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THE LAW ON TRANSPORTATION AND PUBLIC UTILITIES

SWU LAW- PHINMA

Atty. Jandel V. Ondangan


Instructor

COURSE SYLLABUS
Part 1 Common Carriers

Definition of Contract of Transportation ................................................................................. 4

Laws and Jurisprudence:

R.A 4136: land Transportation and Traffic Code ............................................................. 5

Unsworth Transportation International v. CA, et al, July 26, 2010................................ 35

Agustin Dela Torre v. CA ................................................................................................ 38

Parties .................................................................................................................................... 51

Carriage of Passengers ................................................................................................... 51

Carriage of Goods .......................................................................................................... 51

Laws and Jurisprudence: ........................................................................................................ 51

a. Baliwag Transit Corporation v C ................................................................................. 51

b. Everett Steamship Corp. v. CA ................................................................................. 55

c. British Airways v. CA ................................................................................................. 61

Perfection ............................................................................................................................... 68

aircraft ............................................................................................................................ 68

Buses, Jeepneys, and Street cars ................................................................................... 68

Trains.............................................................................................................................. 68

Laws and Jurisprudence: ........................................................................................................ 68

British Airways v. CA February 9, 1993, 218 SCRA 699 .................................................. 68

Mauro Ganzon v. CA No. L-48757, May 30, 1988 .......................................................... 68

Korean Airlines Co. ltd v. CA August 3, 1994 234 SCRA 717 .......................................... 71

Dangwa Transportation Co., Inc. v CA October 7, 1991, 202 SCRA 574 ........................ 76

Common carrier ..................................................................................................................... 83

Public service ................................................................................................................. 83

Laws and Jurisprudence: ........................................................................................................ 83

Article 1732 of the New Civil Code ................................................................................ 83

Commonwealth Act No. 146 section 13 par. b as amended ......................................... 83

De guzman v. CA .......................................................................................................... 83

Test:........................................................................................................................................ 87
1.2 First Philippine Industrial Corporation v. CA .......................................................... 87

1.3 Estrellita M. Bascos v. CA ....................................................................................... 93

1.4 FGU Insurance Corporation v. G. P. Sarmiento Trucking Corporations ................. 98

1.5 Sps. Teodoro and Nanette Perena v. Sps Teresita Phil. Nicolas, et al. ................ 103

1.6 National Steel Corporation v. CA ......................................................................... 114

1.7 Sps Cruz v. Holiday ............................................................................................... 135

Characteristics...................................................................................................................... 141

Broader concept........................................................................................................... 141

Ancillary business ......................................................................................................... 141

Limited clientele........................................................................................................... 141

Means of transportation .............................................................................................. 141

Laws and Jurisprudence: ...................................................................................................... 141

Article 1732 of the New Civil Code .............................................................................. 141

National Steel Corporation v. CA ................................................................................. 141

a. Asia Lighterage and Shipping, Inc. v. CA .................................................................. 141

b. Fabre, Jr. v. CA.......................................................................................................... 147

c. Phil. American general insurance Company v. PKS Shipping Co .............................. 155

d. Virgines Calvo v. UCPB General Insurance Co.......................................................... 160

e. Caltex(phil) v. Sulpicio Lines ..................................................................................... 166

f. Loadstar Shipping Co. v. Pioneer Asia Insurance .................................................... 174

g. Home Assurance Corp .............................................................................................. 181

h. Planters v. CA ......................................................................................................... 183

i. A.F Sanchez Brokerage Inc. v. CA .............................................................................. 189

2. Effect of Charter Party ............................................................................................................. 196

3. Common carrier v. Private Carrier ........................................................................................... 196

Laws and Jurisprudence: ...................................................................................................... 196

a. Cebu Salvage Corporation v. Philippine Home Assurance Corp .............................. 196

b. Valenzuela Hardwood and Industrial Supply, Inc. v. CA ........................................ 199

c. Loadmasters Customs Services, Inc. Glodel Brokerage Corporation ....................... 209

4. Common carrier v. Other contracts ......................................................................................... 219

4.1 Distinguish from ............................................................................................................. 219

a. Towage ..................................................................................................................... 219

b. Arrastre .................................................................................................................... 219

c. Stevedoring .............................................................................................................. 219


d. Travel Agency ........................................................................................................... 219

Laws and Jurisprudence ....................................................................................................... 219

a. Cargolift Shipping Inc. V. L. Actuario Marketing Co. and Skyland Brokerage ........ 219

b. Mindanao Terminal and Brokerage services v. Phoenix Assurance Co ................... 226

c. Cebu Arrastre Services v. Collector of Internal Revenue ....................................... 233

d. Crisostomo v. CA .................................................................................................... 235

5. Governing Laws ........................................................................................................................ 242

5.1 Article 1766 of the New Civil Code(NCC) ............................................................... 242

5.2 Article 1753 NCC .................................................................................................... 242

5.3 Article 1732-1766 NCC ........................................................................................... 242

5.4 National Dev. Company v. CA .............................................................................. 242

5.5 Mapa v. CA ........................................................................................................... 248

5.6 Alitalia v. Intermediate Appellate Court .............................................................. 258

5.7 Philippine Charter Insurance Corpo v. Neptune Orient Lines .............................. 262

5.8 Warsaw convetion ................................................................................................. 269

5.9 COGSA .................................................................................................................... 269

5.10 RA 4136 ................................................................................................................ 269

5.11 RA 9497 ................................................................................................................ 269

6. Nature of business ................................................................................................................... 269

7. Registered owner rule and Kabit System ................................................................................. 269

7.1 Registration laws ............................................................................................................ 269

Compulsory registration of motor vehicles ......................................................... 269

7.2 Registered owner rule.................................................................................................... 269

7.3 Kabit system ................................................................................................................... 269

7.4 Pari Delicto Rule ............................................................................................................. 269

7.5 Aircrafts and vessels....................................................................................................... 269

Laws and Jurisprudence ....................................................................................................... 269

a. PCI leasing and finance, Inc. v. UCPB General Insurance Co .................................... 269

b. Equitable Leasing Corporation v. Lucita Suyon ........................................................ 269

c. Aguilar v. Commercial Savings Bank ....................................................................... 269

d. Perez v. Gutierrez ................................................................................................... 269

e. Aberlardo Lim ........................................................................................................... 269

f. Teja Marketing v. Intermediate Appellate Court ...................................................... 269

g. Lita Enterprises, Inc. v. IAC ..................................................................................... 269


h. Mariano C Mendoza and Lim v. SPS Gomez and Gomez ....................................... 269

i. Estela Crisostomo v. CA and Caravan Travel and Tours .......................................... 269

8. Boundary System ..................................................................................................................... 269

Laws and Jurisprudence ....................................................................................................... 270

a. Gregorio George Amante and Vicente Amante vs. Bibiano Serwelas ............. 270

b. Oscar Villarama Jr v. CA ........................................................................................... 270

c. Martin Lantaco et al. v. City Judge Francisco R. Llamas ......................................... 270

d. Isabelo Doce v. WCC and Dadao Jadao .................................................................. 270

e. Rodolfo J. Serrano v. Severino Santos Transit and/or Severino Santos ................... 270

Part 1 Common Carriers

Definition of Contract of Transportation

The movement of persons or things from one place to another, by a carrier.


Laws and Jurisprudence:

R.A 4136: land Transportation and Traffic Code

REPUBLIC ACT No. 4136

AN ACT TO COMPILE THE LAWS RELATIVE TO LAND TRANSPORTATION AND TRAFFIC


RULES, TO CREATE A LAND TRANSPORTATION COMMISSION AND FOR OTHER
PURPOSES

CHAPTER I
PRELIMINARY PROVISIONS ARTICLE

ARTICLE I
Title and Scope of Act

Section 1. Title of Act. - This Act shall be known as the "Land Transportation and
Traffic Code."

Section 2. Scope of Act. - The provisions of this Act shall control, as far as they apply,
the registration and operation of motor vehicles and the licensing of owners, dealers,
conductors, drivers, and similar matters.

ARTICLE II
Definitions

Section 3. Words and phrases defined. - As used in this Act:

(a) "Motor Vehicle" shall mean any vehicle propelled by any power other than
muscular power using the public highways, but excepting road rollers, trolley cars,
street-sweepers, sprinklers, lawn mowers, bulldozers, graders, fork-lifts, amphibian
trucks, and cranes if not used on public highways, vehicles which run only on rails or
tracks, and tractors, trailers and traction engines of all kinds used exclusively for
agricultural purposes.

Trailers having any number of wheels, when propelled or intended to be propelled by


attachment to a motor vehicle, shall be classified as separate motor vehicle with no
power rating.

(b) "Passenger automobiles" shall mean all pneumatic-tire vehicles of types similar to
those usually known under the following terms: touring car, command car,
speedster, sports car, roadster, jeep, cycle, car (except motor wheel and similar small
outfits which are classified with motorcycles), coupe, landaulet, closed car, limousine,
cabriolet, and sedan.

Motor vehicles with changed or rebuilt bodies, such as jeepneys, jitneys, or station
wagons, using a chassis of the usual pneumatic-tire passenger automobile type, shall
also be classified as passenger automobile, if their net allowable carrying capacity, as
determined by the Commissioner of Land Transportation, does not exceed nine
passengers and if they are not used primarily for carrying freight or merchandise.

The distinction between "passenger truck" and "passenger automobile" shall be that
of common usage: Provided, That a motor vehicle registered for more than nine
passengers shall be classified as "truck": And Provided, further, That a "truck with
seating compartments at the back not used for hire shall be registered under special
"S" classifications. In case of dispute, the Commissioner of Land Transportation shall
determine the classification to which any special type of motor vehicle belongs.

(c) "Articulated vehicle" shall mean any motor vehicle with a trailer having no front
axle and so attached that part of the trailer rests upon motor vehicle and a
substantial part of the weight of the trailer and of its load is borne by the motor
vehicle. Such a trailer shall be called as "semi-trailer."

(d) "Driver" shall mean every and any licensed operator of a motor vehicle.

(e) "Professional driver" shall mean every and any driver hired or paid for driving or
operating a motor vehicle, whether for private use or for hire to the public.

Any person driving his own motor vehicle for hire is a professional driver.

(f) "Owner" shall mean the actual legal owner of a motor vehicle, in whose name
such vehicle is duly registered with the Land Transportation Commission.

The "owner" of a government-owned motor vehicle is the head of the office or the
chief of the Bureau to which the said motor vehicle belongs.

(g) "Dealer" shall mean every person, association, partnership, or corporation


making, manufacturing, constructing, assembling, remodeling, rebuilding, or setting
up motor vehicles; and every such entity acting as agent for the sale of one or more
makes, styles, or kinds of motor vehicles, dealing in motor vehicles, keeping the same
in stock or selling same or handling with a view to trading same.

(h) "Garage" shall mean any building in which two or more motor vehicles, either
with or without drivers, are kept ready for hire to the public, but shall not include
street stands, public service stations, or other public places designated by proper
authority as parking spaces for motor vehicles for hire while awaiting or soliciting
business.

(i) "Gross weight" shall mean the measured weight of a motor vehicle plus the
maximum allowable carrying capacity in merchandise, freight and/or passenger, as
determined by the Commissioner of Land Transportation.

(j) "Highways" shall mean every public thoroughfare, public boulevard, driveway,
avenue, park, alley and callejon, but shall not include roadway upon grounds owned
by private persons, colleges, universities, or other similar institutions.

(k) "The Commissioner of Land Transportation or his deputies" shall mean the actual
or acting chief of the Land Transportation Commission or such representatives,
deputies, or assistants as he may, with the approval of the Secretary of Public Works
and Communications, appoint or designate in writing for the purpose contemplated
by this Act.

(l) "Parking or parked", for the purposes of this Act, shall mean that a motor vehicle
is "parked" or "parking" if it has been brought to a stop on the shoulder or proper
edge of a highway, and remains inactive in that place or close thereto for an
appreciable period of time. A motor vehicle which properly stops merely to discharge
a passenger or to take in a waiting passenger, or to load or unload a small quantity of
freight with reasonable dispatch shall not be considered as "parked", if the motor
vehicle again moves away without delay.

(m) "Tourist" shall mean a foreigner who travels from place to place for pleasure or
culture.

ARTICLE III
Administration of Act

Section 4. Creation of the Commission. -

(a) There is created under the Department of Public Works and Communications an
office which shall be designated and known as the Land Transportation Commission,
composed of one Commissioner and one Deputy Commissioner, who shall be vested
with the powers and duties hereafter specified. Whenever the word "Commission" is
used in this Act, it shall be deemed to mean the Land Transportation Commission,
and whenever the word "Commissioner" is used in this Act, it shall be taken to mean
the Commissioner or Deputy Commissioner.

The Commissioner and the Deputy Commissioner shall be natural-born citizens and
residents of the Philippines, and they shall be appointed by the President of the
Philippines, with the consent of the Commission on Appointments of the Congress of
the Philippines: Provided, however, That the present Administrator, Assistant
Administrator and the personnel of the Motor Vehicles Office shall continue in office
without the necessity of reappointment.

(b) The Commissioner and Deputy Commissioner shall hold office until removed in
accordance with the provisions of the Revised Administrative Code.

(c) The Commissioner shall receive an annual compensation of twelve thousand


pesos and the Deputy Commissioner, an annual compensation of ten thousand four
hundred pesos. The Commissioner shall be assisted by one head executive assistant
(MV regulation adviser or chief), one administrative officer, one registration
regulation chief, one inspection, examination and licensing regulation chief, one law
and traffic enforcement regulation chief, one provincial regulation chief, one utility
and property regulation chief, one accounting officer, one internal chief auditor, and
one personnel officer, who shall receive an annual compensation of nine thousand
pesos each; eight land transportation regional directors who shall receive an annual
compensation of eight thousand four hundred pesos each and eight land
transportation assistant regional directors, who shall receive an annual compensation
of seven thousand pesos each and ten assistant regulation chiefs, who shall receive
an annual compensation of seven thousand pesos each.

(d) The Commission shall have its offices in Quezon City where the present Motor
Vehicle Office is located, and shall establish a regional branch office each in
Tuguegarao (Cagayan), Baguio City, Pasig (Rizal), Lipa City, San Fernando (La Union),
Naga City, Cebu City, Iloilo City, Cagayan de Oro City, and Davao City, to be headed by
a regional director who will have immediate administration, supervision and control
over activities and administration of the Commission in the respective regions.

The Commissioner shall be responsible for the administration of this Act and shall
have, in connection therewith, the following powers and duties, in addition to those
mentioned elsewhere in this Act:

(1) With the approval of the Secretary of Public Works and Communications, to issue
rules and regulations not in conflict with the provisions of this Act, prescribing the
procedure for the examination, licensing and bonding of drivers; the registration and
re-registration of motor vehicles, transfer of ownership, change of status; the
replacement of lost certificates, licenses, badges, permits or number plates; and to
prescribe the minimum standards and specifications including allowable gross
weight, allowable length, width and height or motor vehicles, distribution of loads,
allowable loads on tires, change of tire sizes, body design or carrying capacity
subsequent to registration and all other special cases which may arise for which no
specific provision is otherwise made in this Act.

(2) To compile and arrange all applications, certificates, permits, licenses, and to
enter, note and record thereon transfers, notifications, suspensions, revocations, or
judgments of conviction rendered by competent courts concerning violations of this
Act, with the end in view of preserving and making easily available such documents
and records to public officers and private persons properly and legitimately
interested therein.

(3) To give public notice of the certificates, permits, licenses and badges issued,
suspended or revoked and/or motor vehicles transferred and/or drivers bonded
under the provisions of this Act.

(4) The Commissioner of Land Transportation, with the approval of the Secretary of
Public Works and Communications, may designate as his deputy and agent any
employee of the Land Transportation Commission, or such other government
employees as he may deem expedient to assist in the carrying out the provisions of
this Act.

(5) The Commissioner of Land Transportation and his deputies are hereby authorized
to make arrest for violations of the provisions of this Act in so far as motor vehicles
are concerned; to issue subpoena and subpoena duces tecum to compel the
appearance of motor vehicle operators and divers and/or other persons or
conductors; and to use all reasonable means within their powers to secure
enforcement of the provisions of this Act.
(6) The Commissioner of Land Transportation or his deputies may at any time
examine and inspect any motor vehicle to determine whether such motor vehicle is
registered, or is unsightly, unsafe, overloaded, improperly marked or equipped, or
otherwise unfit to be operated because of possible excessive damage to highways,
bridges and/or culverts.

(7) The Philippine Constabulary and the city and municipal police forces are hereby
given the authority and the primary responsibility and duty to prevent violations of
this Act, and to carry out the police provisions hereof within their respective
jurisdiction: Provided, That all apprehensions made shall be submitted for final
disposition to the Commissioner and his deputies within twenty-four hours from the
date of apprehension.

(8) All cases involving violations of this Act shall be endorsed immediately by the
apprehending officer to the Land Transportation Commission. Where such violations
necessitate immediate action, the same shall be endorsed to the traffic court, city or
municipal court for summary investigation, hearing and disposition, but in all such
cases, appropriate notices of the apprehensions and the dispositions thereof shall be
given to the Commissioner of Land Transportation by the law-enforcement agency
and the court concerned.

Notation of all such dispositions shall be entered in the records, and copy shall be
mailed to the owner and to the driver concerned.

CHAPTER II
REGISTRATION OF MOTOR VEHICLES

ARTICLE I
Duty to Register, Reports, Applications, Classifications

Section 5. All motor vehicles and other vehicles must be registered.

(a) No motor vehicle shall be used or operated on or upon any public highway of the
Philippines unless the same is properly registered for the current year in accordance
with the provisions of this Act.

(b) Any registration of motor vehicles not renewed on or before the date fixed for
different classifications, as provided hereunder shall become delinquent and invalid:

1. For hire motor vehicles - on or before the last working day of February.

2. Privately-owned motor vehicles - from March one to the last working day of May.

3. All other motor vehicles - from June one to the last working day of June; except
when the plates of such motor vehicles are returned to the Commission in Quezon
City or to the Office of the Motor Vehicles Registrar in the provincial or city agency of
the Commission on or before the last working day of December of the year of issue.

(c) Dealer's reports - The Commissioner of Land Transportation shall require dealers
to furnish him with such information and reports concerning the sale, importation,
manufacture, number of stocks, transfer or other transactions affecting motor
vehicles as may be necessary for the effective enforcement of the provisions of this
Act.

(d) Change of motor number prohibited. - No repair or change in the motor vehicle
involving the exchange, elimination, effacing, or replacing of the original or
registered serial or motor number as stamped or imprinted, shall be allowed, and any
motor vehicle with a trace of having its motor number altered or tampered with shall
be refused registration or re-registration, unless such is satisfactorily explained and
approved by the Commissioner.

(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other


encumbrances of motor vehicles, in order to be valid, must be recorded in the Land
Transportation Commission and must be properly recorded on the face of all
outstanding copies of the certificates of registration of the vehicle concerned.

Cancellation or foreclosure of such mortgages, attachments, and other


encumbrances shall likewise be recorded, and in the absence of such cancellation, no
certificate of registration shall be issued without the corresponding notation of
mortgage, attachment and/or other encumbrances.

Records of encumbrances of motor vehicles shall be kept by the Land Transportation


Commission in chronological sequence and shall contain, among other things, the
time, date and number of the entry in a "Book of Motor Vehicles" referring to the
creation, cancellation or foreclosure of the aforesaid mortgages, attachments or to
other encumbrances.

The Land Transportation Commission shall collect a fee of five pesos for every
annotation of a mortgage, attachment and/or other encumbrances, or cancellation
thereof.

Section 6. Application and payments for registration. - Applications and payments for
registration shall be made either personally or by registered mail, and the date of the
cancellation of the postage stamps of envelopes containing money order or check
shall be taken as the date of the application and/or payment for registration:
Provided, That the application is properly prepared and the payment for registration
is sufficient as required by law.

Section 7. Registration Classification. - Every motor vehicle shall be registered under


one of the following described classifications:

(a) private passenger automobiles; (b) private trucks; and (c) private motorcycles,
scooters, or motor wheel attachments. Motor vehicles registered under these
classifications shall not be used for hire under any circumstances and shall not be
used to solicit, accept, or be used to transport passengers or freight for pay.

Laborers necessary to handle freight on board private trucks may ride on such trucks:
Provided, That seats shall not be installed in the rear compartment thereof and that
only such number of laborers, not exceeding ten, as may be needed to handle the
kind of freight carried, shall ride on the truck: Provided, further, That the combined
weight of cargo and passengers does not exceed the registered net capacity of the
truck.

For the purpose of this section, a vehicle habitually used to carry freight not
belonging to the registered owner thereof, or passengers not related by
consanguinity or affinity within the fourth civil degree to such owner, shall be
conclusively presumed to be "for hire."

No person shall be allowed to register as private truck any truck not actually and
reasonably necessary to carry out his duly licensed business or legitimate occupation
or industry regularly paying taxes.

(d) Public utility automobiles; e) public utility trucks; (f) taxis and auto-calesas; (g)
garage automobiles; (h) garage trucks; (i) hire trucks: and (j) trucks owned by
contractors and customs brokers and customs agents. Application for registration
under these classifications shall be accompanied by a certificate of public
convenience or a special permit issued by the Public Service Commission, and motor
vehicles registered under these classifications shall be subject to the Public Service
Law, rules and regulations, as well as the provisions of this Act.

(k) Undertakes

(l) Dealers - Registrations under this classification are intended to cover generally and
successively all the motor vehicles imported or handled by dealers for sale. Motor
vehicles registered under the dealer's classification shall, under no circumstances, be
employed to carry passengers or freight in the dealer's business, or for hire. Such
vehicles shall be operated under this classification only for the purpose of
transporting the vehicle itself from the pier or factory to the warehouse or sales
room or for delivery to a prospective purchaser or for test or demonstration.

(m) Government automobiles; (n) government trucks; and (o) government


motorcycles. Motor vehicles owned by the Government of the Philippines or any of
its political subdivisions shall be registered under these classifications. Motor vehicles
owned by government corporations, by government employees or by foreign
governments shall not be registered under this classification.

(p) Tourists bringing their own motor vehicles to the Philippines may, without
registering such motor vehicles, use the same during but not after ninety days of
their sojourn: Provided, That the motor vehicle displays the number plates for the
current year of some other country or state, and said number plates as well as the
name and address (permanent and temporary) of the owner thereof are registered in
the Land Transportation Commission prior to the operation of the motor vehicle.

If such tourist remain in the Philippines longer than ninety days, the motor vehicle
shall not be operated unless registered in accordance with this Act and the
corresponding registration fees paid.

(q) Special. The Commissioner of Land Transportation may, in his discretion, allow the
registration under this classification of motor vehicles which do not conform to the
foregoing described regular classification.
ARTICLE II
Registration Fees

Section 8. Schedule of registration fees. - Except as otherwise specifically provided in


this Act, each application for renewal of registration of motor vehicles shall be
accompanied by an annual registration fee in accordance with the following
schedule:

(a) Private automobiles with pneumatic rubber tires, an amount based on their
respective shipping weight or factory weight as indicated in the following schedule:

1,000 kilos or less P75.00

1,000 to 1,500 kilos 100.00

1,501 to 2,000 kilos 135.00

2,001 kilos and above 180.00

The factory or shipping weight of a private automobile shall be obtained from the
Red Book edited by the National Market Report, Inc., of the United States of
America: Provided, further, That in the case of automobiles with altered, changed or
rebuilt bodies, the weight as obtained: by actual weighing shall be considered the
vehicles weight: Provided, furthermore, That the increase registration fees herein
prescribed shall not apply to jeeps and jeepneys for private use or for hire and the
fees hereof shall be those prescribed for them before the approval of this Act.

The registered passenger capacity of passenger automobiles operated for hire or for
private use shall be determined as follows:

1. For each adult passenger, a horizontal rectangular area, including seat and feet
space, not less than thirty-five centimeters wide and sixty centimeters long, except in
the front seat, which shall allow an area fifty centimeters wide for the operator.

2. For each half passenger, a horizontal rectangular area, including seat and feet
spaces, not less that seventeen and a half centimeters wide by sixty centimeters
long, provided, that each continuous row of seats shall not be allowed to have more
that one-half passenger.

(b) Private motor trucks, passenger buses and trailers with pneumatic rubber tires,
the sum of five pesos for every hundred kilograms of maximum allowable gross
weight or fraction thereof.

(c) Private motor trucks, passenger buses and trailers with solid rubber tires or with
part-solid and part-pneumatic rubber tires, the sum of seven pesos for every hundred
kilograms of maximum allowable gross weight or fraction thereof.

(d) Private motorcycles and scooters of two or three wheels and bicycles with motor
attachments, the sum of thirty pesos.
(e) The fee for registration of motor vehicles for hire shall be sixty percent more than
the fee prescribed for private motor vehicles of the same category.

(f) The fee for registration of diesel-consuming vehicles shall be fifty percent more
than that of vehicles using motor fuel other than diesel oil. The fee for registration of
motor vehicles for hire shall be sixty percent more than the fees prescribed for
private motor vehicles.

(g) No regular registration fees shall be charged for the general registration of motor
vehicles contemplated under the dealer's classification: Provided, That the
Commissioner of Land Transportation shall provide appropriate dealer's number
plates corresponding to the classification of vehicles hereinbelow described, and
registration fee for every set of such dealer's number plates shall be in accordance
with the following schedule of rates;

Two hundred pesos for each truck or trailer;

One hundred pesos for each passenger automobile; and

Twenty pesos for each motorcycle and the like.

(h) Registration under the "Government Motor Vehicle" classification shall be free of
charge, upon request of the chief of bureau or office concerned.

(i) Motor vehicles not intended to be operated or used upon any public highway, or
which are operated on highways not constructed or maintained by the Government,
or are intended not to be used or operated at all, shall be exempt from payment of
the registration fees provided in this Act, but shall each pay an annual recording and
service fee of fifteen pesos: Provided, however, That no refund, credit for, or
reimbursement of registration fees or part thereof shall be made to any owner on
account of the discontinuance of the use or operation of a motor vehicle subsequent
to the payment of such registration fees: Provided, further, That in the event motor
vehicles exempted under this section shall be found operated on any public
highways, the regular registration fees and surcharges shall be collected in addition
to whatever penalties may be imposed for violation of this Act. The Commissioner of
Land Transportation shall provide distinctive number plates for vehicles exempted
from payment of regular registration fees, and the owner of the vehicles concerned
shall pay four pesos for each set of such number plates.

(j) The maximum allowable gross weight of a motor truck, passenger bus, or trailer,
upon which to compute the registration fee thereof, shall be determined by the
Commissioner of Land Transportation. He shall, from time to time as the need of the
service may require, prepare, subject to the approval of the Secretary of Public Works
and Communications, suitable tables of maximum allowable loads per wheel for
different sizes kinds of tires.

(k) The registration fees provided in this Act for trucks may be payable in two equal
installment, the first to be paid on or before the last working day of February if for
hire, and in March if private; and the second to be paid on or before the last working
day of August: Provided, That the fifty per cent penalty shall apply only to the unpaid
balance of the remaining period of delinquency.

Section 9. Permissible weights and dimensions of vehicles in highways traffic.

(a) The maximum gross weight and measurement of motor vehicles, unladen or with
load, permissible on public highways shall be as specified hereunder, subject to such
regulations as the Commissioner with the approval of the Secretary of Public Works
and Communications, may promulgate, from time to time, as the conditions of the
public highways may warrant and the needs of the service may require.

Permissible maximum weights:

1. Per most heavily loaded


three thousand six hundred kilograms;
wheel

2. Per most heavily loaded axle eight thousand kilograms;

3. Per most heavily loaded axle


group (the two axles of the
fourteen thousand five hundred
group being at least one meter
kilograms.
and less than two meters
apart)

An axle weight shall be the total weight transmitted to the road by all the wheels the
centers of which can be included between the parallel transverse vertical planes one
meter apart extending across the full width of the vehicles.

No provincial, city or municipal authority shall enact or enforce any ordinance or


resolution regulating or prescribing the maximum gross weight of any motor vehicle.

(b) No motor vehicle operating as a single unit shall exceed the following dimensions:

Overall width two and five-tenths meters

Overall height four meters

Overall length:

Freight vehicles with two axles ten meters

Passenger vehicles with two axles eleven meters

Vehicles with three or more axles fourteen meters

(c) No motor vehicle and/or trailer combination shall exceed eighteen meters in
overall projected length, including any load carried on such vehicle and trailer.
(d) No articulated vehicles shall be allowed to draw or pull a trailer and no vehicle
already drawing a trailer shall draw another.

Section 10. Special permits, fees for. - The Commissioner with the approval of the
Secretary of Public Works and Communications, shall issue regulations and schedules
of additional fees under which special permits may be issued in the discretion of the
Commissioner or his deputies for each of the following special cases, without which
special permit no vehicles shall be operated on the public highways:

(a) To operate a motor vehicle or trailer outfit with wheel, axle, or axle group loads in
excess of the limits fixed in subsection (a) of Section nine hereof or in any regulation
issued by the Commissioner.

(b) To operate a motor vehicle the size of which exceeds the limit of permissible
dimensions specified in paragraph (b) of Section nine hereof.

(c) To operate a motor vehicle with any part of the load extending beyond the
projected width of the vehicle.

(d) To pull two trailers behind a motor vehicle.

(e) For any other special authority relating to the use of vehicles, not otherwise
specifically provided herein.

Section 11. Additional fees. - In addition to the fees elsewhere provided in this Act, for
each change of registration, from private to for hire or vice-versa; revision of gross
weight rating, change of tire size; transfer of ownership; replacement of a lost
registration certificate, number plate, driver's license or permit; badge; preparation
of affidavit or certified copy of records, or for any similar circumstances requiring the
issue, revision, or reissue of a certificate of registration, driver's license, badge,
permit, or other document, a fee of two pesos shall be collected.

The replacement of a lost or utterly spoiled certificate, number plate, license, badge
or permit shall render the original invalid.

In case of request in writing for certification of data or facts involving two or more
vehicles, a fee of five pesos a page or part thereof shall be collected for each
certification.

Section 12. Fee for original registration for part of year. - If any application for the
original registration is made during the first quarter of a calendar year, the total
annual fee for the year shall be paid, if made during the second quarter, three-fourths
of the annual fee for that year shall be paid, if made during the third quarter, one half
of the annual fee shall be paid, and if made during the fourth quarter, one-fourth of
the annual fee shall be paid.

Nothing in this section shall be construed as allowing quarterly renewals of


registrations in order to avoid payment of fees in advance for the entire year.
Section 13. Payment of taxes upon registration. - No original registration of motor
vehicles subject to payment of taxes, customs duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

ARTICLE III
Registration Certificates, Records, Number Plates

Section 14. Issuance of certificates of registration. - A properly numbered certificate


of registration shall be issued for each separate motor vehicle after due inspection
and payment of corresponding registration fees.

Section 15. Use and authority of certificate of registration.

(a) The said certificate shall be preserved and carried in the car by the owner as
evidence of the registration of the motor vehicle described therein, and shall be
presented with subsequent applications for re-registration, transfer of ownership, or
recording of encumbrances: Provided, That in lieu of the certificate of registration a
true copy or photostat thereof may be carried in the motor vehicle.

(b) The certificate of registration issued under the provisions of this Act for any
motor vehicle shall, while the same is valid and effective and has not been suspended
or revoked, be the authority for the operation of such motor vehicle.

(c) No motor vehicle shall be operated on the public highways in a manner which
would place it under a classification requiring the payment of a larger registration fee
than that stated in the certificate of registration.

Section 16. Suspension of registration certificate. - If on inspection, as provided in


paragraph (6) of Section four hereof, any motor vehicle is found to be unsightly,
unsafe, overloaded, improperly marked or equipped, or otherwise unfit to be
operated, or capable of causing excessive damage to the highways, or not
conforming to minimum standards and specifications, the Commissioner may refuse
to register the said motor vehicle, or if already registered, may require the number
plates thereof to be surrendered to him, and upon seventy-two hours notice to the
owner of the motor vehicle, suspend such registration until the defects of the vehicle
are corrected and/or the minimum standards and specifications fully complied with.

Whenever it shall appear from the records of the Commission that during any
twelve-month period more than three warnings for violations of this Act have been
given to the owner of a motor vehicle, or that the said owner has been convicted by a
competent court more than once for violation of such laws, the Commissioner may,
in his discretion, suspend the certificate of registration for a period not exceeding
ninety days and, thereupon, shall require the immediate surrender of the number
plates.

Whenever a motor vehicle is found to be underweight the owner thereof shall pay
the difference in the registration fees corresponding to the shortage in weight plus a
fifty per cent surcharge, and until such payment is made, the certificate of
registration of the motor vehicle concerned shall be suspended by the Commissioner.
After two such suspension, re-registration of the vehicle concerned for one year may
be denied.

The Commissioner shall notify the owner of the motor vehicle of any action taken by
him under this section.

Section 17. Number plates, preparation, preparation and issuance of . -

(a) The Commissioner shall cause number plates to be prepared and issued to owners
of motor vehicles and trailers registered under this Act, charging a fee of four pesos
for each pair including the numerals indicating the year of registry: Provided,
however, That in case no number plates are available, the Commissioner or his
deputies may issue, without charge, a written permit temporarily authorizing the
operation of any motor vehicles with other means of identification: Provided, further,
That all motor vehicles exempted from payment of registration fees, motor vehicles
for hire, and privately-owned motor vehicles shall bear plates so designed and
painted with different colors to distinguish one class from another: Provided,
furthermore, That the plates of motor vehicles exempted from payment of
registration fees shall be permanently assigned to such motor vehicles during their
entire lifetime while exempted from payment of the fees: And, provided, finally, That
the owner thereof shall return such plates to the Land Transportation Commission
within a period of seven working days after such owner has lost his exemption
privilege or has transferred the vehicle to a non-exempt owner.

(b) In case the design of the number plate is such that the numerals indicating the
year of registry are on a detachable tag, the Commissioner or his deputies may, in
their discretion, issue the said tag only for subsequent re-registration charging a fee
of one peso for each tag issued.

Section 18. Use of number plates. - At all times, every motor vehicle shall display in
conspicuous places, one in front and one in the rear thereof, the said number plates.

The number plates shall be kept clean and cared for, and shall be firmly affixed to the
motor vehicle in such a manner as will make it entirely visible and always legible.

Except in the case of dealer's number plates which may be used successively on
various motor vehicles in stock, no person shall transfer number plates from motor
vehicle to another.

No dealer's number plate shall be used on any motor vehicle after said vehicle has
been sold and delivered to a purchaser, and no dealer shall allow such dealer's
number plates to be used on any motor vehicle after its sale and delivery to a
purchaser.

CHAPTER III
OPERATION OF MOTOR VEHICLE

ARTICLE I
License to Drive Motor Vehicles
Section 19. Duty to procure license. - Except as otherwise specifically provided in this
Act, no person shall operate any motor vehicle without first procuring a license to
drive a motor vehicle for the current year, nor while such license is delinquent,
invalid, suspended or revoked.

The license shall be carried by the driver at all times when operating a motor vehicle,
and shall be shown and/or surrendered for cause and upon demand to any person
with authority under this Act to confiscate the same.

Section 20. License for enlisted men operating Government motor vehicles. - Enlisted
men operating a motor vehicle owned by the Government of the Philippines shall be
licensed in accordance with the provisions of this Act, but no license or delinquency
fees shall be collected therefrom. All licenses so issued shall bear the words "For
Government Vehicles Only" plainly marked or stamped in red ink across the face
thereof.

A license so marked or stamped shall authorize the holder thereof to operate a


private-owned motor vehicle.

Section 21. Operation of motor vehicles by tourists. - Bona fide tourist and similar
transients who are duly licensed to operate motor vehicles in their respective
countries may be allowed to operate motor vehicles during but not after ninety days
of their sojourn in the Philippines.

If any accident involving such tourist or transient occurs, which upon investigation by
the Commissioner or his deputies indicates that the said tourist or transient is
incompetent to operate motor vehicles, the Commissioner shall immediately inform
the said tourist or transient in writing that he shall no longer be permitted to operate
a motor vehicle.

After ninety days, any tourist or transient desiring to operate motor vehicles shall pay
fees and obtain and carry a license as hereinafter provided.

Section 22. Driver's license, fees, examination. - Every person who desires personally
to operate any motor vehicle shall file an application to the Commissioner or his
deputies for a license to drive motor vehicles: Provided, however, That no person
shall be issued a professional driver's license who is suffering from highly contagious
diseases, such as, advanced tuberculosis, gonorrhea, syphilis, and the like.

Each such application except in the case of enlisted men operating


government-owned vehicles, shall be accompanied by a fee of five pesos, and shall
contain such information respecting the applicant and his ability to operate motor
vehicles, as may be required by the Commission.

The Commissioner or his deputies shall also ascertain that the applicant's sight and
hearing are normal, and may in their discretion, require a certificate to that effect,
signed by a reputable physician.

An examination or demonstration to show any applicant's ability to operate motor


vehicles may also be required in the discretion of the Commissioner or his deputies.
Section 23. Issuance of driver's license. - If, after such examination, the Commissioner
or his deputy believes that the applicant possesses the necessary qualifications and is
proficient in the operation of motor vehicles, a license shall be issued to such
applicant upon payment of five pesos, but prior to the issuance of said license, the
applicant shall furnish three copies of his recent photograph to be securely attached
to the license, and two copies to be filed and kept as provided by this Act. All driver's
licenses shall bear the signature and right-hand thumb print of the licensee.

Section 24. Use of driver's license and badge. - Every license issued under the
provisions of this Act to any driver shall entitle the holder thereof, while the same is
valid and effective and not suspended or revoked, to operate the motor vehicles
described in such license: Provided, however, That every licensed professional driver,
before operating a public service motor vehicle registered under classifications (d) to
(j) inclusive of Section seven hereof, shall secure from the Commissioner, upon
payment of the sum of one peso, a driver's badge which he shall, at all times while so
operating a motor vehicle, display in plain sight on the band of his cap or on his coat
or shirt. Such driver's badge shall be of metal with a plainly readable number
assigned to the licensee stamped thereon.

It shall be unlawful for any duly licensed driver to transfer, lend or otherwise allow
any person to use his license for the purpose of enabling such person to operate a
motor vehicle.

No owner of a motor vehicle shall engage, employ, or hire any person to operate
such motor vehicle, unless the person sought to be employed is a duly licensed
professional driver.

Section 25. Driver's records. - Any driver who changes his address shall, within fifteen
days, notify the Commissioner in writing of his new address, name and address of his
new employer, the number of the motor vehicle he is employed to operate, and such
other information as the Commissioner may require.

Section 26. Renewal of license. - Any license not renewed on or before the last
working day of the month when the applicant was born shall become delinquent and
invalid, except when the license is surrendered to the Commissioner or his deputies
before the last working day of the month of his birth in order to avoid payment of the
delinquency fees.

The fee for renewal of delinquent license shall be five pesos in addition to the basic
fee as hereinabove prescribed.

Every applicant for renewal of license to operate any motor vehicle shall present to
the Commissioner, in person or by mail or messenger, the license issued to the
applicant for the previous year, together with the proper fee of five pesos and, in the
case of professional chauffeurs, three copies of a readily-recognized photograph of
the applicant, which photograph shall have been taken not exceeding three years
prior to the date of applicant for renewal.

Lost license. - In case the license for the previous year has been lost or cannot be
produced, the applicant shall obtain a duplicate in accord with Section eleven of this
Act, on penalty of refusal, by the Commissioner or his deputies, to renew the license:
Provided, however, That the Commissioner or his deputies may, in their discretion
accept in lieu of the previous years license, the duly signed and sworn statement of
an operator to the effect that he has not operated any motor vehicle in the
Philippines during the year or years to which no license was issued in his name.

The Commissioner and his deputies are hereby authorized to administer the oath in
connection with such affidavit.

Section 27. Suspension, revocation of driver's license.

(a) The Commissioner may suspend for a period not exceeding three months or, after
hearing, revoke any driver's license issued under the provisions of this Act, and may
order any such license to be delivered to him whenever he has reason to believe that
the holder thereof is an improper person to operate motor vehicles, or in operating
or using a motor vehicle in, or as an accessory to, the commission of any crime or act
which endangers the public. Any deputy of the Commissioner may, for the same
cause, suspend for a period not exceeding three months any driver's license issued
under the provisions of this Act: Provided, That such suspension may be appealed to
the Commissioner who may, after reviewing the case, confirm, reverse or modify the
action taken by such deputy.

(b) Whenever during any twelve-month period a driver shall have been convicted at
least three times for the violations of any provisions of this Act or of any regulation
issued by the Commissioner or any municipal or city ordinance relating to motor
vehicle traffic not in conflict with any of the provisions of this Act, the Commissioner
may, in his discretion, revoke or suspend the license of such driver for a period not
exceeding two years.

(c) The license suspended or revoked under the provisions of subsections (a) and (b)
of this section shall not be reinstated unless the driver has furnished a bond in
accordance with Section twenty-nine of this Act and only after the Commissioner has
satisfied himself that such driver may again safely be permitted to operate a motor
vehicle.

(d) A decision of the Commissioner revoking or refusing the reinstatement of a


license under the provisions of this Section may be appealed to the Secretary of
Public Works and Communications.

Section 28. Driver's bond. - The Commissioner before reinstating any driver's license
which has been suspended or revoked under the provisions of the preceding section
or of any provisions of this Act, may require such driver to post a bond in the sum of
one thousand pesos conditioned upon the satisfaction and payment of any claim
which may be filed or of any execution which may be issued against such driver in any
case wherein said driver may be held answerable while operating motor vehicles. The
bond required in this section shall be in such form as to render sureties liable at least
for a period of not less than one year nor more than three years: Provided, however,
That upon written application to the Commissioner for release from such a bond, the
Commissioner may after revoking or suspending the driver's license, authorize the
release of the bondsmen from further responsibility thereunder: Provided, further,
That should the Commissioner decide not to revoke the license of a driver who has
been convicted of homicide through reckless imprudence, or of the violation of the
speed limit or of reckless driving at least three times within a twelve-month period,
the said driver shall post a bond in the sum of not less than two thousand pesos,
conditioned upon the payment of any claim which may be filed or any execution
which may be issued against him in any case wherein said driver may be held
answerable while operating motor vehicles.

Section 29. Confiscation of driver's licenses. - Law enforcement and peace officers
duly designated by the Commissioner shall, in apprehending any driver for violations
of this Act or of any regulations issued pursuant thereto, or of local traffic rules and
regulations, confiscate the license of the driver concerned and issue a receipt
prescribed and issued by the Commission therefor which shall authorize the driver to
operate a motor vehicle for a period not exceeding seventy-two hours from the time
and date of issue of said receipt. The period so fixed in the receipt shall not be
extended, and shall become invalid thereafter. Failure of the driver to settle his case
within fifteen days from the date of apprehension will cause suspension and
revocation of his license.

Section 30. Student-driver's permit. - Upon proper application and the payment of
three pesos, the Commissioner or his deputy may issue student-driver's permits, valid
for six months to persons not under eighteen years of age, who desire to learn to
operate motor vehicles. No application for driver's license shall be received unless
the applicant has undergone instruction in the operation of motor vehicles for at
least a month and has a valid student-driver's permit: Provided, however, That any
person who has a license to operate vehicles in other countries may, upon
presentation of appropriate evidence of such license, be allowed to pay for a driver's
license without presenting a student driver's permit.

A student driver who fails in the examination shall continue as a student driver for at
least one additional month. No student driver shall operate a motor vehicle unless
accompanied by a duly licensed driver.

The licensed driver acting as instructor to the student driver shall likewise be
responsible and liable for any violation of the provisions of this Act and for any injury
or damage done by the motor vehicle on account or as a result of its operation by a
student under his direction.

ARTICLE II
Illegal Use of Licenses, Number Plates, Etc.

Section 31. Imitation and false representations. - No person shall make or use attempt
to make or use a driver's license, badge, certificate of registration, number plate, tag,
or permit in imitation or similitude of those issued under this Act, or intended to be
used as or for a legal license, badge, certificate, plate, tag or permit, or with intent to
sell or otherwise dispose of the same to another. No person shall falsely or
fraudulently represent as valid and in force any driver's license, badge, certificate,
plate, tag or permit issued under this Act which is delinquent or which has been
revoked or suspended.
No person shall, knowingly and with intent to deceive, make one or more false or
fraudulent statements in an application for the registration of vehicles, or for a
driver's license.

ARTICLE III
Passenger and Freight

Section 32. Exceeding registered capacity. - No person operating any vehicle shall
allow more passenger or more freight or cargo in his vehicle than its registered
carrying capacity. In the case of public utility trucks or buses, the conductor shall be
exclusively liable for violations of this section or of Section thirty-two, letter (c)
hereof: Provided, That the conductor, before being employed by any public service
operator, shall get a permit or license from the Commission and pay five pesos
annually for said license or permit issued in his favor, and the same is renewable on or
before the last working day of the month of his birth, attaching a readily recognizable
photograph and after presentation of a medical certificate of fitness of applicant.

Passenger trucks may be allowed to construct any cargo carrying device at the rear
or at the side of the truck, subject to the approval of the Commissioner: Provided,
however, That the total weight of the device, including the cargo, shall not exceed
one hundred kilos.

(b) Carrying of passengers and freight on top of vehicles. - No person operating a


motor vehicle shall allow any passenger to ride on the cover or top of such vehicles:
Provided, however, That subject to such conditions as may be contained in permits
that may be issued by the Commissioner, baggage or freight may be carried on the
top of a truck provided the weight thereof does not exceed twenty kilos per square
meter and is distributed in such a manner as not to endanger the passengers or
stability of the truck.

(c) Riding on running boards. - No driver shall permit any person to ride on the
running board, step board, or mudguard of his motor vehicle for any purpose except
to make repair or adjustment in the motor or to collect fares.

Section 33. Passenger or freight capacity marked on vehicle. - All passengers


automobiles for hire shall have the registered passenger capacity plainly and
conspicuously marked on both sides thereof, in letters and numerals not less than
five centimeters in height.

All motor trucks, whether for passenger or freight, private, or for hire, shall have the
registered passenger gross and net weight capacities plainly and conspicuously
marked on both sides thereof, in letters and numerals not less than five centimeters
in height.

ARTICLE IV
Accessories of Motor Vehicles

Section 34.
(a) Tires of motor vehicles. - No motor vehicle with metallic tires shall be operated
upon any public highway, and solid tires whenever used shall be of sufficient
thickness to prevent the metal rims thereof from coming in direct contact with the
road.

(b) Brakes - Every motor vehicle with four or more wheels shall be provided with dual
hydraulic brake system so that in case of hydraulic line failure affecting the braking
efficiency of any of the four wheels at least either the front or rear wheels shall retain
normal braking capabilities. In the absence of such dual braking system every motor
vehicle with four or more wheels shall be provided with safety valve devices of such
design and make so that failure of the hydraulic braking system of the vehicle
because of leakage in the line of other parts of the system will not affect all wheels
but rather render at all times effective the braking power of either the two front
wheels or the two rear wheels when brakes are applied. This requirement, however,
does not apply to motor vehicles equipped with pneumatic braking system.

(b-1) Horns. - Every motor vehicle shall be provided with a horn or signalling devise in
good working order: Provided, however, That no horn or signalling device emitting
an exceptionally loud, startling, or disagreeable sound shall be installed or used on
any motor vehicle.

All authorized emergency vehicles, such as ambulance and police cars and fire
wagons used for emergency calls shall be equipped with a bell, siren, or exhaust
whistle of a type approved by the Commissioner, and no such device shall be installed
or used in any other vehicle.

No vehicle not classified as a motor vehicle under this Act shall be equipped with a
horn or signaling device similar to the horn customarily used on motor vehicles.

(c) Headlights. - Every motor vehicle of more than one meter of projected width,
while in use on any public highway shall bear two headlights, one on each side, with
white or yellowish light visible from the front, which, not later than one-half hour
after sunset and until at least one-half four before sunrise and whenever weather
conditions so require, shall both be lighted.

Additional lamps and light may be carried, but no red lights shall be visible forward or
ahead of the vehicle. Trucks, buses, trailers, and other similar vehicles must carry,
while in use on any public highway during night-time, colored riding lights on each of
the four corners not more than ten centimeters from the top.

All motor vehicles shall be equipped with devices for varying the intensity of light,
and the driver must dim the headlights or tilt the beams downward whenever the
vehicle is being operated on well-lighted streets within the limits of cities,
municipalities, and thickly populated barrios or districts, or whenever such vehicle
meets another vehicle on any public highway.

(d) Taillights. - Every motor vehicle and trailer shall, during the above-mentioned
hours, also bear on each side in the rear a lamp showing a red light visible at least one
hundred meters from the rear of the vehicle and a lamp throwing a white light upon
the number plate issued for such vehicle.
(e) Stop lights. - Every motor vehicle shall be equipped at the rear with at least one
lamp which shall throw a sustained bright red light visible under all conditions, even
under bright sunlight, when the brakes are applied. Each bus, truck, trailer or similar
vehicle shall be equipped, as its stop light at or near its rear center, with a lamp at
least twelve centimeters in diameter with the word "stop" inscribed in the center.

(f) Motorcycle and other vehicle lights. - Every motor vehicle of less than one meter
of projected width shall be subject to the preceding provisions of this section, except
that one headlight and one taillight shall be required. No signal light shall be
necessary.

Additional lamps may be carried provided they comply with the preceding provisions
of this section.

Every motor vehicle, or whatever style, kind, make, character, or nature, when upon
a highway during the hours above-mentioned, whether in motion or not, shall have
one or more lights so arranged that the same shall be visible at least fifty meters from
the front and the rear of such vehicle.

(g) Lights when parked or disabled. - Appropriate parking lights or flares visible one
hundred meters away shall be displayed at a corner of the vehicle whenever such
vehicle is parked on highways or in places that are not well-lighted or is placed in such
manner as to endanger passing traffic.

(h) Windshield wiper. - Every motor vehicle shall be equipped with a mechanically or
electrically operated device for wiping off raindrops or other moisture from its front
windshield.

(i) Use of red flag. - Whenever the load of any vehicle extends more than one meter
beyond the bed or body thereof, there shall be displayed at every projecting end of
such load a red flag not less than thirty centimeters both in length and width, except
that during the hours fixed under subsection (c), there shall be displayed, in lieu of
the required red flags, red lights visible at least fifty meters away.

(j) Mufflers. - Every motor vehicle propelled by an internal combustion engine shall be
equipped with a muffler, and whenever said motor vehicle passes through a street of
any city, municipality, or thickly populated district or barrio, the muffler shall not be
cut out or disconnected. No motor vehicle shall be operated in such a manner as to
cause it to emit or make any unnecessary or disagreeable odor, smoke or noise.

