Vind
nothing therein that is contrary to morals or public policy that may justify their nulliVication. We are
therefore persuaded to conclude that the carrier is not responsible for the loss in question, it
appearing that the same happened after the shipment had been delivered to the customs
authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
one of affreightment over the whole vessel rather than a demise. As such, the liability of the
shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article
587 of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of
the Civil Code under which a stipulation between the common carrier and the shipper or owner
limiting the liability of the former for loss or destruction of the goods to a degree less than
extraordinary diligence is valid provided it be reasonable, just and not contrary to public policy. The
release from liability in this case was held unreasonable and contrary to the public policy on
common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy,9 and is deemed valid.
Such doctrine We Vind reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void
only if the strict public policy governing common carriers is applied. Such policy has no force where
the public at large is not involved, as in the case of a ship totally chartered for the use of a single
party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not
a contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.
G.R. No. 131621 September 28, 1999
LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
afVirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil
Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter
MIC) the amount of P6,067,178, with legal interest from the Viling of the compliant until fully paid,
P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19 November
1997, 3 denying LOADSTAR's motion for reconsideration of said decision.
The facts are undisputed.1wphi1.nt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the
following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured
by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984,
on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank
off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with
LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in
full settlement of its claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC Viled a complaint against LOADSTAR and PGAI, alleging that the sinking of
the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that
PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said amount
to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped
as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and afVirmed
its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole
ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship, but
LOADSTAR retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil
Code, which should be applied in determining the rights and
liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the
day of the voyage. If it had been seaworthy, it could have withstood
the "natural and inevitable action of the sea" on 20 November 1984,
when the condition of the sea was moderate. The vessel sank, not
because of force majeure, but because it was not seaworthy.
LOADSTAR'S allegation that the sinking was probably due to the
"convergence of the winds," as stated by a PAGASA expert, was not
duly proven at the trial. The "limited liability" rule, therefore, is not
applicable considering that, in this case, there was an actual Vinding
of negligence on the part of the carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading
do not apply because said provisions bind only the shipper/
consignee and the carrier. When MIC paid the shipper for the goods
insured, it was subrogated to the latter's rights as against the carrier,
LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's
defense of "diligence of a good father of a family" in the training and
selection of its crew is unavailing because this is not a proper or
complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially construed
to mean that when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by reason of some
fact which legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means that the
latter bears the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature and defects of
the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved. 7
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these
premises.
Regarding the Virst issue, LOADSTAR submits that the vessel was a private carrier because it was not
issued certiVicate of public convenience, it did not have a regular trip or schedule nor a Vixed route,
and there was only "one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classiVication of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufVicient
to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by
the maritime safety engineers of the Philippine Coast Guard, who certiVied that the ship was Vit to
undertake a voyage. Its crew at the time was experienced, licensed and unquestionably competent.
With all these precautions, there could be no other conclusion except that LOADSTAR exercised the
diligence of a good father of a family in ensuring the vessel's seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was Vine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and "YOLING,"
inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was declared
over Eastern Visayas, which includes Limasawa Island. Tapel also testiVied that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area, naturally
producing strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred
in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and not
to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the case
of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company of
Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days
from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for
recovery was Viled only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo
was due to force majeure, because the same concurred with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.
We Vind no merit in this petition.
Anent the Virst assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certiVicate of public convenience, and this public character is not altered by
the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo
or chartering the vessel to a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability
for loss due to the negligence of its agent is void only if the strict policy governing common carriers
is upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial
Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld
the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date
in question, undertook to carry a special cargo or was chartered to a special person only. There was
no charter party. The bills of lading failed to show any special arrangement, but only a general
provision to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact
that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR Vits the deVinition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 15 the
Court juxtaposed the statutory deVinition of "common carriers" with the peculiar circumstances of
that case, viz.:
The Civil Code deVines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, Virms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certiVicate
of public convenience, and concluded he was not a common carrier. This is palpable
error. A certiVicate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or Virm acts as a common carrier, without regard to
whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a
certiVicate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary
certiVicate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with
applicable statutory requirements The business of a common carrier impinges
directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of
those who utilize their services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
Moving on to the second assigned error, we Vind that the M/V "Cherokee" was not seaworthy when
it embarked on its voyage on 19 November 1984. The vessel was not even sufViciently manned at
the time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned
with a sufVicient number of competent ofVicers and crew. The failure of a common carrier to
maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied
in this case. The doctrine of limited liability does not apply where there was negligence on the part
of the vessel owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy
vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any
event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the
wind condition in the performance of its duties, LOADSTAR cannot hide behind the "limited
liability" doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in
utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co.,
Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases
that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in
turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods
is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is
necessarily subject to the same limitations and restrictions. We do not agree. In the Virst place, the
cases relied on by LOADSTAR involved a limitation on the carrier's liability to an amount Vixed in the
bill of lading which the parties may enter into, provided that the same was freely and fairly agreed
upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces
the common carrier's liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at "owner's risk." Such stipulation is obviously null and void for being contrary to
public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The `irst one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualiVied limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper declares a higher value and pays a
higher rate of. freight. According to an almost uniform weight of authority, the Virst
and second kinds of stipulations are invalid as being contrary to public policy, but
the third is valid and enforceable. 21
Since the stipulation in question is null and void, it follows that when MIC paid the shipper,
it was subrogated to all the rights which the latter has against the common carrier,
LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Code nor the Code of Commerce states a speciVic prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA) which provides for a one-year period of limitation on claims for loss
of, or damage to, cargoes sustained during transit may be applied suppletorily to the case at bar.
This one-year prescriptive period also applies to the insurer of the goods. 22 In this case, the period
for Viling the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year
period is null and void; 23 it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1wphi1.nt
SO ORDERED.
G.R. No. 102316 June 30, 1997
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.
PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, short-
landing, breakages and any kind of damages to the cargo" 1 valid? This is the main question raised in
this petition for review assailing the Decision of Respondent Court of Appeals 2 in CA-G.R. No.
CV-20156 promulgated on October 15, 1991. The Court of Appeals modiVied the judgment of the
Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which
reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and
Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00)
representing the value of the policy of the lost logs with legal interest thereon from
the date of demand on February 2, 1984 until the amount is fully paid or in the
alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the
amount of TWO MILLION PESOS (2,000,000.00) representing the value of lost logs
plus legal interest from the date of demand on April 24, 1984 until full payment
thereof; the reasonable attorney's fees in the amount equivalent to Vive (5) percent
of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation
the sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing
the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby
dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as
the liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned
which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial
Supply, Inc.) entered into an agreement with the defendant Seven Brothers
(Shipping Corporation) whereby the latter undertook to load on board its vessel M/
V Seven Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said
date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the
premium and documentary stamps due on the policy was tendered due to the
insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc.
cancelled the insurance policy it issued as of the date of the inception for non-
payment of the premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied
liability under the policy. Plaintiff likewise Viled a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the lost logs but the latter denied the
claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff
and against defendants. Both defendants shipping corporation and the surety
company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the
court a quo the following assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the
vessel Seven Ambassadors, was not due to fortuitous event but to the negligence of
the captain in stowing and securing the logs on board, causing the iron chains to
snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven
Brothers Shipping Corporation from logs (sic) of the cargo stipulated in the charter
party is void for being contrary to public policy invoking article 1745 of the New
Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping
Corporation liable in the alternative and ordering/directing it to pay plaintiff-
appellee the amount of two million (2,000,000.00) pesos representing the value of
the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorney's fees in the amount equivalent to
5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers
Corporation its counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers
Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-
appellant South Sea Surety and Insurance Company, Inc. and likewise erred in not
holding that he was the representative of the insurance broker Columbia Insurance
Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/
commission on the premiums paid on the policies issued by the defendant-appellant
South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to
and forming part of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount
of premium and documentary stamps to be paid on the policy by the plaintiff-
appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy
due to non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and
Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value
of the policy with legal interest from 2 February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's
fees alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping
corporation and the surety company are liable to the plaintiff for the latter's lost
logs. 4
The Court of Appeals afVirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but modiVied it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would
be exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The provisions on
common carriers should not be applied where the carrier is not acting as such but as
a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special
cargo or chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American
Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the
logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela")
Viled separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court
denied the petition of South
Sea. 7 There the Court found no reason to reverse the factual Vindings of the trial court and the Court
of Appeals that Chua was indeed an authorized agent of South Sea when he received Valenzuela's
premium payment for the marine cargo insurance policy which was thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review Viled by Valenzuela assailing the CA
Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent Court
(of Appeals) committed a reversible error in upholding the validity of the stipulation in the charter
party executed between the petitioner and the private respondent exempting the latter from
liability for the loss of petitioner's logs arising from the negligence of its (Seven Brothers')
captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the "(o)wners shall
not be responsible for loss, split, short-landing, breakages and any kind of damages to the
cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the "snapping of
the iron chains and the subsequent rolling of the logs to the portside due to the negligence of the
captain in stowing and securing the logs on board the vessel and not due to fortuitous
event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a private
carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter admits
this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the
goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a
good father of a family, or of a man of ordinary prudence in the vigilance over the
movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his
or its employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with
or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle, ship,
airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of
the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and
paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said stipulation
"gives no duty or obligation to the private respondent to observe the diligence of a good father of a
family in the custody and transportation of the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other Civil
Code provisions on common carriers which were cited by petitioner may not be applied unless
expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the
cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil
Code, such stipulation is valid because it is freely entered into by the parties and the same is not
contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in a contract of private carriage,
the parties may freely stipulate their duties and obligations which perforce would be binding on
them. Unlike in a contract involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general
public cannot justiViably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a charter
party that lessen or remove the protection given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc. 18 In that
case, the trial court similarly nulliVied a stipulation identical to that involved in the present case for
being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the Code of
Commerce. Consequently, the trial court held the shipowner liable for damages resulting for the
partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-
American law. Under American jurisprudence, a common carrier undertaking to
carry a special cargo or chartered to a special person only, becomes a private
carrier. As a private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid.