CHAPTER IV
TRAFFIC RULES

ARTICLE I
Speed Limit and Keeping to the Right

Section 35. Restriction as to speed. -

(a) Any person driving a motor vehicle on a highway shall drive the same at a careful
and prudent speed, not greater nor less than is reasonable and proper, having due
regard for the traffic, the width of the highway, and of any other condition then and
there existing; and no person shall drive any motor vehicle upon a highway at such a
speed as to endanger the life, limb and property of any person, nor at a speed
greater than will permit him to bring the vehicle to a stop within the assured clear
distance ahead.

(b) Subject to the provisions of the preceding paragraph, the rate of speed of any
motor vehicle shall not exceed the following:

Passengers Motor trucks and


MAXIMUM ALLOWABLE SPEEDS
Cars and Motorcycle buses

1. On open country roads, with no


"blinds corners" not closely 80 km. per hour 50 km. per hour
bordered by habitations.

2. On "through streets" or
boulevards, clear of traffic, with no
40 km. per hour 30 km. per hour
" blind corners," when so
designated.

3. On city and municipal streets,


with light traffic, when not 30 km. per hour 30 km. per hour
designated "through streets".

4. Through crowded streets,


approaching intersections at "blind
corners," passing school zones,
20 km. per hour 20 km. per hour
passing other vehicles which are
stationery, or for similar dangerous
circumstances.

(c) The rates of speed hereinabove prescribed shall not apply to the following:

(1) A physician or his driver when the former responds to emergency calls;

(2) The driver of a hospital ambulance on the way to and from the place of accident
or other emergency;

(3) Any driver bringing a wounded or sick person for emergency treatment to a
hospital, clinic, or any other similar place;

(4) The driver of a motor vehicle belonging to the Armed Forces while in use for
official purposes in times of riot, insurrection or invasion;
(5) The driver of a vehicle, when he or his passengers are in pursuit of a criminal;

(6) A law-enforcement officer who is trying to overtake a violator of traffic laws; and

(7) The driver officially operating a motor vehicle of any fire department, provided
that exemption shall not be construed to allow unless or unnecessary fast driving of
drivers aforementioned.

Section 36. Speed limits uniform throughout the Philippines. - No provincial, city or
municipal authority shall enact or enforce any ordinance or resolution specifying
maximum allowable speeds other than those provided in this Act.

Section 37. Driving on right side of highway. - Unless a different course of action is
required in the interest of the safety and the security of life, person or property, or
because of unreasonable difficulty of operation in compliance herewith, every person
operating a motor vehicle or an animal-drawn vehicle on a highway shall pass to the
right when meeting persons or vehicles coming toward him, and to the left when
overtaking persons or vehicles going the same direction, and when turning to the left
in going from one highway to another, every vehicle shall be conducted to the right
of the center of the intersection of the highway.

Section 38. Classification of highways. - Public highways shall be properly classified


for traffic purposes by the provincial board, municipal board or city council having
jurisdiction over them, and said provincial board, municipal board or city council shall
provide appropriate signs therefor, subject to the approval of the Commissioner. It
shall be the duty of every provincial, city and municipal secretary to certify to the
Commissioner the names, locations, and limits of all "through streets" designated as
such by the provincial board, municipal board or council.

ARTICLE II
Overtaking and Passing a Vehicle, and Turning at Intersections

Section 39. Overtaking a vehicle. - The driver of any motor vehicle overtaking another
vehicle proceeding in the same direction shall pass at a safe distance to the left
thereof, and shall not again drive to the right side of the highway until safety clear of
such overtaken vehicle except that on a highway, within a business or residential
district, having two or more lanes for the movement of traffic in one direction, the
driver of a vehicle may overtake and pass another vehicle on the right. Nothing in this
section shall be construed to prohibit a driver overtaking and passing, upon the right,
another vehicle which is making or about to make a left turn.

Section 40. Driver to give way to overtaking vehicle. - The driver of a vehicle about to
be overtaken and passed by another vehicle approaching from the rear shall give way
to the overtaking vehicle on suitable and audible signal being given by the driver of
the overtaking vehicle, and shall not increase the speed of his vehicle until completely
passed by the overtaking vehicle.

Section 41. Restrictions on overtaking and passing.


(a) The driver of a vehicle shall not drive to the left side of the center line of a
highway in overtaking or passing another vehicle proceeding in the same direction,
unless such left side is clearly visible, and is free of oncoming traffic for a sufficient
distance ahead to permit such overtaking or passing to be made in safety.

(b) The driver of a vehicle shall not overtake or pass another vehicle proceeding in
the same direction, when approaching the crest of a grade, not upon a curve in the
highway, where the driver's view along the highway is obstructed within a distance
of five hundred feet ahead, except on a highway having two or more lanes for
movement of traffic in one direction where the driver of a vehicle may overtake or
pass another vehicle: Provided, That on a highway within a business or residential
district, having two or more lanes for movement of traffic in one direction, the driver
of a vehicle may overtake or pass another vehicle on the right.

(c) The driver of a vehicle shall not overtake or pass any other vehicle proceeding in
the same direction, at any railway grade crossing, not at any intersection of highways
unless such intersection or crossing is controlled by traffic signal, or unless permitted
to do so by a watchman or a peace officer, except on a highway having two or more
lanes for movement of traffic in one direction where the driver of a vehicle may
overtake or pass another vehicle on the right. Nothing in this section shall be
construed to prohibit a driver overtaking or passing upon the right another vehicle
which is making or about to make a left turn.

(d) The driver of a vehicle shall not overtake or pass, or attempt to pass, any other
vehicle, proceeding in the same direction, between any points indicated by the
placing of official temporary warning or caution signs indicating that men are
working on the highway.

(e) The driver of a vehicle shall not overtake or pass, or attempt to overtake or pass,
any other vehicle proceeding in the same direction in any "no-passing or overtaking
zone."

ARTICLE III
Right of Way and Signals

Section 42. Right of way.

(a) When two vehicles approach or enter an intersection at approximately the same
time, the driver of the vehicle on the left shall yield the right of way to the vehicle on
the right, except as otherwise hereinafter provided. The driver of any vehicle
traveling at an unlawful speed shall forfeit any right of way which he might otherwise
have hereunder.

(b) The driver of a vehicle approaching but not having entered an intersection, shall
yield the right of way to a vehicle within such intersection or turning therein to the
left across the line of travel of such first-mentioned vehicle, provided the driver of the
vehicle turning left has given a plainly visible signal of intention to turn as required in
this Act.
(c) The driver of any vehicle upon a highway within a business or residential district
shall yield the right of way to a pedestrian crossing such highway within a crosswalk,
except at intersections where the movement of traffic is being regulated by a peace
officer or by traffic signal. Every pedestrian crossing a highway within a business or
residential district, at any point other than a crosswalk shall yield the right of way to
vehicles upon the highway.

(d) The driver of a vehicle upon a highway shall bring to a full stop such vehicle
before traversing any "through highway" or railroad crossing: Provided, That when it
is apparent that no hazard exists, the vehicle may be slowed down to five miles per
hour instead of bringing it to a full stop.

Section 43. Exception to the right of way rule.

(a) The driver of a vehicle entering a highway from a private road or drive shall yield
the right of way to all vehicles approaching on such highway.

(b) The driver of a vehicle upon a highway shall yield the right of way to police or fire
department vehicles and ambulances when such vehicles are operated on official
business and the drivers thereof sound audible signal of their approach.

(c) The driver of a vehicle entering a "through highway" or a "stop intersection" shall
yield the right of way to all vehicles approaching to either direction on such "through
highway": Provided, That nothing in this subsection shall be construed as relieving
the driver of any vehicle being operated on a "through highway" from the duty of
driving with due regard for the safety of vehicles entering such "through highway"
nor as protecting the said driver from the consequence of an arbitrary exercise off
such right of way.

Section 44. Signals on starting, stopping or turning. -

(a) The driver of any vehicle upon a highway, before starting, stopping or turning
from a direct line, shall first see that such movement can be made in safety, and if any
pedestrian may be affected by such movement, shall give a clearly audible signal by
sounding the horn, and whenever the operation of any other vehicle approaching or
following may be affected by such movement, shall give a signal plainly visible to the
driver of such other vehicles of the intention to make such movement.

(b) The signal herein required shall be given by means of extending the hand and arm
beyond the left side of the vehicle, or by an approved mechanical or electrical signal
device.

ARTICLE IV
Turning and Parking

Section 45. Turning at intersections. -

(a) The drive of a vehicle intending to run to the right at an intersection shall
approach such intersection in the lane for traffic nearest to the right-hand side of the
highway and, in turning, shall keep as close as possible to the right-hand curb or edge
of the highway.

(b) The driver of a vehicle intending to turn to the left shall approach such
intersection in the lane for traffic to the right of and nearest to the center line of the
highway, and, in turning, shall pass to the left of the center of the intersection,
except that, upon highways laned for traffic and upon one-way highways, a left turn
shall be made from the left lane of traffic in the direction in which the vehicle is
proceeding.

(c) For the purpose of this section, the center of the intersection shall mean the
meeting point of the medial lines of the highways intersecting one another, except
when it is occupied by a monument, grass plot or any permanent structure, other
than traffic control device.

Section 46. Parking prohibited in specified places. - No driver shall park a vehicle, or
permit it to stand, whether attended or unattended, upon a highway in any of the
following places:

(a) Within an intersection

(b) On a crosswalk

(c) Within six meters of the intersection of curb lines.

(d) Within four meters of the driveway entrance to and fire station.

(e) Within four meters of fire hydrant

(f) In front of a private driveway

(g) On the roadway side of any vehicle stopped or parked at the curb or edge of the
highway

(h) At any place where official signs have been erected prohibiting parking.

Section 47. Parked vehicle. - Whenever a motor vehicle is parked unattended on any
highway, the driver thereof must turn off the ignition switch and stop the motor and
notch effectively the hand brake.

ARTICLE V
Miscellaneous Traffic Rules

Section 48. Reckless driving. - No person shall operate a motor vehicle on any
highway recklessly or without reasonable caution considering the width, traffic,
grades, crossing, curvatures, visibility and other conditions of the highway and the
conditions of the atmosphere and weather, or so as to endanger the property or the
safety or rights of any person or so as to cause excessive or unreasonable damage to
the highway.
Section 49. Right of way for police and other emergency vehicles. - Upon the
approach of any police or fire department vehicle, or of an ambulance giving audible
signal, the driver of every other vehicle shall immediately drive the same to a position
as near as possible and parallel to the right-hand edge or curb of the highway, clear
of any intersection of highways, and shall stop and remain in such position, unless
otherwise directed by a peace officer, until such vehicle shall have passed.

Section 50. Tampering with vehicles. - No unauthorized person shall sound the horn,
handle the levers or set in motion or in any way tamper with a damage or deface any
motor vehicle.

Section 51. Hitching to a vehicle. - No person shall hang on to, ride on, the outside or
the rear end of any vehicle, and no person on a bicycle, roller skate or other similar
device, shall hold fast to or hitch on to any moving vehicle, and no driver shall
knowingly permit any person to hang on to or ride, the outside or rear end of his
vehicle or allow any person on a bicycle, roller skate or other similar device to hold
fast or hitch to his vehicle.

Section 52. Driving or parking on sidewalk. - No person shall drive or park a motor
vehicle upon or along any sidewalk, path or alley not intended for vehicular traffic or
parking.

Section 53. Driving while under the influence of liquor or narcotic drug. - No person
shall drive a motor vehicle while under the influence of liquor or narcotic drug.

Section 54. Obstruction of traffic. - No person shall drive his motor vehicle in such a
manner as to obstruct or impede the passage of any vehicle, nor, while discharging or
taking on passengers or loading or unloading freight, obstruct the free passage of
other vehicles on the highway.

Section 55. Duty of driver in case of accident. - In the event that any accident should
occur as a result of the operation of a motor vehicle upon a highway, the driver
present, shall show his driver's license, give his true name and address and also the
true name and address of the owner of the motor vehicle.

No driver of a motor vehicle concerned in a vehicular accident shall leave the scene of
the accident without aiding the victim, except under any of the following
circumstances:

1. If he is in imminent danger of being seriously harmed by any person or persons by


reason of the accident;

2. If he reports the accident to the nearest officer of the law; or

3. If he has to summon a physician or nurse to aid the victim.

CHAPTER V
PENAL AND OTHER PROVISIONS
ARTICLE I
Penalties

Section 56. Penalty for violation. - The following penalties shall be imposed for
violations of this Act:

(a) For registering later than seven days after acquiring title to an unregistered motor
vehicle or after conversion of a registered motor vehicle requiring larger registration
fee than that for which it was originally registered, or for renewal of a delinquent
registration, the penalty shall be a fine fifty per cent of the registration fees
corresponding to the portion of the year for which the vehicle is registered for use.

(b) For failure to sign driver's license or to carry same while driving, twenty pesos
fine.

(c) Driving a vehicle with a delinquent or invalid driver's license, fifty pesos fine.

(d) Driving a motor vehicle with delinquent, suspended or invalid registration, or


without registration or without the proper license plate for the current year, three
hundred pesos fine.

(e) Driving a motor vehicle without first securing a driver's license, three hundred
pesos fine.

(f) Driving a motor vehicle while under the influence of liquor or narcotic drug, a fine
of not less than two hundred pesos nor more than five hundred pesos, or
imprisonment of not more than three months, or both, at the discretion of the Court.

(g) Violation of Section thirty-two, thirty-four (a), (b) and (b-1), thirty-five and forty-six
a fine not exceeding one hundred pesos: Provided, however, That in the case of
violation of Section 34 (b) the vehicle or vehicles affected may not be allowed to
operate unless the requirements provided in this section are complied with.

(h) Violations of Sections forty-nine, fifty and fifty-two, a fine not exceeding fifty
pesos.

(i) For making, using or attempting to make or use a driver's license, badge,
certificate or registration, number plate, tag or permit in imitation or similitude of
those issued under this Act, or intended to be used as or for a legal license, badge,
certificate, plate, tag or permit or with intent to sell or otherwise dispose of the same
to another, or false or fraudulently represent as valid and in force any driver's license,
badge, certificate, plate, tag or permit issued under this Act which is delinquent or
which has been suspended or revoked, a fine of not exceeding three hundred pesos.

(j) For using private passenger automobiles, private trucks, private motorcycles, and
motor wheel attachments for hire, in violation of Section seven, subsections (a), (b),
and (c), of this Act, a fine of two hundred pesos and suspension of driver's license for
a period of three months for the first conviction; a fine of three hundred pesos and
six months imprisonment for the second conviction; and an imprisonment of one
year and permanent revocation of the driver's license for the third conviction.
(k) For permitting, allowing, consenting to, or tolerating the use of a privately-owned
motor vehicle for hire in violation of Section seven, subsections (a), (b), and (c), of
this Act, there shall be imposed upon the owner of the vehicle a fine of five hundred
pesos and the certificate of registration shall be suspended for a period of three
months for the first conviction, and an increase of one hundred pesos in the fine and
one month's suspension of the registration for each subsequent conviction.

(l) For violation of any provisions of this Act or regulations promulgated pursuant
hereto, not hereinbefore specifically punished, a fine of not less than ten or more
than fifty pesos shall be imposed.

(m) In the event an offender cannot pay any fine imposed pursuant to the provisions
of this Act, he shall be made to undergo subsidiary imprisonment as provided for in
the Revised Penal Code.

(n) If, as the result of negligence or reckless or unreasonable fast driving, any
accident occurs resulting in death or injury of any person, the motor vehicle operator
at fault shall, upon conviction, be punished under the provisions of the Revised Penal
Code.

Section 57. Punishment for other offenses. - The conviction of any person for any
offense under this Act shall not bar his prosecution for any other offense which may
have been committed by such person concurrently with the commission of the
offense of which he was convicted or in doing the act or series of acts which
constituted the offense of which he was convicted.

Section 58. Duty of clerks of court. - It is hereby made the duty of clerks of the Court
of First Instance, the City Court of Municipal Court trying traffic violation cases to
certify to the Commission the result of any case, whether criminal or civil, involving
violations of any provision of this Act or of other laws and ordinances relating to
motor vehicles. Said certificate shall specifically contain the name of the driver or
owner of the vehicle involved, his address, the number of his license and/or of the
certificate or registration of his vehicle, and the date thereof, and the offense of
which he was convicted or acquitted.

ARTICLE II
Collection of Fees, Taxes and Fines, Liens, Allotment of Funds

Section 59. (a) Collection of fees; national and local taxes; toll fees. - The collection of
all fees, taxes, and fines, under the provisions of this Act shall be made in accordance
with regulations to be prescribed by the Commissioner and approved jointly by the
Auditor General.

(b) No taxes or fees other than those prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur, by any municipal corporation, the provisions
of any city charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board or other competent authority may
enact and collect such reasonable and equitable toll fees for the use of such bridges
and ferries, within their respective jurisdiction, as may be authorized and approved
by the Secretary of Public Works and Communications, and also for the use of such
public roads, as may be authorized by the President of the Philippines upon
recommendation of the Secretary of Public Works and Communications, but in none
of these cases shall any toll fees be charged or collected until and unless the
approved schedule of tolls has been posted legibly in a conspicuous place at such toll
station.

Section 60. The lien upon motor vehicles. - Any balance of fees for registration,
re-registration or delinquent registration of a motor vehicle, remaining unpaid and all
fines imposed upon any vehicle owner, shall constitute a first lien upon the motor
vehicle concerned.

The Commission is hereby vested with authority to issue a warrant of constructive or


actual distraint or and levy to any owner of motor vehicle who has any balance of
fees for registration, re-registration or delinquent registration of a motor vehicle
remaining unpaid, which upon demand by the Commissioner of the Land
Transportation Commission or any of his deputies executing such warrant, the owner
of the said vehicle shall surrender same at the time demanded, except when the
attachment or execution is under any judicial process. Any owner who fails or refuses
to surrender any of such property or vehicle not so surrendered shall be punished by
a fine not exceeding the amount of the fees (including penalties and interests, if any)
for the collection of which such warrant has been issued, together with the costs and
interests, if any, from the time of such surrender. In addition, such owner shall
punished by a fine of not more than three hundred pesos or an imprisonment not
more than six months, or both.

Section 61. Disposal of monies collected. - Monies collected under the provisions of
this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the "Philippine Highway Act of 1953": Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed fifteen per cent of the total collections during any one
year, shall be set aside for the purpose.

ARTICLE III
Final Provisions

Section 62. No provincial board, city or municipal board or council shall enact or
enforce any ordinance or resolution in conflict with the provisions of this Act, or
prohibiting any deputy or agent of the Commission to enforce this Act within their
respective territorial jurisdiction and the provisions of any charter to the contrary
notwithstanding.

Section 63. Repeal of laws and ordinances. - Act Numbered Thirty-nine hundred
ninety-two, as amended, and all laws, executive orders, ordinances, resolutions,
regulations, or parts thereof in conflict with the provisions of this Act are repealed:
Provided, however, That nothing contained in this Act shall be construed as limiting
or superseding any provisions of the Public Service Act, as amended, with respect to
the control by the Public Service Commission of motor vehicles operating as public
service, nor shall any provision of this Act be construed as limiting or abridging the
powers conferred upon and exercised by the Public Service Commission with regards
to the control and supervision of the operation of such motor vehicles as public
service.

Section 64. Appropriation. - To carry out effectively the provisions of this Act, the
amount of two hundred fifty thousand pesos is hereby appropriated out of the fees
collected under this Act, in addition to the appropriations provided in the General
Appropriations Act, for the expense of this Commission for the fiscal year beginning
July first, nineteen hundred and sixty-four, to June thirtieth, nineteen hundred and
sixty-five: Provided, however, That any savings in the appropriations of the Motor
Vehicles Office for the fiscal year beginning July first, nineteen hundred and
sixty-three, to June thirtieth, nineteen hundred and sixty-four shall likewise be
available for this purpose.

Section 65. Separability. - If any provisions of this Act or the application thereof to
any person or circumstance is held invalid, the remainder of the Act, and the
application of such provision to other persons or circumstances, shall not be affected
thereby.

Section 66. Effectivity. - This Act shall take effect upon its approval.

Approved: June 20, 1964


Unsworth Transportation International v. CA, et al, July 26, 2010

For review is the Court of Appeals (CA) Decision[1] dated April 29, 2004 and Resolution[2] dated November 26, 2004. The assailed
Decision affirmed the Regional Trial Court (RTC) decision[3] dated February 22, 2001; while the assailed Resolution denied
petitioner Unsworth Transport International (Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth Transport
International, Inc.'s (UTI's) motion for reconsideration.

The facts of the case are:

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of various raw materials
for pharmaceutical manufacturing, consisting of: "1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x banana
flavoring; 2) 2 drums (of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs:
Vitamin B Complex Extract."[4] UTI issued Bill of Lading No. C320/C15991-2,[5] covering the aforesaid shipment. The subject
shipment was insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in
the amount of P1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92 [6] and Open Cargo Policy No.
HO-022-RIU.[7]

On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40 container van, with no.
APLU-982012, boarded on APL's vessel M/V "Pres. Jackson," Voyage 42, and transshipped to APL's M/V "Pres. Taft"[8] for delivery
to petitioner in favor of the consignee United Laboratories, Inc. (Unilab).

On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner received the said shipment in
its warehouse after it stamped the Permit to Deliver Imported Goods[9]procured by the Champs Customs Brokerage.[10] Three
days thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a stripping survey of
the shipment located in petitioner's warehouse. The survey results stated:

2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed

19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly sealed

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling of 1%[11]

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No. 7614[12] which stated that
"22 drums[13] Raw Materials for Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by Champs for
delivery to Unilab's warehouse. The materials were noted to be complete and in good order in the gate pass.[14] On the same day,
the shipment arrived in Unilab's warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters &
Surveyors, Inc. (J.G. Bernas). The Report stated:

1-p/bag torn on side contents partly spilled

1-s/drum #7 punctured and retaped on bottom side content lacking

5-drums shortship/short delivery[15]

On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys which yielded the same results.
Consequently, Unilab's quality control representative rejected one paper bag containing dried yeast and one steel drum
containing Vitamin B Complex as unfit for the intended purpose.[16]

On November 7, 1992, Unilab filed a formal claim[17] for the damage against private respondent and UTI. On November 20, 1992,
UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in complete and good condition; while
private respondent paid the claimed amount on March 23, 1993. By virtue of the Loss and Subrogation Receipt [18] issued by
Unilab in favor of private respondent, the latter filed a complaint for Damages against APL, UTI and petitioner with the RTC of
Makati.[19] The case was docketed as Civil Case No. 93-3473 and was raffled to Branch 134.

After the termination of the pre-trial conference, trial on the merits ensued. On February 22, 2001, the RTC decided in favor of
private respondent and against APL, UTI and petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE & SURETY
CORPORATION and against the defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT INT'L.,
PHILS.), ordering the latter to pay, jointly and severally, the former the following amounts:

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100
(Php76,231.27) with interest at the legal rate of 6% per annum to be computed
starting from September 30, 1993 until fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney's fees;
3.Cost of this litigation.

SO ORDERED.[20]

On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI's defense that it was merely a forwarder,
declaring instead that it was a common carrier. The appellate court added that by issuing the Bill of Lading, UTI acknowledged
receipt of the goods and agreed to transport and deliver them at a specific place to a person named or his order. The court
further concluded that upon the delivery of the subject shipment to petitioner's warehouse, its liability became similar to that of
a depositary. As such, it ought to have exercised ordinary diligence in the care of the goods. And as found by the RTC, the CA
agreed that petitioner failed to exercise the required diligence. The CA also rejected petitioner's claim that its liability should be
limited to $500 per package pursuant to the Carriage of Goods by Sea Act (COGSA) considering that the value of the shipment
was declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court considered it as a common carrier
notwithstanding the non-issuance of a bill of lading inasmuch as a bill of lading is not indispensable for the execution of a
contract of carriage.[21]

Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE SUM
OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS (PHP76,231.27)
WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25% AS ATTORNEY'S
FEES.

2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.

4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE ALLEGED


DAMAGE TO ITS CARGO.[22]

Petitioner admits that it is a forwarder but disagrees with the CA's conclusion that it is a common carrier. It also questions the
appellate court's findings that it failed to establish that it exercised extraordinary or ordinary diligence in the vigilance over the
subject shipment. As to the damages allegedly suffered by private respondent, petitioner counters that they were not
sufficiently proven. Lastly, it insists that its liability, in any event, should be limited to $500 pursuant to the package limitation
rule. Indeed, petitioner wants us to review the factual findings of the RTC and the CA and to evaluate anew the evidence
presented by the parties.

The petition is partly meritorious.

Well established is the rule that factual questions may not be raised in a petition for review on certiorarias clearly stated in
Section 1, Rule 45 of the Rules of Court, viz.:

Section 1. Filing of petition with Supreme Court. - A party desiring to appeal


by certiorarifrom a judgment or final order or resolution of the Court of Appeals,
the Sandiganbayan, the Regional Trial Court or other courts whenever authorized
by law, may file with the Supreme Court a verified petition for review
on certiorari. The petition shall raise only questions of law which must be
distinctly set forth.

Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm holding itself out to the general
public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and, in the
ordinary course of its business, (1) to

assemble and consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for break-bulk
and distribution operations of the shipments; (2) to assume responsibility for the transportation of goods from the place of
receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to the federal law pertaining
to common carriers.[23]

A freight forwarder's liability is limited to damages arising from its own negligence, including negligence in choosing the carrier;
however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their
transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the
responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise
itself.[24]
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner undertook to transport, ship, and
deliver the 27 drums of raw materials for pharmaceutical manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at a
specified place to a person named or on his or her order. [25] It operates both as a receipt and as a contract. It is a receipt for the
goods shipped and a contract to transport and

deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to quantity,
weight, dimensions, identification marks, condition, quality, and value. As a contract, it names the contracting parties, which
include the consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights and obligations
assumed by the parties.[26]

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised
extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have
the burden of proving that they observed such diligence.[27] Mere proof of delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier.
If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter
shall be held responsible.[28]

Though it is not our function to evaluate anew the evidence presented, we refer to the records of the case to show that, as
correctly found by the RTC and the CA, petitioner failed to rebut the prima facie presumption of negligence in the carriage of the
subject shipment.

First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good order and condition in New York,
United States of America. Second, the OCMSC Survey Report stated that one steel drum STC Vitamin B Complex Extract was
discovered to be with a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine,
noted that the subject shipment was in good order and condition, it was specifically stated that there were 22 (should be 27
drums per Bill of Lading No. C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas' Survey
Report stated that "1-s/drum was punctured and retaped on the bottom side and the content was lacking, and there was a short
delivery of 5-drums."

All these conclusively prove the fact of shipment in good order and condition, and the consequent damage to one steel drum of
Vitamin B Complex Extract while in the possession of petitioner which failed to explain the reason for the damage. Further,
petitioner failed to prove that it observed the extraordinary diligence and precaution which the law requires a common carrier
to exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.[29]

However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to the RTC and the CA's findings.

It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all
matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of Commerce
and special laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting the carrier's liability in the
absence of a shipper's declaration of a higher value in the bill of lading.[30] Section 4(5) of the COGSA provides:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500 per
package of lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency, unless the nature and
value of such goods have been declared by the shipper before shipment and inserted in the bill
of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but
shall not be conclusive on the carrier.

In the present case, the shipper did not declare a higher valuation of the goods to be shipped. Contrary to the CA's conclusion,
the insertion of the words "L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of raw materials for pharmaceutical Mfg.
x x x" cannot be the basis of petitioner's liability.[31] Furthermore, the insertion of an invoice number does not in itself
sufficiently and convincingly show that petitioner had knowledge of the value of the cargo.[32]

In light of the foregoing, petitioner's liability should be limited to $500 per steel drum. In this case, as there was only one drum
lost, private respondent is entitled to receive only $500 as damages for the loss. In addition to said amount, as aptly held by the
trial court, an interest rate of 6% per annumshould also be imposed, plus 25% of the total sum as attorney's fees.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated April 29, 2004 and
Resolution dated November 26, 2004 are AFFIRMED with MODIFICATION by reducing the principal amount due private
respondent Pioneer Insurance and Surety Corporation from P76,231.27 to $500, with interest of 6% per annum from date of
demand, and 25% of the amount due as attorney's fees.

The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.


Agustin Dela Torre v. CA

MENDOZA, J.:

These consolidated petitions[1] for review on certiorari seek to reverse and


set aside the September 30, 2002 Decision[2] and September 18, 2003
Resolution[3] of the Court of Appeals (CA)in CA-G.R. CV No. 36035, affirming in
toto the July 10, 1991 Decision[4] of the Regional Trial Court, Branch 60, Angeles
City (RTC). The RTC Decision in Civil Case No. 4609, an action for Sum of Money and
Damages, ordered the defendants, jointly and severally, to pay various damages to
the plaintiff.

The Facts:

Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a


vessel registered with the Philippine Coast Guard. On February 1, 1984, Concepcion
entered into a Preliminary Agreement[5] with Roland de la Torre (Roland) for the
dry-docking and repairs of the said vessel as well as for its charter
afterwards.[6] Under this agreement, Concepcion agreed that after the dry-docking
and repair of LCT-Josephine, it should be chartered for 10,000.00 per month with
the following conditions:

1. The CHARTERER will be the one to pay the insurance premium of the
vessel

2. The vessel will be used once every three (3) months for a maximum
period of two (2) weeks

3. The SECOND PARTY (referring to Concepcion) agreed that


LCT-Josephine should be used by the FIRST PARTY (referring to
Roland) for the maximum period of two (2) years

4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost


of the said vessel. [Underscoring Supplied]

On June 20, 1984, Concepcion and the Philippine Trigon Shipyard


Corporation[7] (PTSC), represented by Roland, entered into a Contract of
Agreement,[8] wherein the latter would charter LCT-Josephine retroactive to May 1,
1984, under the following conditions:
a. Chartered amount of the vessel 20,000.00 per month effective May
1, 1984;

j. The owner (Concepcion) shall pay 50% downpayment for the


dry-docking and repair of the vessel and the balance shall be paid
every month in the amount of 10,000.00, to be deducted from the
rental amount of the vessel;

k. In the event that a THIRD PARTY is interested to purchase the said


vessel, the SECOND PARTY (PTSC/ Roland) has the option for first
priority to purchase the vessel. If the SECOND PARTY (PTSC/Roland)
refuses the offer of the FIRST PARTY (Concepcion), shall give the
SECOND PARTY (PTSC/Roland) enough time to turn over the vessel
so as not to disrupt previous commitments;

l. That the SECOND PARTY (PTSC/Roland) has the option to terminate


the contract in the event of the SECOND PARTY (PTSC/Roland)
decide to stop operating;

m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice


of such termination of contract;

n. Next x x year of dry-docking and repair of vessel shall be shouldered


by the SECOND PARTY (PTSC/Roland); (Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon


Shipping Lines (TSL), a single proprietorship owned by Rolands father, Agustin de la
Torre (Agustin).[9] The following are the terms and conditions of that Contract of
Agreement:[10]

a. Chartered amount of the vessel 30,000.00 per month effective


August, 1984;

b. Downpayment of the 50% upon signing of the contract and the


balance every end of the month;

c. Any cost for the additional equipment to be installed on the vessel


will be borne by the FIRST PARTY (PTSC/ Roland) and the cost of
the equipment will be deductible from the monthly rental of the
vessel;

d. In the event the vessel is grounded or other [force majeure] that will
make the vessel non-opera[xx]ble, the rental of the vessel shall be
suspended from the start until the vessel will be considered
operational;
e. The cost for the dry-docking and/or repair of vessel shall not
exceed 200,000.00, any excess shall be borne by the SECOND
PARTY (TSL/Agustin);

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the


maintenance cost for the duration of the usage;

g. All cost for the necessary repair of the vessel shall be on the account
of the SECOND PARTY (TSL/Agustin);

h. That the SECOND PARTY (TSL/Agustin) has the option to terminate


the contract in the event the SECOND PARTY (TSL/Agustin) decides
to stop operating;

j. The FIRST PARTY (PTSC/Roland) will terminate the services of all


vessels crew and the SECOND PARTY (TSL/Agustin) shall have the
right to replace and rehire the crew of the vessel.

k. Insurance premium of the vessel will be divided equally between the


FIRST PARTY (PTSC/Rolando) and the SECOND PARTY (TSL/
Agustin). [Underscoring supplied]

On November 22, 1984, TSL, this time represented by Roland per Agustins
Special Power of Attorney,[11] sub-chartered LCT-Josephine to Ramon
Larrazabal (Larrazabal) for the transport of cargo consisting of sand and gravel to
Leyte. The following were agreed upon in that contract,[12] to wit:

1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine


shall be used by the SECOND PARTY (Larrazabal) for and in
consideration on the sum of FIVE THOUSAND FIVE HUNDRED
(5,500.00) PESOS, Philippine currency per day charter with the
following terms and conditions.

2. That the CHARTERER should pay 2,000.00 as standby pay even that
will made (sic) the vessel non-opera[xx]ble cause[d] by natur[al]
circumstances.

3. That the CHARTERER will supply the consumed crude oil and lube oil
per charter day.

4. That the SECOND PARTY (Larrazabal) is the one responsible to


supervise in loading and unloading of cargo load on the vessel.

5. That the SECOND PARTY (Larrazabal) shall give one week notice for
such termination of contract.
6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed
to pay 15 days in advance and the balance should be paid weekly.
[Underscoring Supplied]

On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel
arrived at Philpos, Isabel, Leyte. The vessel was beached near the NDC Wharf. With
the vessels ramp already lowered, the unloading of the vessels cargo began with the
use of Larrazabals payloader. While the payloader was on the deck of
the LCT-Josephine scooping a load of the cargo, the vessels ramp started to move
downward, the vessel tilted and sea water rushed in. Shortly
thereafter, LCT-Josephine sank.[13]

Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter


assured Concepcion that negotiations were underway for the refloating of his
vessel.[14] Unfortunately, this did not materialize.

For this reason, Concepcion was constrained to institute a complaint for Sum
of Money and Damages against PTSC and Roland before the RTC. PTSC and Roland
filed their answer together with a third-party complaint against Agustin. Agustin, in
turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed
his answer and counterclaim but was subsequently declared in default by the
RTC.[15] Eventually, the fourth-party complaint against Larrazabal was dismissed
when the RTC rendered its decision in favor of Concepcion on July 10, 1991.[16] In said
RTC decision, the following observations were written:

The testimonies of Roland de la Torre and Hubart Sungayan


quoted above, show: (1) that the payloader was used to unload the
cargo of sand and gravel; (2) that the payloader had to go inside the
vessel and scoop up a load; (3) that the ramp according to Roland de la
Torre, was not properly put into peak (sic) such that the front line will
touch the bottom, particularly will touch the sea x x x; (4) that the tires
(of the payloader) will be submerged to (sic) the sea; (5) that
according to Sungayan the ramp of the vessel was moving down; (6)
that the payloader had to be maneuvered by its operator who dumped
the load at the side of the vessel; (7) that the dumping of the load
changed the stability of the vessel and tilted it to the starboard side;
and (8) that the tilting caused the sliding of the cargo toward that side
and opened the manhole through which seawater rushed in.[17]
Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the
employ of TSL/Agustin, also admitted at the trial that it was TSL/Agustin, through its
crew, who was in-charge of LCT-Josephines operations although the responsibility of
loading and unloading the cargo was under Larrazabal. Thus, the RTC declared that
the efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or
positioning of the ramp, which was well within the charge or responsibility of the
captain and crew of the vessel.[18] The fallo of the RTC Decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby


rendered as follows:

1. The defendants, Philippine Trigon Shipping Corporation


and Roland de la Torre, and the third-party
defendant, Agustin de la Torre, shall pay the plaintiff,
jointly and severally, the sum of EIGHT HUNDRED
FORTY-ONE THOUSAND THREE HUNDRED EIGHTY
SIX PESOS AND EIGHTY SIX CENTAVOS (841,386.86)
as the value of the LCT JOSEPHINE with interest
thereon at the legal rate of 6% per annum from the
date of demand, that is from March 14, 1985, the date
when counsel for the defendant Philippine Trigon
Shipyard Corporation answered the demand of the
plaintiff, until fully paid;

2. The defendants, Philippine Trigon Shipyard Corporation


and Roland de la Torre, shall pay to the plaintiff the
sum of NINETY THOUSAND PESOS (90,000.00) as
unpaid rentals for the period from May 1, 1984, to
November, 1984, and the sum of ONE HUNDRED
SEVENTY THOUSAND PESOS (170,000.00) as lost
rentals from December, 1984, to April 30, 1986, with
interest on both amounts at the rate of 6% per
annum also from demand on March 14, 1985, until
fully paid;

3. The defendants and the third-party defendant shall


likewise pay to the plaintiff jointly and severally the
sum of TWENTY-FIVE THOUSAND PESOS (25,000.00)
as professional fee of plaintiffs counsel plus FIVE
HUNDRED PESOS (500.00) per appearance of said
counsel in connection with actual trial of this case,
the number of such appearances to be determined
from the records of this case;

4. The defendants counterclaim for the unpaid balance of


plaintiffs obligation for the dry-docking and repair of
the vessel LCT JOSEPHINE in the amount of
TWENTY-FOUR THOUSAND THREE HUNDRED FOUR
PESOS AND THIRTY-FIVE CENTAVOS (24,304.35),
being valid, shall be deducted from the unpaid
rentals, with interest on the said unpaid balance at
the rate of 6% per annum from the date of the filing
of the counter-claim on March 31, 1986;
5. The counter-claim of the defendants in all other
respects, for lack of merit, is hereby DISMISSED;

6. The fourth-party complaint against the fourth-party


defendant, Ramon Larrazabal, being without basis, is
likewise DISMISSED; and

7. The defendants and third-party defendant shall pay the


costs.

SO ORDERED.[19]

Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in
agreement with the findings of the RTC, affirmed its decision in toto.

Still not in conformity with the CA findings against them, Agustin, PTSC and
Roland came to this Court through these petitions for review. In G.R. No. 160088,
petitioner Agustin raises the following issues:

AGUSTINS STATEMENT OF THE ISSUES

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE


CAUSE OF THE SINKING OF LCT JOSEPHINE IS THE NEGLIGENCE OF
THE PETITIONER (Agustin) AND THE RESPONDENTS TRIGON (PTSC)
AND DE LA TORRE (Roland).

II

THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT


RAMON LARRAZABAL AS SOLELY LIABLE FOR THE LOSS AND
SINKING OF LCT JOSEPHINE.

III

THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN


TAKING JUDICIAL NOTICE OF THE CHARACTERISTICS OF THE LCT
JOSEPHINE AND PAYLOADER WITHOUT INFORMING THE PARTIES OF
THEIR INTENTION.

IV
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY
AND SOLIDARILY LIABLE WITH THE RESPONDENTS TRIGON AND DE
LA TORRE DESPITE THE FACT THAT SUCH KIND OF LIABILITY IS NOT
DULY ALLEGED IN THE COMPLAINT OF RESPONDENT CONCEPCION
AND NOT ONE OF THE ISSUES TRIED BY THE PARTIES.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS


LIABLE BASED ON CULPA CONTRACTUAL.

VI

THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER


FROM LIABILITY BASED ON THE LIMITED LIABILITY RULE.

VII

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS


OF THE CODE OF COMMERCE ON THE LIABILITY OF THE SHIP
CAPTAIN.[20]
On the other hand, in G.R. No. 160565, PTSC and Roland submit the following
issues:

PTSC and ROLANDS STATEMENT OF THE ISSUES

I.

DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE


PROVISIONS OF THE CIVIL CODE OF THE PHILIPPINES PARTICULARLY
ON CONTRACTS, LEASE, QUASI-DELICT AND DAMAGES INSTEAD OF
THE PROVISIONS OF THE CODE OF COMMERCE ON MARITIME
COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE
RESPONDENT CONCEPCION.

II.

DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE


FINDINGS OF FACT OF THE TRIAL COURT.

III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE


OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF ITS
JURISDICTION IN APPRECIATING THE FACTS OF THE CASE.

IV.
DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING
PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH RESPONDENT
AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE FINDINGS OF FACT
AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE ISSUES SET
FORTH AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE
PARTIES.[21]

From the foregoing, the issues raised in the two petitions can be categorized
as: (1) those referring to the factual milieu of the case; (2) those concerning the
applicability of the Code of Commerce, more specifically, the Limited Liability Rule;
and (3) the question on the solidary liability of the petitioners.

As regards the issues requiring a review of the factual findings of the trial
court, the Court finds no compelling reason to deviate from the rule that findings of
fact of a trial judge, especially when affirmed by the appellate court, are binding
before this Court.[22] The CA, in reviewing the findings of the RTC, made these
observations:

We are not persuaded that the trial Court finding should be set
aside. The Court a quo sifted through the records and arrived at the
fact that clearly, there was improper lowering or positioning of the
ramp, which was not at peak, according to de la Torre and moving
down according to Sungayan when the payloader entered and
scooped up a load of sand and gravel. Because of this, the payloader
was in danger of being lost (submerged) and caused Larrazabal to
order the operator to go back into the vessel, according to de la Torres
version, or back off to the shore, per Sungayan. Whichever it was, the
fact remains that the ramp was unsteady (moving) and compelled
action to save the payloader from submerging, especially because of
the conformation of the sea and the shore. x x x.

xxx

The contract executed on June 20, 1984, between


plaintiff-appellee and defendants-appellants showed that the services
of the crew of the owner of the vessel were terminated. This allowed
the charterer, defendants-appellants, to employ their own. The
sub-charter contract between defendants-appellants Philippine Trigon
Shipyard Corp. and third-party defendant-appellant Trigon Shipping
Lines showed similar provision where the crew of Philippine Trigon had
to be terminated or rehired by Trigon Shipping Lines. As to the
agreement with fourth-party Larrazabal, it is silent on who would hire
the crew of the vessel. Clearly, the crew manning the vessel when it
sunk belonged to third-party defendant-appellant. Hubart Sungayan,
the acting Chief Mate, testified that he was hired by Agustin de la Torre,
who in turn admitted to hiring the crew. The actions of fourth-party
defendant, Larrazabal and his payloader operator did not include the
operation of docking where the problem arose.[23] [Underscoring
supplied]

Similarly, the Court has examined the records at hand and completely agree
with the CA that the factual findings of the RTC are in order.

With respect to petitioners position that the Limited Liability Rule under the
Code of Commerce should be applied to them, the argument is misplaced. The said
rule has been explained to be that of the real and hypothecary doctrine in maritime
law where the shipowner or ship agents liability is held as merely co-extensive with
his interest in the vessel such that a total loss thereof results in its extinction.[24] In
this jurisdiction, this rule is provided in three articles of the Code of Commerce. These
are:

Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the conduct
of the captain in the care of the goods which he loaded on the vessel;
but he may exempt himself therefrom by abandoning the vessel with
all her equipment and the freight it may have earned during the
voyage.

---
Art. 590. The co-owners of the vessel shall be civilly liable in the
proportion of their interests in the common fund for the results of the
acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the


abandonment, before a notary, of the part of the vessel belonging to
him.

---

Art. 837. The civil liability incurred by shipowners in the case


prescribed in this section, shall be understood as limited to the value of
the vessel with all its appurtenances and freightage served during the
voyage.

Article 837 specifically applies to cases involving collision which is a necessary


consequence of the right to abandon the vessel given to the shipowner or ship agent
under the first provision Article 587. Similarly, Article 590 is a reiteration of Article 587,
only this time the situation is that the vessel is co-owned by several
persons.[25] Obviously, the forerunner of the Limited Liability Rule under the Code of
Commerce is Article 587. Now, the latter is quite clear on which indemnities may be
confined or restricted to the value of the vessel pursuant to the said Rule, and these
are the indemnities in favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel. Thus, what is
contemplated is the liability to third persons who may have dealt with the shipowner,
the agent or even the charterer in case of demise or bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is
the very person whom the Limited Liability Rule has been conceived to protect. The
petitioners cannot invoke this as a defense. In Yangco v. Laserna,[26] this Court,
through Justice Moran, wrote:

The policy which the rule is designed to promote is the


encouragement of shipbuilding and investment in maritime commerce.

x x x.

Grotius, in his law of War and Peace, says that


men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered
liable to an indefinite amount by the acts of the master,
x x x.[27]

Later, in the case of Monarch Insurance Co., Inc. v. CA,[28] this Court, this time
through Justice Sabino R. De Leon, Jr., again explained:

No vessel, no liability, expresses in a nutshell the limited liability


rule. The shipowners or agents liability is merely coextensive with his
interest in the vessel such that a total loss thereof results in its
extinction. The total destruction of the vessel extinguishes maritime
liens because there is no longer any res to which it can attach. This
doctrine is based on the real and hypothecary nature of maritime law
which has its origin in the prevailing conditions of the maritime trade
and sea voyages during the medieval ages, attended by innumerable
hazards and perils. To offset against these adverse conditions and to
encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance,
if any.[29]

In view of the foregoing, Concepcion as the real shipowner is the one who is
supposed to be supported and encouraged to pursue maritime commerce. Thus, it
would be absurd to apply the Limited Liability Rule against him who, in the first place,
should be the one benefitting from the said rule. In distinguishing the rights between
the charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co.
v. Urrutia & Co.[30] is most enlightening. In that case, no less than Chief Justice
Arellano wrote:
The whole ground of this assignment of errors rests on the
proposition advanced by the appellant company that the charterer of a
vessel, under the conditions stipulated in the charter party in question,
is the owner pro hac vice of the ship and takes upon himself the
responsibilities of the owner.
xxx

If G. Urrutia & Co., by virtue of the above-mentioned contract,


became the agents of the Cebu, then they must respond for the
damages claimed, because the owner and the agent are civilly
responsible for the acts of the captain.

But G. Urrutia & Co. could not in any way exercise the powers or
rights of an agent. They could not represent the ownership of the
vessel, nor could they, in their own name and in such capacity, take
judicial or extrajudicial steps in all that relates to commerce; thus if
the Cebu were attached, they would have no legal capacity to proceed
to secure its release; speaking generally, not even the fines could or
ought to be paid by them, unless such fines were occasioned by their
orders. x x x.

The contract executed by Smith, Bell & Co., as agents for the
Cebu, and G. Urrutia & Co., as charterers of the vessel, did not put the
latter in the place of the former, nor make them agents of the owner
or owners of the vessel. With relation to those agents, they retained
opposing rights derived from the charter party of the vessel, and at no
time could they be regarded by the third parties, or by the authorities,
or by the courts, as being in the place of the owners or the agents in
matters relating to the responsibilities pertaining to the ownership and
possession of the vessel. x x x.[31]

In Yueng Sheng, it was further stressed that the charterer does not
completely and absolutely step into the shoes of the shipowner or even the ship
agent because there remains conflicting rights between the former and the real
shipowner as derived from their charter agreement. The Court again quotes Chief
Justice Arellano:

Their (the charterers) possession was, therefore, the uncertain


title of lease, not a possession of the owner, such as is that of the
agent, who is fully subrogated to the place of the owner in regard to
the dominion, possession, free administration, and navigation of the
vessel.[32]
Therefore, even if the contract is for a bareboat or demise charter where
possession, free administration and even navigation are temporarily surrendered to
the charterer, dominion over the vessel remains with the shipowner. Ergo, the
charterer or the sub-charterer, whose rights cannot rise above that of the former,
can never set up the Limited Liability Rule against the very owner of the vessel.
Borrowing the words of Chief Justice Artemio V. Panganiban, Indeed, where the
reason for the rule ceases, the rule itself does not apply.[33]

The Court now comes to the issue of the liability of the charterer and the
sub-charterer.

In the present case, the charterer and the sub-charterer through their
respective contracts of agreement/charter parties, obtained the use and service of
the entire LCT-Josephine. The vessel was likewise manned by the charterer and later
by the sub-charterers people. With the complete and exclusive relinquishment of
possession, command and navigation of the vessel, the charterer and later the
sub-charterer became the vessels owner pro hac vice. Now, and in the absence of any
showing that the vessel or any part thereof was commercially offered for use to the
public, the above agreements/charter parties are that of a private carriage where the
rights of the contracting parties are primarily defined and governed by the
stipulations in their contract.[34]

Although certain statutory rights and obligations of charter parties are found
in the Code of Commerce, these provisions as correctly pointed out by the RTC, are
not applicable in the present case. Indeed, none of the provisions found in the Code
of Commerce deals with the specific rights and obligations between the real
shipowner and the charterer obtaining in this case. Necessarily, the Court looks to
the New Civil Code to supply the deficiency.[35] Thus, the RTC and the CA were both
correct in applying the statutory provisions of the New Civil Code in order to define
the respective rights and obligations of the opposing parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary
Agreement with Concepcion for the dry-docking and repair of LCT-Josephine, is liable
under Article 1189[36] of the New Civil Code. There is no denying that the vessel was
not returned to Concepcion after the repairs because of the provision in the
Preliminary Agreement that the same should be used by Roland for the first two
years. Before the vessel could be returned, it was lost due to the negligence of
Agustin to whom Roland chose to sub-charter or sublet the vessel.

PTSC is liable to Concepcion under Articles 1665[37] and 1667[38] of the New
Civil Code. As the charterer or lessee under the Contract of Agreement dated June 20,
1984, PTSC was contract-bound to return the thing leased and it was liable for the
deterioration or loss of the same.

Agustin, on the other hand, who was the sub-charterer or sub-lessee


of LCT-Josephine, is liable under Article 1651 of the New Civil Code.[39] Although he
was never privy to the contract between PTSC and Concepcion, he remained bound
to preserve the chartered vessel for the latter. Despite his non-inclusion in the
complaint of Concepcion, it was deemed amended so as to include him because,
despite or in the absence of that formality of amending the complaint to include him,
he still had his day in court[40] as he was in fact impleaded as a third-party defendant
by his own son, Roland the very same person who represented him in the Contract of
Agreement with Larrazabal.

(S)ince the purpose of formally impleading a party is to assure


him a day in court, once the protective mantle of due process of law
has in fact been accorded a litigant, whatever the imperfection in form,
the real litigant may be held liable as a party.[41]

In any case, all three petitioners are liable under Article 1170 of the New Civil
Code.[42] The necessity of insuring the LCT-Josephine, regardless of who will share in
the payment of the premium, is very clear under the Preliminary Agreement and the
subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984,
respectively. The August 17, 1984 letter of Concepcions representative, Rogelio L.
Martinez, addressed to Roland in his capacity as the president of PTSC inquiring
about the insurance of the LCT-Josephine as well as reiterating the importance of
insuring the said vessel is quite telling.

August 17, 1984


Mr. Roland de la Torre
President
Phil. Trigon Shipyard Corp.
Cebu City

Dear Sir:

In connection with your chartering of LCT JOSEPHINE effect[ive]


May 1, 1984, I wish to inquire regarding the insurance of said vessel to
wit:

1. Name of Insurance Company


2. Policy No.
3. Amount of Premiums
4. Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon


as possible.