Such doctrine We `ind reasonable. The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void if the strict public policy governing
common carriers is applied. Such policy has no force where the public at large is not
involved, as in this case of a ship totally chartered for the used of a single
party. 19(Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters
into a contract of transportation with common carriers without a hand or a voice in the preparation
thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot
submit its own stipulations for the approval of the common carrier. Thus, the law on common
carriers extends its protective mantle against one-sided stipulations inserted in tickets, invoices or
other documents over which the riding public has no understanding or, worse, no choice. Compared
to the general public, a charterer in a contract of private carriage is not similarly situated. It can
and in fact it usually does enter into a free and voluntary agreement. In practice, the parties in a
contract of private carriage can stipulate the carrier's obligations and liabilities over the shipment
which, in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the protection of the law on common carriers. When
the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it
"covers only a stipulation exempting a private carrier from liability for the negligence of his agent,
but it does not apply to a stipulation exempting a private carrier like private respondent from the
negligence of his employee or servant which is the situation in this case." 20 This contention of
petitioner is bereft of merit, for it raises a distinction without any substantive difference. The
case Home Insurance speciVically dealt with "the liability of the shipowner for acts or negligence of
its captain and crew" 21 and a charter party stipulation which "exempts the owner of the vessel from
any loss or damage or delay arising from any other source, even from the neglect or fault of the
captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the
rule in the Philippines 23 deserves scant consideration. The Court there categorically held that said
rule was "reasonable" and proceeded to apply it in the resolution of that case. Petitioner miserably
failed to show such circumstances or arguments which would necessitate a departure from a well-
settled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the
doctrine of stare decisis and Article 8 of the Civil Code which provides that "(j)udicial decisions
applying or interpreting the laws or the Constitution shall form part of the legal system of the
Philippines."
In Vine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is valid." 24
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however,
will discuss the other arguments of petitioner for the beneVit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of
the Code of Commerce which confer on petitioner the right to recover damages from the shipowner
and ship agent for the acts or conduct of the captain. 25 We are not persuaded. Whatever rights
petitioner may have under the aforementioned statutory provisions were waived when it entered
into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to
law, public order, public policy, morals, or good customs, or prejudicial to a person with a right
recognized by law." As a general rule, patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner's right conferred under said articles may be waived. This, the
petitioner did by acceding to the contractual stipulation that it is solely responsible or any damage
to the cargo, thereby exempting the private carrier from any responsibility for loss or damage
thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner and
private respondent alone; it is not imbued with public policy considerations for the general public
or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary
to Articles 1170 and 1173 of the Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in
respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the
charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited by
petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of
Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event
the law or the contract is silent. In the instant case, Article 362 of the Code of Commerce 28 provides
the standard of ordinary diligence for the carriage of goods by a carrier. The standard of diligence
under this statutory provision may, however, be modiVied in a contract of private carriage as the
petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated there vis-a-
vis contractual stipulations limiting the carrier's liability be applied "with equal force" to this
case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends that
stipulations exempting a party from liability for damages due to negligence "should not be
countenanced" and should be "strictly construed" against the party claiming its beneVit. 33 We
disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the
application of such policy considerations and concomitantly stricter rules. As already discussed
above, the public policy considerations behind the rigorous treatment of common carriers are
absent in the case of private carriers. Hence, the stringent laws applicable to common carriers are
not applied to private carries. The case of Manila Railroad is also inapplicable because the action for
damages there does not involve a contract for transportation. Furthermore, the defendant therein
made a "promise to use due care in the lifting operations" and, consequently, it was "bound by its
undertaking"'; besides, the exemption was intended to cover accidents due to hidden defects in the
apparatus or other unforseeable occurrences" not caused by its "personal negligence." This promise
was thus constructed to make sense together with the stipulation against liability for damages. 34 In
the present case, we stress that the private respondent made no such promise. The agreement of
the parties to exempt the shipowner from responsibility for any damage to the cargo and place
responsibility over the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs. Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta Development
Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco Steamship Co. 39 in support of its
contention that the shipowner be held liable for damages. 40 These however are not on all fours
with the present case because they do not involve a similar factual milieu or an identical stipulation
in the charter party expressly exempting the shipowner form responsibility for any damage to the
cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because
this Court has earlier afVirmed the liability of South Sea for the loss suffered by petitioner. Private
respondent submits that petitioner is not legally entitled to collect twice for a single loss. 41 In view
of the above disquisition upholding the validity of the questioned charter party stipulation and
holding that petitioner may not recover from private respondent, the present issue is moot and
academic. It sufVices to state that the Resolution of this Court dated June 2, 1995 42 afVirming the
liability of South Sea does not, by itself, necessarily preclude the petitioner from proceeding against
private respondent. An aggrieved party may still recover the deViciency for the person causing the
loss in the event the amount paid by the insurance company does not fully cover the loss. Article
2207 of the Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
for the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deViciency form the person
causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS and
ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition Viled by an international air carrier seeking to limit its liability for lost
baggage, containing promotional and advertising materials for Vilms to be exhibited in Guam and the
U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount speciVied in the airline
ticket absent a declaration of a higher valuation and the payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are
as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the
plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and
Primo Quesada of Prime Films, San Francisco, California, entered into an agreement
(Exh. A) whereby the former, for and in consideration of the amount of US $2,500.00
per picture, bound himself to supply the latter with three Vilms. 'Ang Mabait,
Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal
Dragon' for exhibition in the United States. It was also their agreement that plaintiffs
would provide the necessary promotional and advertising materials for said Vilms on
or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he
contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise
entered into a verbal agreement with Slutchnick for the exhibition of two of the Vilms
above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the
consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan
undertook to provide the necessary promotional and advertising materials for said
Vilms on or before the exhibition date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the
requisite promotional handbills and still pictures for which he paid the total sum of
P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip abroad to
comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four
capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E,
and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila OfVice,
through the Your Travel Guide, an economy class airplane ticket with No.
0269207406324 (Exh. G) for passage from Manila to Guam on defendant's Flight No.