In no case shall LCT JOSEPHINE sail without any insurance


coverage.

Hoping for your (prompt) action on this regard.


Truly yours,
(sgd)ROGELIO L. MARTINEZ
Owners representative[43]

Clearly, the petitioners, to whom the possession of LCT Josephine had been
entrusted as early as the time when it was dry-docked for repairs, were obliged to
insure the same. Unfortunately, they failed to do so in clear contravention of their
respective agreements. Certainly, they should now all answer for the loss of the
vessel.

WHEREFORE, the petitions are DENIED.

SO ORDERED.

Parties

1.1 Carriage of Passengers


1.2 Carriage of Goods

Laws and Jurisprudence:

Baliwag Transit Corporation v CA


Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80447 January 31, 1989

BALIWAG TRANSIT, INC., petitioner,


vs.
HON. COURT OF APPEALS and SPS. SOTERO CAILIPAN, JR. and ZENAIDA LOPEZ and
GEORGE L. CAILIPAN, respondents.

Sta. Maria & Associates for petitioner.

Punzalan and Associates Law Office for respondents.

MELENCIO-HERRERA, J.:
On 10 April 1985 a Complaint for damages arising from breach of contract of carriage
was filed by private respondents, the Spouses Sotero Cailipan, Jr. and Zenaida Lopez,
and their son George, of legal age, against petitioner Baliwag Transit (Baliwag, for
brevity). The Complaint alleged that George, who was a paying passenger on a
Baliwag bus on 17 December 1984, suffered multiple serious physical injuries when he
was thrown off said bus driven in a careless and negligent manner by Leonardo Cruz,
the authorized bus driver, along Barangay Patubig, Marilao, Bulacan. As a result, he
was confined in the hospital for treatment, incurring medical expenses, which were
borne by his parents, the respondent Spouses, in the sum of about P200,000.00 plus
other incidental expenses of about P10,000.00.

On 26 April 1985 an Answer was filed by petitioner alleging that the cause of the
injuries sustained by George was solely attributable to his own voluntary act in that,
without warning and provocation, he suddenly stood up from his seat and headed for
the door of the bus as if in a daze, opened it and jumped off while said bus was in
motion, in spite of the protestations by the driver and without the knowledge of the
conductor.

Baliwag then filed a Third-Party Complaint against Fortune Insurance & Surety
Company, Inc., on its third-party liability insurance in the amount of P50,000.00. In its
Answer, Fortune Insurance claimed limited liability, the coverage being subject to a
Schedule of Indemnities forming part of the insurance policy.

On 14 November 1985 and 18 November 1985, respectively, Fortune Insurance and


Baliwag each filed Motions to Dismiss on the ground that George, in consideration of
the sum of P8,020.50 had executed a "Release of Claims" dated 16 May 1985. These
Motions were denied by the Trial Court in an Order dated 13 January 1986 as they
were filed beyond the time for pleading and after the Answer were already filed.

On 5 February 1986 Baliwag filed a Motion to Admit Amended Answer, which was
granted by the Trial Court. The Amended Answer incorporated the affirmative
defense in the Motion to Dismiss to the effect that on 16 May 1985, George bad been
paid all his claims for damages arising from the incident subject matter of the
complaint when he executed the following "Release of Claims":

For and in consideration of the payment to me/us of the sum of EIGHT THOUSAND
TWENTY and 50/100 PESOS ONLY (P8,020.50), the receipt of which is hereby
acknowledged, I/we, being of lawful age, do hereby release, acquit and forever
discharge Fortune Insurance and/or Baliwag transit, Inc. his/her heirs, executors and
assigns, from any and all liability now accrued or hereafter to accrue on account of
any and all claims or causes of action which I/we now or may here after have for
personal injuries, damage to property, loss of services, medical expenses, losses or
damages of any and every kind or nature whatsoever, now known or what may
hereafter develop by me/us sustained or received on or about 17th day of December,
1984 through Reckless Imprudence Resulting to Physical Injuries, and I/we hereby
declare that I/we fully understand the terms of this settlement and voluntarily accept
said sum for the purpose of making a full and final compromise adjustment and
settlement of the injuries and damages, expenses and inconvenience above
mentioned. (Rollo, p. 11)
During the preliminary hearing on the aforementioned affirmative defense, Baliwag
waived the presentation of testimonial evidence and instead offered as its Exhibit "1"
the "Release of Claims" signed by George and witnessed by his brother Benjamin L.
Cailipan, a licensed engineer.

By way of opposition to petitioner's affirmative defense, respondent Sotero Cailipan,


Jr. testified that be is the father of George, who at the time of the incident was a
student, living with his parents and totally dependent on them for their support; that
the expenses for his hospitalization were shouldered by his parents; and that they
had not signed the "Release of Claims."

In an Order dated 29 August 1986, the Regional Trial Court of Bulacan, Branch
20, 1 dismissed the Complaint and Third-party Complaint, ruling that since the
contract of carriage is between Baliwag and George L. Cailipan, the latter, who is of
legal age, had the exclusive right to execute the Release of Claims despite the fact
that he is still a student and dependent on his parents for support. Consequently, the
execution by George of the Release of Claims discharges Baliwag and Fortune
Insurance.

Aggrieved, the Spouses appealed to respondent Court of Appeals.

On 22 October 1987, the Appellate Court rendered a Decision 2 setting aside the
appealed Order and holding that the "Release of Claims" cannot operate as a valid
ground for the dismissal of the case because it does not have the conformity of all
the parties, particularly George's parents, who have a substantial interest in the case
as they stand to be prejudiced by the judgment because they spent a sizeable
amount for the medical bills of their son; that the Release of Claims was secured by
Fortune Insurance for the consideration of P8,020.50 as the full and final settlement
of its liability under the insurance policy and not for the purpose of releasing Baliwag
from its liability as a carrier in this suit for breach of contract. The Appellate Court
also ordered the remand of the case to the lower Court for trial on the merits and for
George to return the amount of P8,020.50 to Fortune Insurance.

Hence, this Petition for Review on certiorari by Baliwag assailing the Appellate Court
judgment.

The issue brought to the fore is the legal effect of the Release of Claims executed by
George during the pendency of this case.

We hold that since the suit is one for breach of contract of carriage, the Release of
Claims executed by him, as the injured party, discharging Fortune Insurance and
Baliwag from any and all liability is valid. He was then of legal age, a graduating
student of Agricultural Engineering, and had the capacity to do acts with legal effect
(Article 37 in relation to Article 402, Civil Code). Thus, he could sue and be sued even
without the assistance of his parents.

Significantly, the contract of carriage was actually between George, as the paying
passenger, and Baliwag, as the common carrier. As such carrier, Baliwag was bound
to carry its passengers safely as far as human care and foresight could provide, and is
liable for injuries to them through the negligence or wilful acts of its employees
(Articles 1755 and 1759, Civil Code). Thus, George had the right to be safely brought to
his destination and Baliwag had the correlative obligation to do so. Since a contract
may be violated only by the parties thereto, as against each other, in an action upon
that contract, the real parties in interest, either as plaintiff or as defendant, must be
parties to said contract (Marimperio Compania Naviera, S.A. vs. Court of Appeals, No.
L-40234, December 14, 1987, 156 SCRA 368). A real party-in-interest -plaintiff is one
who has a legal right while a real party-in-interest-defendant is one who has a
correlative legal obligation whose act or omission violates the legal right of the
former (Lee vs. Romillo, Jr., G.R. No. 60973, May 28, 1988). In the absence of any
contract of carriage between Baliwag and George's parents, the latter are not real
parties-in-interest in an action for breach of that contract.

The general rule of the common law is that every action must be brought in the name
of the party whose legal right has been invaded or infringed. 15 Enc. P1. & Pr. p. 484.
"For the immediate wrong and damage the person injured is the only one who can
maintain the action." Id. p. 578. The person who sustains an injury is the person to
bring an action for the injury against the wrongdoer." Dicey parties to Actions, 347.
(Cited in Green v. Shoemaker, 73 A 688, 23 L.R.A., N.S. 667).

There is no question regarding the genuineness and due execution of the Release of
Claims. It is a duly notarized public document. It clearly stipulates that the
consideration of P8,020.50 received by George was "to release and forever discharge
Fortune Insurance and/or Baliwag from any and all liabilities now accrued or to accrue
on account of any and all claims or causes of action ... for personal injuries, damage
to property, loss of services, medical expenses, losses or damages of any and every
kind or nature whatsoever, sustained by him on 17 December 1984 thru Reckless
Imprudence Resulting to Physical Injuries." Consequently, the ruling of respondent
Appellate Court that the "Release of Claims" was intended only as the full and final
settlement of a third-party liability for bodily injury claim and not for the purpose of
releasing Baliwag from its liability, if any, in a breach of a contract of carriage, has to
be rejected for being contrary to the very terms thereof. If the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control (Article 1370, Civil Code). The phraseology
"any and all claims or causes of action" is broad enough to include all damages that
may accrue to the injured party arising from the unfortunate accident.

The Release of Claims had the effect of a compromise agreement since it was
entered into for the purpose of making a full and final compromise adjustment and
settlement of the cause of action involved. A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to one
already commenced (Article 2028, Civil Code). The Release of Claims executed by the
injured party himself wrote finish to this litigation.

WHEREFORE, the Decision dated 22 October 1987 of respondent Court of Appeals is


SET ASIDE, the Decision of the Regional Trial Court of Bulacan, Branch 20, is
REINSTATED, and the Complaint and Third-Party Complaint are hereby ordered
DISMISSED. No costs.

SO ORDERED
a.Everett Steamship Corp. v. CA October 8, 1998
MARTINEZ, J.:

Petitioner Everett Steamship Corporation, through this petition for review,


seeks the reversal of the decision[1] of the Court of Appeals, dated June 14, 1995,
in CA-G.R. No. 428093, which affirmed the decision of the Regional Trial
Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding
petitioner liable to private respondent Hernandez Trading Co., Inc. for the value
of the lost cargo.
Private respondent imported three crates of bus spare parts marked as
MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its
supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign
corporation based in Inazawa, Aichi, Japan. The crates were shipped from
Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by
petitioners principal, Everett Orient Lines. The said crates were covered by Bill
of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked
MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner
in its letter of January 13, 1992 addressed to private respondent, which
thereafter made a formal claim upon petitioner for the value of the lost cargo
amounting to One Million Five Hundred Fifty Two Thousand Five Hundred
(Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated
November 14, 1991. However, petitioner offered to pay only One Hundred
Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause
18 of the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for
collection docketed as Civil Case No. C-15532, against petitioner before the
Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no
testimonial evidence to offer and agreed instead to file their respective
memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private
respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its
peso equivalent representing the actual value of the lost cargo and the material
and packaging cost; (c) 10% of the total amount as an award for and as
contingent attorneys fees; and (d) to pay the cost of the suit. The trial court
ruled:
Considering defendants categorical admission of loss and its failure to
overcome the presumption of negligence and fault, the Court
conclusively finds defendant liable to the plaintiff. The next point of
inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should be
held liable for the whole value for the loss of the goods in the amount of
Y1,552,500.00 because the terms appearing at the back of the bill of
lading was so written in fine prints and that the same was not signed by
plaintiff or shipper thus, they are not bound by the clause stated in
paragraph 18 of the bill of lading. On the other hand, defendant merely
admitted that it lost the shipment but shall be liable only up to the
amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil
Code -
Art. 1750. A contract fixing the sum that may be recovered by
the owner or shipper for the loss, destruction or deterioration of
the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
It is required, however, that the contract must be reasonable and just
under the circumstances and has been fairly and freely agreed
upon. The requirements provided in Art. 1750 of the New Civil Code
must be complied with before a common carrier can claim a limitation
of its pecuniary liability in case of loss, destruction or deterioration of
the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said
article have not been met. The fact that those conditions are printed at
the back of the bill of lading in letters so small that they are hard to read
would not warrant the presumption that the plaintiff or its supplier was
aware of these conditions such that he had fairly and freely agreed to
these conditions. It can not be said that the plaintiff had actually entered
into a contract with the defendant, embodying the conditions as printed
at the back of the bill of lading that was issued by the defendant to
plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but
affirmed the trial courts findings with the additional observation that private
respondent can not be bound by the terms and conditions of the bill of lading
because it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show
that the appellee (Hernandez Trading Co.) consented to the terms of the
Bill of Lading. The shipper named in the Bill of Lading is Maruman
Trading Co., Ltd. whom the appellant (Everett Steamship Corp.)
contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd.
accepted the terms of the bill of lading when it delivered the cargo to
the appellant, still it does not necessarily follow that appellee
Hernandez Trading Company as consignee is bound thereby
considering that the latter was never privy to the shipping contract.
xxxxxxxxx
Never having entered into a contract with the appellant, appellee should
therefore not be bound by any of the terms and conditions in the bill of
lading.
Hence, it follows that the appellee may recover the full value of the
shipment lost, the basis of which is not the breach of contract as
appellee was never a privy to the any contract with the appellant, but is
based on Article 1735 of the New Civil Code, there being no evidence
to prove satisfactorily that the appellant has overcome the presumption
of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in
ruling that the consent of the consignee to the terms and conditions of the bill
of lading is necessary to make such stipulations binding upon it; (2) in holding
that the carriers limited package liability as stipulated in the bill of lading does
not apply in the instant case; and (3) in allowing private respondent to fully
recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of
lading.
A stipulation in the bill of lading limiting the common carriers liability for
loss or destruction of a cargo to a certain sum, unless the shipper or owner
declares a greater value, is sanctioned by law, particularly Articles 1749 and
1750 of the Civil Code which provide:
ART. 1749. A stipulation that the common carriers liability is limited to
the value of the goods appearing in the bill of lading, unless the shipper
or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods
is valid, if it is reasonable and just under the circumstances, and has
been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this
Court in a number of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate
Appellate Court[4], we ruled:

It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea
Act did not exist, the validity and binding effect of the liability limitation clause
in the bill of lading here are nevertheless fully sustainable on the basis alone of
the cited Civil Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a limit to
liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and
fairness of the law itself, and this the private respondent does not pretend to
do. But over and above that consideration, the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the bill
of lading..

Pursuant to the afore-quoted provisions of law, it is required that the


stipulation limiting the common carriers liability for loss must be reasonable
and just under the circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides,
among others:
18. All claims for which the carrier may be liable shall be adjusted and
settled on the basis of the shippers net invoice cost plus freight and
insurance premiums, if paid, and in no event shall the carrier be liable
for any loss of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any
connection with, goods in an amount exceeding One Hundred Thousand
Yen in Japanese Currency (Y100,000.00) or its equivalent in any other
currency per package or customary freight unit (whichever is
least) unless the value of the goods higher than this amount is declared
in writing by the shipper before receipt of the goods by the carrier and
inserted in the Bill of Lading and extra freight is paid as
required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of
lading, the carrier made it clear that its liability would only be up to One
Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its
cargo was higher than the limited liability of the carrier. Considering that
the shipper did not declare a higher valuation, it had itself to blame for not
complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly
and freely agreed to the limited liability clause in the bill of lading because the
said conditions were printed in small letters does not make the bill of lading
invalid.
We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the
matter reveals the consistent holding of the court that contracts of adhesion are
not invalid per se and that it has on numerous occasions upheld the binding
effect thereof. Also, in Philippine American General Insurance Co., Inc. vs.
Sweet Lines , Inc.[6] this Court , speaking through the learned Justice Florenz D.
Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of
adhesion wherein one party imposes a ready-made form of contract on
the other x x x 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. In the present case, not even an allegation of
ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension of
the provisions of a contract of carriage devolves not on the carrier but
on the owner, shipper, or consignee as the case may be. (Emphasis
supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations
in contracts of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x,
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 latters lack of knowledge
or assent to the regulation. 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. x x x , 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. (Emphasis
supplied)
Greater vigilance, however, is required of the courts when dealing with
contracts of adhesion in that the said contracts must be carefully scrutinized in
order to shield the unwary (or weaker party) from deceptive schemes contained
in ready-made covenants,[8] such as the bill of lading in question. The stringent
requirement which the courts are enjoined to observe is in recognition of
Article 24 of the Civil Code which mandates that (i)n all contractual, property
or other relations, when one of the parties is at a disadvantage on account of
his moral dependence, ignorance, indigence, mental weakness, tender age
or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged
in the trading business. It can not be said to be ignorant of the business
transactions it entered into involving the shipment of its goods to its
customers.The shipper could not have known, or should know the stipulations
in the bill of lading and there it should have declared a higher valuation of the
goods shipped. Moreover, Maruman Trading has not been heard to complain
that it has been deceived or rushed into agreeing to ship the cargo in petitioners
vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as
consignee, who is not a signatory to the bill of lading is bound by the
stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate
Court (supra), we held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the consignee can still
be bound by the contract. Speaking through Mr. Chief Justice Narvasa,
we ruled:
To begin with, there is no question of the right, in principle, of
a consignee in a bill of lading to recover from the carrier or shipper for
loss of, or damage to goods being transported under said bill, although
that document may have been- as in practice it oftentimes is-drawn
up only by the consignor and the carrier without the intervention of
the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to
recover for loss of a shipment consigned to him under a bill of
lading drawn up only by and between the shipper and the carrier,
springs from either a relation of agency that may exist between him
and the shipper or consignor, or his status as stranger in whose
favor some stipulation is made in said contract, and who becomes a
party thereto when he demands fulfillment of that stipulation, in
this case the delivery of the goods or cargo shipped. In neither
capacity can he assert personally, in bar to any provision of the bill
of lading, the alleged circumstance that fair and free agreement to
such provision was vitiated by its being in such fine print as to be
hardly readable. Parenthetically, it may be observed that in one
comparatively recent case (Phoenix Assurance Company vs.
Macondray & Co., Inc., 64 SCRA 15) where this Court found that a
similar package limitation clause was printed in the smallest type
on the back of the bill of lading, it nonetheless ruled that the
consignee was bound thereby on the strength of authority holding
that such provisions on liability limitation are as much a part of a
bill of lading as though physically in it and as though placed therein
by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and
enforceability of freely-agreed-upon stipulations in a contract of
carriage or bill of lading limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and inserts it
into said contract or bill. This proposition, moreover, rests upon an
almost uniform weight of authority. (Underscoring supplied)
When private respondent formally claimed reimbursement for the missing
goods from petitioner and subsequently filed a case against the latter based on
the very same bill of lading, it (private respondent) accepted the provisions of
the contract and thereby made itself a party thereto, or at least has come to
court to enforce it.[9] Thus, private respondent cannot now reject or disregard the
carriers limited liability stipulation in the bill of lading. In other words, private
respondent is bound by the whole stipulations in the bill of lading and must
respect the same.
Private respondent, however, insists that the carrier should be liable for the
full value of the lost cargo in the amount of Y1,552,500.00, considering that the
shipper, Maruman Trading, had "fully declared the shipment x x x, the contents
of each crate, the dimensions, weight and value of the contents,"[10] as shown in
the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the
contents, quantity and value of "the shipment which consisted of three
pre-packed crates described in Bill of Lading No. NGO-53MN merely as 3
CASES SPARE PARTS.[11]
The bill of lading in question confirms petitioners contention. To defeat the
carriers limited liability, the aforecited Clause 18 of the bill of lading requires
that the shipper should have declared in writing a higher valuation of its
goods before receipt thereof by the carrier and insert the said declaration in
the bill of lading, with the extra freight paid. These requirements in the bill of
lading were never complied with by the shipper, hence, the liability of the
carrier under the limited liability clause stands. The commercial Invoice No.
MTM-941 does not in itself sufficiently and convincingly show that petitioner
has knowledge of the value of the cargo as contended by private
respondent. No other evidence was proffered by private respondent to support
is contention. Thus, we are convinced that petitioner should be liable for
the full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One
Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of
lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995
in C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED

b. British Airways v. CA February 9, 1993, 218 SCRA 699


:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside
the decision of respondent Court of Appeals[1] promulgated on September 7, 1995,
which affirmed the award of damages and attorneys fees made by the Regional
Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent
GOP Mahtani as well as the dismissal of its third-party complaint against
Philippine Airlines (PAL).[2]
The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay,


India. In anticipation of his visit, he obtained the services of a certain Mr.
Gumar to prepare his travel plans. The latter, in turn, purchased a ticket
from BA where the following itinerary was indicated: [3]

CARRIER FLIGHT DATE TIME STATUS


MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a
flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a
connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his
two pieces of luggage containing his clothings and personal effects, confident that
upon reaching Hongkong, the same would be transferred to the BA flight bound
for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his
luggage was missing and that upon inquiry from the BA representatives, he was
told that the same might have been diverted to London. After patiently waiting for
his luggage for one week, BA finally advised him to file a claim by accomplishing
the Property Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his
complaint for damages and attorneys fees[5] against BA and Mr. Gumar before the
trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim [6] to the
complaint raising, as special and affirmative defenses, that Mahtani did not have a
cause of action against it. Likewise, on November 9, 1990, BA filed a third-party
complaint[7] against PAL alleging that the reason for the non-transfer of the
luggage was due to the latters late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtanis luggage to the BA aircraft bound for
Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint,
wherein it disclaimed any liability, arguing that there was, in fact, adequate time to
transfer the luggage to BA facilities in Hongkong.Furthermore, the transfer of the
luggage to Hongkong authorities should be considered as transfer to BA.[8]
After appropriate proceedings and trial, on March 4, 1993, the trial court
rendered its decision in favor of Mahtani,[9] the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, judgment is rendered for
the plaintiff and against the defendant for which defendant is
ordered to pay plaintiff the sum of Seven Thousand (P7,000.00)
Pesos for the value of the two (2) suit cases; Four Hundred U.S.
($400.00) Dollars representing the value of the contents of
plaintiffs luggage; Fifty Thousand (P50,000.00) Pesos for moral
and actual damages and twenty percent (20%) of the total
amount imposed against the defendant for attorneys fees and
costs of this action.
The Third-Party Complaint against third-party defendant
Philippine Airlines is DISMISSED for lack of cause of action.
SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed


the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding
the Decision appealed from to be in accordance with law and
evidence, the same is hereby AFFIRMED in toto, with costs
against defendant-appellant.
SO ORDERED. [10]

BA is now before us seeking the reversal of the Court of Appeals decision.


In essence, BA assails the award of compensatory damages and attorneys
fees, as well as the dismissal of its third-party complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of
compensatory damages in the separate sum of P7,000.00 for the loss of Mahtanis
two pieces of luggage was without basis since Mahtani in his complaint [12] stated
the following as the value of his personal belongings:
8. On said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage,
a condition provided for in the ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a
higher value is declared in advance and additional charges are
paid:
1. For most international travel (including domestic corporations
of international journeys) the liability limit is approximately U.S.
$9.07 per pound (U.S. $20.00) per kilo for checked baggage and
U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the
nature of an airlines contract of carriage partakes of two types, namely: a contract
to deliver a cargo or merchandise to its destination and a contract to transport
passengers to their destination. A business intended to serve the travelling public
primarily, it is imbued with public interest, hence, the law governing common
carriers imposes an exacting standard.[14] Neglect or malfeasance by the carriers
employees could predictably furnish bases for an action for damages.[15]
In the instant case, it is apparent that the contract of carriage was between
Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in
Bombay on time. Therefore, as in a number of cases[16] we have assessed the
airlines culpability in the form of damages for breach of contract involving
misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it
is vital that the claimant satisfactorily prove during the trial the existence of the
factual basis of the damages and its causal connection to defendants acts. [17]
In this regard, the trial court granted the following award as compensatory
damages:
Since plaintiff did not declare the value of the contents in his
luggage and even failed to show receipts of the alleged gifts for
the members of his family in Bombay, the most that can be
expected for compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or a combined value of
Four Hundred ($400.00) U.S. Dollars for Twenty kilos
representing the contents plus Seven Thousand (P7,000.00)
Pesos representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been
no separate award for the luggage and the contents thereof since Mahtani failed
to declare a separate higher valuation for the luggage, [18] and therefore, its liability
is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious
argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a
higher value is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention,[19] provides as follows:

xxxxxxxxx

(2) In the transportation of checked baggage and goods, the


liability of the carrier shall be limited to a sum of 250 francs per
kilogram, unless the consignor has made, at the time the package
was handed over to the carrier, a special declaration of the value
at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is
greater than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of
baggage in an amount in excess of the limits specified in the tariff which was filed
with the proper authorities, such tariff being binding on the passenger regardless
of the passengers lack of knowledge thereof or assent thereto.[20] This doctrine is
recognized in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against blind
reliance on adhesion contracts where the facts and circumstances justify that they
should be disregarded.[22]
In addition, we have held that benefits of limited liability are subject to waiver
such as when the air carrier failed to raise timely objections during the trial when
questions and answers regarding the actual claims and damages sustained by
the passenger were asked.[23]
Given the foregoing postulates, the inescapable conclusion is that BA had
waived the defense of limited liability when it allowed Mahtani to testify as to the
actual damages he incurred due to the misplacement of his luggage, without any
objection. In this regard, we quote the pertinent transcript of stenographic notes of
Mahtanis direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence
deemed by counsel of the adverse party to be inadmissible for any reason, the
latter has the right to object. However, such right is a mere privilege which can be
waived. Necessarily, the objection must be made at the earliest opportunity, lest
silence when there is opportunity to speak may operate as a waiver of
objections.[25] BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely
objection, but even conducted his own cross-examination as well.[26] In the early
case of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that
a protest or objection against the admission of any evidence must
be made at the proper time, and that if not so made it will be
understood to have been waived. The proper time to make a
protest or objection is when, from the question addressed to the
witness, or from the answer thereto, or from the presentation of
proof, the inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of
Appeals, are entitled to great respect.[28] Since the actual value of the luggage
involved appreciation of evidence, a task within the competence of the Court of
Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a
finding not reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against PAL, the
Court of Appeals justified its ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants
third-party complaint against PAL.
The contract of air transportation in this case pursuant to the
ticket issued by appellant to plaintiff-appellee was exclusively
between the plaintiff Mahtani and defendant-appellant BA. When
plaintiff boarded the PAL plane from Manila to Hongkong, PAL
was merely acting as a subcontractor or agent of BA. This is
shown by the fact that in the ticket issued by appellant to
plaintiff-appellee, it is specifically provided on the Conditions of
Contract, paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive
carriers is regarded as a single operation and that the carrier
issuing the passengers ticket is considered the principal party and
the other carrier merely subcontractors or agent, is a settled
issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[31] we
expounded on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device
whereby a third party who is neither a party nor privy to the act or
deed complained of by the plaintiff, may be brought into the case
with leave of court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect
of the plaintiffs claim.The third-party complaint is actually
independent of and separate and distinct from the plaintiffs
complaint. Were it not for this provision of the Rules of Court, it
would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But
the Rules permit defendant to bring in a third-party defendant or
so to speak, to litigate his separate cause of action in respect of
plaintiffs claim against a third-party in the original and principal
case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising
from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from
BA, in view of their contract of carriage. Yet, BA adamantly disclaimed its liability
and instead imputed it to PAL which the latter naturally denies. In other words, BA
and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air
transportation was exclusively between Mahtani and BA, the latter merely
endorsing the Manila to Hongkong leg of the formers journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of the Conditions of
Contracts of the ticket[32] issued by BA to Mahtani confirms that the contract was
one of continuous air transportation from Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the
well-settled rule that an agent is also responsible for any negligence in the
performance of its function[33] and is liable for damages which the principal may
suffer by reason of its negligent act.[34] Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent
or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member airlines are
regarded as agents of each other in the issuance of the tickets and other matters
pertaining to their relationship.[35] Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the principal,
since it was the one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in
Lufthansa German Airlines v. Court of Appeals.[36] In that case, Lufthansa issued a
confirmed ticket to Tirso Antiporda covering five-leg trip aboard different
airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda
to a specific destination bumped him off.
An action for damages was filed against Lufthansa which, however, denied
any liability, contending that its responsibility towards its passenger is limited to
the occurrence of a mishap on its own line.Consequently, when Antiporda
transferred to Air Kenya, its obligation as a principal in the contract of carriage
ceased; from there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the
principal in the contract of carriage with Antiporda and remains to
be so, regardless of those instances when actual carriage was to
be performed by various carriers. The issuance of confirmed
Lufthansa ticket in favor of Antiporda covering his entire five-leg
trip aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage,
Mahtani can only sue BA alone, and not PAL, since the latter was not a party to
the contract. However, this is not to say that PAL is relieved from any liability due
to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not
exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an
agent of another carrier, is also liable for its own negligent acts or omission in the
performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining who was primarily
at fault as between them, is without legal basis. After all, such proceeding is in
accord with the doctrine against multiplicity of cases which would entail receiving
the same or similar evidence for both cases and enforcing separate judgments
therefor. It must be borne in mind that the purpose of a third-party complaint is
precisely to avoid delay and circuity of action and to enable the controversy to
be disposed of in one suit.[38] It is but logical, fair and equitable to allow BA to sue
PAL for indemnification, if it is proven that the latters negligence was the
proximate cause of Mahtanis unfortunate experience, instead of totally absolving
PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals
in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED,
reinstating the third-party complaint filed by British Airways dated November 9,
1990 against Philippine Airlines. No costs.
SO ORDERED.
Narvasa C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

Perfection

aircraft

Buses, Jeepneys, and Street cars

Trains

Laws and Jurisprudence:

British Airways v. CA February 9, 1993, 218 SCRA 699

Mauro Ganzon v. CA No. L-48757, May 30, 1988

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 fired at Gelacio
Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The gunshot was not <re|| an 1 w>

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 findings, 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:

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 first 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 finding 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.
Significantly, there is not the slightest allegation or showing of any condition, qualification, 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. The fact that part of the shipment had not been loaded on board the lighter did
5

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. By 6

reason of this presumption, the court is not even required to make an express finding 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 officials of Mariveles which constitutes a caso fortuito as defined 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 officials was not In
any case, of a character that would render impossible the fulfillment 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 sufficient 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 difficulty in the fullfilment 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 officials 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 and 362 of the Code of Commerce which were the basis for this Court's ruling
8 9

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 first 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 modified 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 sufficiently 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.

Korean Airlines Co. ltd v. CA August 3, 1994 234 SCRA 717

Sometime in 1980, Juanito C. Lapuz, an automotive electrician, was contracted for


employment in Jeddah, Saudi Arabia, for a period of one year through Pan Pacific Overseas
Recruiting Services, Inc. Lapuz was supposed to leave on November 8, 1980, via Korean
Airlines. Initially, he was "wait-listed," which meant that he could only be accommodated if any
of the confirmed passengers failed to show up at the airport before departure. When two of
such passengers did not appear, Lapuz and another person by the name of Perico were
given the two unclaimed seats.

According to Lapuz, he was allowed to check in with one suitcase and one shoulder bag at
the check-in counter of KAL. He passed through the customs and immigration sections for
routine check-up and was cleared for departure as Passenger No. 157 of KAL Flight No. KE
903. Together with the other passengers, he rode in the shuttle bus and proceeded to the
ramp of the KAL aircraft for boarding. However, when he was at the third or fourth rung of the
stairs, a KAL officer pointed to him and shouted "Down! Down!" He was thus barred from
taking the flight. When he later asked for another booking, his ticket was canceled by KAL.
Consequently, he was unable to report for his work in Saudi Arabia within the stipulated
2-week period and so lost his employment.

KAL, on the other hand, alleged that on November 8, 1980, Pan Pacific Recruiting Services
Inc. coordinated with KAL for the departure of 30 contract workers, of whom only 21 were
confirmed and 9 were wait-listed passengers. The agent of Pan Pacific, Jimmie Joseph, after
being informed that there was a possibility of having one or two seats becoming available,
gave priority to Perico, who was one of the supervisors of the hiring company in Saudi Arabia.
The other seat was won through lottery by Lapuz. However, only one seat became available
and so, pursuant to the earlier agreement that Perico was to be given priority, he alone was
allowed to board.

After trial, the Regional Trial Court of Manila, Branch 30, adjudged KAL liable for damages,
1

disposing as follows:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered


sentencing the defendant Korean Air Lines to pay plaintiff Juanito C. Lapuz the following:
1. The amount of TWO HUNDRED SEVENTY-TWO THOUSAND ONE HUNDRED SIXTY
(P272,160.00) PESOS as actual/compensatory damages, with legal interest thereon from the
date of the filing of the complaint until fully paid.

2. The sum of TWENTY-FIVE THOUSAND (P25,000.00) PESOS as and for attorney's fees;
and

3. The costs of suit.

The case is hereby dismissed with respect to defendant Pan Pacific Overseas Recruiting
Services, Inc.

The counterclaims and cross-claim of defendant Korean Air Lines Co., Ltd. are likewise
dismissed.

On appeal, this decision was modified by the Court of Appeals 2 as follows:

WHEREFORE, in view of all the foregoing, the appealed judgment is hereby AFFIRMED with
the following modifications: the amount of actual damages and compensatory damages is
reduced to P60,000.00 and defendant-appellant is hereby ordered to pay plaintiff-appellant
the sum of One Hundred Thousand Pesos (P100,000.00) by way of moral and exemplary
damages, at 6% interest per annum from the date of the filing of the Complaint until fully paid.

KAL and Lapuz filed their respective motions for reconsideration, which were both denied for
lack of merit. Hence, the present petitions for review which have been consolidated because
of the identity of the parties and the similarity of the issues.

In G. R. No. 114061, KAL assails the decision of the appellate court on the following grounds:

1. That the Court of Appeals erred in concluding that petitioner committed a breach of
contract of carriage notwithstanding lack of proper, competent and sufficient evidence of the
existence of such contract.

2. That the Court of Appeals erred in not according the proper evidentiary weight to some
evidence presented and the fact that private respondent did not have any boarding pass to
prove that he was allowed to board and to prove that his airline ticket was confirmed.

3. That the Court of Appeals erred in concluding that the standby passenger status of private
respondent Lapuz was changed to a confirmed status when his name was entered into the
passenger manifest.

4. That the Court of Appeals abused its discretion in awarding moral and exemplary damages
in the amount of P100,000.00 in favor of private respondent notwithstanding its lack of basis
and private respondent did not state such amount in his complaint nor had private respondent
proven the said damages.

5. That the Court of Appeals erred in dismissing the counterclaims.

6. That the Court of Appeals erred in dismissing the counterclaim of petitioner against Pan
Pacific.

7. That the Court of Appeals erred in ruling that the 6% per annum legal interest on the
judgment shall be computed from the filing of the complaint.

In G. R. No. 113842, Lapuz seeks: (a) the setting aside of the decision of the Court of Appeals
insofar as it modifies the award of damages; b) actual and compensatory damages in the sum
equivalent to 5 years' loss of earnings based on the petitioner's monthly salary of 1,600 Saudi
rials at the current conversion rate plus the cost of baggage and personal belongings worth
P2,000 and the service fee of P3,000 paid to the recruiting agency, all with legal interest from
the filing of the complaint until fully paid; c) moral damages of not less than P1 million and
exemplary damages of not less than P500,000.00, both with interest at 6% per annum from
the filing of the complaint; and d) attorney's fees in the sum equivalent to 30% of the award of
damages.

It is evident that the issues raised in these petitions relate mainly to the correctness of the
factual findings of the Court of Appeals and the award of damages. The Court has
consistently affirmed that the findings of fact of the Court of Appeals and the other lower
courts are as a rule binding upon it, subject to certain exceptions. As nothing in the record
indicates any of such exceptions, the factual conclusions of the appellate court must be
affirmed.

The status of Lapuz as standby passenger was changed to that of a confirmed passenger
when his name was entered in the passenger manifest of KAL for its Flight No. KE 903. His
clearance through immigration and customs clearly shows that he had indeed been confirmed
as a passenger of KAL in that flight. KAL thus committed a breach of the contract of carriage
between them when it failed to bring Lapuz to his destination.

This Court has held that a contract to transport passengers is different in kind and degree
from any other contractual relation. The business of the carrier is mainly with the traveling
3

public. It invites people to avail themselves of the comforts and advantages it offers. The
contract of air carriage generates a relation attended with a public duty. Passengers have the
right to be treated by the carrier's employees with kindness, respect, courtesy and due
consideration. They are entitled to be protected against personal misconduct, injurious
language, indignities and abuses from such employees. So it is that any discourteous
4

conduct on the part of these employees toward a passenger gives the latter an action for
damages against the carrier.

The breach of contract was aggravated in this case when, instead of courteously informing
Lapuz of his being a "wait-listed" passenger, a KAL officer rudely shouted "Down! Down!"
while pointing at him, thus causing him embarrassment and public humiliation.

KAL argues that "the evidence of confirmation of a chance passenger status is not through
the entry of the name of a chance passenger in the passenger manifest nor the clearance
from the Commission on Immigration and Deportation, because they are merely means of
facilitating the boarding of a chance passenger in case his status is confirmed." We are not
persuaded.

The evidence presented by Lapuz shows that he had indeed checked in at the departure
counter, passed through customs and immigration, boarded the shuttle bus and proceeded to
the ramp of KAL's aircraft. In fact, his baggage had already been loaded in KAL's aircraft, to
be flown with him to Jeddah. The contract of carriage between him and KAL had already been
perfected when he was summarily and insolently prevented from boarding the aircraft.

KAL's allegation that the respondent court abused its discretion in awarding moral and
exemplary damages is also not tenable.

The Court of Appeals granted moral and exemplary damages because:

The findings of the court a quo that the defendant-appellant has committed breach of contract
of carriage in bad faith and in wanton, disregard of plaintiff-appellant's rights as passenger
laid the basis and justification of an award for moral damages.

xxxx

In the instant case, we find that defendant-appellant Korean Air Lines acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner when it "bumped off" plaintiff-appellant
on November 8, 1980, and in addition treated him rudely and arrogantly as a "patay gutom na
contract worker fighting Korean Air Lines," which clearly shows malice and bad faith, thus
entitling plaintiff-appellant to moral damages.

xxxx

Considering that the plaintiff-appellant's entitlement to moral damages has been fully
established by oral and documentary evidence, exemplary damages may be awarded. In fact,
exemplary damages may be awarded, even though not so expressly pleaded in the complaint
(Kapoe vs. Masa, 134 SCRA 231). By the same token, to provide an example for the public
good, an award of exemplary damages is also proper (Armovit vs. Court of Appeals, supra).

On the other hand, Lapuz's claim that the award of P100,000.00 as moral and exemplary
damages is inadequate is not acceptable either. His prayer for moral damages of not less
than P1 million and exemplary damages of not less than P500,000.00 is overblown.

The well-entrenched principle is that moral damages depend upon the discretion of the court
based on the circumstances of each case. This discretion is limited by the principle that the
5

"amount awarded should not be palpably and scandalously excessive" as to indicate that it
was the result of prejudice or corruption on the part of the trial court. Damages are not
6

intended to enrich the complainant at the expense of the defendant. They are awarded only to
alleviate the moral suffering that the injured party had undergone by reason of the defendant's
culpable action. There is no hard-and-fast rule in the determination of what would be a fair
7

amount of moral damages since each case must be governed by its own peculiar facts.

A review of the record of this case shows that the injury suffered by Lapuz is not so serious or
extensive as to warrant an award of P1.5 million. The assessment of P100,000 as moral and
exemplary damages in his favor is, in our view, reasonable and realistic.

Lapuz likewise claims that the respondent court could not rule upon the propriety of the award
of actual damages because it had not been assigned as an error by KAL. Not so. The rule is
that only errors specifically assigned and properly argued in the brief will be considered
except errors affecting jurisdiction over the subject matter and plain as well as clerical
errors. But this is not without qualification for, as the Court held in Vda. de Javellana vs.
8

Court of Appeals: 9

. . . [T]he Court is clothed with ample authority to review matters, even if they are not assigned
as errors in their appeal, if it finds that their consideration is necessary in arriving at a just
decision of the case.

A similar pronouncement was made in Baquiran vs. Court of Appeals in this wise:
10

Issues, though not specifically raised in the pleading in the appellate court, may, in the
interest of justice, be properly considered by said court in deciding a case, if they are
questions raised in the trial court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or the lower court ignored.

The Court of Appeals was therefore justified in decreasing the award of actual damages even
if the issue was not assigned as an error by KAL. Consideration of this question was
necessary for the just and complete resolution of the present case. Furthermore, there was
enough evidence to warrant the reduction of the original award, as the challenged decision
correctly observed:

A perusal of the plaintiff-appellant's contract of employment shows that the effectivity of the
contract is for only one year, renewable every year for five years. Although plaintiff-appellant
intends to renew his contract, such renewal will still be subject to his foreign employer.
Plaintiff-appellant had not yet started working with his foreign employer, hence, there can be
no basis as to whether his contract will be renewed by his foreign employer or not. Thus, the
damages representing the loss of earnings of plaintiff-appellant in the renewal of the contract
of employment is at most speculative. Damages may not be awarded on the basis of
speculation or conjecture (Gachalian vs. Delim, 203 SCRA 126). Hence,
defendant-appellant's liability is limited to the one year contract only. Plaintiff-appellant is,
therefore, entitled only to his lost earnings for one year, i.e., P60,000.00, which is 1/5 of
P300,000.00, the total amount of actual damages, representing lost earnings for five years
prayed for in the Complaint.

Plaintiff-appellant's contention that in computing his lost earnings, the current rate of the
Saudi Rial to the Philippine Peso at the time of payment should be used, is untenable,
considering that in his Complaint, plaintiff-appellant has quantified in Philippine Peso his lost
earnings for five years.

We disagree with the respondent court, however, on the date when the legal interest should
commence to run. The rule is that the legal interest of six percent (6%) on the amounts
adjudged in favor of Lapuz should resume from the time of the rendition of the trial court's
decision instead of November 28, 1980, the date of the filing of the complaint.

On this matter, the Court has held:

If suit were for payment of a definite sum of money, the contention might be tenable. However,
if it is for damages, unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, interest should be from the date of the decision. 11

xxxx

The obligation to pay interest on a sum filed in a judgment exists from the date of the
sentence, when so declared; for until the net amount of the debtor's liability has been
determined, he cannot he considered delinquent in the fulfillment of his obligation to pay the
debt with interest thereon. 12

Finally, we find that the respondent court did not err in sustaining the trial court's dismissal of
KAL's counterclaim against Pan Pacific Overseas Recruiting Services Inc., whose
responsibility ended with the confirmation by KAL of Lapuz as its passenger in its Flight No.
903.

This is still another case of the maltreatment of our overseas contract workers, this time by
the airline supposed to bring the passenger to his foreign assignment. Our OCW's sacrifice
much in seeking employment abroad, where they are deprived of the company of their loved
ones, the direct protection of our laws, and the comfort of our own native culture and way of
life. This Court shall exert every effort to vindicate their rights when they are abused and shall
accord them the commensurate reparation of their injuries consistent with their dignity and
worth as members of the working class.

WHEREFORE, the appealed judgment is AFFIRMED, but with the modification that the legal
interest on the damages awarded to private respondent should commence from the date of
the decision of the trial court on November 14, 1990. The parties shall bear their own costs.

SO ORDERED.

Davide, Jr., Quiason and Kapunan, JJ., concur.

Bellosillo, J., is on official leave.


Dangwa Transportation Co., Inc. v CA October 7, 1991, 202 SCRA

574

On May 13, 1985, private respondents filed a complaint 1 for damages against
petitioners for the death of Pedrito Cudiamat as a result of a vehicular accident which
occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet. Among others, it
was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a
passenger bus belonging to petitioner corporation in a reckless and imprudent
manner and without due regard to traffic rules and regulations and safety to persons
and property, it ran over its passenger, Pedrito Cudiamat. However, instead of
bringing Pedrito immediately to the nearest hospital, the said driver, in utter bad
faith and without regard to the welfare of the victim, first brought his other
passengers and cargo to their respective destinations before banging said victim to
the Lepanto Hospital where he expired.

On the other hand, petitioners alleged that they had observed and continued to
observe the extraordinary diligence required in the operation of the transportation
company and the supervision of the employees, even as they add that they are not
absolute insurers of the safety of the public at large. Further, it was alleged that it
was the victim's own carelessness and negligence which gave rise to the subject
incident, hence they prayed for the dismissal of the complaint plus an award of
damages in their favor by way of a counterclaim.

On July 29, 1988, the trial court rendered a decision, effectively in favor of
petitioners, with this decretal portion:

IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito


Cudiamat was negligent, which negligence was the proximate cause of his death.
Nonetheless, defendants in equity, are hereby ordered to pay the heirs of Pedrito
Cudiamat the sum of P10,000.00 which approximates the amount defendants initially
offered said heirs for the amicable settlement of the case. No costs.

SO ORDERED. 2

Not satisfied therewith, private respondents appealed to the Court of Appeals which,
in a decision 3 in CA-G.R. CV No. 19504 promulgated on August 14, 1990, set aside the
decision of the lower court, and ordered petitioners to pay private respondents:

1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of
the victim Pedrito Cudiamat;

2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;


3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and
compensatory damages;

4. The costs of this suit. 4

Petitioners' motion for reconsideration was denied by the Court of Appeals in its
resolution dated October 4, 1990, 5 hence this petition with the central issue herein
being whether respondent court erred in reversing the decision of the trial court and
in finding petitioners negligent and liable for the damages claimed.

It is an established principle that the factual findings of the Court of Appeals as a rule
are final and may not be reviewed by this Court on appeal. However, this is subject to
settled exceptions, one of which is when the findings of the appellate court are
contrary to those of the trial court, in which case a reexamination of the facts and
evidence may be undertaken. 6

In the case at bar, the trial court and the Court of Appeal have discordant positions as
to who between the petitioners an the victim is guilty of negligence. Perforce, we
have had to conduct an evaluation of the evidence in this case for the prope
calibration of their conflicting factual findings and legal conclusions.

The lower court, in declaring that the victim was negligent, made the following
findings:

This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a
moving vehicle, especially with one of his hands holding an umbrella. And, without
having given the driver or the conductor any indication that he wishes to board the
bus. But defendants can also be found wanting of the necessary diligence. In this
connection, it is safe to assume that when the deceased Cudiamat attempted to
board defendants' bus, the vehicle's door was open instead of being closed. This
should be so, for it is hard to believe that one would even attempt to board a vehicle
(i)n motion if the door of said vehicle is closed. Here lies the defendant's lack of
diligence. Under such circumstances, equity demands that there must be something
given to the heirs of the victim to assuage their feelings. This, also considering that
initially, defendant common carrier had made overtures to amicably settle the case. It
did offer a certain monetary consideration to the victim's heirs. 7

However, respondent court, in arriving at a different opinion, declares that:


From the testimony of appellees'own witness in the person of Vitaliano Safarita, it is
evident that the subject bus was at full stop when the victim Pedrito Cudiamat
boarded the same as it was precisely on this instance where a certain Miss Abenoja
alighted from the bus. Moreover, contrary to the assertion of the appellees, the
victim did indicate his intention to board the bus as can be seen from the testimony
of the said witness when he declared that Pedrito Cudiamat was no longer walking
and made a sign to board the bus when the latter was still at a distance from him. It
was at the instance when Pedrito Cudiamat was closing his umbrella at the platform
of the bus when the latter made a sudden jerk movement (as) the driver commenced
to accelerate the bus.

Evidently, the incident took place due to the gross negligence of the appellee-driver
in prematurely stepping on the accelerator and in not waiting for the passenger to
first secure his seat especially so when we take into account that the platform of the
bus was at the time slippery and wet because of a drizzle. The defendants-appellees
utterly failed to observe their duty and obligation as common carrier to the end that
they should observe extra-ordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them according to the circumstances of
each case (Article 1733, New Civil Code). 8

After a careful review of the evidence on record, we find no reason to disturb the
above holding of the Court of Appeals. Its aforesaid findings are supported by the
testimony of petitioners' own witnesses. One of them, Virginia Abalos, testified on
cross-examination as follows:

Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the
incident, there is a crossing?

A The way going to the mines but it is not being pass(ed) by the bus.

Q And the incident happened before bunkhouse 56, is that not correct?

A It happened between 54 and 53 bunkhouses. 9


The bus conductor, Martin Anglog, also declared:

Q When you arrived at Lepanto on March 25, 1985, will you please inform this
Honorable Court if there was anv unusual incident that occurred?

A When we delivered a baggage at Marivic because a person alighted there between


Bunkhouse 53 and 54.

Q What happened when you delivered this passenger at this particular place in
Lepanto?

A When we reached the place, a passenger alighted and I signalled my driver. When
we stopped we went out because I saw an umbrella about a split second and I
signalled again the driver, so the driver stopped and we went down and we saw
Pedrito Cudiamat asking for help because he was lying down.

Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying
down from the bus how far was he?

A It is about two to three meters.

Q On what direction of the bus was he found about three meters from the bus, was
it at the front or at the back?

A At the back, sir. 10 (Emphasis supplied.)

The foregoing testimonies show that the place of the accident and the place where
one of the passengers alighted were both between Bunkhouses 53 and 54, hence the
finding of the Court of Appeals that the bus was at full stop when the victim boarded
the same is correct. They further confirm the conclusion that the victim fell from the
platform of the bus when it suddenly accelerated forward and was run over by the
rear right tires of the vehicle, as shown by the physical evidence on where he was
thereafter found in relation to the bus when it stopped. Under such circumstances, it
cannot be said that the deceased was guilty of negligence.

The contention of petitioners that the driver and the conductor had no knowledge
that the victim would ride on the bus, since the latter had supposedly not manifested
his intention to board the same, does not merit consideration. When the bus is not in
motion there is no necessity for a person who wants to ride the same to signal his
intention to board. A public utility bus, once it stops, is in effect making a continuous
offer to bus riders. Hence, it becomes the duty of the driver and the conductor, every
time the bus stops, to do no act that would have the effect of increasing the peril to a
passenger while he was attempting to board the same. The premature acceleration
of the bus in this case was a breach of such duty. 11

It is the duty of common carriers of passengers, including common carriers by


railroad train, streetcar, or motorbus, to stop their conveyances a reasonable length
of time in order to afford passengers an opportunity to board and enter, and they are
liable for injuries suffered by boarding passengers resulting from the sudden starting
up or jerking of their conveyances while they are doing so. 12

Further, even assuming that the bus was moving, the act of the victim in boarding the
same cannot be considered negligent under the circumstances. As clearly explained
in the testimony of the aforestated witness for petitioners, Virginia Abalos, th bus
had "just started" and "was still in slow motion" at the point where the victim had
boarded and was on its platform. 13

It is not negligence per se, or as a matter of law, for one attempt to board a train or
streetcar which is moving slowly. 14 An ordinarily prudent person would have made
the attempt board the moving conveyance under the same or similar circumstances.
The fact that passengers board and alight from slowly moving vehicle is a matter of
common experience both the driver and conductor in this case could not have been
unaware of such an ordinary practice.

The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled all the rights and protection pertaining to such
a contractual relation. Hence, it has been held that the duty which the carrier
passengers owes to its patrons extends to persons boarding cars as well as to those
alighting therefrom. 15

Common carriers, from the nature of their business and reasons of public policy, are
bound to observe extraordina diligence for the safety of the passengers transported
by the according to all the circumstances of each case. 16 A common carrier is bound
to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence very cautious persons, with a due regard for all the
circumstances. 17
It has also been repeatedly held that in an action based on a contract of carriage, the
court need not make an express finding of fault or negligence on the part of the
carrier in order to hold it responsible to pay the damages sought by the passenger.
By contract of carriage, the carrier assumes the express obligation to transport the
passenger to his destination safely and observe extraordinary diligence with a due
regard for all the circumstances, and any injury that might be suffered by the
passenger is right away attributable to the fault or negligence of the carrier. This is an
exception to the general rule that negligence must be proved, and it is therefore
incumbent upon the carrier to prove that it has exercised extraordinary diligence as
prescribed in Articles 1733 and 1755 of the Civil Code. 18

Moreover, the circumstances under which the driver and the conductor failed to
bring the gravely injured victim immediately to the hospital for medical treatment is a
patent and incontrovertible proof of their negligence. It defies understanding and
can even be stigmatized as callous indifference. The evidence shows that after the
accident the bus could have forthwith turned at Bunk 56 and thence to the hospital,
but its driver instead opted to first proceed to Bunk 70 to allow a passenger to alight
and to deliver a refrigerator, despite the serious condition of the victim. The vacuous
reason given by petitioners that it was the wife of the deceased who caused the
delay was tersely and correctly confuted by respondent court:

... The pretension of the appellees that the delay was due to the fact that they had to
wait for about twenty minutes for Inocencia Cudiamat to get dressed deserves scant
consideration. It is rather scandalous and deplorable for a wife whose husband is at
the verge of dying to have the luxury of dressing herself up for about twenty minutes
before attending to help her distressed and helpless husband. 19

Further, it cannot be said that the main intention of petitioner Lardizabal in going to
Bunk 70 was to inform the victim's family of the mishap, since it was not said bus
driver nor the conductor but the companion of the victim who informed his family
thereof. 20 In fact, it was only after the refrigerator was unloaded that one of the
passengers thought of sending somebody to the house of the victim, as shown by
the testimony of Virginia Abalos again, to wit:

Q Why, what happened to your refrigerator at that particular time?

A I asked them to bring it down because that is the nearest place to our house and
when I went down and asked somebody to bring down the refrigerator, I also asked
somebody to call the family of Mr. Cudiamat.

COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?

A Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of
Mr. Cudiamat.

Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?

A No sir. 21

With respect to the award of damages, an oversight was, however, committed by


respondent Court of Appeals in computing the actual damages based on the gross
income of the victim. The rule is that the amount recoverable by the heirs of a victim
of a tort is not the loss of the entire earnings, but rather the loss of that portion of
the earnings which the beneficiary would have received. In other words, only net
earnings, not gross earnings, are to be considered, that is, the total of the earnings
less expenses necessary in the creation of such earnings or income and minus living
and other incidental expenses. 22

We are of the opinion that the deductible living and other expense of the deceased
may fairly and reasonably be fixed at P500.00 a month or P6,000.00 a year. In
adjudicating the actual or compensatory damages, respondent court found that the
deceased was 48 years old, in good health with a remaining productive life
expectancy of 12 years, and then earning P24,000.00 a year. Using the gross annual
income as the basis, and multiplying the same by 12 years, it accordingly awarded
P288,000. Applying the aforestated rule on computation based on the net earnings,
said award must be, as it hereby is, rectified and reduced to P216,000.00. However, in
accordance with prevailing jurisprudence, the death indemnity is hereby increased to
P50,000.00. 23

WHEREFORE, subject to the above modifications, the challenged judgment and


resolution of respondent Court of Appeals are hereby AFFIRMED in all other respects.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.


Common carrier

Public service

Laws and Jurisprudence:

Article 1732 of the New Civil Code

Commonwealth Act No. 146 section 13 par. b as amended

Link:
http://www.upecon.org.ph/epdp/wp-content/uploads/2016/01/1936-11-7
-960_CA-146-Public-Service-Commission-Act.pdf
a. De guzman v. CA No. L-47822 December 22, 1988 166 SCRA 612

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent
would bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he
owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load
his vehicles with cargo which various merchants wanted delivered to differing establishments in
Pangasinan. For that service, respondent charged freight rates which were commonly lower than
regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer
of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with
respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General
Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December 1970.
Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his
trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons
were placed on board the other truck which was driven by Manuel Estrada, respondent's
driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along
the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its
driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary diligence
required of him by the law, should be held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.
On 10 December 1975, the trial court rendered a Decision finding private respondent to be a
1

common carrier and holding him liable for the value of the undelivered goods (P 22,150.00)
as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services
to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may, under
the facts earlier set forth, be properly characterized as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms 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
an 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 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:

... every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop,
wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water
supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. ... (Emphasis
supplied)
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 back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though 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 certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate
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 firm 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 certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary certificate
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.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" are held
2

to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods
as well as of passengers. The specific import of extraordinary diligence in the care of goods
transported by a common carrier is, according to Article 1733, "further expressed in Articles
1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:

(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; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 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. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within any of
the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore,
that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article
1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown by
proof of extraordinary diligence on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care
of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying the
600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the
standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives
of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:

xxx xxx xxx

(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
donot act with grave or irresistible threat, violence or force, is dispensed with or diminished;
and

(7) that the common carrier shall 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. (Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed
to divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat,
violence or force." We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent which
carried petitioner's cargo. The record shows that an information for robbery in band was filed
in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of
the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one
John Doe." There, the accused were charged with willfully and unlawfully taking and carrying
away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons
of Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The
decision of the trial court shows that the accused acted with grave, if not irresistible, threat,
violence or force. Three (3) of the five (5) hold-uppers were armed with firearms. The robbers
3

not only took away the truck and its cargo but also kidnapped the driver and his helper,
detaining them for several days and later releasing them in another province (in Zambales).
The hijacked truck was subsequently found by the police in Quezon City. The Court of First
Instance convicted all the accused of robbery, though not of robbery in band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded
as quite beyond the control of the common carrier and properly regarded as a fortuitous event.
It is necessary to recall that even common carriers are not made absolute insurers against all
risks of travel and of transport of goods, and are not held liable for acts or events which
cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous
standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of
an event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of
the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Test:

1.3 First Philippine Industrial Corporation v. CA 300 SCRA


66
This petition for review on certiorari assails the Decision of the Court of Appeals
dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of
Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline concession
was granted in 1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross receipts
for the fiscal year 1993 pursuant to the Local Government Code.[3] The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in
four installments based on the gross receipts for products pumped at GPS-1 for the fiscal
year 1993 which amounted to P181,681,151.00. In order not to hamper its operations,
petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from
paying tax on gross receipts under Section 133 of the Local Government Code
of 1991 x x x x

"Moreover, Transportation contractors are not included in the enumeration of


contractors under Section 131, Paragraph (h) of the Local Government
Code. Therefore, the authority to impose tax 'on contractors and other
independent contractors' under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation
contractors.

"The imposition and assessment cannot be categorized as a mere fee authorized


under Section 147 of the Local Government Code. The said section limits the
imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount
of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost
of regulation, inspection and licensing. The fee is already a revenue raising
measure, and not a mere regulatory imposition."[4]

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not
include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3)
the City Treasurer illegally and erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the transportation by
hire and common carriers by air, land and water." Respondents assert that pipelines are
not included in the term "common carrier" which refers solely to ordinary carriers such as
trucks, trains, ships and the like. Respondents further posit that the term "common
carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:

"xxx Plaintiff is either a contractor or other independent contractor.


xxx the exemption to tax claimed by the plaintiff has become unclear. It is a
rule that tax exemptions are to be strictly construed against the taxpayer, taxes
being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act


387, (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.

"Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:

1. That the exemption granted under Sec. 133 (j) encompasses


only common carriers so as not to overburden the riding
public or commuters with taxes. Plaintiff is not a common
carrier, but a special carrier extending its services and
facilities to a single specific or "special customer" under a
"special contract."

2. The Local Tax Code of 1992 was basically enacted to give more
and effective local autonomy to local governments than the
previous enactments, to make them economically and
financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain
devolution of powers, x x x So, consistent with this policy
even franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and 151 of the
Code."[9]

Petitioner assailed the aforesaid decision before this Court via a petition for
review. On February 27, 1995, we referred the case to the respondent Court of Appeals
for consideration and adjudication.[10] On November 29, 1995, the respondent court
rendered a decision[11] affirming the trial court's dismissal of petitioner's
complaint. Petitioner's motion for reconsideration was denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this
Court in a Resolution[14] of January 20, 1997.Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the exemption
sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to place,
for compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association 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 test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a


public employment, and must hold himself out as ready to engage
in the transportation of goods for person generally as a business
and not as a casual occupation;

2. He must undertake to carry goods of the kind to which his business is


confined;

3. He must undertake to carry by the method by which his business is


conducted and over his established roads; and

4. The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for
all persons indifferently, that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation. The fact that petitioner has a limited
clientele does not exclude it from the definition of a common carrier. In De Guzman vs.
Court of Appeals[16] we ruled that:

"The above article (Art. 1732, Civil Code) 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 an ancillary activity (in local idiom, as
a 'sideline'). Article 1732 x x x 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 1877
deliberately refrained from making such distinctions.

So understood, the concept of 'common carrier' under Article 1732 may be seen
to coincide neatly with the notion of 'public service,' under the Public Service
Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, 'public service' includes:

'every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes,
any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public services.'
"(Underscoring Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j)
of the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the
Civil Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods should
be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall
have the preferential right to utilize installations for the transportation of
petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other petroleum
as may be offered by others for transport, and to charge without discrimination
such rates as may have been approved by the Secretary of Agriculture and
Natural Resources."

Republic Act 387 also regards petroleum operation as a public utility. Pertinent
portion of Article 7 thereof provides:

"that everything relating to the exploration for and exploitation of petroleum x


x and everything relating to the manufacture, refining, storage,
or transportation by special methods of petroleum, is hereby declared to be
a public utility." (Underscoring Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common


carrier." In BIR Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in


transporting petroleum products, it is considered a common carrier under
Republic Act No. 387 x x x. Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j), of
the Local Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government


Units. - Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following :

xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors and persons


engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this
Code."

The deliberations conducted in the House of Representatives on the Local


Government Code of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121
[now Sec. 131]. Common Limitations on the Taxing Powers of Local
Government Units." x x x

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of


transportation. This appears to be one of those being deemed to be exempted
from the taxing powers of the local government units. May we know the
reason why the transportation business is being excluded from the taxing
powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121
(now Sec. 131), line 16, paragraph 5. It states that local government units may
not impose taxes on the business of transportation, except as otherwise
provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II,
one can see there that provinces have the power to impose a tax on business
enjoying a franchise at the rate of not more than one-half of 1 percent of the
gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr.
Speaker.

What we want to guard against here, Mr. Speaker, is the imposition of


taxes by local government units on the carrier business. Local government
units may impose taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called "common carriers
tax." We do not want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may impose this
tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent
Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED
and SET ASIDE.
SO ORDERED.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

1.4 Estrellita M. Bascos v. CA G.R No. 101089 April 7, 1993


SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON


CARRIER. Article 1732 of the Civil Code defines a common carrier as "(a) person,
corporation or firm, or association 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 test to determine a common carrier is "whether the given undertaking is a part
of the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted." . . . The holding of
the Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the
Civil Code, it held thus: "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 an 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 distinguished 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 1732 deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN


PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. Common carriers are obliged to observe
extraordinary diligence in the vigilance over the goods transported by them. Accordingly, they
are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. There are very few instances when the presumption of negligence
does not attach and these instances are enumerated in Article 1734. In those cases where
the presumption is applied, the common carrier must prove that it exercised extraordinary
diligence in order to overcome the presumption . . . The presumption of negligence was
raised against petitioner. It was petitioner's burden to overcome it. Thus, contrary to her
assertion, private respondent need not introduce any evidence to prove her negligence. Her
own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER


ABSOLVED FROM LIABILITY. In De Guzman vs. Court of Appeals, the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the
robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with 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 . . . (6) That the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violences or force, is dispensed with or
diminished"; In the same case, the Supreme Court also held that: "Under Article 1745 (6)
above, a common carrier is held responsible and will not be allowed to divest or to diminish
such responsibility even for acts of strangers like thieves or robbers, except where such
thieves or robbers in fact acted "with grave of irresistible threat, violence of force," We believe
and so hold that the limits of the duty of extraordinary diligence in the vigilance over the goods
carried are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this case,


petitioner herself has made the admission that she was in the trucking business, offering her
trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is
required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT.
Petitioner presented no other proof of the existence of the contract of lease. He who alleges a
fact has the burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE


AS WITNESSES. While the affidavit of Juanito Morden, the truck helper in the hijacked
truck, was presented as evidence in court, he himself was a witness as could be gleaned from
the contents of the petition. Affidavits are not considered the best evidence if the affiants are
available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT


TO BE. Granting that the said evidence were not self-serving, the same were not sufficient
to prove that the contract was one of lease. It must be understood that a contract is what the
law defines it to be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in
"RODOLFO A. CIPRIANO, doing business under the name CIPRIANO TRADING
ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M. BASCOS, doing business under the
name of BASCOS TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216, the
dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is
hereby affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered
into a hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound
itself to haul the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan,
Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its
obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos
(petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from
the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed
to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking
and non-delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary
attachment 4 for breach of a contract of carriage. The prayer for a Writ of Preliminary
Attachment was supported by an affidavit 5 which contained the following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to
do so, with intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of
carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to
Laguna; that CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the
cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on the
night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that
petitioner and the police exerted all efforts to locate the hijacked properties; that after
preliminary investigation, an information for robbery and carnapping were filed against Jose
Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as
follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant


ordering the latter to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to
be counted from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.

SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's
judgment.

Consequently, petitioner filed this petition where she makes the following assignment of
errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL


RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE
OF GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT


COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND
PRIVATE RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS,
IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF
THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL
COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY
ATTACHMENT HAS BEEN RENDERED MOOT AND ACADEMIC BY THE DECISION OF
THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?;
and (2) was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she
admitted in her answer that she did business under the name A.M. Bascos Trucking and that
said admission dispensed with the presentation by private respondent, Rodolfo Cipriano, of
proofs that petitioner was a common carrier. The respondent Court also adopted in toto the
trial court's decision that petitioner was a common carrier, Moreover, both courts appreciated
the following pieces of evidence as indicators that petitioner was a common carrier: the fact
that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting of 400 bags
of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that
the truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control
of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common
carrier, she alleged in this petition that the contract between her and Rodolfo A. Cipriano,
representing CIPTRADE, was lease of the truck. She cited as evidence certain affidavits
which referred to the contract as "lease". These affidavits were made by Jesus Bascos 8 and
by petitioner herself. 9 She further averred that Jesus Bascos confirmed in his testimony his
statement that the contract was a lease contract. 10 She also stated that: she was not
catering to the general public. Thus, in her answer to the amended complaint, she said that
she does business under the same style of A.M. Bascos Trucking, offering her trucks for
lease to those who have cargo to move, not to the general public but to a few customers only
in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association 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 test to
determine a common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted." 12 In this case, petitioner herself has
made the admission that she was in the trucking business, offering her trucks to those with
cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 13
But petitioner argues that there was only a contract of lease because they offer their services
only to a select group of people and because the private respondents, plaintiffs in the lower
court, did not object to the presentation of affidavits by petitioner where the transaction was
referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14
is instructive. In referring to Article 1732 of the Civil Code, it held thus:

"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 an 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
1732 deliberately refrained from making such distinctions."

Regarding the affidavits presented by petitioner to the court, both the trial and appellate
courts have dismissed them as self-serving and petitioner contests the conclusion. We are
bound by the appellate court's factual conclusions. Yet, granting that the said evidence were
not self-serving, the same were not sufficient to prove that the contract was one of lease. It
must be understood that a contract is what the law defines it to be and not what it is called by
the contracting parties. 15 Furthermore, petitioner presented no other proof of the existence
of the contract of lease. He who alleges a fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due
to force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the
goods transported by them. 17 Accordingly, they are presumed to have been at fault or to
have acted negligently if the goods are lost, destroyed or deteriorated. 18 There are very few
instances when the presumption of negligence does not attach and these instances are
enumerated in Article 1734. 19 In those cases where the presumption is applied, the common
carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her
from liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held
that hijacking, not being included in the provisions of Article 1734, must be dealt with under
the provisions of Article 1735 and thus, the common carrier is presumed to have been at fault
or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that
the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with 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;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"Under Article 1745 (6) above, a common carrier is held responsible and will not be
allowed to divest or to diminish such responsibility even for acts of strangers like thieves or
robbers except where such thieves or robbers in fact acted with grave or irresistible threat,
violence or force. We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22
Jesus Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court
and the Court of Appeals have concluded that these affidavits were not enough to overcome
the presumption. Petitioner's affidavit about the hijacking was based on what had been told
her by Juanito Morden. It was not a first-hand account. While it had been admitted in court for
lack of objection on the part of private respondent, the respondent Court had discretion in
assigning weight to such evidence. We are bound by the conclusion of the appellate court. In
a petition for review on certiorari, We are not to determine the probative value of evidence but
to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the
hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the
hijacked truck, was presented as evidence in court, he himself was a witness as could be
gleaned from the contents of the petition. Affidavits are not considered the best evidence if
the affiants are available as witnesses. 25 The subsequent filing of the information for
carnapping and robbery against the accused named in said affidavits did not necessarily
mean that the contents of the affidavits were true because they were yet to be determined in
the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any
evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary
diligence made the presumption conclusive against her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We
find no reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary
attachment has been rendered moot and academic by the decision on the merits.

In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be
sustained. The petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.

1.5 FGU Insurance Corporation v. G. P. Sarmiento


Trucking Corporations G.R No. 141910 August 6, 2002

FIRST DIVISION

[G.R. No. 141910. August 6, 2002]

FGU INSURANCE CORPORATION, petitioner, vs. G.P.


SARMIENTO TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.

DECISION
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June
1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu
truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc.,
along South Superhighway in Alabang, Metro Manila, to the Central Luzon
Appliances in Dagupan City. While the truck was traversing the north diversion
road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided
with an unidentified truck, causing it to fall into a deep canal, resulting in damage
to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to
Concepcion Industries, Inc., the value of the covered cargoes in the sum of
P204,450.00. FGU, in turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the amount it had paid to
the latter from GPS. Since the trucking company failed to heed the claim, FGU
filed a complaint for damages and breach of contract of carriage against GPS and
its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati
City. In its answer, respondents asserted that GPS was the exclusive hauler only
of Concepcion Industries, Inc., since 1988, and it was not so engaged in business
as a common carrier. Respondents further claimed that the cause of damage was
purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing
the extent of damage to the cargoes and the amount it had paid to the
assured. GPS, instead of submitting its evidence, filed with leave of court a
motion to dismiss the complaint by way of demurrer to evidence on the ground
that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss,
explaining thusly:

Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each
party must prove his own affirmative allegation, xxx.

In the instant case, plaintiff did not present any single evidence that would
prove that defendant is a common carrier.

xxxxxxxxx

Accordingly, the application of the law on common carriers is not warranted


and the presumption of fault or negligence on the part of a common carrier in
case of loss, damage or deterioration of goods during transport under 1735 of
the Civil Code is not availing.

Thus, the laws governing the contract between the owner of the cargo to whom
the plaintiff was subrogated and the owner of the vehicle which transports the
cargo are the laws on obligation and contract of the Civil Code as well as the
law on quasi delicts.

Under the law on obligation and contract, negligence or fault is not


presumed. The law on quasi delict provides for some presumption of
negligence but only upon the attendance of some circumstances. Thus, Article
2185 provides:
Art. 2185. Unless there is proof to the contrary, it is presumed that a person
driving a motor vehicle has been negligent if at the time of the mishap, he was
violating any traffic regulation.

Evidence for the plaintiff shows no proof that defendant was violating any
traffic regulation. Hence, the presumption of negligence is not obtaining.

Considering that plaintiff failed to adduce evidence that defendant is a common


carrier and defendants driver was the one negligent, defendant cannot be made
liable for the damages of the subject cargoes. [2]

The subsequent motion for reconsideration having been denied, [3] plaintiff
interposed an appeal to the Court of Appeals, contending that the trial court had
erred (a) in holding that the appellee corporation was not a common carrier
defined under the law and existing jurisprudence; and (b) in dismissing the
complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of
GPS. The appellate court, in its decision of 10 June 1999, [4] discoursed, among
other things, that -

"x x x in order for the presumption of negligence provided for under the law
governing common carrier (Article 1735, Civil Code) to arise, the appellant
must first prove that the appellee is a common carrier. Should the appellant fail
to prove that the appellee is a common carrier, the presumption would not arise;
consequently, the appellant would have to prove that the carrier was negligent.

"x x x x x x x x x

"Because it is the appellant who insists that the appellees can still be considered
as a common carrier, despite its `limited clientele, (assuming it was really a
common carrier), it follows that it (appellant) has the burden of proving the
same. It (plaintiff-appellant) `must establish his case by a preponderance of
evidence, which means that the evidence as a whole adduced by one side is
superior to that of the other. (Summa Insurance Corporation vs. Court of
Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do
-- hence, the dismissal of the plaintiffs complaint by the trial court is justified.

"x x x x x x x x x

"Based on the foregoing disquisitions and considering the circumstances that


the appellee trucking corporation has been `its exclusive contractor, hauler
since 1970, defendant has no choice but to comply with the directive of its
principal, the inevitable conclusion is that the appellee is a private carrier.

"x x x x x x x x x

"x x x the lower court correctly ruled that 'the application of the law on
common carriers is not warranted and the presumption of fault or negligence on
the part of a common carrier in case of loss, damage or deterioration of good[s]
during transport under [article] 1735 of the Civil Code is not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of
fact of a trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and valid reasons." [5]

Petitioner's motion for reconsideration was likewise denied; [6] hence, the
instant petition,[7] raising the following issues:
I

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON


CARRIER AS DEFINED UNDER THE LAW AND EXISTING
JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR


A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN
NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT
SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE


IN THE INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the
Court of Appeals to be amply justified. GPS, being an exclusive contractor and
hauler of Concepcion Industries, Inc., rendering or offering its services to no other
individual or entity, cannot be considered a common carrier. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for hire or
compensation, offering their services to the public,[8] whether to the public in
general or to a limited clientele in particular, but never on an exclusive basis.[9] The
true test of a common carrier is the carriage of passengers or goods, providing
space for those who opt to avail themselves of its transportation service for a
fee.[10] Given accepted standards, GPS scarcely falls within the term common
carrier.
The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding right
of relief.[11] The law, recognizing the obligatory force of contracts,[12] will not permit a
party to be set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. [13] A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have
been lost or suffered. The remedy serves to preserve the interests of the
promisee that may include his expectation interest, which is his interest in having
the benefit of his bargain by being put in as good a position as he would have
been in had the contract been performed, or his reliance interest, which is his
interest in being reimbursed for loss caused by reliance on the contract by being
put in as good a position as he would have been in had the contract not been
made; or his restitution interest, which is his interest in having restored to him any
benefit that he has conferred on the other party. [14] Indeed, agreements can
accomplish little, either for their makers or for society, unless they are made the
basis for action.[15] The effect of every infraction is to create a new duty, that is, to
make recompense to the one who has been injured by the failure of another to
observe his contractual obligation[16] unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the
diligence of a good father of a family or, exceptionally by stipulation or by law such
as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of
carriage between it and petitioners assured, and admits that the cargoes it has
assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation in this case, the
delivery of the goods in its custody to the place of destination - gives rise to a
presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has
failed to do so.
Respondent driver, on the other hand, without concrete proof of his
negligence or fault, may not himself be ordered to pay petitioner. The driver, not
being a party to the contract of carriage between petitioners principal and
defendant, may not be held liable under the agreement. A contract can only bind
the parties who have entered into it or their successors who have assumed their
personality or their juridical position.[17] Consonantly with the axiom res inter alios
acta aliis neque nocet prodest, such contract can neither favor nor prejudice a
third person. Petitioners civil action against the driver can only be based on culpa
aquiliana, which, unlike culpa contractual, would require the claimant for damages
to prove negligence or fault on the part of the defendant.[18]
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner,
holds a defendant liable where the thing which caused the injury complained of is
shown to be under the latters management and the accident is such that, in the
ordinary course of things, cannot be expected to happen if those who have its
management or control use proper care. It affords reasonable evidence, in the
absence of explanation by the defendant, that the accident arose from want of
care.[19] It is not a rule of substantive law and, as such, it does not create an
independent ground of liability. Instead, it is regarded as a mode of proof, or a
mere procedural convenience since it furnishes a substitute for, and relieves the
plaintiff of, the burden of producing specific proof of negligence. The maxim
simply places on the defendant the burden of going forward with the
proof.[20] Resort to the doctrine, however, may be allowed only when (a) the event
is of a kind which does not ordinarily occur in the absence of negligence; (b) other
responsible causes, including the conduct of the plaintiff and third persons, are
sufficiently eliminated by the evidence; and (c) the indicated negligence is within
the scope of the defendant's duty to the plaintiff.[21] Thus, it is not applicable when
an unexplained accident may be attributable to one of several causes, for some of
which the defendant could not be responsible.[22]
Res ipsa loquitur generally finds relevance whether or not a contractual
relationship exists between the plaintiff and the defendant, for the inference of
negligence arises from the circumstances and nature of the occurrence and not
from the nature of the relation of the parties. [23] Nevertheless, the requirement that
responsible causes other than those due to defendants conduct must first be
eliminated, for the doctrine to apply, should be understood as being confined only
to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately
attaches by a failure of the covenant or its tenor. In the case of the truck driver,
whose liability in a civil action is predicated on culpa acquiliana, while he
admittedly can be said to have been in control and management of the vehicle
which figured in the accident, it is not equally shown, however, that the accident
could have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur to work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is
reversed, the movant shall be deemed to have waived the right to present
evidence.[24] Thus, respondent corporation may no longer offer proof to establish
that it has exercised due care in transporting the cargoes of the assured so as to
still warrant a remand of the case to the trial court.
WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court,
Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of
Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is
concerned, but said assailed order of the trial court and decision of the appellate
court are REVERSED as regards G.P. Sarmiento Trucking Corporation which,
instead, is hereby ordered to pay FGU Insurance Corporation the value of the
damaged and lost cargoes in the amount of P204,450.00. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan,
Ynares-Santiago, and Austria-Martinez, JJ., concur.

1.6 Sps. Teodoro and Nanette Perena v. Sps Teresita


Phil. Nicolas, et al. G.R. No. 157917 August 29, 2012

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound
to observe extraordinary diligence in the conduct of his business. He is presumed to be
negligent when death occurs to a passenger. His liability may include indemnity for loss of
earning capacity even if the deceased passenger may only be an unemployed high school
student at the time of the accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal
the adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA)
affirmed with modification the decision rendered on December 3, 1999 by the Regional Trial
Court (RTC), Branch 260, in Paraaque City that had decreed them jointly and severally liable
with Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a
high school student of Don Bosco Technical Institute (Don Bosco).

Antecedents

The Pereas were engaged in the business of transporting students from their respective
residences in Paraaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be seated in the front beside
the driver, and the others in the rear, with six students on either side. They employed
Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco.
On August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m.
from the Zarates residence. Aaron took his place on the left side of the van near the rear door.
The van, with its air-conditioning unit turned on and the stereo playing loudly, ultimately
carried all the 14 student riders on their way to Don Bosco. Considering that the students
were due at Don Bosco by 7:15 a.m., and that they were already running late because of the
heavy vehicular traffic on the South Superhighway, Alfaro took the van to an alternate route at
about 6:45 a.m. by traversing the narrow path underneath the Magallanes Interchange that
was then commonly used by Makati-bound vehicles as a short cut into Makati. At the time, the
narrow path was marked by piles of construction materials and parked passenger jeepneys,
and the railroad crossing in the narrow path had no railroad warning signs, or watchmen, or
other responsible persons manning the crossing. In fact, the bamboo barandilla was up,
leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302
(train), operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange
travelling northbound. As the train neared the railroad crossing, Alfaro drove the van eastward
across the railroad tracks, closely tailing a large passenger bus. His view of the oncoming
train was blocked because he overtook the passenger bus on its left side. The train blew its
horn to warn motorists of its approach. When the train was about 50 meters away from the
passenger bus and the van, Alano applied the ordinary brakes of the train. He applied the
emergency brakes only when he saw that a collision was imminent. The passenger bus
successfully crossed the railroad tracks, but the van driven by Alfaro did not. The train hit the
rear end of the van, and the impact threw nine of the 12 students in the rear, including Aaron,
out of the van. Aaron landed in the path of the train, which dragged his body and severed his
head, instantaneously killing him. Alano fled the scene on board the train, and did not wait for
the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action
for damages against Alfaro, the Pereas, PNR and Alano. The Pereas and PNR filed their
respective answers, with cross-claims against each other, but Alfaro could not be served with
summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

(1) That spouses Zarate were the legitimate parents of Aaron John L.
Zarate;

(2) Spouses Zarate engaged the services of spouses Perea for the
adequate and safe transportation carriage of the former spouses' son from
their residence in Paraaque to his school at the Don Bosco Technical
Institute in Makati City;

(3) During the effectivity of the contract of carriage and in the


implementation thereof, Aaron, the minor son of spouses Zarate died in
connection with a vehicular/train collision which occurred while Aaron was
riding the contracted carrier Kia Ceres van of spouses Perea, then driven
and operated by the latter's employee/authorized driver Clemente Alfaro,
which van collided with the train of PNR, at around 6:45 A.M. of August 22,
1996, within the vicinity of the Magallanes Interchange in Makati City, Metro
Manila, Philippines;

(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for crossing
the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly used
for railroad crossing;

(6) At the material time, countless number of Makati bound public utility and
private vehicles used on a daily basis the site of the collision as an alternative
route and short-cut to Makati;

(7) The train driver or operator left the scene of the incident on board the
commuter train involved without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the
vehicular collision;

(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train


collision;

(11) The eventual closure of the railroad crossing alleged by PNR was an
internal arrangement between the former and its project contractor; and

(12) The site of the vehicular/train collision was within the vicinity or less
than 100 meters from the Magallanes station of PNR.

B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the
vehicular collision, which resulted in the death of plaintiff spouses' son;

(2) Whether or not the defendant spouses Perea being the employer of
defendant Alfaro are liable for any negligence which may be attributed to
defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator
of the railroad system is liable for negligence in failing to provide adequate
safety warning signs and railings in the area commonly used by motorists for
railroad crossings, constituting the proximate cause of the vehicular collision
which resulted in the death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Perea are liable for breach of the
contract of carriage with plaintiff-spouses in failing to provide adequate and
safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;

(6) Whether or not defendants spouses Teodorico and Nanette Perea


observed the diligence of employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death
of Aaron John Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the
commuter train involved in the accident, in allowing or tolerating the motoring
public to cross, and its failure to install safety devices or equipment at the site
of the accident for the protection of the public;

(9) Whether or not defendant PNR should be made to reimburse defendant


spouses for any and whatever amount the latter may be held answerable or
which they may be ordered to pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on
the amounts claimed by the latter in their Complaint by reason of its gross
negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual,
moral and exemplary damages and attorney's fees. 2

The Zarates claim against the Pereas was upon breach of the contract of carriage for the
safe transport of Aaron; but that against PNR was based on quasi-delict under Article 2176,
Civil Code.

In their defense, the Pereas adduced evidence to show that they had exercised the diligence
of a good father of the family in the selection and supervision of Alfaro, by making sure that
Alfaro had been issued a drivers license and had not been involved in any vehicular accident
prior to the collision; that their own son had taken the van daily; and that Teodoro Perea had
sometimes accompanied Alfaro in the vans trips transporting the students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the
reckless crossing of the van whose driver had not first stopped, looked and listened; and that
the narrow path traversed by the van had not been intended to be a railroad crossing for
motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision, disposing:


3

WHEREFORE, premises considered, judgment is hereby rendered in favor of


the plaintiff and against the defendants ordering them to jointly and severally
pay the plaintiffs as follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;


(6) Attorneys fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereas motion for reconsideration, reiterating that
4

the cooperative gross negligence of the Pereas and PNR had caused the collision that led to
the death of Aaron; and that the damages awarded to the Zarates were not excessive, but
based on the established circumstances.

The CAs Ruling

Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit: 5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and


severally liable together with defendant-appellants spouses Teodorico and
Nanette Perea and defendant-appellant Clemente Alfaro to pay
plaintiffs-appellees for the death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees


witnesses despite overwhelming documentary evidence on record, supporting
the case of defendants-appellants Philippine National Railways.

The Pereas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally


liable for actual, moral and exemplary damages and attorneys fees with the
other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereas
against the Philippine National Railways and in not holding the latter and its
train driver primarily responsible for the incident.

The trial court erred in awarding excessive damages and attorneys fees.

The trial court erred in awarding damages in the form of deceaseds loss of
earning capacity in the absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC,
but limited the moral damages to 2,500,000.00; and deleted the attorneys fees because the
RTC did not state the factual and legal bases, to wit: 6

WHEREFORE, premises considered, the assailed Decision of the Regional


Trial Court, Branch 260 of Paraaque City is AFFIRMED with the modification
that the award of Actual Damages is reduced to 59,502.76; Moral Damages
is reduced to 2,500,000.00; and the award for Attorneys Fees is Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the
ruling in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, wherein 7

the Court gave the heirs of Cariaga a sum representing the loss of the deceaseds earning
capacity despite Cariaga being only a medical student at the time of the fatal incident.
Applying the formula adopted in the American Expectancy Table of Mortality:

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering that
the nature of his work and his salary at the time of Aarons death were unknown, it used the
prevailing minimum wage of 280.00/day to compute Aarons gross annual salary to be
110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by Aarons life
expectancy of 39.3 years, his gross income would aggregate to 4,351,164.30, from which
his estimated expenses in the sum of 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aarons computed net income turning out to be higher
than the amount claimed by the Zarates, only 2,109,071.00, the amount expressly prayed
for by them, was granted.

On April 4, 2003, the CA denied the Pereas motion for reconsideration. 8

Issues

In this appeal, the Pereas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial courts decision holding the
petitioners jointly and severally liable to pay damages with Philippine National
Railways and dismissing their cross-claim against the latter.

II. The lower court erred in affirming the trial courts decision awarding
damages for loss of earning capacity of a minor who was only a high school
student at the time of his death in the absence of sufficient basis for such an
award.

III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.

Ruling

The petition has no merit.

1.
Were the Pereas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereas and the
PNR, basing their claim against the Pereas on breach of contract of carriage and against the
PNR on quasi-delict.

The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Pereas defense was that they exercised the diligence of a good father of
the family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro
had a drivers license and that he had not been involved in any vehicular accident prior to the
fatal collision with the train; that they even had their own son travel to and from school on a
daily basis; and that Teodoro Perea himself sometimes accompanied Alfaro in transporting
the passengers to and from school. The RTC gave scant consideration to such defense by
regarding such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas
operated as a common carrier; and that their standard of care was extraordinary diligence,
not the ordinary diligence of a good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as
a private carrier, primarily because he only caters to some specific or privileged individuals,
9

and his operation is neither open to the indefinite public nor for public use, the exact nature of
the operation of a school bus service has not been finally settled. This is the occasion to lay
the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons


from one place to another, gratuitously or for hire. The carrier is classified either as a
private/special carrier or as a common/public carrier. A private carrier is one who, without
10

making the activity a vocation, or without holding himself or itself out to the public as ready to
act for all who may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either gratuitously or
for hire. The provisions on ordinary contracts of the Civil Code govern the contract of private
11

carriage.The diligence required of a private carrier is only ordinary, that is, the diligence of a
good father of the family. In contrast, a common carrier is a person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering such services to the public. Contracts of
12

common carriage are governed by the provisions on common carriers of the Civil Code, the
Public Service Act, and other special laws relating to transportation. A common carrier is
13

required to observe extraordinary diligence, and is presumed to be at fault or to have acted


negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers. 14

In relation to common carriers, the Court defined public use in the following terms in United
States v. Tan Piaco, viz:
15

"Public use" is the same as "use by the public". The essential feature of the
public use is not confined to privileged individuals, but is open to the indefinite
public. It is this indefinite or unrestricted quality that gives it its public character.
In determining whether a use is public, we must look not only to the character
of the business to be done, but also to the proposed mode of doing it. If the
use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of
the public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the
general prosperity of the public is promoted. Public use is not synonymous
with public interest. The true criterion by which to judge the character of the
use is whether the public may enjoy it by right or only by permission.

In De Guzman v. Court of Appeals, the Court noted that Article 1732 of the Civil Code
16

avoided any distinction between a person or an enterprise offering transportation on a regular


or an isolated basis; and has not distinguished a carrier offering his services to the general
public, that is, the general community or population, from one offering his services only to a
narrow segment of the general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil Code. Public service, according to
Section 13, paragraph (b) of the Public Service Act, includes:

x x x every person that now or hereafter may own, operate, manage, or


control in the Philippines, for hire or compensation, with general or limited
clientle, whether permanent or occasional, and done for the general
business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight
or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. x x x.
17

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators, custom brokers and warehousemen,
18 19

and barge operators even if they had limited clientle.


20

As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of
the business actually transacted, or the number and character of the conveyances used in the
activity, but whether the undertaking is a part of the activity engaged in by the carrier that he
has held out to the general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as advertised and
held out to the general public, the individual or the entity rendering such service is a private,
not a common, carrier. The question must be determined by the character of the business
actually carried on by the carrier, not by any secret intention or mental reservation it may
entertain or assert when charged with the duties and obligations that the law imposes. 21

Applying these considerations to the case before us, there is no question that the Pereas as
the operators of a school bus service were: (a) engaged in transporting passengers generally
as a business, not just as a casual occupation; (b) undertaking to carry passengers over
established roads by the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientle, the Pereas operated as a common
carrier because they held themselves out as a ready transportation indiscriminately to the
students of a particular school living within or near where they operated the service and for a
fee.

The common carriers standard of care and vigilance as to the safety of the passengers is
defined by law. Given the nature of the business and for reasons of public policy, the common
carrier is 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." Article 1755 of the Civil Code specifies that the common carrier should "carry the
22

passengers safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with a due regard for all the circumstances." To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier must prove
his or its observance of that extraordinary diligence; otherwise, the legal presumption that he
or it was at fault or acted negligently would stand. No device, whether by stipulation, posting
23

of notices, statements on tickets, or otherwise, may dispense with or lessen the responsibility
of the common carrier as defined under Article 1755 of the Civil Code. 24

And, secondly, the Pereas have not presented any compelling defense or reason by which
the Court might now reverse the CAs findings on their liability. On the contrary, an
examination of the records shows that the evidence fully supported the findings of the CA.

As earlier stated, the Pereas, acting as a common carrier, were already presumed to be
negligent at the time of the accident because death had occurred to their passenger. The 25

presumption of negligence, being a presumption of law, laid the burden of evidence on their
shoulders to establish that they had not been negligent. It was the law no less that required
26

them to prove their observance of extraordinary diligence in seeing to the safe and secure
carriage of the passengers to their destination. Until they did so in a credible manner, they
stood to be held legally responsible for the death of Aaron and thus to be held liable for all the
natural consequences of such death.

There is no question that the Pereas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family
in the selection and supervision of their driver was not legally sufficient. According to Article
1759 of the Civil Code, their liability as a common carrier did not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and supervision of their
employee. This was the reason why the RTC treated this defense of the Pereas as
inappropriate in this action for breach of contract of carriage.

The Pereas were liable for the death of Aaron despite the fact that their driver might have
acted beyond the scope of his authority or even in violation of the orders of the common
carrier. In this connection, the records showed their drivers actual negligence. There was a
27

showing, to begin with, that their driver traversed the railroad tracks at a point at which the
PNR did not permit motorists going into the Makati area to cross the railroad tracks. Although
that point had been used by motorists as a shortcut into the Makati area, that fact alone did
not excuse their driver into taking that route. On the other hand, with his familiarity with that
shortcut, their driver was fully aware of the risks to his passengers but he still disregarded the
risks. Compounding his lack of care was that loud music was playing inside the
air-conditioned van at the time of the accident. The loudness most probably reduced his
ability to hear the warning horns of the oncoming train to allow him to correctly appreciate the
lurking dangers on the railroad tracks. Also, he sought to overtake a passenger bus on the left
side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train
that was then coming from the opposite side of the passenger bus, leading him to
miscalculate his chances of beating the bus in their race, and of getting clear of the train. As a
result, the bus avoided a collision with the train but the van got slammed at its rear, causing
the fatality. Lastly, he did not slow down or go to a full stop before traversing the railroad
tracks despite knowing that his slackening of speed and going to a full stop were in
observance of the right of way at railroad tracks as defined by the traffic laws and
regulations. He thereby violated a specific traffic regulation on right of way, by virtue of which
28

he was immediately presumed to be negligent. 29

The omissions of care on the part of the van driver constituted negligence, which, according
30

to Layugan v. Intermediate Appellate Court, is "the omission to do something which a


31

reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and reasonable man
would not do, or as Judge Cooley defines it, (t)he failure to observe for the protection of the
32

interests of another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury." 33

The test by which to determine the existence of negligence in a particular


case has been aptly stated in the leading case of Picart v. Smith, thuswise:
34

The test by which to determine the existence of negligence in a particular


case may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not, then he is guilty
of negligence. The law here in effect adopts the standard supposed to be
supplied by the imaginary conduct of the discreet paterfamilias of the Roman
law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him.
The law considers what would be reckless, blameworthy, or negligent in the
man of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a


given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably said:
Reasonable men govern their conduct by the circumstances which are before
them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a prudent man, in
the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard
against that harm. Reasonable foresight of harm, followed by the ignoring of
the suggestion born of this prevision, is always necessary before negligence
can be held to exist. Stated in these terms, the proper criterion for determining
the existence of negligence in a given case is this: Conduct is said to be
negligent when a prudent man in the position of the tortfeasor would have
foreseen that an effect harmful to another was sufficiently probable to warrant
his foregoing the conduct or guarding against its consequences. (Emphasis
supplied)

Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent
when he traversed the railroad tracks at a point not allowed for a motorists crossing despite
being fully aware of the grave harm to be thereby caused to his passengers; and when he
disregarded the foresight of harm to his passengers by overtaking the bus on the left side as
to leave himself blind to the approach of the oncoming train that he knew was on the opposite
side of the bus.

Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court, where35

the Court held the PNR solely liable for the damages caused to a passenger bus and its
passengers when its train hit the rear end of the bus that was then traversing the railroad
crossing. But the circumstances of that case and this one share no similarities. In Philippine
National Railways v. Intermediate Appellate Court, no evidence of contributory negligence
was adduced against the owner of the bus. Instead, it was the owner of the bus who proved
the exercise of extraordinary diligence by preponderant evidence. Also, the records are
replete with the showing of negligence on the part of both the Pereas and the PNR. Another
distinction is that the passenger bus in Philippine National Railways v. Intermediate Appellate
Court was traversing the dedicated railroad crossing when it was hit by the train, but the
Pereas school van traversed the railroad tracks at a point not intended for that purpose.

At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and
severally" liable for damages arising from the death of Aaron. They had been impleaded in
the same complaint as defendants against whom the Zarates had the right to relief, whether
jointly, severally, or in the alternative, in respect to or arising out of the accident, and
questions of fact and of law were common as to the Zarates. Although the basis of the right
36

to relief of the Zarates (i.e., breach of contract of carriage) against the Pereas was distinct
from the basis of the Zarates right to relief against the PNR (i.e., quasi-delict under Article
2176, Civil Code), they nonetheless could be held jointly and severally liable by virtue of their
respective negligence combining to cause the death of Aaron. As to the PNR, the RTC rightly
found the PNR also guilty of negligence despite the school van of the Pereas traversing the
railroad tracks at a point not dedicated by the PNR as a railroad crossing for pedestrians and
motorists, because the PNR did not ensure the safety of others through the placing of
crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing
guard had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the
PNR was aware of the risks to others as well as the need to control the vehicular and other
traffic there. Verily, the Pereas and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aarons earning capacity proper?

The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the
RTC on the liability, the CA modified the amount. Both lower courts took into consideration
that Aaron, while only a high school student, had been enrolled in one of the reputable
schools in the Philippines and that he had been a normal and able-bodied child prior to his
death. The basis for the computation of Aarons earning capacity was not what he would have
become or what he would have wanted to be if not for his untimely death, but the minimum
wage in effect at the time of his death. Moreover, the RTCs computation of Aarons life
expectancy rate was not reckoned from his age of 15 years at the time of his death, but on 21
years, his age when he would have graduated from college.

We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.

Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded. They cited People v. Teehankee, Jr., where the Court deleted the indemnity for
1wphi1
37

victim Jussi Leinos loss of earning capacity as a pilot for being speculative due to his having
graduated from high school at the International School in Manila only two years before the
shooting, and was at the time of the shooting only enrolled in the first semester at the Manila
Aero Club to pursue his ambition to become a professional pilot. That meant, according to the
Court, that he was for all intents and purposes only a high school graduate.

We reject the Pereas submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that
Aaron would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a
physician, or a lawyer). Instead, the computation of Aarons earning capacity was premised
on him being a lowly minimum wage earner despite his being then enrolled at a prestigious
high school like Don Bosco in Makati, a fact that would have likely ensured his success in his
later years in life and at work.

And, secondly, the fact that Aaron was then without a history of earnings should not be taken
against his parents and in favor of the defendants whose negligence not only cost Aaron his
life and his right to work and earn money, but also deprived his parents of their right to his
presence and his services as well. Our law itself states that the loss of the earning capacity of
the deceased shall be the liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless the deceased on account
of permanent physical disability not caused by the defendant, had no earning capacity at the
time of his death." Accordingly, we emphatically hold in favor of the indemnification for
38

Aarons loss of earning capacity despite him having been unemployed, because
compensation of this nature is awarded not for loss of time or earnings but for loss of the
deceaseds power or ability to earn money. 39

This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company, fourth-year medical student Edgardo
40

Carriagas earning capacity, although he survived the accident but his injuries rendered him
permanently incapacitated, was computed to be that of the physician that he dreamed to
become. The Court considered his scholastic record sufficient to justify the assumption that
he could have finished the medical course and would have passed the medical board
examinations in due time, and that he could have possibly earned a modest income as a
medical practitioner. Also, in People v. Sanchez, the Court opined that murder and rape
41

victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed
good-paying jobs had they graduated in due time, and that their jobs would probably pay
them high monthly salaries from 10,000.00 to 15,000.00 upon their graduation. Their
earning capacities were computed at rates higher than the minimum wage at the time of their
deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baos, the countrys leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereas plead for the reduction of the moral and exemplary damages awarded to the
Zarates in the respective amounts of 2,500,000.00 and 1,000,000.00 on the ground that
such amounts were excessive.

The plea is unwarranted.


The moral damages of 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates
deep mental anguish over their sons unexpected and violent death, and their moral shock
over the senseless accident. That amount would not be too much, considering that it would
help the Zarates obtain the means, diversions or amusements that would alleviate their
suffering for the loss of their child. At any rate, reducing the amount as excessive might prove
to be an injustice, given the passage of a long time from when their mental anguish was
inflicted on them on August 22, 1996.