842 of May 27,1978, upon payment by said plaintiff of the regular fare. The Your
Travel Guide is a tour and travel ofVice owned and managed by plaintiffs witness
Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the
defendant's ticket counter at the Manila International Airport and presented his
ticket and checked in his two luggages, for which he was given baggage claim tickets
Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained the
promotional and advertising materials, the clutch bags, barong tagalog and his
personal belongings. Subsequently, Pangan was informed that his name was not in
the manifest and so he could not take Flight No. 842 in the economy class. Since
there was no space in the economy class, plaintiff Pangan took the Virst class because
he wanted to be on time in Guam to comply with his commitment, paying an
additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two
luggages did not arrive with his Vlight, as a consequence of which his agreements
with Slutchnick and Quesada for the exhibition of the Vilms in Guam and in the
United States were cancelled (Exh. L). Thereafter, he Viled a written claim (Exh. J) for
his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the
necessary representations to protest as to the treatment which he received from the
employees of the defendant and the loss of his two luggages (Exh. M, O, Q, S, and T).
Defendant Pan Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and R). Due to the
defendant's failure to communicate with Pangan about the action taken on his
protests, the present complaint was Viled by the plaintiff. (Pages 4-7, Record On
Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the
sum of P83,000.00, for actual damages, with interest thereon at the rate of 14% per
annum from December 6, 1978, when the complaint was Viled, until the same is fully
paid, plus the further sum of P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V.
Pangan the sum of P8,123.34, for additional actual damages, with interest thereon at
the rate of 14% per annum from December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World
Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit.
[Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court afVirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following
errors:
1. The respondent court erred as a matter of law in afVirming the trial court's award of actual
damages beyond the limitation of liability set forth in the Warsaw Convention and the contract of
carriage.
2. The respondent court erred as a matter of law in afVirming the trial court's award of actual
damages consisting of alleged lost proVits in the face of this Court's ruling concerning special or
consequential damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other
than the country of departure the Warsaw Convention may be applicable and the
Convention governs and in most cases limits the liability of carriers for death or
personal injury and in respect of loss of or damage to baggage. See also notice
headed "Advice to International Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of
which these conditions and the notices form part, "carriage" is equivalent to
"transportation," "carrier" means all air carriers that carry or undertake to carry the
passenger or his baggage hereunder or perform any other service incidental to such
air carriage. "WARSAW CONVENTION" means the convention for the UniVication of
Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th
October 1929, or that Convention as amended at The Hague, 28th September 1955,
whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability
established by the Warsaw Convention unless such carriage is not "international
carriage" as de`ined by that Convention.
3. To the extent not in conVlict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket, (ii)
applicable tariffs, (iii) carrier's conditions of carriage and related regulations which
are made part hereof (and are available on application at the ofVices of carrier),
except in transportation between a place in the United States or Canada and any
place outside thereof to which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher
value is declared in advance and additional charges are paid: (1)for most international
travel (including domestic portions of international journeys) to approximately $9.07
per pound ($20.00 per kilo) for checked baggage and $400 per passenger for
unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger
on most carriers (a few have lower limits). Excess valuation may not be declared on
certain types of valuable articles. Carriers assume no liability for fragile or
perishable articles. Further information may be obtained from the carrier.
[Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that
its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30
kilos) as the latter did not declare a higher value for his baggage and pay the corresponding
additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597,
June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed stipulation at the
back of an airline ticket limiting the liability of the carrier for lost baggage to a speciVied amount and
ruled that the carrier's liability was limited to said amount since the passenger did not declare a
higher value, much less pay additional charges.
We Vind the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through
Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it
limited PAL's carriage liability to the amount of P100.00 as stipulated at the back of
the ticket....
We agree with the foregoing Vinding. The pertinent Condition of Carriage printed at
the back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or
damage baggage of the passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher valuation in excess of
P100.00, but not in excess, however, of a total valuation of Pl,000.00
and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage,
much less (lid he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had
actually entered into a contract with PAL limiting the latter's liability for loss or
delay of the baggage of its passengers, and that Article 1750 * of the Civil Code has
not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation." [Tannebaum
v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern
Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is
what is known as a contract of "adhesion," in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing
Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in
Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v.
Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an
agreed valuation does not offend against the policy of the law forbidding one from
contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966,
17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a speciVied
amount was invalid, Vinds no application in the instant case, as the ruling in said case was premised
on the Vinding that the conditions printed at the back of the ticket were so small and hard to read
that they would not warrant the presumption that the passenger was aware of the conditions and
that he had freely and fairly agreed thereto. In the instant case, similar facts that would make the
case fall under the exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as
stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court Vinds it necessary to state that
the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No.
L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention
which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual
breach of carriage ** is against public policy" is utterly misplaced, to say the least. In said case,
while the Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in
the event of death of a passenger or injury suffered by him, or of destruction or loss
of, or damages to any checked baggage or any goods, or of delay in the
transportation by air of passengers, baggage or goods. This pretense is not borne out
by the language of said Articles. The same merely declare the carrier liable for
damages in enumerated cases, if the conditions therein speciVied are present.
Neither said provisions nor others in the aforementioned Convention regulate or
exclude liability for other breaches of contract by the carrier. Under petitioner's
theory, an air carrier would be exempt from any liability for damages in the event of
its absolute refusal, in bad faith, to comply with a contract of carriage, which is
absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the ground that
the lower court has erred: (1) in holding that the Warsaw Convention of October 12,
1929, relative to transportation by air is not in force in the Philippines: (2) in not
holding that respondent has no cause of action; and (3) in awarding P20,000 as
nominal damages.
We deem it unnecessary to pass upon the First assignment of error because the same is
the basis of the second assignment of error, and the latter is devoid of merit, even if we
assumed the former to be well taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity
of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination may said
quotation from Northwest be considered as supportive of the appellate court's statement that the
provisions of the Warsaw Convention limited a carrier's liability are against public policy.
2. The Court Vinds itself unable to agree with the decision of the trial court, and afVirmed by the
Court of Appeals, awarding private respondents damages as and for lost proVits when their
contracts to show the Vilms in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may
be held liable only for damages that were foreseen or might have been foreseen at the
time the contract of transportation was entered into. The trial court correctly found
that the defendant company could not have foreseen the damages that would be
suffered by Mendoza upon failure to deliver the can of `ilm on the 17th of September,
1948 for the reason that the plans of Mendoza to exhibit that Vilm during the town
Viesta and his preparations, specially the announcement of said exhibition by posters
and advertisement in the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration. In
the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered
motion picture Vilms to the defendant Fargo, an express company, consigned and to be delivered to
him in Utica. At the time of shipment the attention of the express company was called to the fact
that the shipment involved motion picture Vilms to be exhibited in Utica, and that they should be
sent to their destination, rush. There was delay in their delivery and it was found that the plaintiff
because of his failure to exhibit the Vilm in Utica due to the delay suffered damages or loss of proVits.
But the highest court in the State of New York refused to award him special damages. Said appellate
court observed:
But before defendant could be held to special damages, such as the present alleged loss
of pro`its on account of delay or failure of delivery, it must have appeared that he had
notice at the time of delivery to him of the particular circumstances attending the
shipment, and which probably would lead to such special loss if he defaulted. Or, as the
rule has been stated in another form, in order to purpose on the defaulting party
further liability than for damages naturally and directly, i.e., in the ordinary course of
things, arising from a breach of contract, such unusual or extraordinary damages must
have been brought within the contemplation of the parties as the probable result of
breach at the time of or prior to contracting. Generally, notice then of any special
circumstances which will show that the damages to be anticipated from a breach
would be enhanced has been held suf`icient for this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the
purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in the
present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner's attention was called to the special circumstances requiring prompt delivery of private
respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality when it accepted the
luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down
in Mendoza and afVirmance of the trial court's conclusion that petitioner is liable for damages based
on the Vinding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of
the Vilms in Guam and California were cancelled because of the loss of the two luggages in question."
[Rollo, p. 36] The evidence reveals that the proximate cause of the cancellation of the contracts was
private respondent Pangan's failure to deliver the promotional and advertising materials on the
dates agreed upon. For this petitioner cannot be held liable. Private respondent Pangan had not
declared the value of the two luggages he had checked in and paid additional charges. Neither was
petitioner privy to respondents' contracts nor was its attention called to the condition therein
requiring delivery of the promotional and advertising materials on or before a certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the
award of attorney's fees, which is grounded on the alleged unjustiVied refusal of petitioner to satisfy
private respondent's just and valid claim, loses support and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court
is SET ASIDE and a new judgment is rendered ordering petitioner to pay private respondents
damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual
payment.
SO ORDERED.
G.R. No. 92501 March 6, 1992
PHILIPPINE AIR LINES, petitioner,
vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.
GRIO-AQUINO, J.:
This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals afVirming the
decision of the Regional Trial Court of Pasay City which awarded P72,766.02 as damages and
attorney's fees to private respondent Isidro Co for the loss of his checked-in baggage as a passenger
of petitioner airline.
The Vindings of the trial court, which were adopted by the appellate court, are:
"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his wife and
son, arrived at the Manila International Airport aboard defendant airline's PAL Flight
No. 107 from San Francisco, California, U.S.A. Soon after his embarking (sic), plaintiff
proceeded to the baggage retrieval area to claim his checks in his possession.
Plaintiff found eight of his luggage, but despite diligent search, he failed to locate
ninth luggage, with claim check number 729113 which is the one in question in this
case.
"Plaintiff then immediately notiVied defendant company through its employee, Willy
Guevarra, who was then in charge of the PAL claim counter at the airport. Willy
Guevarra, who testiVied during the trial court on April 11, 1986, Villed up the printed
form known as a Property Irregularity Report (Exh. "A"), acknowledging one of the
plaintiff's luggages to be missing (Exh. "A-1"), and signed after asking plaintiff
himself to sign the same document (Exh. "A-2"). In accordance with this procedure in
cases of this nature, Willy Guevarra asked plaintiff to surrender to him the nine
claim checks corresponding to the nine luggages, i.e., including the one that was
missing.
The incontestable evidence further shows that plaintiff lost luggage was a Samsonite
suitcase measuring about 62 inches in length, worth about US$200.00 and
containing various personal effects purchased by plaintiff and his wife during their
stay in the United States and similar other items sent by their friends abroad to be
given as presents to relatives in the Philippines. Plaintiff's invoices evidencing their
purchases show their missing personal effects to be worth US$1,243.01, in addition
to the presents entrusted to them by their friends which plaintiffs testiVied to be
worth about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17"; tsn, p. 4, July 11,
1985; pp. 5-14, March 7, 1986).
Plaintiff on several occasions unrelentingly called at defendant's ofVice in order to
pursue his complaint about his missing luggage but no avail. Thus, on April 15, 1985,
plaintiff through his lawyer wrote a demand letter to defendant company though
Rebecca V. Santos, its manager, Central Baggage Services (Exhs. "B" & "B-1"). On
April 17, 1985, Rebecca Santos replied to the demand letter (Exh. "B")
acknowledging "that to date we have been unable to locate your client's (plaintiff's)
baggage despite our careful search" and requesting plaintiff's counsel to "please
extend to him our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however, defendants
never found plaintiff's missing luggage or paid its corresponding value.