Anent the 1,000,000.00 allowed as exemplary damages, we should not reduce the amount
if only to render effective the desired example for the public good. As a common carrier, the
Pereas needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others similarly situated
like them the ever-present need for greater and constant vigilance in the conduct of a
business imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

1.7 National Steel Corporation v. CA December 12, 1997, 283


SCRA 45

The Court finds occasion to apply the rules on the seaworthiness of


a private carrier, its owners responsibility for damage to the cargo and its
liability for demurrage and attorneys fees. The Court also reiterates the
well-known rule that findings of facts of trial courts, when affirmed by the
Court of Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail
the August 12, 1993 Decision of the Court of Appeals. The Court of [1]

Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as
follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against


the plaintiff dismissing the complaint with cost against plaintiff, and ordering
plaintiff to pay the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with


interest at the legal rate on both amounts from April 7, 1976 until the same
shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified


by reducing the award for demurrage to P44,000.00 and deleting the award for
attorneys fees and expenses of litigation. Except as thus modified, the decision
is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as


such, does not transport cargo or shipment for the general public. Its
services are available only to specific persons who enter into a special
contract of charter party with its owner. It is undisputed that the ship is a
private carrier. And it is in this capacity that its owner, Vlasons Shipping,
Inc., entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer
and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract
of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs
vessel, the MV VLASONS I to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila, under the following
terms and conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or
less at Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon


presentation of Bill of Lading within fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working


Day of 24 consecutive hours, Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes.
Shipowners not responsible for losses/damages except on proven willful
negligence of the officers of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other


internationally recognized Charter Party Agreement shall form part of this
Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard


provision in the NANYOZAI Charter Party which stands for Freight In and Out
including Stevedoring and Trading, which means that the handling, loading and
unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load,
stow and discharge the cargo free of risk and expenses to owners. x x
x(Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy
and properly manned, equipped and supplied and to make the holds and all
other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation. Owners shall not be liable for loss of or damage of
the cargo arising or resulting from: unseaworthiness unless caused by want of
due diligence on the part of the owners to make the vessel seaworthy, and to
secure that the vessel is properly manned, equipped and supplied and to make
the holds and all other parts of the vessel in which cargo is carried, fit and safe
for its reception, carriage and preservation; xxx; perils, dangers and accidents
of the sea or other navigable waters; xxx; wastage in bulk or weight or any
other loss or damage arising from inherent defect, quality or vice of the cargo;
insufficiency of packing; xxx; latent defects not discoverable by due diligence;
any other cause arising without the actual fault or privity of Owners or without
the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners


shall not be responsible for split, chafing and/or any damage unless caused by
the negligence or default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage


Charter Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the
NSCs shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets
or a total of 1,769 packages with a total weight of about 2,481.19 metric tons
for carriage to Manila. The shipment was placed in the three (3) hatches of the
ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the corresponding bill
of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on
August 12, 1974. The following day, August 13, 1974, when the vessels three
(3) hatches containing the shipment were opened by plaintiffs agents, nearly all
the skids of tinplates and hot rolled sheets were allegedly found to be wet and
rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24, 1974 after incurring a
delay of eleven (11) days due to the heavy rain which interrupted the unloading
operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called
for a survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO
made a report of its ocular inspection conducted on the cargo, both while it was
still on board the vessel and later at the NDC warehouse in Pureza St., Sta.
Mesa, Manila where the cargo was taken and stored. MASCO reported that it
found wetting and rusting of the packages of hot rolled sheets and metal covers
of the tinplates; that tarpaulin hatch covers were noted torn at various extents;
that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that rusting of the tinplates was caused by contact with
SEA WATER sustained while still on board the vessel as a consequence of the
heavy weather and rough seas encountered while en route to destination
(Exhibit F). It was also reported that MASCOs surveyors drew at random
samples of bad order packing materials of the tinplates and delivered the same
to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T.
Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states,
The analysis of bad order samples of packing materials xxx shows that wetting
was caused by contact with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770,
plaintiff filed with the defendant its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount of P941,145.18. Then on
October 3, 1974, plaintiff formally demanded payment of said claim but
defendant VSI refused and failed to pay. Plaintiff filed its complaint against
defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI,
Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid
amount of P941,145.18 as a result of the act, neglect and default of the master
and crew in the management of the vessel as well as the want of due diligence
on the part of the defendant to make the vessel seaworthy and to make the
holds and all other parts of the vessel in which the cargo was carried, fit and
safe for its reception, carriage and preservation -- all in violation of defendants
undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming
that the MV VLASONS I was seaworthy in all respects for the carriage of
plaintiffs cargo; that said vessel was not a common carrier inasmuch as she was
under voyage charter contract with the plaintiff as charterer under the charter
party; that in the course of the voyage from Iligan City to Manila, the MV
VLASONS I encountered very rough seas, strong winds and adverse weather
condition, causing strong winds and big waves to continuously pound against
the vessel and seawater to overflow on its deck and hatch covers; that under the
Contract of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the officers of the vessel,
that the officers of said MV VLASONS I exercised due diligence and proper
seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST
terms which means that the vessel was free of risk and expense in connection
with the loading and discharging of the cargo; that the damage, if any, was due
to the inherent defect, quality or vice of the cargo or to the insufficient packing
thereof or to latent defect of the cargo not discoverable by due diligence or to
any other cause arising without the actual fault or privity of defendant and
without the fault of the agents or servants of defendant; consequently,
defendant is not liable; that the stevedores of plaintiff who discharged the cargo
in Manila were negligent and did not exercise due care in the discharge of the
cargo; and that the cargo was exposed to rain and seawater spray while on the
pier or in transit from the pier to plaintiffs warehouse after discharge from the
vessel; and that plaintiffs claim was highly speculative and grossly exaggerated
and that the small stain marks or sweat marks on the edges of the tinplates were
magnified and considered total loss of the cargo. Finally, defendant claimed
that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn,
it alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations
under the Voyage Charter Hire Contract, plaintiff failed and refused to pay the
agreed charter hire of P75,000.00 despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its
cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in
the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should
be ordered to pay defendant attorneys fees and all expenses of litigation in the
amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with
the following findings which were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the


tramping service and is available for hire only under special contracts of charter
party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter
Hire (Exh. 1), the MV VLASONS I was covered by the required seaworthiness
certificates including the Certification of Classification issued by an
international classification society, the NIPPON KAIJI KYOKAI (Exh. 4);
Coastwise License from the Board of Transportation (Exh. 5); International
Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship
Safety Equipment Certificate also from the Philippine Coast Guard (Exh. 7);
Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine
Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by
the Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas
and coastwise trade, the MV VLASONS I has a higher degree of seaworthiness
and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the
Contract of Voyage Charter Hire, the MV VLASONS I underwent drydocking
in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact,
subject voyage was the vessels first voyage after the drydocking. The evidence
shows that the MV VLASONS I was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all the required
certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the
ship. The hatch openings were covered by hatchboards which were in turn
covered by two or double tarpaulins. The hatch covers were water
tight.Furthermore, under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is
not supported by evidence. The provisions of the Civil Code on common
carriers pursuant to which there exists a presumption of negligence in case of
loss or damage to the cargo are not applicable. As to the damage to the tinplates
which was allegedly due to the wetting and rusting thereof, there is unrebutted
testimony of witness Vicente Angliongto that tinplates sweat by themselves
when packed even without being in contract (sic) with water from outside
especially when the weather is bad or raining. The rust caused by sweat or
moisture on the tinplates may be considered as a loss or damage but then,
defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case
which exempts the carrier from responsibility for loss or damage arising from
the character of the goods x x x. All the 1,769 skids of the tinplates could not
have been damaged by water as claimed by plaintiff. It was shown as claimed
by plaintiff that the tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rainwater to enter
the hatches. It was proven that the stevedores merely set up temporary tents to
cover the hatch openings in case of rain so that it would be easy for them to
resume work when the rains stopped by just removing the tent or
canvas. Because of this improper covering of the hatches by the stevedores
during the discharging and unloading operations which were interrupted by
rains, rainwater drifted into the cargo through the hatch openings. Pursuant to
paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made
part of the Contract of Voyage Charter Hire, the loading, stowing and
discharging of the cargo is the sole responsibility of the plaintiff charterer and
defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad
weather while en route from Iligan City to Manila causing sea water to splash
on the ships deck on account of which the master of the vessel (Mr. Antonio C.
Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be
invoked by defendant as a force majeure that would exempt the defendant from
liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of
the Voyage Charter Hire contract that it was to insure the cargo because it did
not. Had plaintiff complied with the requirement, then it could have recovered
its loss or damage from the insurer. Plaintiff also violated the charter party
contract when it loaded not only steel products, i.e. steel bars, angular bars and
the like but also tinplates and hot rolled sheets which are high grade cargo
commanding a higher freight. Thus plaintiff was able to ship high grade cargo
at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire


under paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to
defendant carrier upon presentation of the bill of lading within fifteen (15)
days. Plaintiff has not paid the total freight due of P75,000.00 despite
demands. The evidence also showed that the plaintiff was required and bound
under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage
of P8,000.00 per day of delay in the unloading of the cargoes. The delay
amounted to eleven (11) days thereby making plaintiff liable to pay defendant
for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six
errors:
I

The trial court erred in finding that the MV VLASONS I was seaworthy,
properly manned, equipped and supplied, and that there is no proof of
willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due
to the inherent nature or character of the goods and not due to contact
with seawater.
III

The trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSCs shipment.
IV

The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

The trial court erred in finding that NSC violated the contract of voyage
charter hire.
VI

The trial court erred in ordering NSC to pay freight, demurrage and
attorneys fees, to VSI. [4]

As earlier stated, the Court of Appeals modified the decision of the


trial court by reducing the demurrage from P88,000.00 to P44,000.00
and deleting the award of attorneys fees and expenses of litigation.NSC
and VSI filed separate motions for reconsideration. In a
Resolution dated October 20, 1993, the appellate court denied both
[5]

motions. Undaunted, NSC and VSI filed their respective petitions for
review before this Court. On motion of VSI, the Court ordered on
February 14, 1994 the consolidation of these petitions. [6]

The Issues

In its petition and memorandum, NSC raises the following


[7] [8]

questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo


unloading delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8,
9, 11 and 12) were admissible in evidence and constituted evidence of the
vessels seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner
from liability for cargo damage.

Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and
caring for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and,
hence, rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the
wetting[/]rusting of NSCs tinplates.

In its separate petition, VSI submits for the consideration of this


[9]

Court the following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the


award of demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the


award of P100,000 for attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its


memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on


common carriers pursuant to which there exist[s] a presumption of negligence
against the common carrier in case of loss or damage to the cargo are
applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter
Hire, including the Nanyozai Charter, are valid and binding on both contracting
parties.

The foregoing issues raised by the parties will be discussed under


the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals,


except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with


NSC as a common carrier or as a private carrier. The resolution of this
preliminary question determines the law, standard of diligence and
burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons,
corporations, firms 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. It has been held that
the true test of a common carrier is the carriage of passengers or goods,
provided it has space, for all who opt to avail themselves of its
transportation service for a fee. A carrier which does not qualify under
[11]

the above test is deemed a private carrier. Generally, private carriage is


undertaken by special agreement and the carrier does not hold himself
out to carry goods for the general public. The most typical, although not
the only form of private carriage, is the charter party, a maritime contract
by which the charterer, a party other than the shipowner, obtains the use
and service of all or some part of a ship for a period of time or a voyage
or voyages. [12]

In the instant case, it is undisputed that VSI did not offer its services
to the general public. As found by the Regional Trial Court, it carried
passengers or goods only for those it chose under a special contract of
charter party. As correctly concluded by the Court of Appeals, the MV
[13]

Vlasons I was not a common but a private carrier. Consequently, the


[14]

rights and obligations of VSI and NSC, including their respective liability
for damage to the cargo, are determined primarily by stipulations in their
contract of private carriage or charter party. Recently, in Valenzuela
[15]

Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven
Brothers Shipping Corporation, the Court ruled:
[16]

x x x 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 justifiably 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. [17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated


July 17, 1974, that VSI shall not be responsible for losses except on
proven willful negligence of the officers of the vessel. The NANYOZAI
Charter Party, which was incorporated in the parties contract of
transportation, further provided that the shipowner shall not be liable for
loss of or damage to the cargo arising or resulting from unseaworthiness,
unless the same was caused by its lack of due diligence to make the
vessel seaworthy or to ensure that the same was properly manned,
equipped and supplied, and to make the holds and all other parts of the
vessel in which cargo [was] carried, fit and safe for its reception, carriage
and preservation. The NANYOZAI Charter Party also provided that
[18]

[o]wners shall not be responsible for split, chafing and/or any damage
unless caused by the negligence or default of the master or crew. [19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must


prove that the damage to its shipment was caused by VSIs willful
negligence or failure to exercise due diligence in making MV Vlasons
Iseaworthy and fit for holding, carrying and safekeeping the
cargo. Ineluctably, the burden of proof was placed on NSC by the parties
agreement.
This view finds further support in the Code of Commerce which
pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper,
if the contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and inherent
defect of the things, shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the
cause mentioned in the preceding article if proofs against him show that they
occurred on account of his negligence or his omission to take the precautions
usually adopted by careful persons, unless the shipper committed fraud in the
bill of lading, making him to believe that the goods were of a class or quality
different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowners


obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule, places
the prima facie presumption of negligence on a common carrier. It is a
hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden
is on the plaintiff to prove that the carrier was negligent or unseaworthy, and
the fact that the goods were lost or damaged while in the carriers custody does
not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise
due care in the protection of the goods committed to its care, the burden of
proving negligence or a breach of that duty rests on plaintiff and proof of loss
of, or damage to, cargo while in the carriers possession does not cast on it the
burden of proving proper care and diligence on its part or that the loss occurred
from an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of the
presumptions and inferences by which the law aids the bailor in an action
against a bailee, and since the carrier is in a better position to know the cause of
the loss and that it was not one involving its liability, the law requires that it
come forward with the information available to it, and its failure to do so
warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with
evidence, do not alter the burden of proof which remains on plaintiff, and,
where the carrier comes forward with evidence explaining the loss or damage,
the burden of going forward with the evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the


burden of proving a breach thereof and that such breach was the proximate
cause of the damage rests on plaintiff, and proof that the goods were lost or
damaged while in the carriers possession does not cast on it the burden of
proving seaworthiness. x x x Where the contract of carriage exempts the carrier
from liability for unseaworthiness not discoverable by due diligence, the carrier
has the preliminary burden of proving the exercise of due diligence to make the
vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC
has not taken the correct position in relation to the question of who has
the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10
and Clause 12 of the NANYOZAI Charter Party (incidentally
plaintiff-appellants [NSCs] interpretation of Clause 12 is not even
correct), it argues that a careful examination of the evidence will show
that VSI miserably failed to comply with any of these obligations as if
defendant-appellee [VSI] had the burden of proof. [21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual


questions is manifestly relevant: (1) whether VSI exercised due diligence
in making MV Vlasons I seaworthy for the intended purpose under the
charter party; (2) whether the damage to the cargo should be attributed
to the willful negligence of the officers and crew of the vessel or of the
stevedores hired by NSC; and (3) whether the rusting of the tinplates
was caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial
court, which had the firsthand opportunity to hear the parties conflicting
claims and to carefully weigh their respective evidence. The findings of
the trial court were subsequently affirmed by the Court of
Appeals. Where the factual findings of both the trial court and the Court
of Appeals coincide, the same are binding on this Court. We stress
[22]

that, subject to some exceptional instances, only questions of law --


[23]

not questions of fact -- may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a thorough review of
the case at bar, we find no reason to disturb the lower courts factual
findings, as indeed NSC has not successfully proven the application of
any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to
make the ship seaworthy and fit for the carriage of NSCs cargo of steel
and tinplates. This is shown by the fact that it was drydocked and
inspected by the Philippine Coast Guard before it proceeded to Iligan
City for its voyage to Manila under the contract of voyage charter
hire. The vessels voyage from Iligan to Manila was the vessels first
[24]

voyage after drydocking. The Philippine Coast Guard Station in Cebu


cleared it as seaworthy, fitted and equipped; it met all requirements for
trading as cargo vessel. The Court of Appeals itself sustained the
[25]

conclusion of the trial court that MV Vlasons I was seaworthy. We find no


reason to modify or reverse this finding of both the trial and the appellate
courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage
to the cargo was caused by the negligence of the officers and the crew
of MV Vlasons I in making their vessel seaworthy and fit for the carriage
of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had
used an old and torn tarpaulin or canvas to cover the hatches through
which the cargo was loaded into the cargo hold of the ship. It faults the
Court of Appeals for failing to consider such claim as an uncontroverted
fact and denies that MV Vlasons I was equipped with new canvas
[26]

covers in tandem with the old ones as indicated in the Marine Protest
xxx. We disagree.
[27]

The records sufficiently support VSIs contention that the ship used
the old tarpaulin, only in addition to the new one used primarily to make
the ships hatches watertight. The foregoing are clear from the marine
protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the
deposition of the ships boatswain, Jose Pascua. The salient portions of
said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of
August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin
plates consigned to National Steel Corporation; that before departure, the vessel
was rigged, fully equipped and cleared by the authorities; that on or about
August 9, 1974, while in the vicinity of the western part of Negros and Panay,
we encountered very rough seas and strong winds and Manila office was
advised by telegram of the adverse weather conditions encountered; that in the
morning of August 10, 1974, the weather condition changed to worse and
strong winds and big waves continued pounding the vessel at her port side
causing sea water to overflow on deck andhatch (sic) covers and which caused
the first layer of the canvass covering to give way while the new canvass
covering still holding on;

That the weather condition improved when we reached Dumali Point protected
by Mindoro; that we re-secured the canvass covering back to position; that in
the afternoon of August 10, 1974, while entering Maricaban Passage, we were
again exposed to moderate seas and heavy rains; that while approaching
Fortune Island, we encountered again rough seas, strong winds and big waves
which caused the same canvass to give way and leaving the new canvass
holding on;

xxx xxx xxx [28]

And the relevant portions of Jose Pascuas deposition are as follows:


Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch
opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over
the sides and we place[d] a flat bar over the canvas on the side of the
hatches and then we place[d] a stopper so that the canvas could not be
removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of
the hatch opening.
A: Forty-five feet by thirty-five feet, sir.

xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the
hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch
opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of
wood are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How
many canvas covers?
A: Two, sir. [29]

That due diligence was exercised by the officers and the crew of
the MV Vlasons I was further demonstrated by the fact that, despite
encountering rough weather twice, the new tarpaulin did not give way
and the ships hatches and cargo holds remained waterproof. As aptly
stated by the Court of Appeals, xxx we find no reason not to sustain the
conclusion of the lower court based on overwhelming evidence, that the
MV VLASONS I was seaworthy when it undertook the voyage on August
8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677
skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages from NSCs pier in Iligan City arriving safely at North Harbor,
Port Area, Manila, on August 12, 1974; xxx. [30]

Indeed, NSC failed to discharge its burden to show negligence on the


part of the officers and the crew of MV Vlasons I. On the contrary, the
records reveal that it was the stevedores of NSC who were negligent in
unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the
hatches when strong rains occasioned by a passing typhoon disrupted
the unloading of the cargo. This tent-like covering, however, was clearly
inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14
you went on board the vessel upon notice from the National Steel
Corporation in order to conduct the inspection of the cargo. During the
course of the investigation, did you chance to see the discharging
operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all
the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular
matter . . . the transcript of stenographic notes shows the same was
covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were
built at the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were
tents constructed at the opening of the hatches to protect the cargo from the
rain. Now, will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp
raise[d] high at the middle with the whole side separated down to the hatch,
the size of the hatch and it is soaks [sic] at the middle because of those
weather and this can be used only to temporarily protect the cargo from
getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon
passing by and the hatch tent was not good enough to hold all of it to
prevent the water soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the
water enter and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of]
the procedure adopted by its stevedores in discharging the cargo
particularly in this tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but
the stevedores did not mind at all, so, I called the attention of the
representative of the National Steel but nothing was done, just the
same.Finally, I wrote a letter to them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning


his failure to complain immediately about the stevedores negligence on
the first day of unloading, pointing out that he wrote his letter to petitioner
only seven days later. The Court is not persuaded. Angliongtos candid
[32]

answer in his aforequoted testimony satisfactorily explained the


delay. Seven days lapsed because he first called the attention of the
stevedores, then the NSCs representative, about the negligent and
defective procedure adopted in unloading the cargo. This series of
actions constitutes a reasonable response in accord with common sense
and ordinary human experience. Vicente Angliongto could not be
blamed for calling the stevedores attention first and then the NSCs
representative on location before formally informing NSC of the
negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the
cargo.
We see no reason to reverse the trial and the appellate courts
findings and conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding
that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment. We do not think so. Such negligence according to the trial court is
evident in the stevedores hired by [NSC], not closing the hatch of MV
VLASONS I when rains occurred during the discharging of the cargo thus
allowing rain water and seawater spray to enter the hatches and to drift to and
fall on the cargo. It was proven that the stevedores merely set up temporary
tents or canvas to cover the hatch openings when it rained during the unloading
operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on
August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling
attention to the manner the stevedores hired by [NSC] were discharging the
cargo on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tinplates covers and
[Vicente Angliongto] also suggesting that due to four (4) days continuos rains
with strong winds that the hatches be totally closed down and covered with
canvas and the hatch tents lowered. (Exh 13). This letter was received by [NSC]
on 22 August 1974 while discharging operations were still going on (Exhibit
13-A). [33]

The fact that NSC actually accepted and proceeded to remove the
cargo from the ship during unfavorable weather will not make VSI liable
for any damage caused thereby. In passing, it may be noted that the
NSC may seek indemnification, subject to the laws on prescription, from
the stevedoring company at fault in the discharge operations. A
stevedore company engaged in discharging cargo xxx has the duty to
load the cargo xxx in a prudent manner, and it is liable for injury to, or
loss of, cargo caused by its negligence xxx and where the officers and
members and crew of the vessel do nothing and have no responsibility in
the discharge of cargo by stevedores xxx the vessel is not liable for loss
of, or damage to, the cargo caused by the negligence of
the stevedores xxx as in the instant case.
[34]

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding


that xxx tinplates sweat by themselves when packed even without being
in contact with water from outside especially when the weather is bad or
raining xxx. The Court of Appeals affirmed the trial courts finding.
[35]

A discussion of this issue appears inconsequential and


unnecessary. As previously discussed, the damage to the tinplates was
occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the
unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract


of Voyage Charter Hire is totally separate and distinct from the
contractual or statutory responsibility that may be incurred by VSI for
damage to the cargo caused by the willful negligence of the officers and
the crew of MV Vlasons I. Clearly, therefore, NSCs failure to insure the
cargo will not affect its right, as owner and real party in interest, to file an
action against VSI for damages caused by the latters willful
negligence. We do not find anything in the charter party that would make
the liability of VSI for damage to the cargo contingent on or affected in
any manner by NSCs obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness


NSCs contention that MV Vlasons I was not seaworthy is anchored
on the alleged inadmissibility of the certificates of seaworthiness offered
in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out that
Exhibits 3, 4 and 11 allegedly are not written records or acts of public
officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by
official publications or certified true copies as required by Sections 25
and 26, Rule 132, of the Rules of Court. [37]

After a careful examination of these exhibits, the Court rules that


Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been
properly offered as evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one who saw the
writing executed, or by evidence of the genuineness of the handwriting of
the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not
been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of
Court, which provides that (e)ntries in official records made in the
performance of a duty by a public officer of the Philippines, or by a
person in the performance of a duty specially enjoined by law, are prima
facie evidence of the facts therein stated. Exhibit 11 is an original
[38]

certificate of the Philippine Coast Guard in Cebu issued by Lieutenant


Junior Grade Noli C. Flores to the effect that the vessel VLASONS I was
drydocked x x x and PCG Inspectors were sent on board for inspection x
x x. After completion of drydocking and duly inspected by PCG
Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy
condition, meets all requirements, fitted and equipped for trading as a
cargo vessel was cleared by the Philippine Coast Guard and sailed for
Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is obviously
misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of
proving that MV Vlasons I was not seaworthy. As observed earlier, the
vessel was a private carrier and, as such, it did not have the obligation of
a common carrier to show that it was seaworthy. Indeed, NSC glaringly
failed to discharge its duty of proving the willful negligence of VSI in
making the ship seaworthy resulting in damage to its cargo. Assailing the
genuineness of the certificate of seaworthiness is not sufficient proof that
the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:


xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or
less at Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation


provided for in the contract of affreightment for the detention of the
vessel beyond the laytime or that period of time agreed on for loading
and unloading of cargo. It is given to compensate the shipowner for the
[40]

nonuse of the vessel. On the other hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. x x x If


laytime is expressed in running days, this means days when the ship would be
run continuously, and holidays are not excepted. A qualification of weather
permitting excepts only those days when bad weather reasonably prevents the
work contemplated. [41]

In this case, the contract of voyage charter hire provided for a


four-day laytime; it also qualified laytime as WWDSHINC or weather
working days Sundays and holidays included. The running of laytime
[42]

was thus made subject to the weather, and would cease to run in the
event unfavorable weather interfered with the unloading of
cargo. Consequently, NSC may not be held liable for demurrage as
[43]

the four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather condition in view of the WWDSHINC qualification
agreed upon by the parties. Clearly, it was error for the trial court and the
Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court
arrived at this erroneous finding by subtracting from the twelve days,
specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain which was
August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred
in ruling that NSC was liable to VSI for demurrage, even if it reduced the
amount by half.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the


award of attorneys fees. We disagree. While VSI was compelled to
litigate to protect its rights, such fact by itself will not justify an award of
attorneys fees under Article 2208 of the Civil Code when x x x no
sufficient showing of bad faith would be reflected in a partys persistence
in a case other than an erroneous conviction of the righteousness of his
cause x x x. Moreover, attorneys fees may not be awarded to a party
[44]

for the reason alone that the judgment rendered was favorable to the
latter, as this is tantamount to imposing a premium on ones right to
litigate or seek judicial redress of legitimate grievances. [45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how


and who caused the damage to the cargo? Ranged against NSC are two
formidable truths. First, both lower courts found that such damage was
brought about during the unloading process when rain and seawater
seeped through the cargo due to the fault or negligence of the
stevedores employed by it. Basic is the rule that factual findings of the
trial court, when affirmed by the Court of Appeals, are binding on the
Supreme Court. Although there are settled exceptions, NSC has not
satisfactorily shown that this case is one of them. Second, the
agreement between the parties -- the Contract of Voyage Charter Hire --
placed the burden of proof for such loss or damage upon the shipper, not
upon the shipowner. Such stipulation, while disadvantageous to NSC, is
valid because the parties entered into a contract of private charter, not
one of common carriage. Basic too is the doctrine that courts cannot
relieve a party from the effects of a private contract freely entered into,
on the ground that it is allegedly one-sided or unfair to the plaintiff. The
charter party is a normal commercial contract and its stipulations are
agreed upon in consideration of many factors, not the least of which is
the transport price which is determined not only by the actual costs but
also by the risks and burdens assumed by the shipper in regard to
possible loss or damage to the cargo. In recognition of such factors, the
parties even stipulated that the shipper should insure the cargo to protect
itself from the risks it undertook under the charter party. That NSC failed
or neglected to protect itself with such insurance should not adversely
affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated
petitions are hereby DENIED. The questioned Decision of the Court of
Appeals is AFFIRMED with the MODIFICATION that the demurrage
awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.

1.8 Sps Cruz v. Holiday G.R. No. 186312, June 29, 2010
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco
Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to and
from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for another
night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.

The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the
death of their son in the amount of at least 4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of 10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier reflected,
alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco
Beach III to sail notwithstanding storm warning bulletins issued by the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of
September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm on September 11, 2000 as
the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity
and had sufficient life jackets for its passengers. By way of Counterclaim, respondent alleged
that it is entitled to an award for attorneys fees and litigation expenses amounting to not less
than 300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is
clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resorts assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10

By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.

Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.

By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15

Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of
its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to prove
that it is a common carrier; that the Resorts ferry services for guests cannot be considered as
ancillary to its business as no income is derived therefrom; that it exercised extraordinary
diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to
sail; that the incident was caused by a fortuitous event without any contributory negligence on
its part; and that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as


a common carrier.
The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms 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 an 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.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:

. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger,
or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other similar
public services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry services, may be availed of by anyone who
can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment.
It would be imprudent to suppose that it provides said services at a loss. The Court is aware
of the practice of beach resort operators offering tour packages to factor the transportation fee
in arriving at the tour package price. That guests who opt not to avail of respondents ferry
services pay the same amount is likewise inconsequential. These guests may only be
deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods is
the carriers principal business, whether it is offered on a regular basis, or whether it is offered
to the general public. The intent of the law is thus to not consider such distinctions. Otherwise,
there is no telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the legal
obligations and liabilities of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case.19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances.20

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed


that the common carrier is at fault or negligent. In fact, there is even no need for the court to
make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions
of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents
position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical depressions
in Northern Luzon which would also affect the province of Mindoro.22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under
such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event does not impress
either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of
the resulting injury to the creditor.24

To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only causeof the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The incident
was, therefore, not completely free from human intervention.

The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.

Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of
its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at 50,000.29

As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death]30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33

In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja34teaches that when, as in this case, there is no showing that the living
expenses constituted the smaller percentage of the gross income, the living expenses are
fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

2/3 x [80 - age of deceased at the time of death]


Life expectancy = 2/3 x [80 - 28]
2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange rate
of $1 = 44 in 2000,36 amounts to 39,600. Ruelitos net earning capacity is thus computed
as follows:

= life expectancy x (gross annual income - reasonable and necessary living


Net Earning expenses).
Capacity = 35 x (475,200 - 237,600)
= 35 x (237,600)

Net Earning
= 8,316,000
Capacity

Respecting the award of moral damages, since respondent common carriers breach of
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.37

Under the circumstances, it is reasonable to award petitioners the amount of 100,000 as


moral damages and 100,000 as exemplary damages.38 1avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the
rate of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners
the following: (1) 50,000 as indemnity for the death of Ruelito Cruz; (2) 8,316,000 as
indemnity for Ruelitos loss of earning capacity; (3) 100,000 as moral damages; (4)
100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent
as attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per
annum computed from the finality of this decision until full payment.

SO ORDERED.
Characteristics

Broader concept

Ancillary business

Limited clientele

Means of transportation

Laws and Jurisprudence:

Article 1732 of the New Civil Code

National Steel Corporation v. CA

a. Asia Lighterage and Shipping, Inc. v. CA, G.R. No. 147246,


August 19. 2003

On appeal is the Court of Appeals May 11, 2000 Decision in CA-G.R.


[1]

CV No. 49195 and February 21, 2001 Resolution affirming with


[2]

modification the April 6, 1994 Decision of the Regional Trial Court of


[3]

Manila which found petitioner liable to pay private respondent the


amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat
in bulk, valued at US$423,192.35 was shipped by Marubeni American
[4]

Corporation of Portland, Oregon on board the vessel M/V NEO


CYMBIDIUM V-26 for delivery to the consignee, General Milling
Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4. The[5]

shipment was insured by the private respondent Prudential Guarantee


and Assurance, Inc. against loss or damage for P14,621,771.75 under
Marine Cargo Risk Note RN 11859/90. [6]

On July 25, 1990, the carrying vessel arrived in Manila and the cargo
was transferred to the custody of the petitioner Asia Lighterage and
Shipping, Inc. The petitioner was contracted by the consignee as carrier
to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on
barge PSTSI III, evidenced by Lighterage Receipt No. 0364 for delivery [7]

to consignee. The cargo did not reach its destination.


It appears that on August 17, 1990, the transport of said cargo was
suspended due to a warning of an incoming typhoon. On August 22,
1990, the petitioner proceeded to pull the barge to Engineering Island off
Baseco to seek shelter from the approaching typhoon. PSTSI III was tied
down to other barges which arrived ahead of it while weathering out the
storm that night. A few days after, the barge developed a list because of
a hole it sustained after hitting an unseen protuberance underneath the
water. The petitioner filed a Marine Protest on August 28, 1990. It [8]

likewise secured the services of Gaspar Salvaging Corporation which


refloated the barge. The hole was then patched with clay and cement.
[9]

The barge was then towed to ISLOFF terminal before it finally


headed towards the consignee's wharf on September 5, 1990. Upon
reaching the Sta. Mesa spillways, the barge again ran aground due to
strong current. To avoid the complete sinking of the barge, a portion of
the goods was transferred to three other barges. [10]

The next day, September 6, 1990, the towing bits of the barge
broke. It sank completely, resulting in the total loss of the remaining
cargo. A second Marine Protest was filed on September 7, 1990.
[11] [12]

On September 14, 1990, a bidding was conducted to dispose of the


damaged wheat retrieved and loaded on the three other barges. The [13]

total proceeds from the sale of the salvaged cargo was P201,379.75. [14]

On the same date, September 14, 1990, consignee sent a claim


letter to the petitioner, and another letter dated September 18, 1990 to
the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the
consignee in the amount of P4,104,654.22. Thereafter, as subrogee, it
[15]

sought recovery of said amount from the petitioner, but to no avail.


On July 3, 1991, the private respondent filed a complaint against the
petitioner for recovery of the amount of indemnity, attorney's fees and
cost of suit. Petitioner filed its answer with counterclaim.
[16] [17]

The Regional Trial Court ruled in favor of the private respondent. The
dispositive portion of its Decision states:

WHEREFORE, premises considered, judgment is hereby rendered ordering


defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from
the date complaint was filed on July 3, 1991 until fully satisfied plus 10% of
the amount awarded as and for attorney's fees. Defendant's counterclaim is
hereby DISMISSED. With costs against defendant. [18]
Petitioner appealed to the Court of Appeals insisting that it is not a
common carrier. The appellate court affirmed the decision of the trial
court with modification. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with


modification in the sense that the salvage value of P201,379.75 shall be
deducted from the amount of P4,104,654.22. Costs against appellant.

SO ORDERED.

Petitioners Motion for Reconsideration dated June 3, 2000 was


likewise denied by the appellate court in a Resolution promulgated on
February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly
committed by the appellate court, viz: [19]

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT
IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A
COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT
IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE
LOWER COURT A QUO THAT ON THE BASIS OF THE PROVISIONS
OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, THE
LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN
ALL CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT
IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED
THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR
WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE CONSIGNEES
CARGO.

The issues to be resolved are:


(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons,
corporations, firms 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.
Petitioner contends that it is not a common carrier but a private
carrier. Allegedly, it has no fixed and publicly known route, maintains no
terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it
consents. In short, it does not hold out its services to the general public.
[20]

We disagree.
In De Guzman vs. Court of Appeals, we held that the definition
[21]

of common carriers in Article 1732 of the Civil Code 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 an ancillary
activity. We also did not distinguish 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. Further, we ruled that Article 1732 does not distinguish between a
carrier offering its services to the general public, and one who offers
services or solicits business only from a narrow segment of the general
population.
In the case at bar, the principal business of the petitioner is that of
lighterage and drayage and it offers its barges to the public for carrying
[22]

or transporting goods by water for compensation. Petitioner is clearly a


common carrier. In De Guzman, supra, we considered private
[23]

respondent Ernesto Cendaa to be a common carrier even if his principal


occupation was not the carriage of goods for others, but that of buying
used bottles and scrap metal in Pangasinan and selling these items in
Manila.
We therefore hold that petitioner is a common carrier whether its
carrying of goods is done on an irregular rather than scheduled manner,
and with an only limited clientele. A common carrier need not have fixed
and publicly known routes. Neither does it have to maintain terminals or
issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down
in Bascos vs. Court of Appeals. The test to determine a common
[24]

carrier is whether the given undertaking is a part of the business


engaged in by the carrier which he has held out to the general public as
his occupation rather than the quantity or extent of the business
transacted. In the case at bar, the petitioner admitted that it is engaged
[25]

in the business of shipping and lighterage, offering its barges to the


[26]

public, despite its limited clientele for carrying or transporting goods by


water for compensation. [27]

On the second issue, we uphold the findings of the lower courts that
petitioner failed to exercise extraordinary diligence in its care and
custody of the consignees goods.
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. They are presumed to
[28]

have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. To overcome the presumption of negligence
[29]
in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence. There are,
however, exceptions to this rule. Article 1734 of the Civil Code
enumerates the instances when the presumption of negligence does not
attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:

(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.

In the case at bar, the barge completely sank after its towing bits
broke, resulting in the total loss of its cargo. Petitioner claims that this
was caused by a typhoon, hence, it should not be held liable for the loss
of the cargo. However, petitioner failed to prove that the typhoon is the
proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the
typhoon to prevent or minimize the loss. The evidence show that, even
[30]

before the towing bits of the barge broke, it had already previously
sustained damage when it hit a sunken object while docked at the
Engineering Island. It even suffered a hole. Clearly, this could not be
solely attributed to the typhoon. The partly-submerged vessel was
refloated but its hole was patched with only clay and cement. The patch
work was merely a provisional remedy, not enough for the barge to sail
safely. Thus, when petitioner persisted to proceed with the voyage, it
recklessly exposed the cargo to further damage. A portion of the
cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue
Adjustment Co., Inc., states:

CROSS-EXAMINATION BY ATTY. DONN LEE: [31]

xxxxxxxxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to
pull out the barge from the place of the accident, and bring it to the anchor
terminal for safety, then after deciding if the vessel is stabilized, they tried to
pull it to the consignees warehouse, now while on route another accident
occurred, now this time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the
second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.

xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite
knowledge of an incoming typhoon. During the time that the barge was
heading towards the consignee's wharf on September 5, 1990, typhoon
Loleng has already entered the Philippine area of responsibility. A part [32]

of the testimony of Robert Boyd, Cargo Operations Supervisor of the


petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE: [33]

xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the
Barge to lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods to
be delivered at their Wharf since they needed badly the wheat that was
loaded in PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.

xxxxxxxxx

CROSS-EXAMINATION BY ATTY. IGNACIO: [34]

xxxxxxxxx

q - And then from ISLOFF Terminal you proceeded to the premises of


the GMC? Am I correct?

a - The next day, in the morning, we hired for additional two (2)
tugboats as I have stated.

q - Despite of the threats of an incoming typhoon as you testified a


while ago?

a - It is already in an inner portion of Pasig River. The typhoon would


be coming and it would be dangerous if we are in the vicinity of
Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?

a - Yes.

q - And yet as a standard operating procedure of your Company, you


have to secure a sort of Certification to determine the weather
condition, am I correct?

a - Yes, sir.

q - So, more or less, you had the knowledge of the incoming typhoon,
right?

a - Yes, sir.

q - And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig
entrance, it is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the


typhoon as force majeure to escape liability for the loss sustained by the
private respondent. Surely, meeting a typhoon head-on falls short of due
diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the
towing bits of the vessel broke that caused its sinking and the total loss
of the cargo upon reaching the Pasig River, it was no longer affected by
the typhoon. The typhoon then is not the proximate cause of the loss of
the cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its
Resolution dated February 21, 2001 are hereby AFFIRMED. Costs
against petitioner.
SO ORDERED

b. Fabre, Jr. v. CA, No. 111127, july 26, 1996, 259 SCRA 426

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of


Appeals[1] in CA-GR No. 28245, dated September 30, 1992, which
affirmed with modification the decision of the Regional Trial Court of
Makati, Branch 58, ordering petitioners jointly and severally to pay
damages to private respondent Amyline Antonio, and its resolution which
denied petitioners motion for reconsideration for lack of merit.
Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982
model Mazda minibus. They used the bus principally in connection with
a bus service for school children which they operated in Manila.The
couple had a driver, Porfirio J. Cabil, whom they hired in 1981, after
trying him out for two weeks. His job was to take school children to and
from the St. Scholasticas College in Malate, Manila.
On November 2, 1984 private respondent Word for the World
Christian Fellowship Inc. (WWCF) arranged with petitioners for the
transportation of 33 members of its Young Adults Ministry from Manila to
La Union and back in consideration of which private respondent paid
petitioners the amount of P3,000.00.
The group was scheduled to leave on November 2, 1984, at 5:00
oclock in the afternoon. However, as several members of the party were
late, the bus did not leave the Tropical Hut at the corner of Ortigas
Avenue and EDSA until 8:00 oclock in the evening. Petitioner Porfirio
Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen,
Pangasinan. However, the bridge at Carmen was under repair, so that
petitioner Cabil, who was unfamiliar with the area (it being his first trip to
La Union), was forced to take a detour through the town of Ba-ay in
Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a
sharp curve on the highway, running on a south to east direction, which
he described as siete. The road was slippery because it was raining,
causing the bus, which was running at the speed of 50 kilometers per
hour, to skid to the left road shoulder. The bus hit the left traffic steel
brace and sign along the road and rammed the fence of one Jesus
Escano, then turned over and landed on its left side, coming to a full stop
only after a series of impacts. The bus came to rest off the road. A
coconut tree which it had hit fell on it and smashed its front portion.
Several passengers were injured. Private respondent Amyline
Antonio was thrown on the floor of the bus and pinned down by a
wooden seat which came off after being unscrewed. It took three
persons to safely remove her from this position. She was in great pain
and could not move.
The driver, petitioner Cabil, claimed he did not see the curve until it
was too late. He said he was not familiar with the area and he could not
have seen the curve despite the care he took in driving the bus, because
it was dark and there was no sign on the road. He said that he saw the
curve when he was already within 15 to 30 meters of it. He allegedly
slowed down to 30 kilometers per hour, but it was too late.
The Lingayen police investigated the incident the next day,
November 3, 1984. On the basis of their finding they filed a criminal
complaint against the driver, Porfirio Cabil. The case was later filed with
the Lingayen Regional Trial Court. Petitioners Fabre paid Jesus Escano
P1,500.00 for the damage to the latters fence. On the basis of Escanos
affidavit of desistance the case against petitioners Fabre was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the
RTC of Makati, Metro Manila. As a result of the accident, she is now
suffering from paraplegia and is permanently paralyzed from the waist
down. During the trial she described the operations she underwent and
adduced evidence regarding the cost of her treatment and
therapy. Immediately after the accident, she was taken to the Nazareth
Hospital in Ba-ay, Lingayen. As this hospital was not adequately
equipped, she was transferred to the Sto. Nio Hospital, also in the town
of Ba-ay, where she was given sedatives. An x-ray was taken and the
damage to her spine was determined to be too severe to be treated
there. She was therefore brought to Manila, first to the Philippine
General Hospital and later to the Makati Medical Center where she
underwent an operation to correct the dislocation of her spine.
In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for
travel to a long distance trip and that the driver was properly screened and
tested before being admitted for employment. Indeed, all the evidence
presented have shown the negligent act of the defendants which ultimately
resulted to the accident subject of this case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and
Ms. Amyline Antonio were the only ones who adduced evidence in support of
their claim for damages, the Court is therefore not in a position to award
damages to the other plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment


against defendants Mr. & Mrs. Engracio Fabre, Jr. and Porfirio Cabil y Jamil
pursuant to articles 2176 and 2180 of the Civil Code of the Philippines and said
defendants are ordered to pay jointly and severally to the plaintiffs the
following amount:

1) P93,657.11 as compensatory and actual damages;


2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff
Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages; and
5) 25% of the recoverable amount as attorneys fees;
6) Costs of suit.

SO ORDERED.

The Court of Appeals affirmed the decision of the trial court with
respect to Amyline Antonio but dismissed it with respect to the other
plaintiffs on the ground that they failed to prove their respective
claims.The Court of Appeals modified the award of damages as follows:
1) P93,657.11 as actual damages;
2) P600,000.00 as compensatory damages;
3) P50,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) P10,000.00 as attorneys fees; and
6) Costs of suit.

The Court of Appeals sustained the trial courts finding that petitioner
Cabil failed to exercise due care and precaution in the operation of his
vehicle considering the time and the place of the accident. The Court of
Appeals held that the Fabres were themselves presumptively
negligent. Hence, this petition. Petitioners raise the following issues:
I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.
II. WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES
SUFFERED BY PRIVATE RESPONDENTS.
III. WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE
POSITIVE, UP TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory


damages in the amount of P600,000.00. It is insisted that, on the
assumption that petitioners are liable, an award of P600,000.00 is
unconscionable and highly speculative. Amyline Antonio testified that
she was a casual employee of a company called Suaco, earning
P1,650.00 a month, and a dealer of Avon products, earning an average
of P1,000.00 monthly. Petitioners contend that as casual employees do
not have security of tenure, the award of P600,000.00, considering
Amyline Antonios earnings, is without factual basis as there is no
assurance that she would be regularly earning these amounts.
With the exception of the award of damages, the petition is devoid of
merit.
First, it is unnecessary for our purpose to determine whether to
decide this case on the theory that petitioners are liable for breach of
contract of carriage or culpa contractual or on the theory of quasi
delict or culpa aquiliana as both the Regional Trial Court and the Court
of Appeals held, for although the relation of passenger and carrier is
contractual both in origin and nature, nevertheless the act that breaks
the contract may be also a tort.[2] In either case, the question is whether
the bus driver, petitioner Porfirio Cabil, was negligent.
The finding that Cabil drove his bus negligently, while his employer,
the Fabres, who owned the bus, failed to exercise the diligence of a good
father of the family in the selection and supervision of their employee is
fully supported by the evidence on record. These factual findings of the
two courts we regard as final and conclusive, supported as they are by
the evidence. Indeed, it was admitted by Cabil that on the night in
question, it was raining, and, as a consequence, the road was slippery,
and it was dark. He averred these facts to justify his failure to see that
there lay a sharp curve ahead. However, it is undisputed that Cabil drove
his bus at the speed of 50 kilometers per hour and only slowed down
when he noticed the curve some 15 to 30 meters ahead.[3] By then it was
too late for him to avoid falling off the road. Given the conditions of the
road and considering that the trip was Cabils first one outside of Manila,
Cabil should have driven his vehicle at a moderate speed. There is
testimony[4] that the vehicles passing on that portion of the road should
only be running 20 kilometers per hour, so that at 50 kilometers per hour,
Cabil was running at a very high speed.
Considering the foregoing the fact that it was raining and the road
was slippery, that it was dark, that he drove his bus at 50 kilometers an
hour when even on a good day the normal speed was only 20 kilometers
an hour, and that he was unfamiliar with the terrain, Cabil was grossly
negligent and should be held liable for the injuries suffered by private
respondent Amyline Antonio.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence
gave rise to the presumption that his employers, the Fabres, were
themselves negligent in the selection and supervision of their employee.
Due diligence in selection of employees is not satisfied by finding that
the applicant possessed a professional drivers license. The employer
should also examine the applicant for his qualifications, experience and
record of service.[5] Due diligence in supervision, on the other hand,
requires the formulation of rules and regulations for the guidance of
employees and the issuance of proper instructions as well as actual
implementation and monitoring of consistent compliance with the rules.[6]
In the case at bar, the Fabres, in allowing Cabil to drive the bus to La
Union, apparently did not consider the fact that Cabil had been driving
for school children only, from their homes to the St. Scholasticas College
in Metro Manila.[7] They had hired him only after a two-week
apprenticeship. They had tested him for certain matters, such as
whether he could remember the names of the children he would be
taking to school, which were irrelevant to his qualification to drive on a
long distance travel, especially considering that the trip to La Union was
his first. The existence of hiring procedures and supervisory policies
cannot be casually invoked to overturn the presumption of negligence on
the part of an employer.[8]
Petitioners argue that they are not liable because (1) an earlier
departure (made impossible by the congregations delayed meeting)
could have averted the mishap and (2) under the contract, the WWCF
was directly responsible for the conduct of the trip. Neither of these
contentions hold water. The hour of departure had not been fixed. Even
if it had been, the delay did not bear directly on the cause of the
accident. With respect to the second contention, it was held in an early
case that:

[A] person who hires a public automobile and gives the driver directions as to
the place to which he wishes to be conveyed, but exercises no other control
over the conduct of the driver, is not responsible for acts of negligence of the
latter or prevented from recovering for injuries suffered from a collision
between the automobile and a train, caused by the negligence either of the
locomotive engineer or the automobile driver.[9]

As already stated, this case actually involves a contract of


carriage. Petitioners, the Fabres, did not have to be engaged in the
business of public transportation for the provisions of the Civil Code on
common carriers to apply to them. As this Court has held:[10]

Art. 1732. Common carriers are persons, corporations, firms 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 an 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 1732 deliberately refrained from making
such distinctions.
As common carriers, the Fabres were bound to exercise extraordinary
diligence for the safe transportation of the passengers to their
destination. This duty of care is not excused by proof that they exercised
the diligence of a good father of the family in the selection and
supervision of their employee. As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers
through the negligence or wilful acts of the formers employees, although
such employees may have acted beyond the scope of their authority or
in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that
they exercised all the diligence of a good father of a family in the
selection and supervision of their employees.
The same circumstances detailed above, supporting the finding of
the trial court and of the appellate court that petitioners are liable under
Arts. 2176 and 2180 for quasi delict, fully justify finding them guilty of
breach of contract of carriage under Arts. 1733, 1755 and 1759 of the
Civil Code.
Secondly, we sustain the award of damages in favor of Amyline
Antonio. However, we think the Court of Appeals erred in increasing the
amount of compensatory damages because private respondents did not
question this award as inadequate.[11] To the contrary, the award of
P500,000.00 for compensatory damages which the Regional Trial Court
made is reasonable considering the contingent nature of her income as a
casual employee of a company and as distributor of beauty products and
the fact that the possibility that she might be able to work again has not
been foreclosed. In fact she testified that one of her previous employers
had expressed willingness to employ her again.
With respect to the other awards, while the decisions of the trial court
and the Court of Appeals do not sufficiently indicate the factual and legal
basis for them, we find that they are nevertheless supported by evidence
in the records of this case. Viewed as an action for quasi delict, this case
falls squarely within the purview of Art. 2219(2) providing for the payment
of moral damages in cases of quasi delict. On the theory that petitioners
are liable for breach of contract of carriage, the award of moral damages
is authorized by Art. 1764, in relation to Art. 2220, since Cabils gross
negligence amounted to bad faith.[12]Amyline Antonios testimony, as well
as the testimonies of her father and co-passengers, fully establish the
physical suffering and mental anguish she endured as a result of the
injuries caused by petitioners negligence.
The award of exemplary damages and attorneys fees was also
properly made. However, for the same reason that it was error for the
appellate court to increase the award of compensatory damages, we
hold that it was also error for it to increase the award of moral damages
and reduce the award of attorneys fees, inasmuch as private
respondents, in whose favor the awards were made, have not
appealed.[13]
As above stated, the decision of the Court of Appeals can be
sustained either on the theory of quasi delict or on that of breach of
contract. The question is whether, as the two courts below held,
petitioners, who are the owners and driver of the bus, may be made to
respond jointly and severally to private respondent. We hold that they
may be. In Dangwa Trans. Co. Inc. v. Court of Appeals,[14] on facts
similar to those in this case, this Court held the bus company and the
driver jointly and severally liable for damages for injuries suffered by a
passenger. Again, in Bachelor Express, Inc. v. Court of Appeals[15] a
driver found negligent in failing to stop the bus in order to let off
passengers when a fellow passenger ran amuck, as a result of which the
passengers jumped out of the speeding bus and suffered injuries, was
held also jointly and severally liable with the bus company to the injured
passengers.
The same rule of liability was applied in situations where the
negligence of the driver of the bus on which plaintiff was riding concurred
with the negligence of a third party who was the driver of another vehicle,
thus causing an accident. In Anuran v. Buo,[16] Batangas Laguna
Tayabas Bus Co. v. Intermediate Appellate Court,[17] and Metro Manila
Transit Corporation v. Court of Appeals,[18] the bus company, its driver,
the operator of the other vehicle and the driver of the vehicle were jointly
and severally held liable to the injured passenger or the latters heirs. The
basis of this allocation of liability was explained in Viluan v. Court of
Appeals,[19] thus:

Nor should it make any difference that the liability of petitioner [bus owner]
springs from contract while that of respondents [owner and driver of other
vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to
the negligence of the driver of the bus on which he was riding and of the driver
of another vehicle, the drivers as well as the owners of the two vehicles are
jointly and severally liable for damages. Some members of the Court, though,
are of the view that under the circumstances they are liable on quasi-delict.[20]

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of


Appeals[21] this Court exonerated the jeepney driver from liability to the
injured passengers and their families while holding the owners of the
jeepney jointly and severally liable, but that is because that case was
expressly tried and decided exclusively on the theory of culpa
contractual. As this Court there explained:

The trial court was therefore right in finding that Manalo [the driver] and
spouses Mangune and Carreon [the jeepney owners] were negligent. However,
its ruling that spouses Mangune and Carreon are jointly and severally liable
with Manalo is erroneous. The driver cannot be held jointly and severally liable
with the carrier in case of breach of the contract of carriage. The rationale
behind this is readily discernible. Firstly, the contract of carriage is between the
carrier and the passenger, and in the event of contractual liability, the carrier is
exclusively responsible therefore to the passenger, even if such breach be due
to the negligence of his driver (see Viluan v. The Court of Appeals, et al., G.R.
Nos. L-21477-81, April 29, 1966, 16 SCRA 742) . . .[22]

As in the case of BLTB, private respondents in this case and her


co-plaintiffs did not stake out their claim against the carrier and the driver
exclusively on one theory, much less on that of breach of contract
alone. After all, it was permitted for them to allege alternative causes of
action and join as many parties as may be liable on such causes of
action[23] so long as private respondent and her co-plaintiffs do not
recover twice for the same injury. What is clear from the cases is the
intent of the plaintiff there to recover from both the carrier and the driver,
thus justifying the holding that the carrier and the driver were jointly and
severally liable because their separate and distinct acts concurred to
produce the same injury.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with MODIFICATION as to the award of damages. Petitioners are
ORDERED to PAY jointly and severally the private respondent Amyline
Antonio the following amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff
Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorneys fees; and
6) costs of suit.