Consequently, on May 3, 1985, plaintiff Viled his present complaint against said
defendants. (pp. 38-40, Rollo.)
Co sued the airline for damages. The Regional Trial Court of Pasay City found the defendant airline
(now petitioner) liable, and rendered judgment on June 3, 1986, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine
Airlines, Inc. to pay plaintiff Isidro Co:
1) P42,766.02 by way of actual damages;
2) P20,000.00 by way of exemplary damages;
3) P10,000.00 as attorney's fees;
all in addition to the costs of the suit.
"Defendants' counterclaim is hereby dismissed for lack of merit."
(p. 40, Rollo.)
On appeal, the Court of Appeals afVirmed in toto the trial court's award.
In his petition for review of the Court of Appeal's decision, petitioner alleges that the appellate court
erred:
1. in afVirming the conclusion of the trial court that the petitioner's retrieval baggage
report was a fabrication;
2. in not applying the limit of liability under the Warsaw Convention which limits the
liability of an air carrier of loss, delay or damage to checked-in baggage to US$20.00
based on weight; and
3. in awarding private respondent Isidro Co actual and exemplary damages,
attorney's fees, and costs.
The Virst and third assignments of error raise purely factual issues which are not reviewable by this
Court (Sec. 2, Rule 45, Rules of Court). The Court reviews only questions of law which must be
distinctly set forth in the petition. (Hodges vs. People, 68 Phil. 178.) The probative value of
petitioner's retrieval report was passed upon by the Regional Trial Court of Pasay City, whose
Vinding was afVirmed by the Court of Appeals as follows:
In this respect, it is further argued that appellee should produce his claim tag if he
had not surrendered it because there was no baggage received. It appeared,
however, that appellee surrendered all the nine claim checks corresponding to the
nine luggages, including the one that was missing, to the PAL ofVicer after
accomplishing the Property, Irregularity Report. Therefore, it could not be possible
for appellee to produce the same in court. It is now for appellant airlines to produce
the veracity of their Baggage Retrieval Report by corroborating evidence other than
testimonies of their employees. Such document is within the control of appellant
and necessarily requires other corroborative evidence. Since there is no compelling
reason to reverse the factual Vindings of the lower court, this Court resolves not to
disturb the same. (p. 41, Rollo.)
Whether or not the lost luggage was ever retrieved by the passenger, and whether or not the actual
and exemplary damages awarded by the court to him are reasonable, are factual issues which we
may not pass upon in the absence of special circumstances requiring a review of the evidence.
In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC 164 SCRA 268),
the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of
baggage without any improper conduct on the part of the ofVicials or employees of the airline, or
other special injury sustained by the passengers. The petitioner therein did not declare a higher
value for his luggage, much less did he pay an additional transportation charge.
Petitioner contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00
based on weight as private respondent Co did not declare the contents of his baggage nor pay
traditional charges before the Vlight (p. 3, tsn, July 18, 1985).
We Vind no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132
SCRA 529), this Court ruled:
The liability of the common carrier for the loss, destruction or deterioration of
goods transported from a foreign country to the Philippines is governed primarily
by the New Civil Code. In all matters not regulated by said Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by
Special Laws.
The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which
provide:
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article if the goods are lost, destroyed or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in article 1733.
Art. 1753. The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or
deterioration.
Since the passenger's destination in this case was the Philippines, Philippine law governs the
liability of the carrier for the loss of the passenger's luggage.
In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the
private respondent's evidence, proving that the carrier's negligence was the proximate cause of the
loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail
itself out of having to pay Co's claim.
The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw
Convention.
The award of exemplary damages and attorney's fees to the private respondent was justiVied. In the
cases of Imperial Insurance, Inc. vs. Simon, 122 Phil. 189 and Bert Osmea and Associates vs. CA, 120
SCRA 396, the appellant was awarded attorney's fees because of appellee's failure to satisfy the
former's just and valid demandable claim which forced the appellant to litigate. Likewise, in the case
of Phil. Surety Ins. Co., Inc. vs. Royal Oil Products, 102 Phil. 326, this Court justiVied the grant of
exemplary damages and attorney's fees to the petitioner's failure, even refusal, to pay the private
respondent's valid claim.
WHEREFORE, the petition for review is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.
SYLLABUS
1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS
CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS
LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner breached its contract of carriage
with private respondent when it failed to deliver his luggage at the designated place and time, it
being the obligation of a common carrier to carry its passengers and their luggage safely to their
destination, which includes the duty not to delay their transportation, and the evidence shows that
petitioner acted fraudulently or in bad faith.
2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT
OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF A
PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF
PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE GRANT OF MORAL AND
EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages predicated upon a breach of contract of
carriage may only be recoverable in instances where the mishap results in death of a passenger, or
where the carrier is guilty of fraud or bad faith. The language and conduct of petitioner's
representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of
moral damages. The CATHAY representative was not only indifferent and impatient; he was also
rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not
sincere because the representative knew that the passenger was limited only to $20.00 which,
certainly, was not enough to purchase comfortable clothings appropriate for an executive
conference. Considering that Alcantara was not only a revenue passenger but even paid for a Virst
class airline accommodation and accompanied at the time by the Commercial Attache of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been
more courteous and accommodating to private respondent, instead of giving him a curt reply, "What
can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need,
charged to Cathay PaciVic." Where in breaching the contract of carriage the defendant airline is not
shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of obligation which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does not include moral and exemplary damages.
Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of
moral and exemplary damages is proper.
3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED
SOME PECUNIARY LOSS. However, respondent Alcantara is not entitled to temperate damages,
contrary to the ruling of the court a quo, in the absence of any showing that he sustained some
pecuniary loss. It cannot be gainsaid that respondent's luggage was ultimately delivered to him
without serious or appreciable damage.
4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE
INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR AS
AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE OPERATION
OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We have repeatedly held, although the
Warsaw Convention has the force and effect of law in this country, being a treaty commitment
assumed by the Philippine government, said convention does not operate as an exclusive
enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an
absolute limit of the extent of that liability. The Warsaw Convention declares the carrier liable for
damages in the enumerated cases and under certain limitations. However, it must not be construed
to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less
exempt, the carrier from liability for damages for violating the rights of its passengers under the
contract of carriage, especially if wilfull misconduct on the part of the carrier's employees is found
or established, which is clearly the case before Us.
D E C I S I O N
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which afVirmed with
modiVication that of the trial court by increasing the award of damages in favor of private
respondent Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a Virst class
passenger of petitioner Cathay PaciVic Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900
from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The purpose
of his trip was to attend the following day, 20 October 1975, a conference with the Director General
of Trade of Indonesia, Alcantara being the Executive Vice-President and General Manager of Iligan
Cement Corporation, Chairman of the Export Committee of the Philippine Cement Corporation, and
representative of the Cement Industry Authority and the Philippine Cement Corporation. He
checked in his luggage which contained not only his clothing and articles for personal use but also
papers and documents he needed for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired
about his luggage from CATHAY's representative in Jakarta, private respondent was told that his
luggage was left behind in Hongkong. For this, respondent Alcantara was offered $20.00 as
"inconvenience money" to buy his immediate personal needs until the luggage could be delivered to
him.
His luggage Vinally reached Jakarta more than twenty four (24) hours after his arrival. However, it
was not delivered to him at his hotel but was required by petitioner to be picked up by an ofVicial of
the Philippine Embassy.
On 1 March 1976, respondent Viled his complaint against petitioner with the Court of First Instance
(now Regional Trial Court) of Lanao del Norte praying for temperate, moral and exemplary
damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00
for moral damages, P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and
P25,000.00 for attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court that
it was accountable for breach of contract and questioned the non-application by the court of the
Warsaw Convention as well as the excessive damages awarded on the basis of its Vinding that
respondent Alcantara was rudely treated by petitioner's employees during the time that his luggage
could not be found. For his part, respondent Alcantara assigned as error the failure of the trial court
to grant the full amount of damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision afVirming the Vindings of
fact of the trial court but modifying its award by increasing the moral damages to P80,000.00,
exemplary damages to P20,000.00 and temperate or moderate damages to P10,000.00. The award
of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY
contends that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara
for moral, exemplary and temperate damages as well as attorney's fees; and, (2) the Court of
Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its
passengers.
On its Virst assigned error, CATHAY argues that although it failed to transport respondent
Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify moral,
exemplary and temperate damages. It submits that the conclusion of respondent appellate court
that private respondent was treated rudely and arrogantly when he sought assistance from
CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to stand on.
Petitioner's Virst assigned error involves Vindings of fact which are not reviewable by this Court. 2 At
any rate, it is not impressed with merit. Petitioner breached its contract of carriage with private
respondent when it failed to deliver his luggage at the designated place and time, it being the
obligation of a common carrier to carry its passengers and their luggage safely to their destination,
which includes the duty not to delay their transportation, 3 and the evidence shows that petitioner
acted fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of fraud
or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly
negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place and
time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage on board
the Virst aircraft bound for Jakarta were unloaded and transferred to the second aircraft which
departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not even aware
that it left behind private respondent's luggage until its attention was called by the Hongkong
Customs authorities. More, bad faith or otherwise improper conduct may be attributed to the
employees of petitioner. While the mere failure of CATHAY to deliver respondent's luggage at the
agreed place and time did not ipso facto amount to willful misconduct since the luggage was
eventually delivered to private respondent, albeit belatedly, 6 We are persuaded that the employees
of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma, Commercial Attache of
the Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter sought
assistance from the employees of CATHAY. This deposition was the basis of the Vindings of the lower
courts when both awarded moral damages to private respondent. Hereunder is part of Palma's
testimony
"Q: What did Mr. Alcantara say, if any?
A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the
experience because probably he was thinking he was going to meet the Director-General the
following day and, well, he was with no change of proper clothes and so, I would say, he was not
happy about the situation.
Q: What did Mr. Alcantara say?
A: He was trying to press the fellow to make the report and if possible make the delivery of his
baggage as soon as possible.
Q: And what did the agent or duty ofVicer say, if any?
A: The duty ofVicer, of course, answered back saying 'What can we do, the baggage is missing. I
cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to Cathay
PaciVic.'
Q: What was the demeanor or comportment of the duty ofVicer of Cathay PaciVic when he said to Mr.
Alcantara 'You can buy anything chargeable to Cathay PaciVic'?