SO ORDERED.

c. Phil. American general insurance Company v. PKS


Shipping Co. April 9, 2003
The petition before the Court seeks a review of the decision of the
Court of Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June
2001, which has affirmed in toto the judgment of the Regional Trial Court
(RTC), Branch 65, of Makati, dismissing the complaint for damages filed
by petitioner insurance corporation against respondent shipping
company.
Davao Union Marketing Corporation (DUMC) contracted the services
of respondent PKS Shipping Company (PKS Shipping) for the shipment
to Tacloban City of seventy-five thousand (75,000) bags of cement worth
Three Million Three Hundred Seventy-Five Thousand Pesos
(P3,375,000.00). DUMC insured the goods for its full value with
petitioner Philippine American General Insurance Company
(Philamgen). The goods were loaded aboard the dumb barge Limar
I belonging to PKS Shipping. On the evening of 22 December 1988,
about nine oclock, while Limar I was being towed by respondents
tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of
Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire
cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought
reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit
against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of
the cargo could have been caused either by a fortuitous event, in which
case the ship owner was not liable, or through the negligence of the
captain and crew of the vessel and that, under Article 587 of the Code of
Commerce adopting the Limited Liability Rule, the ship owner could free
itself of liability by abandoning, as it apparently so did, the vessel with all
her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which
affirmed in toto the decision of the trial court. The appellate court ruled
that evidence to establish that PKS Shipping was a common carrier at
the time it undertook to transport the bags of cement was wanting
because the peculiar method of the shipping companys carrying goods
for others was not generally held out as a business but as a casual
occupation. It then concluded that PKS Shipping, not being a common
carrier, was not expected to observe the stringent extraordinary diligence
required of common carriers in the care of goods. The appellate court,
moreover, found that the loss of the goods was sufficiently established
as having been due to fortuitous event, negating any liability on the part
of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court
has committed a patent error in ruling that PKS Shipping is not a
common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues,
does not militate against respondents being a common carrier and that
the only way by which such carrier can be held exempt for the loss of the
cargo would be if the loss were caused by natural disaster or
calamity. Petitioner avers that typhoon "APIANG" has not entered the
Philippine area of responsibility and that, even if it did, respondent would
not be exempt from liability because its employees, particularly the
tugmaster, have failed to exercise due diligence to prevent or minimize
the loss.
PKS Shipping, in its comment, urges that the petition should be
denied because what Philamgen seeks is not a review on points or
errors of law but a review of the undisputed factual findings of the RTC
and the appellate court. In any event, PKS Shipping points out, the
findings and conclusions of both courts find support from the evidence
and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping
boils down to the question of whether it is a private carrier or a common
carrier and, in either case, to the other question of whether or not it has
observed the proper diligence (ordinary, if a private carrier, or
extraordinary, if a common carrier) required of it given the
circumstances.
The findings of fact made by the Court of Appeals, particularly when
such findings are consistent with those of the trial court, may not at
liberty be reviewed by this Court in a petition for review under Rule 45 of
the Rules of Court. The conclusions derived from those factual
[1]

findings, however, are not necessarily just matters of fact as when they
are so linked to, or inextricably intertwined with, a requisite appreciation
of the applicable law. In such instances, the conclusions made could well
be raised as being appropriate issues in a petition for review before this
Court. Thus, an issue whether a carrier is private or common on the
basis of the facts found by a trial court or the appellate court can be a
valid and reviewable question of law.
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms 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.

Complementary to the codal definition is Section 13, paragraph (b), of


the Public Service Act; it defines public service to be

x x x every person that now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice refrigeration plant,
canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communication systems,
wire or wireless broadcasting stations and other similar public services. x x
x. (Underscoring supplied).
The prevailing doctrine on the question is that enunciated in the
leading case of De Guzman vs. Court of Appeals. Applying Article 1732
[2]

of the Code, in conjunction with Section 13(b) of the Public Service Act,
this Court has held:

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 an 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 1732 deliberately refrained from
making such distinctions.

So understood, the concept of `common carrier under Article 1732 may be seen
to coincide neatly with the notion of `public service, under the Public Service
Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code.

Much of the distinction between a common or public carrier and a


private or special carrier lies in the character of the business, such that if
the undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for
the general public or to a limited clientele, although involving the carriage
of goods for a fee, the person or corporation providing such service
[3]

could very well be just a private carrier. A typical case is that of a charter
party which includes both the vessel and its crew, such as in a bareboat
or demise, where the charterer obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages and gets the
[4]

control of the vessel and its crew. Contrary to the conclusion made by
[5]

the appellate court, its factual findings indicate that PKS Shipping has
engaged itself in the business of carrying goods for others, although for a
limited clientele, undertaking to carry such goods for a fee. The regularity
of its activities in this area indicates more than just a casual activity on its
part. Neither can the concept of a common carrier change merely
[6]

because individual contracts are executed or entered into with patrons of


the carrier. Such restrictive interpretation would make it easy for a
common carrier to escape liability by the simple expedient of entering
into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has
exercised the proper diligence demanded of common carriers, Article
1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In
case of loss, destruction or deterioration of goods, common carriers are
presumed to have been at fault or to have acted negligently, and the
burden of proving otherwise rests on them. The provisions of Article
[7]

1733, notwithstanding, common carriers are exempt from liability for loss,
destruction, or deterioration of the goods due to any of the following
causes:

(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; and

(5) Order or act of competent public authority. [8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew
could have prevented the sinking of Limar I. The vessel was suddenly
tossed by waves of extraordinary height of six (6) to eight (8) feet and
buffeted by strong winds of 1.5 knots resulting in the entry of water into
the barges hatches. The official Certificate of Inspection of the barge
issued by the Philippine Coastguard and the Coastwise Load Line
Certificate would attest to the seaworthiness of Limar I and should
strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual
findings of the Court of Appeals and the trial court are contradictory;
(2) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures; (3) when the inference made by the Court of
Appeals from its findings of fact is manifestly mistaken, absurd, or
impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; (6) when the judgment of the
Court of Appeals is premised on a misapprehension of facts; (7) when
the Court of Appeals failed to notice certain relevant facts which, if
properly considered, would justify a different conclusion; (8) when the
findings of fact are themselves conflicting; (9) when the findings of fact
are conclusions without citation of the specific evidence on which they
are based; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence but such findings are contradicted
by the evidence on record would appear to be clearly extant in this
instance.
All given then, the appellate court did not err in its judgment
absolving PKS Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

d. Virgines Calvo v. UCPB General Insurance Co., G.R. No.


148496, March 19, 2002

This is a petition for review of the decision,[1] dated May 31, 2001, of the
Court of Appeals, affirming the decision[2] of the Regional Trial Court, Makati
City, Branch 148, which ordered petitioner to pay respondent, as subrogee, the
amount of P93,112.00 with legal interest, representing the value of damaged
cargo handled by petitioner, 25% thereof as attorneys fees, and the cost of the
suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal
Services, Inc. (TCTSI), a sole proprietorship customs broker. At the time
material to this case, petitioner entered into a contract with San Miguel
Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting paper
and 124 reels of kraft liner board from the Port Area in Manila to SMCs
warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The
cargo was insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans,
arrived in Manila on board M/V Hayakawa Maru and, after 24 hours, were
unloaded from the vessel to the custody of the arrastre operator, Manila Port
Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract
with SMC, withdrew the cargo from the arrastre operator and delivered it to
SMCs warehouse in Ermita, Manila. On July 25, 1990, the goods were
inspected by Marine Cargo Surveyors, who found that 15 reels of the
semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft liner
board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance
contract for the aforementioned amount. In turn, respondent, as subrogee of
SMC, brought suit against petitioner in the Regional Trial Court, Branch 148,
Makati City, which, on December 20, 1995, rendered judgment finding
petitioner liable to respondent for the damage to the shipment.
The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in the
custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. E);
the Damage Report (Exh. F) with entries appearing therein, classified as TED
and TSN, which the claims processor, Ms. Agrifina De Luna, claimed to be
tearrage at the end and tearrage at the middle of the subject damaged cargoes
respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A)
confirms the fact of the damaged condition of the subject cargoes. The
surveyor[s] report (Exh. H-4-A) in particular, which provides among others
that:

. . . we opine that damages sustained by shipment is attributable to improper


handling in transit presumably whilst in the custody of the broker . . . .

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense
that [she is] are not liable. Defendant by reason of the nature of [her] business
should have devised ways and means in order to prevent the damage to the
cargoes which it is under obligation to take custody of and to forthwith deliver
to the consignee. Defendant did not present any evidence on what precaution
[she] performed to prevent [the] said incident, hence the presumption is that the
moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are
proved to have been lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove
that they have observed the extraordinary diligence required by law. The
burden of the plaintiff, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the carrier to prove that he has exercised the extraordinary diligence
required by law. Thus, it has been held that the mere proof of delivery of goods
in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation
is given as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or some
other circumstances inconsistent with its liability. (cited in Commercial Laws
of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a


common carrier is supposed [to] exercise [the] extraordinary diligence required
by law, hence the extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received by the carrier for
transportation until the same are delivered actually or constructively by the
carrier to the consignee or to the person who has the right to receive the same.[3]

Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyers fee;

3. Costs of suit.[4]

The decision was affirmed by the Court of Appeals on appeal. Hence this
petition for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED
BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND
NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.[5]

It will be convenient to deal with these contentions in the inverse order, for
if petitioner is not a common carrier, although both the trial court and the Court
of Appeals held otherwise, then she is indeed not liable beyond what ordinary
diligence in the vigilance over the goods transported by her, would
require.[6] Consequently, any damage to the cargo she agrees to transport cannot
be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the
Court of Appeals, she is not a common carrier but a private carrier because, as
a customs broker and warehouseman, she does not indiscriminately hold her
services out to the public but only offers the same to select parties with whom
she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court
dismissed a similar contention and held the party to be a common carrier, thus

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms 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 an ancillary activity . . . 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 1732 deliberately refrained from making such distinctions.

So understood, the concept of common carrier under Article 1732 may be seen
to coincide neatly with the notion of public service, under the Public Service
Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, public service includes:

x x x every person that now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant,
canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. x x x [8]

There is greater reason for holding petitioner to be a common carrier


because the transportation of goods is an integral part of her business. To
uphold petitioners contention would be to deprive those with whom she
contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for her customers, as already noted, is part
and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:

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. . . .

In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary


diligence in the vigilance over goods was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it
for sale, carriage and delivery. It requires common carriers to render service
with the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristic of goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as their nature
requires.
In the case at bar, petitioner denies liability for the damage to the
cargo. She claims that the spoilage or wettage took place while the goods were
in the custody of either the carrying vessel M/V Hayakawa Maru, which
transported the cargo to Manila, or the arrastre operator, to whom the goods
were unloaded and who allegedly kept them in open air for nine days from July
14 to July 23, 1998 notwithstanding the fact that some of the containers were
deformed, cracked, or otherwise damaged, as noted in the Marine Survey
Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water


soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached


loosened.[10]

In addition, petitioner claims that Marine Cargo Surveyor Ernesto


Tolentino testified that he has no personal knowledge on whether the container
vans were first stored in petitioners warehouse prior to their delivery to the
consignee. She likewise claims that after withdrawing the container vans from
the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the
cargo to SMCs warehouse in Ermita, Manila, which is a mere thirty-minute
drive from the Port Area where the cargo came from. Thus, the damage to the
cargo could not have taken place while these were in her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine
Cargo Surveyors indicates that when the shipper transferred the cargo in
question to the arrastre operator, these were covered by clean Equipment
Interchange Report (EIR) and, when petitioners employees withdrew the cargo
from the arrastre operator, they did so without exception or protest either with
regard to the condition of container vans or their contents. The Survey
Report pertinently reads

Details of Discharge:

Shipment, provided with our protective supervision was noted discharged ex


vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized
onto 30 x 20 secure metal vans, covered by clean EIRs. Except for slight dents
and paint scratches on side and roof panels, these containers were deemed to
have [been] received in good condition.
....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30 x 20 cargo containers was


[withdrawn] by Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignees storage warehouse located
at Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25,
1990.[12]

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from
the vessel to the arrastre, Marina Port Services Inc., in good order and condition
as evidenced by clean Equipment Interchange Reports (EIRs). Had therebeen
any damage to the shipment, there would have been a report to that effect made
by the arrastre operator. The cargoes were withdrawn by the
defendant-appellant from the arrastre still in good order and condition as the
same were received by the former without exception, that is, without any report
of damage or loss. Surely, if the container vans were deformed, cracked,
distorted or dented, the defendant-appellant would report it immediately to the
consignee or make an exception on the delivery receipt or note the same in the
Warehouse Entry Slip (WES). None of these took place. To put it simply, the
defendant-appellant received the shipment in good order and condition and
delivered the same to the consignee damaged. We can only conclude that the
damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession
of the debtor (or obligor), it shall be presumed that the loss (or damage) was
due to his fault, unless there is proof to the contrary. No proof was proffered to
rebut this legal presumption and the presumption of negligence attached to a
common carrier in case of loss or damage to the goods.[13]

Anent petitioners insistence that the cargo could not have been damaged
while in her custody as she immediately delivered the containers to SMCs
compound, suffice it to say that to prove the exercise of extraordinary diligence,
petitioner must do more than merely show the possibility that some other party
could be responsible for the damage. It must prove that it used all reasonable
means to ascertain the nature and characteristic of goods tendered for [transport]
and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to
do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4),
which provides

Common carriers are responsible for the loss, destruction, or deterioration of


the goods, unless the same is due to any of the following causes only:
....

(4) The character of the goods or defects in the packing or in the containers.

....

For this provision to apply, the rule is that if the improper packing or, in
this case, the defect/s in the container, is/are known to the carrier or his
employees or apparent upon ordinary observation, but he nevertheless accepts
the same without protest or exception notwithstanding such condition, he is not
relieved of liability for damage resulting therefrom.[14] In this case, petitioner
accepted the cargo without exception despite the apparent defects in some of
the container vans. Hence, for failure of petitioner to prove that she exercised
extraordinary diligence in the carriage of goods in this case or that she is
exempt from liability, the presumption of negligence as provided under Art.
1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001,
is AFFIRMED.
SO ORDERED.

e. Caltex(phil) v. Sulpicio Lines, 315 SCRA 709, 1999 case


Is the charterer of a sea vessel liable for damages resulting from a collision between
the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying
petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have
guessed that it would collide with MV Doa Paz, killing almost all the passengers and
crew members of both ships, and thus resulting in one of the countrys worst maritime
disasters.
The petition before us seeks to reverse the Court of Appeals decision[1]holding
petitioner jointly liable with the operator of MT Vector for damages when the latter
collided with Sulpicio Lines, Inc.s passenger ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00
p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by
petitioner Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector
Shipping Corporation, engaged in the business of transporting fuel products such as
gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector
carried on board gasoline and other oil products owned by Caltex by virtue of a charter
contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the
port of Tacloban headed for Manila with a complement of 59 crew members including
the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard
Clearance.[4] The MV Doa Paz is a passenger and cargo vessel owned and operated by
Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/
Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea
within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the
crewmembers of MV Doa Paz died, while the two survivors from MT Vector claimed
that they were sleeping at the time of the incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in
the passenger manifest. Only 24 survived the tragedy after having been rescued from the
burning waters by vessels that responded to distress calls.[5] Among those who perished
were public school teacher Sebastian Caezal (47 years old) and his daughter Corazon
Caezal (11 years old), both unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after
investigation found that the MT Vector, its registered operator Francisco Soriano, and its
owner and actual operator Vector Shipping Corporation, were at fault and responsible for
its collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife
and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a
complaint for Damages Arising from Breach of Contract of Carriage against Sulpicio
Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against
Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio
alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully
well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to
safe navigation; as a result, it rammed against MV Doa Paz in the open sea setting MT
Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party
complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against


defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G.
Caezal, including loss of future earnings of said Sebastian, moral and
exemplary damages, attorneys fees, in the total amount of P 1,241,287.44 and
finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of


substantiation and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.

DONE IN MANILA, this 15th day of September 1992.

ARSENIO M. GONONG

Judge[7]

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15,
1997, the Court of Appeal modified the trial courts ruling and included petitioner Caltex
as one of the those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the
Regional Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of


Sebastian E. Caezal and Corazon Caezal:

1. Compensatory damages for the death of Sebastian E.Caezal and Corazon


Caezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E.


Caezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS


(P 300,000.00);

4. Attorneys fees in the concept of actual damages in the amount of FIFTY


THOUSAND PESOS (P 50,000.00);

5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
equally liable under the third party complaint to reimburse/indemnify defendant
Sulpicio Lines, Inc. of the above-mentioned damages, attorneys fees and costs
which the latter is adjudged to pay plaintiffs, the same to be shared half by
Vector Shipping Co. (being the vessel at fault for the collision) and the other
half by Caltex (Phils.), Inc. (being the charterer that negligently caused the
shipping of combustible cargo aboard an unseaworthy vessel).

SO ORDERED.

JORGE S. IMPERIAL

Associate Justice

WE CONCUR:

RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS

Associate Justice Associate Justice[8]

Hence, this petition.


We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether
the carrier is public or private, but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter party or similar contract on
the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a
voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof,
is let by the owner to another person for a specified time or use; a contract of
affreightment is one by which the owner of a ship or other vessel lets the whole or part of
her to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is
leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is
leased for a single voyage. In both cases, the charter-party provides for the hire of the
vessel only, either for a determinate period of time or for a single or consecutive voyage,
the ship owner to supply the ships store, pay for the wages of the master of the crew, and
defray the expenses for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the
vessel with his own people and becomes, in effect, the owner for the voyage or service
stipulated, subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from liability to third persons in
respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time
charter, (3) voyage charter. Does a charter party agreement turn the common carrier into
a private one? We need to answer this question in order to shed light on the
responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a
private carrier. The parties entered into a voyage charter, which retains the character of
the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:

It is therefore imperative that a public carrier shall remain as such,


notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes
private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a ship-owner in a time or voyage charter retains
possession and control of the ship, although her holds may, for the moment, be
the property of the charterer.

Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]

Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment xxx

A common carrier is a person or corporation whose regular business is to carry


passengers or property for all persons who may choose to employ and to remunerate
him.[16] MT Vector fits the definition of a common carrier under Article 1732 of the Civil
Code. In Guzman vs. Court of Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations


engaged in the business of carrying or transporting passengers for 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 an 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 services on a 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.

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,
occasional rather than regular or scheduled manner, and even though
respondents 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 the fee frequently fell below commercial freight
rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage
to exercise due diligence to -

(a) Make the ship seaworthy;


(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For
a vessel to be seaworthy, it must be adequately equipped for the voyage and manned
with a sufficient number of competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is
a clear breach of its duty prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public duty. The public must of
necessity rely on the care and skill of common carriers in the vigilance over the goods
and safety of the passengers, especially because with the modern development of science
and invention, transportation has become more rapid, more complicated and somehow
more hazardous.[19] For these reasons, a passenger or a shipper of goods is under no
obligation to conduct an inspection of the ship and its crew, the carrier being obliged by
law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil
Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo
aboard an unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license
renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan
Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine
Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite
these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to
command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to
navigate only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the
vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and
2176 of the Civil Code, which provide:

Article 20. - Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.

Article 2176. - Whoever by act or omission causes damage to another, there


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

And what is negligence?


The Civil Code provides:

Article 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 Article 1171 and 2201 paragraph
2, 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.

In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as


commonly understood, is conduct which naturally or reasonably creates undue risk or
harm to others. It may be the failure to observe that degree of care, precaution, and
vigilance, which the circumstances justly demand, or the omission to do something which
ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that
the vessel it chartered complied with all legal requirements. The duty rests upon the
common carrier simply for being engaged in public service.[22] The Civil Code demands
diligence which is required by the nature of the obligation and that which corresponds
with the circumstances of the persons, the time and the place. Hence, considering the
nature of the obligation between Caltex and MT Vector, the liability as found by the
Court of Appeals is without basis.
The relationship between the parties in this case is governed by special
laws. Because of the implied warranty of seaworthiness,[23] shippers of goods, when
transacting with common carriers, are not expected to inquire into the vessels
seaworthiness, genuineness of its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case of failure exhibits nothing but
the futility of our maritime laws insofar as the protection of the public in general is
concerned. By the same token, we cannot expect passengers to inquire every time they
board a common carrier, whether the carrier possesses the necessary papers or that all the
carriers employees are qualified. Such a practice would be an absurdity in a business
where time is always of the essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that common carriers possess all the
legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any
other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that
MT Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries
here under VESSELS DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires
December 7, 1987, Mr. Witness, what steps did you take regarding the impending
expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the hiring of
MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has
a valid C.I. which will expire on December 7, 1987 but on the last week of November, I
called the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in
turn, assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they
were going to send me a copy as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because
of our long business relation, we trust Mr. Abalos and the fact that the vessel was able to
sail indicates that the documents are in order. xxx[25]
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of
Inspection has expired on December 7. Did it occur to you not to let the vessel sail on
that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that
they were able to secure a renewal of the Certificate of Inspection and that they
will in time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of
Inspection in the coastwise license on December 7, 1987. What was your assurance for
the record that this document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly,
those three years, they were allowed to sail by the Coast Guard. That are some that make
me believe that they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed,
referring to MV Vector, to sail, where it is loaded and that it was scheduled for a
destination by the Coast Guard, it means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no case MV Vector will be allowed
to sail if the Certificate of Inspection is, indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no need to clarify the same in the
re-direct examination.[27]
Caltex and Vector Shipping Corporation had been doing business since 1985, or for
about two years before the tragic incident occurred in 1987. Past services rendered
showed no reason for Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its
seaworthiness. All things considered, we find no legal basis to hold petitioner liable for
damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision,
we limit our ruling to the liability of Caltex alone. However, we maintain the Court of
Appeals ruling insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the
decision of the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15,
1997, insofar as it held Caltex liable under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to
pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of Appeals
insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Caezal and
Corazon Caezal damages as set forth therein. Third-party defendant-appellee Vector
Shipping Corporation and Francisco Soriano are held liable to reimburse/indemnify
defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and costs the latter is
adjudged to pay plaintiffs-appellees in the case.
No costs in this instance.
SO ORDERED.

f. Loadstar Shipping Co. v. Pioneer Asia Insurance G.R No.


157481 January 2006

For review on certiorari are (1) the Decision[1] dated October 15, 2002
and (2) the Resolution[2] dated February 27, 2003, of the Court of Appeals in
CA-G.R. CV No. 40999, which affirmed with modification the
Decision[3] dated February 15, 1993 of the Regional Trial Court of Manila,
Branch 8 in Civil Case No. 86-37957.

The pertinent facts are as follows:

Petitioner Loadstar Shipping Co., Inc. (Loadstar for brevity) is the


registered owner and operator of the vessel M/V Weasel. It holds office
at 1294 Romualdez St., Paco, Manila.

On June 6, 1984, Loadstar entered into a voyage-charter with Northern


Mindanao Transport Company, Inc. for the carriage of 65,000 bags of cement
from Iligan City to Manila. The shipper was Iligan Cement Corporation,
while the consignee in Manila was Market Developers, Inc.

On June 24, 1984, 67,500 bags of cement were loaded on board M/V
Weasel and stowed in the cargo holds for delivery to the consignee. The
shipment was covered by petitioners Bill of Lading[4] dated June 23, 1984.

Prior to the voyage, the consignee insured the shipment of cement with
respondent Pioneer Asia Insurance Corporation for P1,400,000, for which
respondent issued Marine Open Policy No. MOP-006 dated September 17,
1980, covering all shipments made on or after September 30, 1980.[5]

At 12:50 in the afternoon of June 24, 1984, M/V


Weasel left Iligan City for Manila in good weather. However, at 4:31 in the
morning of June 25, 1984, Captain Vicente C. Montera, master of M/V
Weasel, ordered the vessel to be forced aground. Consequently, the entire
shipment of cement was good as gone due to exposure to sea water. Petitioner
thus failed to deliver the goods to the consignee in Manila.

The consignee demanded from petitioner full reimbursement of the


cost of the lost shipment. Petitioner, however, refused to reimburse the
consignee despite repeated demands.

Nonetheless, on March 11, 1985, respondent insurance company paid


the consignee P1,400,000 plus an additional amount of P500,000, the value of
the lost shipment of cement. In return, the consignee executed a Loss and
Subrogation Receipt in favor of respondent concerning the latters subrogation
rights against petitioner.

Hence, on October 15, 1986, respondent filed a complaint docketed as


Civil Case No. 86-37957, against petitioner with the Regional Trial Court of
Manila, Branch 8. It alleged that: (1) the M/V Weasel was not seaworthy at the
commencement of the voyage; (2) the weather and sea conditions then
prevailing were usual and expected for that time of the year and as such, was
an ordinary peril of the voyage for which the M/V Weasel should have been
normally able to cope with; and (3) petitioner was negligent in the selection
and supervision of its agents and employees then manning the M/V Weasel.

In its Answer, petitioner alleged that no fault nor negligence could be


attributed to it because it exercised due diligence to make the ship seaworthy,
as well as properly manned and equipped. Petitioner insisted that the failure to
deliver the subject cargo to the consignee was due to force majeure. Petitioner
claimed it could not be held liable for an act or omission not directly
attributable to it.

On February 15, 1993, the RTC rendered a Decision in favor of


respondent, to wit:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered in favor of plaintiff and against defendant
Loadstar Shipping Co., Inc. ordering the latter to pay as follows:

1. To pay plaintiff the sum of P1,900,000.00 with legal


rate of interest per annum from date of complaint until fully paid;

2. To pay the sum equal to 25% of the claim as and for


attorneys fees and litigation expenses; and,

3. To pay the costs of suit.

IT IS SO ORDERED.[6]

The RTC reasoned that petitioner, as a common carrier, bears the


burden of proving that it exercised extraordinary diligence in its vigilance
over the goods it transported. The trial court explained that in case of loss or
destruction of the goods, a statutory presumption arises that the common
carrier was negligent unless it could prove that it had observed extraordinary
diligence.

Petitioners defense of force majeure was found bereft of factual basis.


The RTC called attention to the PAG-ASA report that at the time of the
incident, tropical storm Asiang had moved away from the Philippines.
Further, records showed that the sea and weather conditions in the area of
Hinubaan, Negros Occidental from 8:00 p.m. of June 24, 1984 to 8:00
a.m. the next day were slight and smooth. Thus, the trial court concluded that
the cause of the loss was not tropical storm Asiang or any other force majeure,
but gross negligence of petitioner.

Petitioner appealed to the Court of Appeals.

In its Decision dated October 15, 2002, the Court of Appeals affirmed
the RTC Decision with modification that Loadstar shall only pay the sum of
10% of the total claim for attorneys fees and litigation expenses. It ruled,
WHEREFORE, premises considered, the Decision dated
February 15, 1993, of the Regional Trial Court of Manila,
National Capital Judicial Region, Branch 8, in Civil Case No.
86-37957 is hereby AFFIRMED with the MODIFICATION that
the appellant shall only pay the sum of 10% of the total claim as
and for attorneys fees and litigation expenses. Costs against the
appellant.

SO ORDERED.[7]

Petitioners Motion for Reconsideration was denied.[8]

The instant petition is anchored now on the following assignments of


error:
I
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONER IS A COMMON CARRIER
UNDER ARTICLE 1732 OF THE CIVIL CODE.

II
ASSUMING ARGUENDO THAT PETITIONER IS A
COMMON CARRIER, THE HONORABLE COURT OF
APPEALS ERRED IN HOLDING THAT THE PROXIMATE
CAUSE OF THE LOSS OF CARGO WAS NOT A
FORTUITOUS EVENT BUT WAS ALLEGEDLY DUE TO
THE FAILURE OF PETITIONER TO EXERCISE
EXTRAORDINARY DILIGENCE.

III
THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING THE AWARD BY THE TRIAL COURT OF
ATTORNEYS FEES AND LITIGATION EXPENSES IN
FAVOR OF HEREIN RESPONDENT.[9]

On the first and second issues, petitioner contends that at the time of the
voyage the carriers voyage-charter with the shipper converted it into a private
carrier. Thus, the presumption of negligence against common carriers could
not apply. Petitioner further avers that the stipulation in the voyage-charter
holding it free from liability is valid and binds the respondent. In any event,
petitioner insists that it had exercised extraordinary diligence and that the
proximate cause of the loss of the cargo was a fortuitous event.

With regard to the third issue, petitioner points out that the award of
attorneys fees and litigation expenses appeared only in the dispositive portion
of the RTC Decision with nary a justification. Petitioner maintains that the
Court of Appeals thus erred in affirming the award.

For its part, respondent dismisses as factual issues the inquiry on (1)
whether the loss of the cargo was due to force majeure or due to petitioners
failure to exercise extraordinary diligence; and (2) whether respondent is
entitled to recover attorneys fees and expenses of litigation.

Respondent further counters that the Court of Appeals was correct


when it held that petitioner was a common carrier despite the charter of the
whole vessel, since the charter was limited to the ship only.

Prefatorily, we stress that the finding of fact by the trial court, when
affirmed by the Court of Appeals, is not reviewable by this Court in a petition
for review on certiorari. However, the conclusions derived from such factual
finding are not necessarily pure issues of fact when they are inextricably
intertwined with the determination of a legal issue. In such instances, the
conclusions made may be raised in a petition for review before this Court.[10]

The threshold issues in this case are: (1) Given the circumstances of this
case, is petitioner a common or a private carrier? and (2) In either case, did
petitioner exercise the required diligence i.e., the extraordinary diligence of a
common carrier or the ordinary diligence of a private carrier?

Article 1732 of the Civil Code defines a common carrier as follows:


Article 1732. Common carriers are persons, corporations, firms 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.

Petitioner is a corporation engaged in the business of transporting cargo by


water and for compensation, offering its services indiscriminately to the
public. Thus, without doubt, it is a common carrier. However, petitioner
entered into a voyage-charter with the Northern Mindanao Transport
Company, Inc. Now, had the voyage-charter converted petitioner into a
private carrier?
We think not. The voyage-charter agreement between petitioner and
Northern Mindanao Transport Company, Inc. did not in any way convert the
common carrier into a private carrier. We have already resolved this issue
with finality in Planters Products, Inc. v. Court of Appeals[11] where we ruled
that:
It is therefore imperative that a public carrier shall remain
as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage-charter. It
is only when the charter includes both the vessel and its crew, as
in a bareboat or demise that a common carrier becomes private, at
least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.[12]

Conformably, petitioner remains a common carrier notwithstanding


the existence of the charter agreement with the Northern Mindanao
Transport Company, Inc. since the said charter is limited to the ship only and
does not involve both the vessel and its crew. As elucidated in Planters
Products, its charter is only a voyage-charter, not a bareboat charter.

As a common carrier, petitioner is required to observe extraordinary


diligence in the vigilance over the goods it transports.[13] When the goods
placed in its care are lost, petitioner is presumed to have been at fault or to
have acted negligently. Petitioner therefore has the burden of proving that it
observed extraordinary diligence in order to avoid responsibility for the lost
cargo.[14]

In Compania Maritima v. Court of Appeals,[15] we said:


it is incumbent upon the common carrier to prove that the
loss, deterioration or destruction was due to accident or some
other circumstances inconsistent with its liability.
...

The extraordinary diligence in the vigilance over the goods


tendered for shipment requires the common carrier to know and to
follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the
greatest skill and foresight and to use all reasonable means to
ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.[16]

Article 1734 enumerates the instances when a carrier might be exempt


from liability for the loss of the goods. These are:
(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; and
(5) Order or act of competent public authority.[17]

Petitioner claims that the loss of the goods was due to a fortuitous
event under paragraph 1. Yet, its claim is not substantiated. On the contrary,
we find supported by evidence on record the conclusion of the trial court and
the Court of Appeals that the loss of the entire shipment of cement was due
to the gross negligence of petitioner.

Records show that in the evening of June 24, 1984, the sea and
weather conditions in the vicinity of Negros Occidental were calm. The
records reveal that petitioner took a shortcut route, instead of the usual route,
which exposed the voyage to unexpected hazard. Petitioner has only itself to
blame for its misjudgment.

Petitioner heavily relies on Home Insurance Co. v. American


Steamship Agencies, Inc.[18] and Valenzuela Hardwood and Industrial Supply,
Inc. v. Court of Appeals.[19] The said cases involved a private carrier, not a
common carrier. Moreover, the issue in both cases is not the effect of a
voyage-charter on a common carrier, but the validity of a stipulation
absolving the private carrier from liability in case of loss of the cargo
attributable to the negligence of the private carrier.
Lastly, on the third issue, we find consistent with law and prevailing
jurisprudence the Court of Appeals award of attorneys fees and expenses of
litigation equivalent to ten percent (10%) of the total claim. The contract
between the parties in this case contained a stipulation that in case of suit,
attorneys fees and expenses of litigation shall be limited to only ten percent
(10%) of the total monetary award. Given the circumstances of this case, we
deem the said amount just and equitable.

WHEREFORE, the petition is DENIED. The assailed Decision


dated October 15, 2002 and the Resolution dated February 27, 2003, of the
Court of Appeals in CA-G.R. CV No. 40999, are AFFIRMED.

Costs against petitioner.

SO ORDERED.

g. Home Assurance Corp., G.R. No. 150403, Jan. 25 2007.


May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?

This is the issue presented for the Courts resolution in this petition for review on
certiorari1 assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27,
1989 decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.5

The pertinent facts follow.

On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc.8

Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day.9 The shipment never reached its destination, however, because the M/T Espiritu Santo
sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting
in the total loss of the cargo.10

MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12Thereafter, it filed a case in the RTC13 against petitioner
for reimbursement of the amount it paid MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.

Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance of goods, in
consideration of the payment of freight.14 Under a voyage charter, the shipowner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of freight.15 An owner who retains
possession of the ship remains liable as carrier and must answer for loss or non-delivery of
the goods received for transportation.16

Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage.17 It insists that the agreement was merely
a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have control and
supervision over the vessel, its master and crew.19 Thus, it could not be held liable for the loss
of the shipment caused by the sinking of a ship it did not own.

We disagree.

Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down.20

There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo,
it was engaged in the business of carrying and transporting goods by water, for compensation,
and offered its services to the public.21

From the nature of their business and for reasons of public policy, common carriers are bound
to observe extraordinary diligence over the goods they transport according to the
circumstances of each case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by the causes specified in
Article 1734 of the Civil Code.23 In all other cases, common carriers are presumed to be at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24

Petitioner was the one which contracted with MCCII for the transport of the cargo. It had
control over what vessel it would use. All throughout its dealings with MCCII, it represented
itself as a common carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and duties as a common
carrier. The MCCII (respondents subrogor) could not be reasonably expected to inquire
about the ownership of the vessels which petitioner carrier offered to utilize. As a practical
matter, it is very difficult and often impossible for the general public to enforce its rights of
action under a contract of carriage if it should be required to know who the actual owner of the
vessel is.25 In fact, in this case, the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel.26

Petitioner next contends that if there was a contract of carriage, then it was between MCCII
and ALS as evidenced by the bill of lading ALS issued.27

Again, we disagree.

The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed
by the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract directly
with ALS. While it is true that a bill of lading may serve as the contract of carriage between the
parties,29 it cannot prevail over the express provision of the voyage charter that MCCII and
petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard
a vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill
of lading operates as the receipt for the goods, and as document of title passing the property
of the goods, but not as varying the contract between the charterer and the shipowner." The
Bill of Lading becomes, therefore, only a receipt and not the contract of carriage in a charter
of the entire vessel, for the contract is the Charter Party, and is the law between the parties
who are bound by its terms and condition provided that these are not contrary to law, morals,
good customs, public order and public policy. 30

Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account.31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach of its contract of carriage.
The law, in fact, prohibits it and condemns it as unjust and contrary to public policy.32

To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on
board the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove
that it exercised extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of affreightment, the
carrier was answerable for the loss of the goods received for transportation.33

The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does
not own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the carrier
and the supposed owner and to the possible shifting of liability from the carrier to one without
any financial capability to answer for the resulting damages.34

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

h. Planters v. CA G.R. No. 101503, September 15, 1993 226 SCRA 476

Does a charter-party between a shipowner and a charterer transform a common carrier into a
1

private one as to negate the civil law presumption of negligence in case of loss or damage to
its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation


(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which
the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by
private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to
Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1
signed by the master of the vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter was entered into between Mitsubishi as
2

shipper/charterer and KKKK as shipowner, in Tokyo, Japan. Riders to the aforesaid


3

charter-party starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda
Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th,
21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds were all presumably
4

inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from National


Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned
and dried at the vessel's expense and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision
of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3)
layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed
throughout the entire voyage. 5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into
its steelbodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-partly (which
provided for an F.I.O.S. clause). The hatches remained open throughout the duration of the
6

discharge. 7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf.
Midway to the warehouse, the trucks were made to pass through a weighing scale where they
were individually weighed for the purpose of ascertaining the net weight of the cargo. The port
area was windy, certain portions of the route to the warehouse were sandy and the weather
was variable, raining occasionally while the discharge was in progress. The petitioner's
8

warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at the front
where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins
and GI sheets were placed in-between and alongside the trucks to contain spillages of the
ferilizer.
9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July
12th, 14th and 18th). A private marine and cargo surveyor, Cargo Superintendents Company
10

Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft
readings of the vessel prior to and after discharge. The survey report submitted by CSCI to
11

the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and
that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The
same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974
prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and
about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt.
12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that portion
said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." Hence, on 18 July 1975, PPI filed an
14

action for damages with the Court of First Instance of Manila. The defendant carrier argued
that the strict public policy governing common carriers does not apply to them because they
have become private carriers by reason of the provisions of the charter-party. The court a
quo however sustained the claim of the plaintiff against the defendant carrier for the value of
the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent in
case of loss or damage of the goods it contracts to transport, all that a shipper has to do in a
suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery
by it of less than what it received. After that, the burden of proving that the loss or damage
was due to any of the causes which exempt him from liability is shipted to the carrier, common
or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid,
and the defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or negligence
on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the
cargo. This they failed to do. By this omission, coupled with their failure to destroy the
presumption of negligence against them, the defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. Relying on the 1968 case
16

of Home Insurance Co. v. American Steamship Agencies, Inc., the appellate court ruled that
17

the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier
and not a common carrier by reason of the time charterer-party. Accordingly, the Civil Code
provisions on common carriers which set forth a presumption of negligence do not find
application in the case at bar. Thus

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to


adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its
complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil.
202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause
of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish defendant's negligence. Be that as it
may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its
obligation . . . (emphasis supplied).
18

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court
of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the vessel seaworthy in all respects, and
not whether the presumption of negligence provided under the Civil Code applies only to
common carriers and not to private carriers. Petitioner further argues that since the
19

possession and control of the vessel remain with the shipowner, absent any stipulation to the
contrary, such shipowner should made liable for the negligence of the captain and crew. In
fine, PPI faults the appellate court in not applying the presumption of negligence against
respondent carrier, and instead shifting the onus probandi on the shipper to show want of due
deligence on the part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant case
was able to prove that he had exercised that degree of diligence required of him under the
law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part


thereof, is let by the owner to another person for a specified time or use; a contract of
20
affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a
merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; Charter parties are of two types: (a) contract of
21

affreightment which involves the use of shipping space on vessels leased by the owner in part
or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by the
terms of which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master
and the crew, who are his servants. Contract of affreightment may either be time charter,
wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charter-party provides for
22

the hire of vessel only, either for a determinate period of time or for a single or consecutive
voyage, the shipowner to supply the ship's stores, pay for the wages of the master and the
crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. The definition extends to carriers either by land, air or water which hold themselves
23

out as ready to engage in carrying goods or transporting passengers or both for


compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the character of
the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of
their business, should observe extraordinary diligence in the vigilance over the goods they
carry. In the case of private carriers, however, the exercise of ordinary diligence in the
25

carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the
goods, common carriers are presumed to have been at fault or to have acted negligently, and
the burden of proving otherwise rests on them. On the contrary, no such presumption applies
26

to private carriers, for whosoever alleges damage to or deterioration of the goods carried has
the onus of proving that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct supervision
and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship,
with the duty of caring for his cargo when the charterer did not have any control of the means
in doing so. This is evident in the present case considering that the steering of the ship, the
manning of the decks, the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers and crew who were
screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole or portion of a vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, does not find application in our
29

jurisdiction, for we have observed that the growing concern for safety in the transportation of
passengers and /or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30

As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is
used to convey the goods of one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or collusion occur; and the
same difficulty in discovering the truth as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or
damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the cargo
was due to fortuitous event, or some other circumstances inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April
1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo,
Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's
holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel
covers made it impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing
the possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. When M/V "Sun Plum" docked at its berthing place, representatives of the
33

consignee boarded, and in the presence of a representative of the shipowner, the foreman,
the stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected
the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful
eyes of the shipmates who were overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by respondent appellate court thus

. . . Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses clearly
show absence of negligence by the defendant carrier; that the hull of the vessel at the time of
the discharge of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977,
p. 14); that the cover of the hatches was made of steel and it was overlaid with tarpaulins,
three layers of tarpaulins and therefore their contents were protected from the weather (TSN,
5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence required
of it as a public carrier began from the time the cargo was unconditionally placed in its charge
after the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and
until the vessel reached its destination and its hull was reexamined by the consignee, but
prior to unloading. This is clear from the limitation clause agreed upon by the parties in the
Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S.,
meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by
the charterer, free from all risk and expense to the carrier. Moreover, a shipowner is liable
35

for damage to the cargo resulting from improper stowage only when the stowing is done by
stevedores employed by him, and therefore under his control and supervision, not when the
same is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of the goods or
defects in the packaging or in the containers. The Code of Commerce also provides that all
losses and deterioration which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. The37

carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding
causes if it is proved, as against him, that they arose through his negligence or by reason of
his having failed to take the precautions which usage has established among careful
persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature
inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added
that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during
such operation amounting to one percent (1%) against the bill of lading is deemed "normal" or
"tolerable." The primary cause of these spillages is the clamped shell which does not seal
very tightly. Also, the wind tends to blow away some of the materials during the unloading
process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an


extremely high temperature in its place of storage, or when it comes in contact with water.
When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the
salvaged portion which is in liquid form still remains potent and usable although no longer
saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various pieces
of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to
seep into the vessel's holds during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum"
in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who
supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as
contained in their report to PPI was just an approximation or estimate made by them after the
fertilizer was discharged from the vessel and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded
her cargo. It rained from time to time at the harbor area while the cargo was being discharged
according to the supply officer of PPI, who also testified that it was windy at the waterfront and
along the shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather condition
prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner
of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof
was adduced by the petitioner showing that the carrier was remise in the exercise of due
diligence in order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals,
which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then
Court of the First Instance, now Regional Trial Court, of Manila should be, as it is
hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

i. A.F Sanchez Brokerage Inc. v. CA, G.R. No. 147079, December


21, 2004

Before this Court on a petition for Certiorari is the appellate courts


Decision of August 10, 2000 reversing and setting aside the judgment
[1]

of Branch 133, Regional Trial Court of Makati City, in Civil Case No.
93-76B which dismissed the complaint of respondent FGU Insurance
Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage,
Inc. (Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft
of KLM Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives
consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol
tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in
favor of the consignee, Wyeth-Suaco Laboratories, Inc. The Femenal [2]

tablets were placed in 124 cartons and the Nordiol tablets were placed in
20 cartons which were packed together in one (1) LD3 aluminum
container, while the Trinordial tablets were packed in two pallets, each of
which contained 30 cartons. [3]

Wyeth-Suaco insured the shipment against all risks with FGU


Insurance which issued Marine Risk Note No. 4995 pursuant to Marine
Open Policy No. 138. [4]

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA), it was discharged without exception and
[5] [6]

delivered to the warehouse of the Philippine Skylanders, Inc. (PSI)


located also at the NAIA for safekeeping. [7]

In order to secure the release of the cargoes from the PSI and the
Bureau of Customs, Wyeth-Suaco engaged the services of Sanchez
Brokerage which had been its licensed broker since 1984. As its [8]

customs broker, Sanchez Brokerage calculates and pays the customs


duties, taxes and storage fees for the cargo and thereafter delivers it to
Wyeth-Suaco. [9]

On July 29, 1992, Mitzi Morales and Ernesto Mendoza,


representatives of Sanchez Brokerage, paid PSI storage fee amounting
to P8,572.35 a receipt for which, Official Receipt No. 016992, was [10]

issued. On the receipt, another representative of Sanchez Brokerage, M.


Sison, acknowledged that he received the cargoes consisting of three
[11]

pieces in good condition. [12]

Wyeth-Suaco being a regular importer, the customs examiner did not


inspect the cargoes which were thereupon stripped from the aluminum
[13]

containers and loaded inside two transport vehicles hired by Sanchez


[14]

Brokerage. [15]

Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas, employees of Elite [16]

Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo


surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco
on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to
Hizon Laboratories Inc. in Antipolo City for quality control check. The [17]

delivery receipt, bearing No. 07037 dated July 29, 1992, indicated that
the delivery consisted of one container with 144 cartons of Femenal and
Nordiol and 1 pallet containing Trinordiol. [18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,


acknowledged the delivery of the cargoes by affixing his signature on the
delivery receipt. Upon inspection, however, he, together with Ruben
[19]

Alonzo of Elite Surveyors, discovered that 44 cartons containing


Femenal and Nordiol tablets were in bad order. He thus placed a note [20]

above his signature on the delivery receipt stating that 44 cartons of oral
contraceptives were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a
survey report dated July 31, 1992 stating that 41 cartons of Femenal
[21]

tablets and 3 cartons of Nordiol tablets were wetted (sic). [22]

The Elite Surveyors later issued Certificate No.


CS-0731-1538/92 attached to which was an Annexed Schedule
[23]

whereon it was indicated that prior to the loading of the cargoes to the
brokers trucks at the NAIA, they were inspected and found to be in
apparent good condition. Also noted was that at the time of delivery to
[24]

the warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which
could account for the wetting of the 44 cartons of Femenal and Nordiol
tablets.[25]

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction


Report confirming that 38 x 700 blister packs of Femenal tablets, 3 x
[26]
700 blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol
tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials
Rejection of 38 cartons of Femenal and 3 cartons of Nordiol on the
[27]

ground that they were delivered to Hizon Laboratories with heavy water
damaged (sic) causing the cartons to sagged (sic) emitting a foul order
and easily attracted flies.
[28]

Wyeth-Suaco later demanded, by letter of August 25, 1992, from


[29]

Sanchez Brokerage the payment of P191,384.25 representing the value


of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand,
Wyeth-Suaco filed an insurance claim against FGU Insurance which
paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim
under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt in favor of FGU
[30]

Insurance.
On demand by FGU Insurance for payment of the amount
of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by letter of [31]

January 7, 1993, disclaimed liability for the damaged goods, positing that
the damage was due to improper and insufficient export packaging; that
when the sealed containers were opened outside the PSI warehouse, it
was discovered that some of the loose cartons were wet, prompting its
[32]

(Sanchez Brokerages) representative Morales to inform the


Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the
condition of the cargoes but that the latter advised to still deliver them to
Hizon Laboratories where an adjuster would assess the damage. [33]

Hence, the filing by FGU Insurance of a complaint for damages


before the Regional Trial Court of Makati City against the Sanchez
Brokerage.
The trial court, by Decision of July 29, 1996, dismissed the
[34]

complaint, holding that the Survey Report prepared by the Elite


Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork. [35]

On appeal, the appellate court reversed the decision of the trial court,
it holding that the Sanchez Brokerage engaged not only in the business
of customs brokerage but also in the transportation and delivery of the
cargo of its clients, hence, a common carrier within the context of Article
1732 of the New Civil Code. [36]

Noting that Wyeth-Suaco adduced evidence that the cargoes were


delivered to petitioner in good order and condition but were in a
damaged state when delivered to Wyeth-Suaco, the appellate court held
that Sanchez Brokerage is presumed negligent and upon it rested the
burden of proving that it exercised extraordinary negligence not only in
instances when negligence is directly proven but also in those cases
when the cause of the damage is not known or unknown. [37]

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant


is GRANTED. The Decision of the Court a quo is REVERSED. Another
Decision is hereby rendered in favor of the Appellant and against the
Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the


principal amount of P181, 431.49, with interest thereupon
at the rate of 6% per annum, from the date of the
Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the


amount of P20,000.00 as and by way of attorneys fees;
and

3. The counterclaims of the Appellee are DISMISSED. [38]

Sanchez Brokerages Motion for Reconsideration having been denied


by the appellate courts Resolution of December 8, 2000 which was
received by petitioner on January 5, 2001, it comes to this Court on
petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed
grave and reversible error tantamount to abuse of discretion when it
found petitioner a common carrier within the context of Article 1732 of
the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper
course of action which petitioner should have taken was to file a petition
for review on certiorari since the sole office of a writ of certiorari is the
correction of errors of jurisdiction including the commission of grave
abuse of discretion amounting to lack or excess of jurisdiction and does
not include correction of the appellate courts evaluation of the evidence
and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner,
as a common carrier, failed to overcome the presumption of negligence,
it being documented that petitioner withdrew from the warehouse of PSI
the subject shipment entirely in good order and condition. [39]

The petition fails.


Rule 45 is clear that decisions, final orders or resolutions of the Court
of Appeals in any case, i.e., regardless of the nature of the action or
proceedings involved, may be appealed to this Court by filing a petition
for review, which would be but a continuation of the appellate process
over the original case. [40]

The Resolution of the Court of Appeals dated December 8, 2000


denying the motion for reconsideration of its Decision of August 10, 2000
was received by petitioner on January 5, 2001. Since petitioner failed to
appeal within 15 days or on or before January 20, 2001, the appellate
courts decision had become final and executory. The filing by petitioner
of a petition for certiorari on March 6, 2001 cannot serve as a substitute
for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari,
the petitioner must prove not merely reversible error but also grave
abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and
setting aside the decision of the trial court based on its finding that
petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of
jurisdiction, which is properly the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal
soundness of the decision not the jurisdiction of the court to render said
decision the same is beyond the province of a petition
for certiorari. The supervisory jurisdiction of this Court to issue
[41]

a cert writ cannot be exercised in order to review the judgment of lower


courts as to its intrinsic correctness, either upon the law or the facts of
the case. [42]

Procedural technicalities aside, the petition still fails.


The appellate court did not err in finding petitioner, a customs broker,
to be also a common carrier, as defined under Article 1732 of the Civil
Code, to wit:

Art. 1732. Common carriers are persons, corporations, firms 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.

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of


Sanchez Brokerage, himself testified that the services the firm offers
include the delivery of goods to the warehouse of the consignee or
importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and
those upon approval of the importer, we prepare the entry together for
processing and claims from customs and finally deliver the goods to the
warehouse of the importer.[43]

Article 1732 does not distinguish between one whose principal


business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. The contention, therefore, of
[44]

petitioner that it is not a common carrier but a customs broker whose


principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It
suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
In this light, petitioner as a common carrier is mandated to observe,
under Article 1733 of the Civil Code, extraordinary diligence in the
[45]

vigilance over the goods it transports according to all the circumstances


of each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted
negligently, unless it proves that it observed extraordinary
diligence. [46]

The concept of extra-ordinary diligence was explained in Compania


Maritima v. Court of Appeals: [47]

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted
to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable
means to ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires. [48]

In the case at bar, it was established that petitioner received the


cargoes from the PSI warehouse in NAIA in good order and
condition; and that upon delivery by petitioner to Hizon Laboratories
[49]

Inc., some of the cargoes were found to be in bad order, as noted in the
Delivery Receipt issued by petitioner, and as indicated in the Survey
[50]

Report of Elite Surveyors and the Destruction Report of Hizon


[51]

Laboratories, Inc. [52]

In an attempt to free itself from responsibility for the damage to the


goods, petitioner posits that they were damaged due to the fault or
negligence of the shipper for failing to properly pack them and to the
inherent characteristics of the goods ; and that it should not be faulted
[53]

for following the instructions of Calicdan of Wyeth-Suaco to proceed with


the delivery despite information conveyed to the latter that some of the
cartons, on examination outside the PSI warehouse, were found to be
wet.[54]
While paragraph No. 4 of Article 1734 of the Civil Code exempts a
[55]

common carrier from liability if the loss or damage is due to the character
of the goods or defects in the packing or in the containers, the rule is that
if the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the
same without protest or exception notwithstanding such condition, he is
not relieved of liability for the resulting damage.[56]

If the claim of petitioner that some of the cartons were already


damaged upon delivery to it were true, then it should naturally have
received the cargo under protest or with reservations duly noted on the
receipt issued by PSI. But it made no such protest or reservation. [57]

Moreover, as observed by the appellate court, if indeed petitioners


employees only examined the cargoes outside the PSI warehouse and
found some to be wet, they would certainly have gone back to PSI,
showed to the warehouseman the damage, and demanded then and
there for Bad Order documents or a certification confirming the
damage. Or, petitioner would have presented, as witness, the
[58]

employees of the PSI from whom Morales and Domingo took delivery of
the cargo to prove that, indeed, part of the cargoes was already
damaged when the container was allegedly opened outside the
warehouse. [59]

Petitioner goes on to posit that contrary to the report of Elite


Surveyors, no rain fell that day. Instead, it asserts that some of the
cargoes were already wet on delivery by PSI outside the PSI warehouse
but such notwithstanding Calicdan directed Morales to proceed with the
delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call
of Morales on July 29, 1992, he failed to specifically declare what time he
received the call. As to whether the call was made at the PSI warehouse
when the shipment was stripped from the airport containers, or when the
cargoes were already in transit to Antipolo, it is not determinable. Aside
from that phone call, petitioner admitted that it had no documentary
evidence to prove that at the time it received the cargoes, a part of it was
wet, damaged or in bad condition. [60]

The 4-page weather data furnished by PAGASA on request of


[61]

Sanchez Brokerage hardly impresses, no witness having identified it and


interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon
Laboratories, Inc., the oral contraceptives were damaged by rainwater
while in transit to Antipolo City is more likely then. Sanchez himself
testified that in the past, there was a similar instance when the shipment
of Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives,
that arrived at the NAIA were damaged and claimed by the Wyeth-Suaco
without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but
Wyeth-Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a
cartoon (sic) wetted (sic) up to the bottom are wet specially during rainy
season.[62]

Since petitioner received all the cargoes in good order and condition
at the time they were turned over by the PSI warehouseman, and upon
their delivery to Hizon Laboratories, Inc. a portion thereof was found to
be in bad order, it was incumbent on petitioner to prove that it exercised
extraordinary diligence in the carriage of the goods. It did not, however.
Hence, its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals
is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

2. Effect of Charter Party.


3. Common carrier v. Private Carrier.

Laws and Jurisprudence:

a.Cebu Salvage Corporation v. Philippine Home


Assurance Corp. G.R. No. 150403 January 25, 2007
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?

This is the issue presented for the Courts resolution in this petition for review on
certiorari1 assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27,
1989 decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.5

The pertinent facts follow.


On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc.8

Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day.9 The shipment never reached its destination, however, because the M/T Espiritu Santo
sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting
in the total loss of the cargo.10

MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12Thereafter, it filed a case in the RTC13 against petitioner
for reimbursement of the amount it paid MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.

On appeal, the CA affirmed the decision of the RTC. Hence, this petition.

Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance of goods, in
consideration of the payment of freight.14 Under a voyage charter, the shipowner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of freight.15 An owner who retains
possession of the ship remains liable as carrier and must answer for loss or non-delivery of
the goods received for transportation.16

Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage.17 It insists that the agreement was merely
a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have control and
supervision over the vessel, its master and crew.19 Thus, it could not be held liable for the loss
of the shipment caused by the sinking of a ship it did not own.

We disagree.

Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down.20

There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo,
it was engaged in the business of carrying and transporting goods by water, for compensation,
and offered its services to the public.21

From the nature of their business and for reasons of public policy, common carriers are bound
to observe extraordinary diligence over the goods they transport according to the
circumstances of each case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by the causes specified in
Article 1734 of the Civil Code.23 In all other cases, common carriers are presumed to be at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had
control over what vessel it would use. All throughout its dealings with MCCII, it represented
itself as a common carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and duties as a common
carrier. The MCCII (respondents subrogor) could not be reasonably expected to inquire
about the ownership of the vessels which petitioner carrier offered to utilize. As a practical
matter, it is very difficult and often impossible for the general public to enforce its rights of
action under a contract of carriage if it should be required to know who the actual owner of the
vessel is.25 In fact, in this case, the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel.26

Petitioner next contends that if there was a contract of carriage, then it was between MCCII
and ALS as evidenced by the bill of lading ALS issued.27

Again, we disagree.

The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed
by the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract directly
with ALS. While it is true that a bill of lading may serve as the contract of carriage between the
parties,29 it cannot prevail over the express provision of the voyage charter that MCCII and
petitioner executed:

[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard
a vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill
of lading operates as the receipt for the goods, and as document of title passing the property
of the goods, but not as varying the contract between the charterer and the shipowner." The
Bill of Lading becomes, therefore, only a receipt and not the contract of carriage in a charter
of the entire vessel, for the contract is the Charter Party, and is the law between the parties
who are bound by its terms and condition provided that these are not contrary to law, morals,
good customs, public order and public policy. 30

Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account.31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach of its contract of carriage.
The law, in fact, prohibits it and condemns it as unjust and contrary to public policy.32

To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on
board the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove
that it exercised extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of affreightment, the
carrier was answerable for the loss of the goods received for transportation.33

The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does
not own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the carrier
and the supposed owner and to the possible shifting of liability from the carrier to one without
any financial capability to answer for the resulting damages.34

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.
b. Valenzuela Hardwood and Industrial Supply, Inc. v. CA
G.R No. 102316 June 30, 1997

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 valid? This is the main question raised in this
[1]

petition for review assailing the Decision of Respondent Court of


Appeals in CA-G.R. No. CV-20156 promulgated on October 15,
[2]

1991. The Court of Appeals modified 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
(P2,000,000.00) representing the value of lost logs plus legal interest from the
date of demand on April 24, 1984 until full payment thereof; the reasonable
attorneys fees in the amount equivalent to five (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 Companys 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 formers 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 plaintiffs 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 filed 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 (P2,000,000.00) 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 attorneys 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 attorneys 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 indorsement 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 attorneys
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 latters lost
logs.[4]
The Court of Appeals affirmed in part the RTC judgment by
sustaining the liability of South Sea Surety and Insurance Company
(South Sea), but modified it by holding that Seven Brothers Shipping
Corporation (Seven Brothers) was not liable for the lost cargo. In [5]

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) filed separate petitions for review before this
Court. In a Resolution dated June 2, 1995, this Court denied the petition
of South Sea. There the Court found no reason to reverse the factual
[7]

findings of the trial court and the Court of Appeals that Chua was indeed
an authorized agent of South Sea when he received Valenzuelas
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 filed
by Valenzuela assailing the CA Decision which exempted Seven
Brothers from any liability for the lost cargo.

The Issue

Petitioner Valenzuelas arguments revolve 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 petitioners logs arising from the
negligence of its (Seven Brothers) captain. [9]
The Courts 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. The [10]

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. Likewise undisputed is the
[11]

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, citing Article 1745 of the Civil Code which
[13]

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 carriers 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 and Articles
[14]

1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1,
Article 1409 of the Civil Code, petitioner further contends that said
[15]

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
petitioners 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 of the [17]

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 justifiably 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. In that case, the
[18]

trial court similarly nullified 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 from 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 find 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 this case of a ship totally
chartered for the use of a single party. (Underscoring supplied.)
[19]

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
carriers 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. This contention of petitioner is bereft of merit, for it raises a
[20]

distinction without any substantive difference. The case of Home


Insurance specifically dealt with the liability of the shipowner for acts or
negligence of its captain and crew and a charter party stipulation which
[21]

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. Undoubtedly, Home Insurance is applicable to the case at
[22]

bar.
The naked assertion of petitioner that the American rule enunciated
in Home Insurance is not the rule in the Philippines deserves scant
[23]

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 fine, 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 agent 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 benefit 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. We are not [25]

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. Being patently and undoubtedly patrimonial, petitioners right
[26]

conferred under said articles may be waived. This, the petitioner did by
acceding to the contractual stipulation that it is solely responsible for 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 which read:
[27]

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 provides the standard of ordinary diligence for the
[28]

carriage of goods by a carrier. The standard of diligence under this


statutory provision may, however, be modified 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. which, in turn,


[29]

quoted Juan Ysmael & Co. vs. Gabino Barreto & Co. and argues that
[30]

the public policy considerations stated there vis--viscontractual


stipulations limiting the carriers liability be applied with equal force to this
case. It [31]
also cites Manila Railroad Co. vs. Compaia
Transatlantica and contends that stipulations exempting a party from
[32]

liability for damages due to negligence should not be countenanced and


should be strictly construed against the party claiming its benefit. We [33]

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 carriers. 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 construed to make sense together with the stipulation against
liability for damages. In the present case, we stress that the private
[34]

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, Walter A. Smith & Co. vs. Cadwallader Gibson Lumber
[35]

Co., N. T. Hashim and Co. vs. Rocha and Co., Ohta Development Co.
[36] [37]

vs. SteamshipPompey and Limpangco Sons vs. Yangco Steamship


[38]

Co. in support of its contention that the shipowner be held liable for
[39]

damages. These however are not on all fours with the present case
[40]

because they do not involve a similar factual milieu or an identical


stipulation in the charter party expressly exempting the shipowner from
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 affirmed 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. In view of the above disquisition upholding the validity
[41]

of the questioned charter party stipulation and holding that petitioner


may not recover from private respondent, the present issue is moot and
academic. It suffices to state that the Resolution of this Court dated June
2, 1995 affirming the liability of South Sea does not, by itself,
[42]

necessarily preclude the petitioner from proceeding against private


respondent. An aggrieved party may still recover the deficiency from 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 plaintiffs property has been insured, and he has received
indemnity from 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
deficiency from 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

c. Loadmasters Customs Services, Inc. Glodel Brokerage


Corporation, G.R. No. 179446 January 10, 2011

This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court assailing the August 24, 2007 Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 82822, entitled R&B Insurance Corporation v.
Glodel Brokerage Corporation and Loadmasters Customs Services, Inc.,
which held petitioner Loadmasters Customs Services,
Inc. (Loadmasters) liable to respondent Glodel Brokerage
Corporation (Glodel) in the amount of P1,896,789.62 representing the
insurance indemnity which R&B Insurance Corporation (R&B
Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).

THE FACTS:

On August 28, 2001, R&B Insurance issued Marine Policy No.


MN-00105/2001 in favor of Columbia to insure the shipment of 132 bundles
of electric copper cathodes against All Risks. On August 28, 2001, the
cargoes were shipped on board the vessel Richard Rey from Isabela, Leyte,
to Pier 10, North Harbor, Manila. They arrived on the same date.

Columbia engaged the services of Glodel for the release and


withdrawal of the cargoes from the pier and the subsequent delivery to its
warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for
the use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by


Loadmasters, driven by its employed drivers and accompanied by its
employed truck helpers. Six (6) truckloads of copper cathodes were to be
delivered to Balagtas, Bulacan, while the other six (6) truckloads were
destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for
Lawang Bato were duly delivered in Columbias warehouses there. Of the six
(6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper
cathodes, failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but
without the copper cathodes. Because of this incident, Columbia filed with
R&B Insurance a claim for insurance indemnity in the amount
of P1,903,335.39. After the requisite investigation and adjustment, R&B
Insurance paid Columbia the amount of P1,896,789.62 as insurance
indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both


Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila
(RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of
the amount it had paid to Columbia for the loss of the subject cargo. It
claimed that it had been subrogated to the right of the consignee to recover
from the party/parties who may be held legally liable for the loss.[2]

On November 19, 2003, the RTC rendered a decision[3] holding Glodel


liable for damages for the loss of the subject cargo and dismissing
Loadmasters counterclaim for damages and attorneys fees against R&B
Insurance. The dispositive portion of the decision reads:

WHEREFORE, all premises considered, the plaintiff


having established by preponderance of evidence its claims
against defendant Glodel Brokerage Corporation, judgment
is hereby rendered ordering the latter:

1. To pay plaintiff R&B Insurance Corporation


the sum of P1,896,789.62 as actual and
compensatory damages, with interest from the
date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation
the amount equivalent to 10% of the principal
amount recovered as and for attorneys fees
plus P1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation
the sum of P22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs
Services, Inc.s counterclaim for damages and attorneys fees
against plaintiff are hereby dismissed.

With costs against defendant Glodel Brokerage


Corporation.
SO ORDERED.[4]
Both R&B Insurance and Glodel appealed the RTC decision to the CA.

On August 24, 2007, the CA rendered the assailed decision which reads
in part:

Considering that appellee is an agent of appellant


Glodel, whatever liability the latter owes to appellant R&B
Insurance Corporation as insurance indemnity must
likewise be the amount it shall be paid by appellee
Loadmasters.

WHEREFORE, the foregoing considered, the appeal is


PARTLY GRANTED in that the appellee Loadmasters is
likewise held liable to appellant Glodel in the amount
of P1,896,789.62 representing the insurance indemnity
appellant Glodel has been held liable to appellant R&B
Insurance Corporation.
Appellant Glodels appeal to absolve it from any
liability is herein DISMISSED.

SO ORDERED.[5]

Hence, Loadmasters filed the present petition for review on certiorari


before this Court presenting the following

ISSUES

1. Can Petitioner Loadmasters be held liable to


Respondent Glodel in spite of the fact that the latter
respondent Glodel did not file a cross-claim against it
(Loadmasters)?

2. Under the set of facts established and undisputed in the


case, can petitioner Loadmasters be legally considered as an
Agent of respondent Glodel?[6]

To totally exculpate itself from responsibility for the lost goods,


Loadmasters argues that it cannot be considered an agent of Glodel because it
never represented the latter in its dealings with the consignee. At any rate, it
further contends that Glodel has no recourse against it for its (Glodels) failure
to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil
Procedure.

Glodel, in its Comment,[7] counters that Loadmasters is liable to it under its


cross-claim because the latter was grossly negligent in the transportation of
the subject cargo. With respect to Loadmasters claim that it is already
estopped from filing a cross-claim, Glodel insists that it can still do so even
for the first time on appeal because there is no rule that provides
otherwise. Finally, Glodel argues that its relationship with Loadmasters is
that of Charter wherein the transporter (Loadmasters) is only hired for the
specific job of delivering the merchandise. Thus, the diligence required in
this case is merely ordinary diligence or that of a good father of the family,
not the extraordinary diligence required of common carriers.

R&B Insurance, for its part, claims that Glodel is deemed to have interposed
a cross-claim against Loadmasters because it was not prevented from
presenting evidence to prove its position even without amending its
Answer. As to the relationship between Loadmasters and Glodel, it contends
that a contract of agency existed between the two corporations.[8]

Subrogation is the substitution of one person in the place of another


with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities.[9] Doubtless, R&B Insurance is subrogated to the
rights of the insured to the extent of the amount it paid the consignee under
the marine insurance, as provided under Article 2207 of the Civil Code,
which reads:

ART. 2207. If the plaintiffs property has been insured,


and he has received indemnity from 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
wrong-doer 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 deficiency from the person causing the loss or
injury.

As subrogee of the rights and interest of the consignee, R&B Insurance


has the right to seek reimbursement from either Loadmasters or Glodel or
both for breach of contract and/or tort.

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B
Insurance for the amount of the indemnity it paid Columbia.

At the outset, it is well to resolve the issue of whether Loadmasters and Glodel
are common carriers to determine their liability for the loss of the subject
cargo. Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier
because it is engaged in the business of transporting goods by land, through
its trucking service. It is a common carrier as distinguished from a private
carrier wherein the carriage is generally undertaken by special agreement
and it does not hold itself out to carry goods for the general public. [10] The
distinction is significant in the sense that the rights and obligations of the
parties to a contract of private carriage are governed principally by their
stipulations, not by the law on common carriers.[11]

In the present case, there is no indication that the undertaking in the


contract between Loadmasters and Glodel was private in character. There is
no showing that Loadmasters solely and exclusively rendered services to
Glodel.

In fact, Loadmasters admitted that it is a common carrier.[12]

In the same vein, Glodel is also considered a common carrier within


the context of Article 1732. In its Memorandum,[13] it states that it is a
corporation duly organized and existing under the laws of the Republic of
the Philippines and is engaged in the business of customs brokering. It
cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc.,[14] a customs
broker is also regarded as a common carrier, the transportation of goods
being an integral part of its business.

Loadmasters and Glodel, being both common carriers, are mandated


from the nature of their business and for reasons of public policy, to observe
the extraordinary diligence in the vigilance over the goods transported by
them according to all the circumstances of such case, as required by Article
1733 of the Civil Code. When the Court speaks of extraordinary diligence,
it is that extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving their own
property or rights.[15] This exacting standard imposed on common carriers in
a contract of carriage of goods is intended to tilt the scales in favor of the
shipper who is at the mercy of the common carrier once the goods have been
lodged for shipment.[16] Thus, in case of loss of the goods, the common
carrier is presumed to have been at fault or to have acted negligently. [17] This
presumption of fault or negligence, however, may be rebutted by proof that
the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the


Civil Code provides that the exercise of extraordinary diligence lasts from
the time the goods are unconditionally placed in the possession of, and
received by, the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them.[18]
Premises considered, the Court is of the view that both Loadmasters
and Glodel are jointly and severally liable to R & B Insurance for the loss of
the subject cargo. Under Article 2194 of the New Civil Code, the
responsibility of two or more persons who are liable for a quasi-delict is
solidary.

Loadmasters claim that it was never privy to the contract entered into
by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not
a valid defense. It may not have a direct contractual relation with Columbia,
but it is liable for tort under the provisions of Article 2176 of the Civil Code
on quasi-delicts which expressly provide:

ART. 2176. Whoever by act or omission causes damage


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

Pertinent is the ruling enunciated in the case of Mindanao Terminal


and Brokerage Service, Inc. v. Phoenix Assurance Company of New
York,/McGee & Co., Inc.[19] where this Court held that a tort may arise
despite the absence of a contractual relationship, to wit:

We agree with the Court of Appeals that the complaint filed


by Phoenix and McGee against Mindanao Terminal, from
which the present case has arisen, states a cause of action.
The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes
belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights
of Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the
Courts consistent ruling that the act that breaks the
contract may be also a tort. In fine, a liability for tort may
arise even under a contract, where tort is that which
breaches the contract. In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the
breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the
absence of contractual relationship between Del Monte
Produce and Mindanao Terminal, the allegation of
negligence on the part of the defendant should be sufficient
to establish a cause of action arising from
quasi-delict. [Emphases supplied]

In connection therewith, Article 2180 provides:

ART. 2180. The obligation imposed by Article 2176 is


demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by


their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not
engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were instrumental in
the hijacking or robbery of the shipment.As employer, Loadmasters should be
made answerable for the damages caused by its employees who acted within
the scope of their assigned task of delivering the goods safely to the
warehouse.

Whenever an employees negligence causes damage or injury to


another, there instantly arises a presumption juris tantum that the employer
failed to exercise diligentissimi patris families in the selection (culpa in
eligiendo) or supervision (culpa in vigilando) of its employees.[20] To avoid
liability for a quasi-delict committed by its employee, an employer must
overcome the presumption by presenting convincing proof that he exercised
the care and diligence of a good father of a family in the selection and
supervision of his employee.[21] In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary


diligence. It failed to ensure that Loadmasters would fully comply with the
undertaking to safely transport the subject cargo to the designated
destination. It should have been more prudent in entrusting the goods to
Loadmasters by taking precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should, therefore, be
held liable with Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent
relationship between Glodel and Loadmasters, as erroneously found by the
CA. Article 1868 of the Civil Code provides: By the contract of agency a
person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the
latter. The elements of a contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as
a representative and not for himself; (4) the agent acts within the scope of
his authority.[22]

Accordingly, there can be no contract of agency between the


parties. Loadmasters never represented Glodel. Neither was it ever
authorized to make such representation. It is a settled rule that the basis for
agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. On the
part of the principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while on the part of
the agent, there must be an intention to accept the appointment and act on
it.[23] Such mutual intent is not obtaining in this case.

What then is the extent of the respective liabilities of Loadmasters and


Glodel? Each wrongdoer is liable for the total damage suffered by R&B
Insurance. Where there are several causes for the resulting damages, a party
is not relieved from liability, even partially. It is sufficient that the
negligence of a party is an efficient cause without which the damage would
not have resulted. It is no defense to one of the concurrent tortfeasors that
the damage would not have resulted from his negligence alone, without the
negligence or wrongful acts of the other concurrent tortfeasor. As stated in
the case of Far Eastern Shipping v. Court of Appeals,[24]
X x x. Where several causes producing an injury are
concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be
attributed to all or any of the causes and recovery may be
had against any or all of the responsible persons although
under the circumstances of the case, it may appear that one
of them was more culpable, and that the duty owed by them
to the injured person was not the same. No actor's
negligence ceases to be a proximate cause merely because it
does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as
though his acts were the sole cause of the injury.
There is no contribution between joint tortfeasors
whose liability is solidary since both of them are liable for
the total damage. Where the concurrent or successive
negligent acts or omissions of two or more persons, although
acting independently, are in combination the direct and
proximate cause of a single injury to a third person, it is
impossible to determine in what proportion each
contributed to the injury and either of them is responsible for
the whole injury. Where their concurring negligence resulted
in injury or damage to a third party, they become joint
tortfeasors and are solidarily liable for the resulting damage
under Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether Glodel can collect from
Loadmasters, it having failed to file a cross-claim against the latter.

Undoubtedly, Glodel has a definite cause of action against


Loadmasters for breach of contract of service as the latter is primarily liable
for the loss of the subject cargo. In this case, however, it cannot succeed in
seeking judicial sanction against Loadmasters because the records disclose
that it did not properly interpose a cross-claim against the latter. Glodel did
not even pray that Loadmasters be liable for any and all claims that it may be
adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory
counterclaim, or a cross-claim, not set up shall be barred.[25]Thus, a
cross-claim cannot be set up for the first time on appeal.

For the consequence, Glodel has no one to blame but itself. The Court
cannot come to its aid on equitable grounds. Equity, which has been aptly
described as a justice outside legality, is applied only in the absence of, and
never against, statutory law or judicial rules of procedure.[26] The Court
cannot be a lawyer and take the cudgels for a party who has been at fault or
negligent.

WHEREFORE, the petition is PARTIALLY


GRANTED. The August 24, 2007 Decision of the Court of Appeals
is MODIFIED to read as follows:

WHEREFORE, judgment is rendered declaring


petitioner Loadmasters Customs Services, Inc. and respondent
Glodel Brokerage Corporation jointly and severally liable to
respondent R&B Insurance Corporation for the insurance
indemnity it paid to consignee Columbia Wire & Cable
Corporation and ordering both parties to pay, jointly and
severally, R&B Insurance Corporation a] the amount
of P1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorneys
fees; and c] the amount of P22,427.18 for litigation expenses.

The cross-claim belatedly prayed for by respondent


Glodel Brokerage Corporation against petitioner Loadmasters
Customs Services, Inc. is DENIED.
SO ORDERED.

4. Common carrier v. Other contracts.


4.1Distinguish from:
a. Towage.
b. Arrastre.
c. Stevedoring,
d. Travel Agency.

Laws and Jurisprudence:


a. Cargolift Shipping Inc. V. L. Actuario Marketing Co.
and Skyland Brokerage June 27, 2006

This is a petition for review on certiorari of the July 6, 2000 Decision [1] of
the Court of Appeals in CA-G.R. CV No. 55664, which affirmed the
judgment[2] of the Regional Trial Court of Caloocan City, Branch 121, in
Civil Case No. C-16120 in so far as it found petitioner Cargolift Shipping,
Inc. (Cargolift) liable, as third-party defendant, for actual damages in the
sum of P97,021.20, as well as the November 28, 2000 Resolution[3] denying
the motion for reconsideration.

The antecedent facts of the case are as follows:

Sometime in March 1993, respondent L. Acuario Marketing Corp.,


(Acuario) and respondent Skyland Brokerage, Inc., (Skyland) entered into a
time charter agreement[4] whereby Acuario leased to Skyland its L. Acuario
II barge for use by the latter in transporting electrical posts from Manila to
Limay, Bataan. At the same time, Skyland also entered into a separate
contract[5] with petitioner Cargolift, for the latters tugboats to tow the
aforesaid barge.

In accordance with the foregoing contracts, petitioners tugboat M/T


Beejay left the Manila South Harbor on April 1, 1993 with Acuarios barge in
tow. It reached the port of Limay, Bataan on April 3, 1993, whereupon M/T
Beejay disengaged and once again set sail for Manila. Petitioners other
tugboat, the M/T Count, remained in Bataan to secure the barge for
unloading.

Off-loading operations went underway until April 7, 1993, when


operations were interrupted for the next two days to give way to the
observance of the lenten season. The unloading of the cargo was concluded
on April 12, 1993, by which time M/T Beejay had gone back to Bataan for the
return trip. The M/T Beejay and the barge returned to
the port of Manila on April 13, 1993.

On the same day, the barge was brought to Acuarios shipyard where it
was allegedly discovered by Acuarios dry-docking officer, Guillermo Nacu,
Jr., that the barge was listing due to a leak in its hull. According to Nacu, he
was informed by the skipper of the tugboat that the damage was sustained
in Bataan. To confirm the same, Nacu ordered an underwater survey of the
barge and prepared a damage report dated April 14, 1993. No representative
of Skyland was present during the inspection although it was furnished with a
copy of the said report.

The barge was consequently dry-docked for repairs at the Western


Shipyard from April 16 to April 26, 1993. Acuario spent the total sum of
P97,021.20 for the repairs.[6]

Pursuant to its contract with Skyland which provided that (a)ny


damage or loss on the barge due to the fault or negligence of charterers shall
be the responsibility of the (c)harterer or his representative,[7] Acuario wrote
Skyland seeking reimbursement of its repair costs, failing which, it filed a
complaint for damages against Skyland before the Regional Trial Court of
Caloocan City, where the case was docketed as Civil Case No. C-16120 and
raffled to Branch 121.

Skyland, in turn, filed a third-party complaint[8] against petitioner alleging


that it was responsible for the damage sustained by the barge.
According to Acuario and its witnesses, the weather in Bataan shifted
drastically at dawn of April 7, 1993 while the barge was docked at the
Limay port eight meters away from the stone wall. Due to strong winds and
large waves, the barge repeatedly hit its hull on the wall, thus prompting the
barge patron to alert the tugboat captain of the M/T Count to tow the barge
farther out to sea. However, the tugboat failed to pull the barge to a safer
distance due to engine malfunction, thereby causing the barge to sustain a
hole in its hull. Fortunately, no part of the cargo was lost even if only half of
it had been unloaded at that time.[9]

On the other hand, petitioner and Skyland denied that the barge had been
damaged. One of its witnesses, Salvador D. Ocampo, claimed that he was
involved in all aspects of the operation and that no accident of any sort was
brought to his knowledge. He alleged that the barge patron and tug master
made no mention of any maritime casualty during the clearing of the vessels
at the Philippine Ports Authority in Limay, Bataan. The barge was in good
condition and was not damaged when it was turned over to Acuario on April
13, 1993.[10]

In due course, the trial court promulgated its decision dated June 10, 1996, the
dispositive part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered


as follows:

1. Ordering the defendant Skyland Brokerage to pay


to the plaintiff L. Acuario Marketing
Corporation the cost of repairs of the barge L.
Acuario II in the amount of P97,021.20 and to
seek reimbursement from the third-party
defendant Cargolift Shipping;
2. Ordering the defendant to pay attorneys fees in the
amount of P24,255.30 and to seek
reimbursement thereof from the third-party
defendant; and
3. Ordering the defendant to pay the costs of suit
subject to reimbursement from the third-party
defendant.

SO ORDERED.[11]

The trial court gave credence to the testimonies of Acuarios witnesses


that the barge sustained damage while it was being chartered by Skyland. It
held that the positive testimonies of Acuarios witnesses, coupled with
documentary evidence detailing the nature and extent of the damage as well
as the repairs done on the barge, should prevail over the bare denials of
Skyland and petitioner. It also noted that two of the latters three witnesses
were not in Limay, Bataan when the incident happened.

The trial court further held that Skyland was liable under its time
charter agreement with Acuario pursuant to Article 1159 of the Civil Code
which states that contracts have the force of law between the contracting
parties. Skyland must bear the consequences of the tugboats incapacity to
respond to the barges request for assistance because Acuario had no control
in the selection of the tugboats used by Skyland. But since the ultimate fault
lies with petitioner, justice demands that the latter reimburse Skyland for
whatever it may be adjudged to pay Acuario.[12]

Both Skyland and petitioner elevated the matter to the Court of


Appeals which, on July 6, 2000, rendered the assailed Decision affirming the
trial court, but deleting the award of attorneys fees. Upon denial of its
motion for reconsideration,[13] petitioner brought the instant petition raising
the following issues:

WHETHER THE COURT OF APPEALS ERRED IN


AFFIRMING THE FINDING OF THE TRIAL COURT THAT L.
ACUARIO II SUSTAINED DAMAGE AND THAT IT WAS
SUSTAINED DURING ITS CHARTER TO RESPONDENT
SKYLAND.

II

ASSUMING THAT L. ACUARIO II SUFFERED DAMAGE,


WHETHER THE COURT OF APPEALS ERRED IN
UPHOLDING THE TRIAL COURT DECISION HOLDING
PETITIONER LIABLE THEREFOR.[14]

The petition lacks merit.

On the first assigned error, petitioner is asking this Court to resolve factual
issues that have already been settled by the courts below. The question of
whether the barge had been damaged during its charter to Skyland is a
factual matter, the determination of which may not be generally disturbed on
appeal. Questions of fact are not reviewable by this Court except under
certain exceptional circumstances.[15] No such exceptional circumstance
exists in the case at bar.
On the contrary, the factual conclusions reached by the courts below are
consistent with the evidence on record. Acuarios witnesses testified that
strong winds and waves caused the barge to bump into the walls of the pier
where it was berthed for unloading. Petitioners tugboat failed to tow it
farther away due to engine breakdown, thus causing the barge to sustain a
hole in its hull. These testimonies were duly supported and corroborated by
documentary evidence detailing the damage and repairs done on the
barge.[16]

On the other hand, petitioner and Skylands denial that there was inclement
weather in the early hours of April 7, 1993 and that the barge sustained no
damage on this occasion were not supported by evidence to overcome the
positive allegations of Acuarios witnesses who were present at the place and
time of the incident. The categorical declaration of Acuarios witnesses
regarding the events which led to the damage on the barge shifted the burden
of evidence on petitioner and Skyland. They could have easily disproved
Acuarios claims by presenting competent proof that there was no weather
disturbance on that day or, by presenting the testimony of individuals who
have personal knowledge of the events which transpired.

Moreover, the inability of petitioners and Skylands witnesses to


unequivocally declare that it was still the M/T Count that secured the barge
during the resumption of off-loading operations casts suspicion on their
credibility. As aptly observed by the trial court, such hesitation on the part of
its witnesses is indicative of uncertainty, if not a propensity to withhold
information that could be unfavorable to their cause.[17] To our mind,
therefore, the trial court rightly concluded that petitioners M/T Count indeed
encountered mechanical trouble, as asserted by Acuario. The fact that
petitioner did not categorically deny the allegation of mechanical trouble
only serves to strengthen the trial courts conclusion.

Petitioners assertion that it is contrary to human experience for the barge to


have made the return trip to Manila if it sustained the alleged damage
deserves short shrift. The trial court found that the damage on the barge was
not too extensive as to render it incapable of staying afloat and being used in
operation. Neither was it impossible for the barges cargo to remain intact
and undamaged during the weather disturbance. Apart from the fact that the
cargo which consisted of wooden electric poles are, by nature, not easily
damaged by adverse weather,[18] part of it had already been unloaded when
the unfortunate incident occurred.
Consequently, we find no cogent reason to disturb the lower courts
finding that the barge sustained a hole in its hull when petitioners tugboat
failed to tow it to a safer distance as the weather changed in
the port of Limay. This Court is bound by the factual determinations of the
appellate court especially when these are supported by substantial evidence
and merely affirm those of the trial court,[19] as in this case. There is no
showing here that the inferences made by the Court of Appeals were
manifestly mistaken, or that the appealed judgment was based on a
misapprehension of facts, or that the appellate court overlooked certain
relevant, undisputed facts which, if properly considered, would justify a
different conclusion.[20] Thus, a reversal of the factual findings in this case is
unwarranted.

As for the second assigned error, petitioner asserts that it could not be held
liable for the damage sustained by Acuarios barge because the latter sought to
recover upon its contract with Skyland, to which petitioner was not a
party. Since it had no contractual relation with Acuario, only Skyland should
be held liable under the contract. Besides, Skyland contractually assumed the
risk that the tugboat might encounter engine trouble when it acknowledged in
its contract with petitioner that the latters vessels were in good order and in
seaworthy condition. At any rate, it was neither negligent in the performance
of its obligation nor the proximate cause of the damage.

We do not agree.

It was not Acuario that seeks to hold petitioner liable for the damage to the
barge, as the former in fact sued only Skyland pursuant to their charter
agreement. It was Skyland that impleaded petitioner as third-party defendant
considering that Skyland was being held accountable for the damage
attributable to petitioner. In other words, petitioner was not sued under
Skylands charter agreement with Acuario, but pursuant to its separate
undertaking with Skyland. Strictly speaking, therefore, petitioner is not being
held liable under any charter agreement with Acuario.

Consequently, it is not correct for petitioner to assert that Acuario could not
recover damages from it due to lack of privity of contract between them. It is
not Acuario that is seeking damages from petitioner but Skyland, with whom
it undoubtedly had a juridical tie. While Acuario could hold Skyland liable
under its charter agreement, Skyland in turn could enforce liability on
petitioner based on the latters obligation to Skyland. In other words, petitioner
is being held liable by Skyland and not by Acuario.
Thus, in the performance of its contractual obligation to Skyland, petitioner
was required to observe the due diligence of a good father of the
family. This much was held in the old but still relevant case of Baer Senior
& Co.s Successors v. La Compania Maritima[21] where the Court explained
that a tug and its owners must observe ordinary diligence in the performance
of its obligation under a contract of towage. The negligence of the obligor in
the performance of the obligation renders him liable for damages for the
resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance
of the obligation as the nature of the obligation so demands.[22]

In the case at bar, the exercise of ordinary prudence by petitioner means


ensuring that its tugboat is free of mechanical problems. While adverse
weather has always been a real threat to maritime commerce, the least that
petitioner could have done was to ensure that the M/T Count or any of its
other tugboats would be able to secure the barge at all times during the
engagement. This is especially true when considered with the fact that
Acuarios barge was wholly dependent upon petitioners tugboat for
propulsion. The barge was not equipped with any engine and needed a
tugboat for maneuvering.[23]

Needless to say, if petitioner only subjected the M/T Count to a more rigid
check-up or inspection, the engine malfunction could have been discovered or
avoided. The M/T Count was exclusively controlled by petitioner and the
latter had the duty to see to it that the tugboat was in good running
condition. There is simply no basis for petitioners assertion that Skyland
contractually assumed the risk of any engine trouble that the tugboat may
encounter. Skyland merely procured petitioners towing service but in no way
assumed any such risk.

That petitioners negligence was the proximate cause of the damage to the
barge cannot be doubted. Had its tugboat been serviceable, the barge could
have been moved away from the stone wall with facility. It is too late in the
day for petitioner to insist that the proximate cause of the damage was the
barge patrons negligence in not objecting to the position of the barge by the
stone wall. Aside from the fact that the position of the barge is quite
understandable since off-loading operations were then still underway,[24] the
alleged negligence of the barge patron is a matter that is also being raised for
the first time before this Court.

Thus, the damage to the barge could have been avoided had it not been for
the tugboats inability to tow it away from the stone wall. Considering that a
barge has no power of its own and is totally defenseless against the ravages
of the sea, it was incumbent upon petitioner to see to it that it could secure
the barge by providing a seaworthy tugboat. Petitioners failure to do so did
not only increase the risk that might have been reasonably anticipated during
the shipside operation but was the proximate cause of the damage.[25] Hence,
as correctly found by the courts below, it should ultimately be held liable
therefor.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of


the Court of Appeals in CA-G.R. CV No. 55664 dated July 6, 2000 and the
Resolution dated November 28, 2000, finding petitioner Cargolift Shipping,
Inc. liable, as third-party defendant, for actual damages in the sum of
P97,021.20, are AFFIRMED.

SO ORDERED.

b. Mindanao Terminal and Brokerage services v.


Phoenix Assurance Co. May 8, 2009

Before us is a petition for review on certiorari[1] under Rule 45 of the 1997


Rules of Civil Procedure of the 29 October 2003[2] Decision of the Court of
Appeals and the 26 February 2004Resolution[3] of the same court denying
petitioners motion for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner


Mindanao Terminal and Brokerage Service, Inc. (Mindanao Terminal), a
stevedoring company, to load and stow a shipment of 146,288 cartons of
fresh green Philippine bananas and 15,202 cartons of fresh pineapples
belonging to Del Monte Fresh Produce International, Inc. (Del Monte
Produce) into the cargo hold of the vessel M/V Mistrau. The vessel was
docked at the port of Davao City and the goods were to be transported by it
to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del
Monte Produce insured the shipment under an open cargo policy with
private respondent Phoenix Assurance Company of New York (Phoenix), a
non-life insurance company, and private respondent McGee & Co. Inc.
(McGee), the underwriting manager/agent of Phoenix.[4]

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau.
The vessel set sail from the port of Davao City and arrived at
the port of Inchon, Korea. It was then discovered upon discharge that some
of the cargo was in bad condition. The Marine Cargo Damage Surveyor of
Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the
shipment. In a survey report, it was stated that 16,069 cartons of the banana
shipment and 2,185 cartons of the pineapple shipment were so damaged that
they no longer had commercial value.[5]

Del Monte Produce filed a claim under the open cargo policy for the
damages to its shipment. McGees Marine Claims Insurance Adjuster
evaluated the claim and recommended that payment in the amount of
$210,266.43 be made. A check for the recommended amount was sent to Del
Monte Produce; the latter then issued a subrogation receipt[6] to Phoenix and
McGee.

Phoenix and McGee instituted an action for damages[7] against Mindanao


Terminal in the Regional Trial Court (RTC) of Davao City, Branch 12. After
trial, the RTC,[8] in a decision dated 20 October 1999, held that the only
participation of Mindanao Terminal was to load the cargoes on board
the M/V Mistrau under the direction and supervision of the ships officers,
who would not have accepted the cargoes on board the vessel and signed the
foremans report unless they were properly arranged and tightly secured to
withstand voyage across the open seas. Accordingly, Mindanao Terminal
cannot be held liable for whatever happened to the cargoes after it had
loaded and stowed them. Moreover, citing the survey report, it was found by
the RTC that the cargoes were damaged on account of a typhoon which M/V
Mistrau had encountered during the voyage. It was further held
that Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del
Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual
damages and P100,000.00 as attorneys fees.[9] The actual damages were
awarded as reimbursement for the expenses incurred by Mindanao
Terminals lawyer in attending the hearings in the case wherein he had to
travel all the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate


court reversed and set aside[10] the decision of the RTC in its 29 October
2003 decision. The same court ordered Mindanao Terminal to
pay Phoenix and McGee the total amount of $210,265.45 plus legal interest
from the filing of the complaint until fully paid and attorneys fees of 20% of
the claim.[11] It sustained Phoenixs and McGees argument that the damage in
the cargoes was the result of improper stowage by Mindanao Terminal. It
imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It
further held that even with the absence of a contractual relationship between
Mindanao Terminal and Del Monte Produce, the cause of action
of Phoenix and McGee could be based on quasi-delict under Article 2176 of
the Civil Code.[12]

Mindanao Terminal filed a motion for reconsideration,[13] which the


Court of Appeals denied in its 26 February 2004[14] resolution. Hence, the
present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely:


whether it was careless and negligent in the loading and stowage of the
cargoes onboard M/V Mistrau making it liable for damages; and,
whether Phoenix and McGee has a cause of action against Mindanao
Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve
the petition, three questions have to be answered: first, whether Phoenix and
McGee have a cause of action against Mindanao Terminal; second, whether
Mindanao Terminal, as a stevedoring company, is under obligation to
observe the same extraordinary degree of diligence in the conduct of its
business as required by law for common carriers[15] and
warehousemen;[16] and third, whether Mindanao Terminal observed the
degree of diligence required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed


by Phoenix and McGee against Mindanao Terminal, from which the present
case has arisen, states a cause of action. The present action is based on
quasi-delict, arising from the negligent and careless loading and stowing of
the cargoes belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights of Del Monte
Produce, who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a cause of
action in light of the Courts consistent ruling that the act that breaks the
contract may be also a tort.[17] In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract [18]. In the
present case, Phoenix and McGee are not suing for damages for injuries
arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes
belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to
establish a cause of action arising from quasi-delict.[19]
The resolution of the two remaining issues is determinative of the
ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract
does not state the degree of diligence which is to be observed in the
performance of an obligation then that which is expected of a good father of a
family or ordinary diligence shall be required. Mindanao Terminal, a
stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a
labor provider in the case at bar. There is no specific provision of law that
imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes.
It was neither alleged nor proven by Phoenix and McGee that Mindanao
Terminal was bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to
observe ordinary diligence only in loading and stowing the cargoes of Del
Monte Produce aboard M/V Mistrau.

The Court of Appeals erred when it cited the case of Summa


Insurance Corporation v. CA and Port Service Inc.[20] in imposing a higher
degree of diligence,[21] on Mindanao Terminal in loading and stowing the
cargoes. The case of Summa Insurance Corporation v. CA, which involved
the issue of whether an arrastre operator is legally liable for the loss of a
shipment in its custody and the extent of its liability, is inapplicable to the
factual circumstances of the case at bar. Therein, a vessel owned by the
National Galleon Shipping Corporation (NGSC) arrived at Pier
3, SouthHarbor, Manila, carrying a shipment consigned to the order of
Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was
discharged from the vessel to the custody of the private respondent, the
exclusive arrastre operator at the South Harbor. Accordingly, three
good-order cargo receipts were issued by NGSC, duly signed by the ship's
checker and a representative of private respondent. When Semirara
inspected the shipment at house, it discovered that the bundle of PC8U
blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and


the arrastre operator must be examined. This relationship is
much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a
depositor and a warehouseman[[22]]. In the performance of its
obligations, an arrastre operator should observe the same
degree of diligence as that required of a common carrier
and a warehouseman as enunciated under Article 1733 of the
Civil Code and Section 3(b) of the Warehouse Receipts Law,
respectively. Being the custodian of the goods discharged
from a vessel, an arrastre operator's duty is to take good
care of the goods and to turn them over to the party
entitled to their possession. (Emphasis supplied)[23]

There is a distinction between an arrastre and a stevedore.[24] Arrastre, a


Spanish word which refers to hauling of cargo, comprehends the handling of
cargo on the wharf or between the establishment of the consignee or shipper
and the ship's tackle. The responsibility of the arrastre operator lasts until the
delivery of the cargo to the consignee. The service is usually performed by
longshoremen. On the other hand, stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship's tackle and the holds of
the vessel. The responsibility of the stevedore ends upon the loading and
stowing of the cargo in the vessel.

It is not disputed that Mindanao Terminal was performing purely


stevedoring function while the private respondent in the Summa case was
performing arrastre function. In the present case, Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from
the pier to the ships cargo hold; it was never the custodian of the shipment of
Del Monte Produce. A stevedore is not a common carrier for it does not
transport goods or passengers; it is not akin to a warehouseman for it does not
store goods for profit. The loading and stowing of cargoes would not have a
far reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract and
on quasi-delict. The public policy considerations in legally imposing upon a
common carrier or a warehouseman a higher degree of diligence is not present
in a stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of


evidence[25] that Mindanao Terminal had acted negligently. Where the
evidence on an issue of fact is in equipoise or there is any doubt on which
side the evidence preponderates the party having the burden of proof fails
upon that issue. That is to say, if the evidence touching a disputed fact is
equally balanced, or if it does not produce a just, rational belief of its
existence, or if it leaves the mind in a state of perplexity, the party holding
the affirmative as to such fact must fail.[26]
We adopt the findings[27] of the RTC,[28] which are not disputed
by Phoenix and McGee. The Court of Appeals did not make any new
findings of fact when it reversed the decision of the trial court. The only
participation of Mindanao Terminal was to load the cargoes on board M/V
Mistrau.[29] It was not disputed by Phoenix and McGee that the materials,
such as ropes, pallets, and cardboards, used in lashing and rigging the
cargoes were all provided by M/V Mistrau and these materials meets
industry standard.[30]
It was further established that Mindanao Terminal loaded and stowed
the cargoes of Del Monte Produce aboard the M/V Mistrau in accordance
with the stowage plan, a guide for the area assignments of the goods in the
vessels hold, prepared by Del Monte Produce and the officers of M/V
Mistrau.[31] The loading and stowing was done under the direction and
supervision of the ship officers. The vessels officer would order the closing
of the hatches only if the loading was done correctly after a final
inspection.[32] The said ship officers would not have accepted the cargoes on
board the vessel if they were not properly arranged and tightly secured to
withstand the voyage in open seas. They would order the stevedore to rectify
any error in its loading and stowing. A foremans report, as proof of work
done on board the vessel, was prepared by the checkers of Mindanao
Terminal and concurred in by the Chief Officer of M/V Mistrau after they
were satisfied that the cargoes were properly loaded.[33]

Phoenix and McGee relied heavily on the deposition of Byeong Yong


Ahn[34] and on the survey report[35] of the damage to the cargoes. Byeong,
whose testimony was refreshed by the survey report,[36] found that the cause
of the damage was improper stowage[37] due to the manner the cargoes were
arranged such that there were no spaces between cartons, the use of
cardboards as support system, and the use of small rope to tie the cartons
together but not by the negligent conduct of Mindanao Terminal in loading
and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment[38] before us, the latter is merely a stevedoring company which
was tasked by Del Monte to load and stow the shipments of fresh banana
and pineapple of Del Monte Produce aboard the M/V Mistrau. How and
where it should load and stow a shipment in a vessel is wholly dependent on
the shipper and the officers of the vessel. In other words, the work of the
stevedore was under the supervision of the shipper and officers of the vessel.
Even the materials used for stowage, such as ropes, pallets, and cardboards,
are provided for by the vessel. Even the survey report found that it was
because of the boisterous stormy weather due to the typhoon Seth, as
encountered by M/V Mistrau during its voyage, which caused the shipments
in the cargo hold to collapse, shift and bruise in extensive extent.[39] Even the
deposition of Byeong was not supported by the conclusion in the survey
report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the
opinion that damage occurred aboard the carrying vessel
during sea transit, being caused by ships heavy rolling and
pitching under boisterous weather while proceeding from 1600
hrs on 7th October to 0700 hrs on 12th October, 1994 as
described in the sea protest.[40]

As it is clear that Mindanao Terminal had duly exercised the required


degree of diligence in loading and stowing the cargoes, which is the ordinary
diligence of a good father of a family, the grant of the petition is in order.

However, the Court finds no basis for the award of attorneys fees in
favor of petitioner. None of the circumstances enumerated in Article 2208 of
the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a
premium to the right to litigate where such right is exercised in good faith,
even if erroneously.[41] Likewise, the RTC erred in awarding P83,945.80
actual damages to Mindanao Terminal. Although actual expenses were
incurred by Mindanao Terminal in relation to the trial of this case
in Davao City, the lawyer of Mindanao Terminal incurred expenses for
plane fare, hotel accommodations and food, as well as other miscellaneous
expenses, as he attended the trials coming all the way from Manila. But there
is no showing that Phoenix and McGee made a false claim against Mindanao
Terminal resulting inthe protracted trial of the case necessitating the
incurrence of expenditures.[42]

WHEREFORE, the petition is GRANTED. The decision of the


Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision
of the Regional Trial Court of Davao City, Branch 12 in Civil Case No.
25,311.97 is hereby REINSTATED MINUS the awards of P100,000.00 as
attorneys fees and P83,945.80 as actual damages.