A: If I had to look at it objectively, the duty ofVicer would like to dismiss the affair as soon as possible
by saying indifferently 'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's
representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of
moral damages. The CATHAY representative was not only indifferent and impatient; he was also
rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not
sincere because the representative knew that the passenger was limited only to $20.00 which,
certainly, was not enough to purchase comfortable clothings appropriate for an executive
conference. Considering that Alcantara was not only a revenue passenger but even paid for a Virst
class airline accommodation and accompanied at the time by the Commercial Attache of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been
more courteous and accommodating to private respondent, instead of giving him a curt reply, "What
can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need,
charged to Cathay PaciVic." CATHAY's employees should have been more solicitous to a passenger in
distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY refused to
have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it up
himself and an ofVicial of the Philippine Embassy. Under the circumstances, it is evident that
petitioner was remiss in its duty to provide proper and adequate assistance to a paying passenger,
more so one with Virst class accommodation.
Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of obligation which the parties had foreseen or could have reasonably
foreseen. In that case, such liability does not include moral and exemplary damages. 8 Conversely, if
the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and
exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the
court a quo, in the absence of any showing that he sustained some pecuniary loss. 9 It cannot be
gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable
damage.
As regards its second assigned error, petitioner airline contends that the extent of its liability for
breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We do
not agree. As We have repeatedly held, although the Warsaw Convention has the force and effect of
law in this country, being a treaty commitment assumed by the Philippine government, said
convention does not operate as an exclusive enumeration of the instances for declaring a carrier
liable for breach of contract of carriage or as an absolute limit of the extent of that liability. 10 The
Warsaw Convention declares the carrier liable for damages in the enumerated cases and under
certain limitations. 11 However, it must not be construed to preclude the operation of the Civil Code
and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for
damages for violating the rights of its passengers under the contract of carriage, 12 especially if
wilfull misconduct on the part of the carrier's employees is found or established, which is clearly
the case before Us. For, the Warsaw Convention itself provides in Art. 25 that
"(1) The carrier shall not be entitled to avail himself of the provisions of this convention which
exclude or limit his liability, if the damage is caused by his wilfull misconduct or by such default on
his part as, in accordance with the law of the court to which the case is submitted, is considered to
be equivalent to wilfull misconduct."
(2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is
caused under the same circumstances by any agent of the carrier acting within the scope of his
employment."
When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at
the appointed place and time, some special species of injury must have been caused to him. For
sure, the latter underwent profound distress and anxiety, and the fear of losing the opportunity to
fulVill the purpose of his trip. In fact, for want of appropriate clothings for the occasion brought
about by the delay of the arrival of his luggage, to his embarrassment and consternation respondent
Alcantara had to seek postponement of his pre-arranged conference with the Director General of
Trade of the host country.
In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety
and shock when he Vinds that his luggage did not travel with him and he Vinds himself in a foreign
land without any article of clothing other than what he has on.
Thus, respondent is entitled to moral and exemplary damages. We however Vind the award by the
Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount to
P30,000.00. The exemplary damages of P20,000.00 being reasonable is maintained, as well as the
attorney's fees of P25,000.00 considering that petitioner's act or omission has compelled Alcantara
to litigate with third persons or to incur expenses to protect his interest. 14
WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the exception
of the award of temperate damages of P10,000.00 which is deleted, while the award of moral
damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for exemplary damages
is maintained as reasonable together with the attorney's fees of P25,000.00. The moral and
exemplary damages shall earn interest at the legal rate from 1 March 1976 when the complaint was
Viled until full payment.
SO ORDERED.
ROBLES V SANTOS
7NOV
44 OG 2268 | September 6, 1947 | Pres. J. Montemayor
Doctrine:
1. If the damage or loss was not due to fortuitous events, force majeure or inherent nature and
defect of goods, but was traceable to the own negligence of the common carrier, then he is liable.
2. Provided that there is meeting of the minds and from such meeting arise rights and obligations,
there should be no limitations as to the form of the contract of carriage. Bill of lading is not essential
to the contract, although it may be obligatory by reason of the regulations of railroad companies or
as a condition imposed in the contract by agreement of that parties themselves.
Facts:
Plaintiff RuVina Robles brought the present action against defendant operator and driver Jose Santos
to recover the value of her lost goods. Sitting in the front seat of Santos old Roadster with her large
buri bag containing two bolts of cloth called gris and 10 undershirts, Robles was told by Santos to
transfer her baggage to the trunk compartment possibly because of its bulk. Robles objected
because it might get lost but later on agreed upon the reassurance of Santos that the compartment
will be locked. On the way to Manila, the compartment was opened from time to time as other
passengers got their baggages. Upon arrival in Bambang, Manila, Robles found that her bag with its
contents is missing.
Issue:
W/N defendant operator is liable
Held:
Yes. Judgment was modiVied as to amount of damages.
The defendant, being habitually engaged in transportation for the public, is bound and governed by
the Code of Commerce in his relations and responsibility to his passengers and their baggage or
goods. The last paragraph of Article 361 of the Code of Commerce, placing upon the carrier the
burden of proof to show that the loss or damage was caused by fortuitous events, force majeure or
inherent nature and defect of goods, implies that if the damage or loss was traceable to the own
negligence of the common carrier, then he is liable.
Had defendant allowed plaintiff to keep her bag near her and guard it, the loss would never have
occurred. There was misdelivery resulting in complete loss. The defendant as a carrier failed to
exercise the necessary supervision and care to prevent the loss.
On defendants contention that no bill of lading was issued and that he is thus not liable for loss, it
must be noted that the bill of lading is not indispensable. Provided that there is meeting of the
minds and from such meeting arise rights and obligations, there should be no limitations as to the
form of the contract of carriage. Bill of lading is not essential to the contract, although it may be
obligatory by reason of the regulations of railroad companies or as a condition imposed in the
contract by agreement of that parties themselves.
Advertisements