SO ORDERED.
c. Cebu
Arrastre Services v. Collector of Internal
Revenue May 30 1956
This is an appeal from the decision of the Board of Tax Appeals affirming the decision of the
Collector of Internal Revenue (later referred to as COLLECTOR), denying exemption to
the Petitioner-Appellant Cebu Arrastre Service (later referred to as CEBU ARRASTRE) from the
percentage tax under section 191 of the National Internal Revenue Code, and for refund of the
amount of P2,867.02 already paid.
In 1952 the Cebu Arrastre, an association of persons engaged in the handling of cargoes carried
by coastwise vessels stopping at the port of Cebu, thru its counsel Atty. Jose Muaa petitioned
the Collector of Internal Revenue for the exemption and the refund based on the following
grounds: chanroble svirtuallawlibrary

(1) That they were a group of laborers who had recently organized themselves into an arrastre
service association merely for the purpose of centralizing the collection of handling charges and
making direct payment to the men in order to insure the compliance of the Minimum Wage Law
requirement.
(2) That the work of the men of the said arrastre group is under the direct supervision and
control of the officers of the ships.
(3) That the Cebu Arrastre Service is engaged solely in the loading and unloading of cargoes to
and from the boats and is not engaged in the transportation business.
Acting upon the petition, the Collector referred the matter to his agent in Cebu for investigation.
Mr. Ignacio Quijano, the Assistant Agent, conducted the investigation and filed his report, the
pertinent portions of which are as follows: chanroblesvirtuallawlibrary

1. The loading and unloading of cargoes to and from the ships holds is done by the laborers
under the Cebu Arrastre Service Co., Inc.
2. The supervision of the ships officers in the work is confined only to the proper handling of
the cargoes according to their nature and to the proper placing of the cargoes inside the ships
holds.
3. As to the laborers actuations outside of the handling and placing of cargoes inside the ships
holds the officers of the ship have no supervision.
xxx xxx xxx
6. The Cebu Arrastre Service Co., Inc. is not engaged in the transportation of the cargoes from
the wharf to the bodegas of the shippers. The shippers have their own trucks or provide for the
transportation of their cargoes from the wharf to their bodegas.
7. The laborers of the Cebu Arrastre Service Co., Inc. help only in the loading of the cargoes
from the wharf to the shippers trucks, for the shippers trucks are provided with their own
journales.
On the basis of said report the Collector denied the petition, holding that inasmuch as the Cebu
Arrastre was engaged in the loading and unloading of vessels in port, it may be considered a
stevedore within the meaning of section 191 of the Tax Code. In this connection, it may be
stated that section 191 of the Tax Code imposes a tax equivalent to 3 per cent of the gross
receipts on certain businesses and business entities, among them stevedores.
In his brief counsel for Petitioner-Appellant bitterly assails the proceedings had in this case,
saying that it has been most inquisitorial, reminiscent of the ancient and antiquated method of
administering justice by which the Defendant was condemned without benefit of confrontation.
The guarantee and protection jealousy safeguarded by our Constitution has been completely
disregarded. The report of the BIR Agent was a mere unilateral affair and its findings were
arrived at without the Petitioner-Appellants having had the slightest opportunity to be
confronted and his side heard. We have examined the record of the proceedings and find this
attack unfounded. Although the Board of Tax Appeals as an appellate board usually considers
only the evidence that comes with the appeal, nevertheless, in this case a hearing was had
before it, and the very same counsel Atty. Jose Muaa testified on behalf of the Cebu Arrastre,
his client and of which he was the president, but he failed to present any evidence or give any
testimony in support of his present contention that the Cebu Arrastre is not engaged in the work
of loading cargoes into the holds of the boat or unloading the same from it. But in his
memorandum filed with the Tax Board, he made statements which the Tax Board liberally
considered as evidence but which the Board regarded as insufficient and not entirely credible.
We reproduce a portion of the decision of the Tax Board on this point: chanroblesvirtuallawlibrary

In its memorandum filed with us in support of its petition for review of the case, Petitioners
counsel makes some additional statements of facts wherein he avers that, Their work (that of
the companys laborers) was simply the handling of cargoes at the wharf almost mechanically
under the control and supervision of the shipping companies. In cases where boats had booms
their work was simply to load on the wharf at the ships tackle by placing the cargoes in the sling
and hooking unto the tackle, and unloading by unhooking the sling from the tackle and
discharging the cargoes on the wharf. In rare cases where the boats have no booms, these men
carry the cargoes up to the deck for the stevedores on board to store in the hold, in the case of
loading, and carry cargoes from the deck which have been unloaded from the hold by the
stevedores to the wharf.
We have here three descriptions of the kind of work performed by the laborers
of Petitionercorporation, of which one is widely different from the other two: one is from the chanroble svirtuallawlibrary

investigator of the Bureau of Internal Revenue who says that the laborers in question carry
cargoes to and from the pier to the hold of ships, which agrees with the description appearing
on the original request to the Collector by the President and Counselor of the Corporation, the
other being the contention of the same official of the Arrastre Service who, in his memorandum
on appeal, would have us believe that its workingmen merely place the cargoes in the slings and
then leave the ships tackle to lift and drop them into the holds or dump them on decks, there to
be stowed by another set of workingmen, presumably not connected at all with the Arrastre
Service Corporation. When ships are not provided with booms, cargoes are carried by the
Arrastre Service laborers over planks or ladders to be dumped into the deck or into the hold,
there to be stowed by another set of stevedores not related to the Corporation.
xxx xxx xxx
The question, then revolves around the facts and around the credibility of the description
depicting the exact nature of the work of the laborers working under the contracts entered into
by the Cebu Arrastre Co. Inc. with Cebu shipowners. We just determine therefore, which of the
two conflicting versions comes nearer the reality of the situation.
We may say at the outset that the preponderance of evidence is in favor of the version of the
Assistant Agent of the Bureau of Internal Revenue of Cebu. According to him the loading and
unloading of cargoes to and from the ships holds is done by the laborers under the Cebu
Arrastre Service Co., Inc. and the ships officers supervision is limited to the proper placing of the
same inside the ships hold, the inference being that said proper placing (stowing) is being done
by the corporation laborers. This is not contradicted by the version of the Petitioner as given in
its original petition wherein it says: The men working under the Cebu Arrastre Service are
chanroblesvirtuallawlibrary

same men of Katubusanan sa Mamumuo who have been handling the loading of the boats of
the Aboitiz & Co. and of the Philippine Navigation Co. since 1947 up to the present. It says also,
further on: The Cebu Arrastre Service is dedicated itself solely to the loading and unloading of
chanroble svirtuallawlibrary

cargoes on the boats .. It is true that the President and Counsel corrected this description in the
memorandum on appeal to the effect that laborers of the corporation do not, except on rare
occasions, engage in loading or unloading the boat but limit their work on loading or unloading
pele-mele the slings of the boats under contract with the Arrastre Service, but in the opinion of
the Board this amendment is not nearer to the truth than the original version which was
corroborated by the official who investigated the case by order of the Collector of Internal
Revenue.
It is noteworthy that in the agreement entered into by the shipowners and the corporation
mention is twice made of the arrastre service on the vessels (but never on the piers) to be
done by the laborers of the Cebu Arrastre Service Inc. Another circumstance which may help in
obtaining a clear picture of the situation is that nowhere in these papers is it contended that the
stevedores actually performing the stowing work belong to an organization not related to
the Petitioner.
We quote the following definitions of stevedores, viz: chanroblesvirtuallawlibrary

Stevedores is one who works at, or one who is responsible for, the unloading and loading of a
vessel in port. (Websters New International Dictionary, Second Edition (unabridged), p. 2473).
A stevedore is a person employed in loading and unloading a vessel. (The Owego, D. C. Wash.,
292 F. 505, 507).
Stevedores are class of laborers at the ports whose business it is to load and unload vessels.
(The Senator, 21 F. 191).
Stevedore is defined as one whose occupation is to load and unload vessels in port; in chan roblesvirtualawlibrary

other words, a contractor or a jobber for special business ready to be employed by anybody at
his line of work (Rankin vs. Merchants and Miners Transp. Co., 73 Ga. 239, 54 Am. Rep. 874).
Stevedore and longshoreman, are synonymous terms when interpreted in the light of the
work they perform, namely loading and unloading of vessels (Zampiere vs. Willian Spencer and
Son Corporation, 18b N.Y.S. 639, 640, 194 App. Div. 576).
Under the above definitions the Cebu Arrastre admittedly engaged in the work of loading and
unloading coastwise vessels calling at the port of Cebu, should be regarded as a stevedore and
therefore subject to the percentage tax under section 191 of the Tax Code. But even if we
applied the narrower and more specific concept of stevedore used by the Tax Board, namely,
that a stevedore is one who places cargoes in the holds of ships in such a way that the boat
would maintain an even keel, and that even with the movement of the boat, especially in rough
weather, the cargoes would not be displaced from their original position, still, under the finding
of fact made by the Tax Board that the Cebu Arrastre is engaged in this work of towing cargo
either in the hold or even on the deck, Appellant would be subject to the tax. We also agree with
the Tax Board that the purpose for which the Petitioner-Appellant was organized, and the
supervision exercised by the ships officers over its work in loading and unloading vessels
including the towing of cargo, has nothing to do with the tax liability of the Petitioner-Appellant.
In view of the foregoing, the decision appealed from is hereby affirmed, with costs in both
instances.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
and Endencia, JJ., concur.

d. Crisostomo v. CA August 25, 2003 G.R No. 138334


In May 1991, petitioner Estela L. Crisostomo contracted the services
of respondent Caravan Travel and Tours International, Inc. to arrange
and facilitate her booking, ticketing and accommodation in a tour dubbed
Jewels of Europe. The package tour included the countries of England,
Holland, Germany, Austria, Liechstenstein, Switzerland and France at a
total cost of P74,322.70. Petitioner was given a 5% discount on the
amount, which included airfare, and the booking fee was also waived
because petitioners niece, Meriam Menor, was respondent companys
ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on
June 12, 1991 a Wednesday to deliver petitioners travel documents and
plane tickets. Petitioner, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy Aquino International
Airport (NAIA) on Saturday, two hours before her flight on board British
Airways.
Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey
from Manila to Hongkong. To petitioners dismay, she discovered that the
flight she was supposed to take had already departed the previous
day. She learned that her plane ticket was for the flight scheduled on
June 14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour
the British Pageant which included England, Scotland and Wales in its
itinerary. For this tour package, petitioner was asked anew to pay
US$785.00 or P20,881.00 (at the then prevailing exchange rate of
P26.60). She gave respondent US$300 or P7,980.00 as partial payment
and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from
respondent the reimbursement of P61,421.70, representing the
difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite
several demands, respondent company refused to reimburse the
amount, contending that the same was non-refundable. Petitioner was
[1]

thus constrained to file a complaint against respondent for breach of


contract of carriage and damages, which was docketed as Civil Case No.
92-133 and raffled to Branch 59 of the Regional Trial Court of Makati
City.
In her complaint, petitioner alleged that her failure to join Jewels of
[2]

Europe was due to respondents fault since it did not clearly indicate the
departure date on the plane ticket. Respondent was also negligent in
informing her of the wrong flight schedule through its employee
Menor. She insisted that the British Pageant was merely a substitute for
the Jewels of Europe tour, such that the cost of the former should be
properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioners failure to join
the first tour. Chipeco insisted that petitioner was informed of the correct
departure date, which was clearly and legibly printed on the plane ticket.
The travel documents were given to petitioner two days ahead of the
scheduled trip. Petitioner had only herself to blame for missing the flight,
as she did not bother to read or confirm her flight schedule as printed on
the ticket.
Respondent explained that it can no longer reimburse the amount
paid for Jewels of Europe, considering that the same had already been
remitted to its principal in Singapore, Lotus Travel Ltd., which had
already billed the same even if petitioner did not join the tour. Lotus
European tour organizer, Insight International Tours Ltd., determines the
cost of a package tour based on a minimum number of projected
participants. For this reason, it is accepted industry practice to disallow
refund for individuals who failed to take a booked tour. [3]

Lastly, respondent maintained that the British Pageant was not a


substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a
mistake in missing her flight for Jewels of Europe. Petitioner was allowed
to make a partial payment of only US$300.00 for the second tour
because her niece was then an employee of the travel
agency.Consequently, respondent prayed that petitioner be ordered to
pay the balance of P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision, the [4]

dispositive part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the


amount of Fifty Three Thousand Nine Hundred Eighty Nine Pesos
and Forty Three Centavos (P53,989.43) with legal interest thereon
at the rate of twelve percent (12%) per annum starting January 16,
1992, the date when the complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five


Thousand (P5,000.00) Pesos as and for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED. [5]

The trial court held that respondent was negligent in erroneously


advising petitioner of her departure date through its employee, Menor,
who was not presented as witness to rebut petitioners testimony.
However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on
Menors verbal representation. The trial court thus declared that
petitioner was guilty of contributory negligence and accordingly,
deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found
both parties to be at fault. However, the appellate court held that
petitioner is more negligent than respondent because as a lawyer and
well-traveled person, she should have known better than to simply rely
on what was told to her. This being so, she is not entitled to any form of
damages. Petitioner also forfeited her right to the Jewels of Europe tour
and must therefore pay respondent the balance of the price for the
British Pageant tour. The dispositive portion of the judgment appealed
from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court


dated October 26, 1995 is hereby REVERSED and SET ASIDE. A new
judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of the
price of the British Pageant Package Tour, the same to earn legal interest at the
rate of SIX PERCENT (6%) per annum, to be computed from the time the
counterclaim was filed until the finality of this decision. After this decision
becomes final and executory, the rate of TWELVE PERCENT (12%) interest
per annum shall be additionally imposed on the total obligation until payment
thereof is satisfied. The award of attorneys fees is DELETED. Costs against the
plaintiff-appellee.

SO ORDERED. [6]

Upon denial of her motion for reconsideration, petitioner filed the


[7]

instant petition under Rule 45 on the following grounds:


I

It is respectfully submitted that the Honorable Court of Appeals committed a


reversible error in reversing and setting aside the decision of the trial court by
ruling that the petitioner is not entitled to a refund of the cost of unavailed
Jewels of Europe tour she being equally, if not more, negligent than the private
respondent, for in the contract of carriage the common carrier is obliged to
observe utmost care and extra-ordinary diligence which is higher in degree than
the ordinary diligence required of the passenger. Thus, even if the petitioner
and private respondent were both negligent, the petitioner cannot be considered
to be equally, or worse, more guilty than the private respondent. At best,
petitioners negligence is only contributory while the private respondent [is
guilty] of gross negligence making the principle of pari delicto inapplicable in
the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of
Europe tour was not indivisible and the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential
damages due her as a result of breach of contract of carriage. [8]

Petitioner contends that respondent did not observe the standard of


care required of a common carrier when it informed her wrongly of the
flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise extraordinary
diligence in the fulfillment of its obligation. If she were negligent at all, the
same is merely contributory and not the proximate cause of the damage
she suffered. Her loss could only be attributed to respondent as it was
the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby
a certain person or association of persons obligate themselves to
transport persons, things, or news from one place to another for a fixed
price. Such person or association of persons are regarded as carriers
[9]

and are classified as private or special carriers and common or public


carriers. A common carrier is defined under Article 1732 of the Civil
[10]

Code as persons, corporations, firms 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.
It is obvious from the above definition that respondent is not an entity
engaged in the business of transporting either passengers or goods and
is therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in
their behalf. Respondents services as a travel agency include procuring
tickets and facilitating travel permits or visas as well as booking
customers for tours.
While petitioner concededly bought her plane ticket through the
efforts of respondent company, this does not mean that the latter ipso
facto is a common carrier. At most, respondent acted merely as an agent
of the airline, with whom petitioner ultimately contracted for her carriage
to Europe. Respondents obligation to petitioner in this regard was simply
to see to it that petitioner was properly booked with the airline for the
appointed date and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the
latters service of arranging and facilitating petitioners booking,
ticketing and accommodation in the package tour. In contrast, the object
of a contract of carriage is the transportation of passengers or goods. It
is in this sense that the contract between the parties in this case was an
ordinary one for services and not one of carriage. Petitioners submission
is premised on a wrong assumption.
The nature of the contractual relation between petitioner and
respondent is determinative of the degree of care required in the
performance of the latters obligation under the contract. For reasons of
public policy, a common carrier in a contract of carriage is bound by law
to carry passengers as far as human care and foresight can provide
using the utmost diligence of very cautious persons and with due regard
for all the circumstances. As earlier stated, however, respondent is not
[11]

a common carrier but a travel agency. It is thus not bound under the law
to observe extraordinary diligence in the performance of its obligation, as
petitioner claims.
Since the contract between the parties is an ordinary one for services,
the standard of care required of respondent is that of a good father of a
family under Article 1173 of the Civil Code. This connotes reasonable
[12]

care consistent with that which an ordinarily prudent person would have
observed when confronted with a similar situation. The test to determine
whether negligence attended the performance of an obligation is: did the
defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. [13]

In the case at bar, the lower court found Menor negligent when she
allegedly informed petitioner of the wrong day of departure. Petitioners
testimony was accepted as indubitable evidence of Menors alleged
negligent act since respondent did not call Menor to the witness stand to
refute the allegation. The lower court applied the presumption under
Rule 131, Section 3 (e) of the Rules of Court that evidence willfully
[14]

suppressed would be adverse if produced and thus considered


petitioners uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor
was negligent and maintains that petitioners assertion is belied by the
evidence on record. The date and time of departure was legibly written
on the plane ticket and the travel papers were delivered two days in
advance precisely so that petitioner could prepare for the trip. It
performed all its obligations to enable petitioner to join the tour and
exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former.
Menor was already working in France at the time of the filing of the
complaint, thereby making it physically impossible for respondent to
[15]

present her as a witness. Then too, even if it were possible for


respondent to secure Menors testimony, the presumption under Rule
131, Section 3(e) would still not apply. The opportunity and possibility for
obtaining Menors testimony belonged to both parties, considering that
Menor was not just respondents employee, but also petitioners niece. It
was thus error for the lower court to invoke the presumption that
respondent willfully suppressed evidence under Rule 131, Section
3(e). Said presumption would logically be inoperative if the evidence is
not intentionally omitted but is simply unavailable, or when the same
could have been obtained by both parties. [16]
In sum, we do not agree with the finding of the lower court that
Menors negligence concurred with the negligence of petitioner and
resultantly caused damage to the latter. Menors negligence was not
sufficiently proved, considering that the only evidence presented on this
score was petitioners uncorroborated narration of the events. It is
well-settled that the party alleging a fact has the burden of proving it and
a mere allegation cannot take the place of evidence. If the plaintiff,
[17]

upon whom rests the burden of proving his cause of action, fails to show
in a satisfactory manner facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense. [18]

Contrary to petitioners claim, the evidence on record shows that


respondent exercised due diligence in performing its obligations under
the contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane
ticket issued to petitioner clearly reflected the departure date and time,
[19]

contrary to petitioners contention. The travel documents, consisting of


the tour itinerary, vouchers and instructions, were likewise delivered to
petitioner two days prior to the trip. Respondent also properly booked
petitioner for the tour, prepared the necessary documents and procured
the plane tickets. It arranged petitioners hotel accommodation as well as
food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
Therefore, it is clear that respondent performed its prestation under
the contract as well as everything else that was essential to book
petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were delivered to
petitioner, it became incumbent upon her to take ordinary care of her
concerns. This undoubtedly would require that she at least read the
documents in order to assure herself of the important details regarding
the trip.
The negligence of the obligor in the performance of the obligation
renders him liable for damages for the resulting loss suffered by the
obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as
the nature of the obligation so demands. There is no fixed standard of
[20]

diligence applicable to each and every contractual obligation and each


case must be determined upon its particular facts. The degree of
diligence required depends on the circumstances of the specific
obligation and whether one has been negligent is a question of fact that
is to be determined after taking into account the particulars of each
case.[21]

The lower court declared that respondents employee was


negligent. This factual finding, however, is not supported by the evidence
on record. While factual findings below are generally conclusive upon
this court, the rule is subject to certain exceptions, as when the trial court
overlooked, misunderstood, or misapplied some facts or circumstances
of weight and substance which will affect the result of the case. [22]

In the case at bar, the evidence on record shows that respondent


company performed its duty diligently and did not commit any
contractual breach. Hence, petitioner cannot recover and must bear her
own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The
decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent the
amount of P12,901.00 representing the balance of the price of the British
Pageant Package Tour, with legal interest thereon at the rate of 6% per
annum, to be computed from the time the counterclaim was filed until the
finality of this Decision. After this Decision becomes final and executory,
the rate of 12% per annum shall be imposed until the obligation is fully
settled, this interim period being deemed to be by then an equivalent to a
forbearance of credit. [23]

SO ORDERED.

5. Governing Laws:
5.1 Article 1766 of the New Civil Code(NCC).
5.2 Article 1753 NCC.
5.3 Article 1732-1766 NCC.
5.4 National Dev. Company v. CA 164 SCRA 593.

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled "Development
Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company
defendant-appellants," affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth
Judicial District, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National Development


Company and Maritime Company of the Philippines, to pay jointly and severally, to the
plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY
FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22,
1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and
for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the defendant


National Development Company, judgment is hereby rendered, ordering the National
Development Company to pay the cross-claimant Maritime Company of the Philippines the
total amount that the Maritime Company of the Philippines may voluntarily or by compliance
to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.

With costs against the defendant Maritime Company of the Philippines.


(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement entered
into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf
and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of
American raw cotton consigned to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A).
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of
sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the
vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a
Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of
American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed
and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales
were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth
P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as
holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A,
K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid shipment of Kyokuto,
Boekui Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for
Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon
as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid
as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest,
for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said
amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said
'Dofia Nati' vessel. (Rollo, L-49469, p.38)

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp.
7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965
(Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the
motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965,
MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp.
22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp.
39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off
from the record for its failure to answer DISC's written interrogatories and to comply with the
trial court's order dated August 14, 1965 allowing the inspection or photographing of the
memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise
declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion
to set aside the order of October 16, 1965, but the trial court denied it in its order dated
September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial
court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity
to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing
of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise,
in said decision, the trial court granted MCP's crossclaim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17,
1970 after its motion to set aside the decision was denied by the trial court in its order dated
February 13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the
decision of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p.
103). On August 27,1979, these consolidated cases were given due course (Rollo, p. 108)
and submitted for decision on February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF


COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE
KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY
FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA
NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE
THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR


REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE
RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT.
(pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT


RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO
CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE
PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE
OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME
COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND
HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE


PRIVATE RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT
THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO
THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS
CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS
OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE
COMPLEMENT OF THE SS DONA NATI
IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE


CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE
PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY
CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR
LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL,
WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR


DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES
WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT
P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING
THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE
INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS


NATIONAL DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY
JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE
AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM
THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR
ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY
HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY
OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the
Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss
or destruction of goods due to collision of vessels outside Philippine waters, and the extent of
liability as well as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act
should apply to the case at bar and not the Civil Code or the Code of Commerce. Under
Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from
the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship." Thus, NDC insists that based on the findings of
the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels
were at fault and negligent, NDC would have been relieved of liability under the Carriage of
Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both NDC
and MCP were ordered to reimburse the insurance company for the amount the latter paid to
the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1
50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the
country to which the goods are to be transported governs the liability of the common carrier in
case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was
specifically laid down that for cargoes transported from Japan to the Philippines, 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 laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act,
a special law, is merely suppletory to the provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from
San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due
to a collision which was found to have been caused by the negligence or fault of both captains
of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines
will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise
Bay, Japan.

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 the passengers transported by them according to all
circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other
than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have
been at fault or to have acted negigently, unless it proves that it has observed the
extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in respondent courses application to the case
at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively
with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the
losses and damages incurred after an expert appraisal. But more in point to the instant case
is Article 827 of the same Code, which provides that if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for the
losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839,
the shipowner or carrier, is not exempt from liability for damages arising from collision due to
the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier
in recognition of the universally accepted doctrine that the shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the conduct of the
voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should
apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of
Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision,
said Act in no uncertain terms, restricts its application "to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade." Under Section I thereof, it is
explicitly provided that "nothing in this Act shall be construed as repealing any existing
provision of the Code of Commerce which is now in force, or as limiting its application." By
such incorporation, it is obvious that said law not only recognizes the existence of the Code of
Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance
and Surety Corporation, has no cause of action against it because the latter did not prove that
its alleged subrogers have either the ownership or special property right or beneficial interest
in the cargo in question; neither was it proved that the bills of lading were transferred or
assigned to the alleged subrogers; thus, they could not possibly have transferred any right of
action to said plaintiff- appellee in this case. (Brief for the Maritime Company of the
Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of
the duly endorsed bills of lading covering the shipments in question and an examination of the
invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting
to this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total
amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is
evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from
defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the
manager and operator of the vessel Dona Nati not a ship agent. As the general managing
agent, according to MCP, it can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the
name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the
damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil.
281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for
the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing
Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil.
256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or
agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly
deducible from the general doctrine of jurisprudence under the Civil Code but more specially
as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the
Court held that both the owner and agent (Naviero) should be declared jointly and severally
liable, since the obligation which is the subject of the action had its origin in a tortious act and
did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]).
Consequently, the agent, even though he may not be the owner of the vessel, is liable to the
shippers and owners of the cargo transported by it, for losses and damages occasioned to
such cargo, without prejudice, however, to his rights against the owner of the ship, to the
extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v.
McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the
MCP argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of
lading and corroborated no less by invoices offered as evidence ' during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51
Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss
was caused by its own negligence." Negligence of the captains of the colliding vessel being
the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes
and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law
on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need
not be discussed lengthily as said claim is not only at variance with NDC's posture, but also
contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that
both pilots were at fault for not changing their excessive speed despite the thick fog
obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued
allow trans-shipment of the cargo, which simply means that the date of arrival of the ship
Dona Nati on April 18,1964 was merely tentative to give allowances for such contingencies
that said vessel might not arrive on schedule at Manila and therefore, would necessitate the
trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the
collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on
June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been
saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the
complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one
(1) year from the date the lost or damaged cargo "should have been delivered" in the light of
Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the
assailed decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.

5.5 Mapa v. CA 275 SCRA 1997 case


The main issue in this petition for review under Rule 45 of the Rules
of Court is the applicability of Article 28(1) of the Warsaw
Convention, which provides as follows:
[1]

ARTICLE 28. (1) An action for damages must be brought, at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before
the court of the domicile of the carrier or of his principal place of business, or
where he has a place of business through which the contract has been made, or
before the court at the place of destination.

We are urged by the petitioners to reverse the 31 May 1995 Decision


of the Court of Appeals in CA-G.R. CV No. 39896 affirming the 24 July
[2]

1992 Order of the Regional Trial Court of Quezon City, Branch 102,
which dismissed Civil Case No. Q-91-9620 on the ground of lack of
[3]

jurisdiction in view of the aforementioned Article 28(1) of the Warsaw


Convention.
The antecedent facts, as summarized by the Court of Appeals, are
as follows:

Plaintiffs Cornelio P. Mapa and Purita S. Mapa are respectable members of the
society. Mr. Mapa is an established businessman and currently the Regional
General Manager of Akerlund and Rausing, a multinational packaging material
manufacturer based in Manila. He was previously the Senior Vice President of
Phimco Industries, an affiliate company of Swedish Match Company. Mrs.
Mapa is a successful businesswoman engaged in the commercial transactions of
high value antique and oriental arts decor items originating from Asian
countries. Carmina S. Mapa is the daughter of plaintiffs Purita and Cornelio
and is a graduate of the International School in Bangkok, Thailand, now
presently enrolled at the Boston University where she is majoring in
communication.

Plaintiffs Mapa entered into contract of air transportation with defendant TWA
as evidenced by TWA ticket Nos. 015:9475:153:304 and 015:9475:153:305,
purchased in Bangkok, Thailand. Said TWA tickets are for Los Angeles-New
York-Boston-St. Louis-Chicago ....
Domicile of carrier TWA is Kansas City, Missouri, USA. Its principal place of
business is Kansas City, Missouri, USA. TWAs place of business through
which the contracts were made is Bangkok, Thailand. The place of destination
is Chicago, USA.

On August 10, 1990, plaintiffs Carmina and Purita left Manila on board PAL
flight No. 104 for Los Angeles. Carmina was to commence schooling and thus
was accompanied by Purita to assist her in settling down at the University.

They arrived in Los Angeles on the same date and stayed there until August 14,
1990 when they left for New York City.

On August 14, 1990, plaintiffs Purita and Carmina S. Mapa arrived at the John
F. Kennedy (JFK) Airport, New York, on TWA Flight No. 904.

On August 27, 1990, plaintiffs Purita and Carmina S. Mapa departed for
Boston, taking a connecting flight on TWAs carrier, TW 0901, from JFK
Airport, New York, to Bostons Logan Airport, checking in seven (7) pieces of
luggage at the TWA counter in the JFK Airport. The seven baggages were
received by a porter who issued seven TWA baggage receipts numbered
17-8270, 71, 72, 73, 74, 75, and 76 therefor.

From the entrance gate of the terminal building, plaintiffs Purita and Carmina
proceeded to TWAs ticket counter and presented their confirmed TWA tickets
numbered 015:9475:153:304 and 015:9475:153:305 with a 3:00 p.m. departure
time. They were issued their boarding passes and were instructed to proceed to
gate 35 for boarding. At about 2:40 p.m., plaintiffs noticed that there was still
no instruction to board the aircraft so they made inquiries. The TWA ground
stewardess informed plaintiffs that they were at the wrong gate because their
flight was boarding at gate 1. Upon hearing this, plaintiffs rushed to gate 1
which was in another building terminal. At gate 1, they were told by a TWA
ground stewardess that flight 901 had just departed. However, they were
consoled that another TWA flight was leaving for Boston after 30 minutes and
plaintiffs could use the same boarding pass for the next flight. At around 3:15
p.m., plaintiffs Purita and Carmina were able to board the next flight. However,
the plane was not immediately cleared for take off on account of a
thunderstorm. The passengers were instructed to stay inside the aircraft until
6:00 p.m. when the plane finally left for Boston.

Upon arriving in Boston, plaintiffs Purita and Carmina proceeded to the


carousel to claim their baggages and found only three out of the seven they
checked in, to wit: one Samsonite on the carousel, another Samsonite lying on
the floor near the carousel and a third baggage, an American Tourister, inside
the unclaimed baggage office. Plaintiffs immediately reported the loss of their
four baggages to the TWA Baggage Office at Logan Airport. TWAs
representative confidently assured them that their baggages would be located
within 24 hours and not more than 48 hours.
On September 2, 1990, plaintiffs received a letter from TWA, signed by Mr.
J.A. Butler, Customer Relations-Baggage Service, apologizing for TWAs
failure to locate the missing luggage and requesting plaintiffs to accomplish a
passenger property questionnaire to facilitate a further intensive and
computerized search for the lost luggage. Plaintiffs duly accomplished the
passenger property questionnaire, taking pains to write down in detail the
contents of each missing baggage. The total value of the lost items amounted to
$11, 283.79.

On September 20, 1990, plaintiffs counsel wrote TWA thru its General Sales
Manager in the Philippines, Daniel Tuason, with office address at Ground Floor,
Saville Building, Sen. Gil J. Puyat Avenue corner Paseo de Roxas, Makati,
Metro Manila demanding indemnification for the grave damage and injury
suffered by the plaintiffs.

TWA again assured plaintiffs that intensive search was being conducted.

On October 8, 1990, TWA offered to amicably settle the case by giving


plaintiffs-appellants two options: (a) transportation credit for future TWA
travel or (b) cash settlement. Five months lapsed without any result on TWAs
intensive search.

On January 3, 1991, plaintiffs-appellants opted for transportation credit for


future TWA travel.

On January 11, 1991, TWA disregarded plaintiffs option and unilaterally


declared the payment of $2,560.00 as constituting full satisfaction of the
plaintiffs claim.

On July 19, 1991, plaintiffs accepted the check for $2,560.00, as partial
payment for the actual cost of their lost baggages and their contents.

Despite demands by plaintiffs, TWA failed and refused without just cause to
indemnify and redress plaintiffs for the grave injury and damages they have
suffered.[4]

Purita S. Mapa, Carmina S. Mapa, and Cornelio P. Mapa (herein


petitioners) then filed with the trial court on 1 August 1991 a
complaint for damages, which was docketed as Civil Case No.
[5] [6]

Q-91-9620.Before a responsive pleading was filed, the petitioners filed


an Amended Complaint. They prayed that after due trial private
[7]

respondent Trans-World Airlines, Inc. (hereafter, TWA), be ordered to


pay them the following amounts: (1) US$8,723.79, or its equivalent in
Philippine currency, representing the cost of the lost luggage and its
contents; (2) US$2,949.50, or its equivalent in Philippine currency,
representing the cost of hotel, board and lodging, and communication
expenses; (3) P1 million, by way of moral damages; (4) P1 million, by
way of exemplary damages, with legal interest on said amounts from the
date of extrajudicial demand thereof; and (5) P500,000.00 as attorney's
fees, costs of the suit, and other expenses of litigation. [8]

On 26 February 1992, TWA filed its Answer to the Amended


Complaint raising, as special and affirmative defense, lack of jurisdiction
of Philippine courts over the action for damages in that pursuant to
Article 28(1) of the Warsaw Convention, the action could only be brought
either in Bangkok where the contract was entered into, or in Boston
which was the place of destination, or in Kansas City which is the
carrier's domicile and principal place of business.
TWA further alleged that pursuant to the Warsaw Convention and the
Notice of Baggage Limitations at the back of the tickets, its liability to the
petitioners is limited to US$9.07 per pound, or US$20.00 per kilo, which
is in lieu of actual and compensatory damages. Even assuming that
petitioners bag weighed the maximum acceptable weight of 70 pounds,
TWAs maximum liability is $640.00 per bag or $2,560.00 for the four
pieces of baggage, which the petitioners have been offered and have
accepted. TWA also submitted that it could not be liable for moral and
exemplary damages and attorneys fees because it did not act in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. [9]

On 7 February 1992, the petitioners filed their second Amended


Complaint to include a claim of US$2,500, or its equivalent in Philippine
[10]

Currency, representing the additional replacement cost of the items and


personal effects contained in their lost luggage; and US$4,500
representing the travel expenses, hotel, lodging, food and other
expenses of petitioner Cornelio Mapa, who was constrained to join his
family in Boston to extend the necessary assistance in connection with
the lost luggage.
After the filing of TWAs Answer to the second Amended
Complaint, and petitioners Reply thereto, the trial court gave TWA ten
[11]

days within which to submit a memorandum in support of its affirmative


defenses; after which the incident would be deemed submitted for
resolution. However, after TWA filed its Memorandum, the trial court
[12] [13]

gave the petitioners five days within which to file a reply memorandum;
and TWA, two days from receipt of the latter to file its comment
thereon. The petitioners then filed their Opposition (by way of Reply
[14]

Memorandum) to which TWA filed a Reply. Thereafter, the petitioners


[15] [16]

submitted a Rejoinder ; TWA, a Surrejoinder.


[17] [18]

On 24 July 1992, the trial court issued an Order dismissing the case
[19]

for lack of jurisdiction in light of Article 28(1) of the Warsaw


Convention. Thus:

It is plaintiffs' theory that the Warsaw Convention does not apply to the instant
case because plaintiffs' contract of transportation does not constitute
"international transportation" as defined in said convention. This however is
belied by the Passenger Property Questionnaire which is Annex C of plaintiffs'
amended complaint. Page two of said questionnaire accomplished by plaintiffs
under the heading "Your Complete Itinerary" shows that the TWA tickets
issued to the plaintiffs form part of the contract of transportation to be
performed from Manila to the United States. Since the Philippines and the
United States are parties to the convention, plaintiffs' contracts of transportation
come within the meaning of International Transportation.

...

On the basis of the foregoing, the Court holds that the Warsaw Convention is
applicable to the case at bar, even if the basis of plaintiffs' present action is
breach of contract of carriage under the New Civil Code.

The next question to be resolved is whether or not the Court has jurisdiction to
try the present case in the light of the provision of Art. 28(1) above-quoted.

Under Art. 28(1) supra, a complaint for damages against an air carrier can be
instituted only in any of the following places/courts:

(1) The court of the domicile of the carrier;


(2) The court of its principal place of business;
(3) The court where it has a place of business through which the contract had
been made;
(4) The court of the place of destination.

In interpreting the provision of Art. 28(1) of the Warsaw Convention, the


Supreme Court in the same case of Augusto Benedicto Santos vs. Northwest
Airlines held:

"Whether Article 28(1) refers to jurisdiction or only to venue is a question over


which authorities are sharply divided. While the petitioner cites several cases
holding that Article 28(1) refers to venue rather that jurisdiction, there are later
cases cited by the private respondent supporting the conclusion that the
provision is jurisdictional.

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be
conferred by consent or waiver upon a court which otherwise would have no
jurisdiction over the subject-matter of an action; but the venue of an action as
fixed by statute may be changed by the consent of the parties and an objection
that the plaintiff brought his suit in the wrong country may be waived by the
failure of the defendant to make a timely objection. In either case, the court
may render a valid judgment. Rules as to jurisdiction can never be left to the
consent or agreement of the parties, whether or not a prohibition exists against
their alteration.
A number of reasons tends to support the characterization of Article 28(1) as a
jurisdiction and not a venue provision. First, the wording of Article 32, which
indicates the places where the action for damages "must" be brought,
underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the Convention,
which is to "regulate in a uniform manner the conditions of international
transportation by air." Third, the Convention does not contain any provision
prescribing rules of jurisdiction other than Article 28(1), which means that the
phrase "rules as to jurisdiction" used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such,
cannot be left to the will of the parties regardless of the time when the damage
occurred.

...

It has been shown by the defendant that the domicile of the defendant Trans
World Airlines, Inc. is Kansas City, Missouri, its principal place of business is
also in Kansas City, Missouri, the carrier's place of business through which the
contracts were made is Bangkok (Annexes A and A-1, Amended Complaint),
and the place of destination was Boston.

The Philippines not being one of the places specified in Art. 28(1)
above-quoted where the complaint may be instituted, this Court therefore, does
not have jurisdiction over the present case.

Evidently discontented with the trial court's order, the petitioners


appealed to the Court of Appeals, contending that the lower court erred
in not holding that (1) it has jurisdiction over the instant case and (2) the
Warsaw Convention is inapplicable in the instant case because the
subject matter of the case is not included within the coverage of the said
convention. They claimed that their cause of action could be based on
[20]

breach of contract of air carriage founded on Articles 1733, 1734, 1735,


1755, and 1756 of the New Civil Code governing common carriers or
Article 2176 of the same Code governing tort or quasi-delict.
The appellate court disagreed with the petitioners and affirmed the
order of the trial court. It held that the Warsaw Convention is the law
which governs the dispute between the petitioners and TWA because
what is involved is international transportation defined by said
Convention in Article I(2). This holding is founded on its determination
that the two TWA tickets for Los Angeles-New York-Boston-St.
Louis-Chicago purchased in Bangkok, Thailand, were issued in
conjunction with, and therefore formed part of, the contract of
transportation performed from Manila, Philippines, to the United States.
The respondent court further held that the cause of action of the
petitioners arose from the loss of the four checked pieces of baggage,
which then falls under Article 18(1), Chapter III (Liability of the Carrier) of
the Warsaw Convention. Pursuant to Article 24(1) of the Convention, all
[21]

actions for damages, whether based on tort, code law or common law,
arising from loss of baggage under Article 18 of the Warsaw Convention,
can only be brought subject to the conditions and limits set forth in the
Warsaw Convention. Article 28(1) thereof sets forth conditions and limits
in that the action for damages may be instituted only in the territory of
one of the High Contracting Parties, before the court of (1) the domicile
of the carrier, (2) the carriers principal place of business, (3) the place of
business through which the contract has been made, or (4) the place of
destination. Since the Philippines is not one of these places, a Philippine
Court, like the RTC, has no jurisdiction over the complaint for damages.
Respondent Court of Appeals likewise held that the petitioners could
not claim application of Articles 1733, 1734, 1735, 1755, and 1756 of the
New Civil Code on common carriers without taking into consideration
Article 1753 of the same Code, which provides that 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
country of ultimate destination is Chicago, the law of Chicago shall
govern the liability of TWA for the loss of the four pieces of
baggage. Neither is Article 2176 of the New Civil Code on torts or
quasi-delicts applicable in view of the private international law principle
of lex loci delicti commissi. In addition, comformably with Santos III v.
[22]

Northwest Orient Airlines, mere allegation of willful misconduct


[23]

resulting in a tort is insufficient to exclude the case from the


comprehension of the Warsaw Convention.
Failing in their bid to reconsider the decision, the petitioners filed this
petition. They aver that respondent Court of Appeals gravely erred (1) in
holding that the Warsaw Convention is applicable to this case and (2) in
applying Article 1753 of the Civil Code and the principle of lex loci delicti
commissi. [24]

We resolved to give due course to the petition after the filing by TWA
of its Comment on the petition and noted without action for the reasons
stated in the resolution of 25 September 1996 petitioners Reply and
Rejoinder. We then required the parties to submit their respective
memoranda. They did in due time.
The petitioners insist that the Warsaw Convention is not applicable to
their case because the contracts they had with TWA did not involve
an international transportation. Whether the contracts were
of international transportation is to be solely determined from the TWA
tickets issued to them in Bangkok, Thailand, which showed that their
itinerary was Los Angeles-New York-Boston-St.
Louis-Chicago.Accordingly, since the place of departure (Los Angeles)
and the place of destination (Chicago) are both within the territory of one
High Contracting Party, with no agreed stopping place in a territory
subject to the sovereignty, mandate, suzerainty or authority of another
Power, the contracts did not constitute international transportation as
defined by the convention. They also claim to be without legal basis the
contention of TWA that their transportation contracts were of
international character because of the handwritten notations in the
tickets re INTL TKT #079-4402956821-2 and INTL TKT
#079-4402956819. Notwithstanding such notations, the TWA tickets, viz.,
(a) No. 015.9475:153:304 and (b) No. 015:9475:153:305 did not cease
to be for the itinerary therein designated. Besides, it is a fact that
petitioners Purita and Carmina Mapa traveled from Manila to Los
Angeles via Philippine Airlines (PAL) by virtue of PAL tickets issued
independently of the TWA tickets.
The pith issue to be resolved under the petitioners first assigned
error is whether the contracts of transportation between Purita and
Carmina Mapa, on the one hand, and TWA, on the other, were contracts
of international transportation under the Warsaw Convention. If they
were, then we should sustain the trial court and the Court of Appeals in
light of our ruling in Santos v. Northwest Orient Airlines. It appears
[25]

clear to us that TWA itself, the trial court, and the Court of Appeals
impliedly admit that if the sole basis were the two TWA tickets for Los
Angeles-New York-Boston-St. Louis-Chicago, the contracts cannot be
brought within the term international transportation, as defined in Article
I(2) of the Warsaw Convention. As provided therein, a contract is one
of international transportation only if

according to the contract made by the parties, the place of departure and the
place of destination, whether or not there be a break in the transportation or a
transshipment, are situated either within the territories of two High Contracting
Parties, or within the territory of a single High Contracting Party, if there is an
agreed stopping place within a territory subject to the sovereignty, mandate or
authority of another power, even though that power is not a party to this
convention.

There are then two categories of international transportation, viz., (1)


that where the place of departure and the place of destination are
situated within the territories of two High Contracting Parties regardless
of whether or not there be a break in the transportation or a
transshipment; and (2) that where the place of departure and the place
of destination are within the territory of a single High Contracting Party if
there is an agreed stopping place within a territory subject to the
sovereignty, mandate, or authority of another power, even though the
power is not a party to the Convention.
The High Contracting Parties referred to in the Convention are the
signatories thereto and those which subsequently adhered to it. In the
case of the Philippines, the Convention was concurred in by the Senate,
through Resolution No. 19, on 16 May 1950. The Philippine instrument
of accession was signed by President Elpidio Quirino on 13 October
1950 and was deposited with the Polish Government on 9 November
1950. The Convention became applicable to the Philippines on 9
February 1951. Then, on 23 September 1955, President Ramon
Magsaysay issued Proclamation No. 201, declaring the Philippines
formal adherence thereto, to the end that the same and every article and
clause thereof may be observed and fulfilled in good faith by the
Republic of the Philippines and the citizens thereof. [26]

The contracts of transportation in this case are evidenced by the two


TWA tickets, No. 015:9475:153:304 and No. 015:9475:153:305, both
purchased and issued in Bangkok, Thailand. On the basis alone of the
provisions therein, it is obvious that the place of departure and the place
of destination are all in the territory of the United States, or of a single
High Contracting Party. The contracts, therefore, cannot come within the
purview of the first category of international transportation. Neither can it
be under the second category since there was NO agreed stopping
place within a territory subject to the sovereignty, mandate, or authority
of another power.
The only way to bring the contracts between Purita and Carmina
Mapa, on the one hand, and TWA, on the other, within the first category
of international transportation is to link them with, or to make them an
integral part of, the Manila-Los Angeles travel of Purita and Carmina
through PAL aircraft. The linkages which have been pointed out by the
TWA, the trial court, and the Court of Appeals are (1) the handwritten
notations, viz., INTL TKT # 079-4402956821-2 and INTL TKT #
079-4402956819, on the two TWA tickets; and (2) the entries made by
petitioners Purita and Carmina Mapa in column YOUR COMPLETE
ITINERARY in TWAs Passenger Property Questionnaire, wherein they
mentioned their travel from Manila to Los Angeles in flight PR 102.
The alleged international tickets mentioned in the notations in
conjunction with which the two TWA tickets were issued were not
presented. Clearly then, there is at all no factual basis of the finding that
the TWA tickets were issued in conjunction with the international tickets,
which are even, at least as of now, non-existent.
As regards the petitioners entry in YOUR COMPLETE ITINERARY
column of the Passenger Property Questionnaire wherein they included
the Manila-Los Angeles travel, it must be pointed out that this was made
on 4 September 1990 by petitioners Purita and Carmina Mapa, and
[27]

only in connection with their claim for their lost pieces of baggage. The
loss occurred much earlier, or on 27 August 1990. The entry can by no
means be considered as a part of, or supplement to, their contracts of
transportation evidenced by the TWA tickets which covered
transportation within the United States only.
It must be underscored that the first category of international
transportation under the Warsaw Convention is based on the contract
made by the parties. TWA does not claim that the Manila-Los Angeles
contracts of transportation which brought Purita and Carmina to Los
Angeles were also its contracts. It does not deny the assertion of the
petitioners that those contracts were independent of the TWA tickets
issued in Bangkok, Thailand. No evidence was offered that TWA and
PAL had an agreement concerning transportation of passengers from
points of departures not served with aircrafts of one or the other.There
could have been no difficulty for such agreement, since TWA admitted
without qualification in paragraph 1 of its Answer to the second [28]

Amended Complaint the allegation in paragraph 1.1 of the latter that [29]

TWA is a foreign corporation licensed to do business in the Philippines


with office address at Ground Floor, Saville Building, Sen. Gil. J. Puyat
Avenue, corner Paseo de Roxas, Makati, Metro Manila.
TWA relies on Article I(3) of the Convention, which provides as
follows:
3. A carriage to be performed by several successive air carriers is deemed, for
the purposes of this Convention, to be one undivided carriage, if it has been
regarded by the parties as a single operation, whether it had been agreed
upon under the form of a single contract or of a series of contracts, and it
shall not lose its international character merely because one contract or a
series of contracts is to be performed entirely within a territory subject to the
sovereignty, suzerainty, mandate, or authority of the same High Contracting
Party.

It also points to Article 15 of the IATA Recommend Practice 1724, which


provides: Carriage to be performed by several successive carriers under
one ticket, or under a ticket and any conjunction ticket issued in
connection therewith, is regarded as a single operation. [30]

The flaw of respondents position is the presumption that the parties


have regarded as an undivided carriage or as a single operation the
carriage from Manila to Los Angeles through PAL then to New
York-Boston- St. Louis-Chicago through TWA. The dismissal then of the
second Amended Complaint by the trial court and the Court of Appeals
affirmance of the dismissal were not based on indubitable facts or
grounds, but on inferences without established factual basis.
TWA should have offered evidence for its affirmative defenses at the
preliminary hearing therefor. Section 5 of Rule 16 of the Rules of Court
expressly provides:

SEC. 5. Pleading grounds as affirmative defenses. -- Any of the grounds for


dismissal provided for in this rule, except improper venue, may be pleaded as
an affirmative defense, and a preliminary hearing may be had thereon as if a
motion to dismiss had been filed.

Without any further evidence as earlier discussed, the trial court


should have denied the affirmative defense of lack of jurisdiction
because it did not appear to be indubitable. Section 3 of Rule 16 of the
Rules of Court provides:

SEC. 3. Hearing and order. -- After hearing the court may deny or grant the
motion or allow amendment of pleading, or may defer the hearing and
determination of the motion until the trial if the ground alleged therein does not
appear to be indubitable.

WHEREFORE, the instant petition is GRANTED and the challenged


decision of 31 May 1995 of respondent Court of Appeals in CA-G.R. CV
No. 39896, as well as the Order of 24 July 1992 of the Regional Trial
Court of Quezon City, Branch 102, in Civil Case No. Q-91-9620, is
REVERSED and SET ASIDE.
The Regional Trial Court of Quezon City, Branch 102, is hereby
DIRECTED to proceed with the pre-trial, if it has not been terminated,
and with the trial on the merits of the case and then to render judgment
thereon, taking into account the foregoing observations on the issue of
jurisdiction.
SO ORDERED.

5.6 Alitalia v. Intermediate Appellate Court 192 SCRA 9, 1997


case

Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a
research grantee of the Philippine Atomic Energy Agency was invited to take part at
a meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division
of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She
was invited in view of her specialized knowledge in "foreign substances in food and the
agriculture environment." She accepted the invitation, and was then scheduled by the
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on
the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on
petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and
time table set for her by ALITALIA. She was however told by the ALITALIA personnel
there at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of
the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2)
suitcases: one contained her clothing and other personal items; the other, her scientific
papers, slides and other research material. But the other flights arriving from Rome did
not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There,
she inquired about her suitcases in the domestic and international airports, and filled
out the forms prescribed by ALITALIA for people in her predicament. However, her
baggage could not be found. Completely distraught and discouraged, she returned to
Manila without attending the meeting in Ispra, Italy. : nad

Once back in Manila she demanded that ALITALIA make reparation for the damages
thus suffered by her. ALITALIA offered her "free airline tickets to compensate her for
any alleged damages. . . ." She rejected the offer, and forthwith commenced the action
6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7
Italy, but only on the day after her scheduled appearance and participation at the U.N.
meeting there. 8 Of course Dr. Pablo was no longer there to accept delivery; she was
already on her way home to Manila. And for some reason or other, the suitcases were
not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later, and four
(4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment
in Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal
damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of
the judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's
decision but also increased the award of nominal damages payable by ALITALIA to
P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence
committed by defendant, the amount of P20,000.00 under present inflationary
conditions as awarded . . . to the plaintiff as nominal damages, is too little to
make up for the plaintiff's frustration and disappointment in not being able to
appear at said conference; and for the embarrassment and humiliation she
suffered from the academic community for failure to carry out an official mission
for which she was singled out by the faculty to represent her institution and the
country. After weighing carefully all the considerations, the amount awarded to
the plaintiff for nominal damages and attorney's fees should be increased to the
cost of her round trip air fare or at the present rate of peso to the dollar at
P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the
same points it tried to make before the Trial Court and the Intermediate Appellate
Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S
liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal
damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court
to have refused to pass on all the assigned errors and in not stating the facts and the
law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident
causing it took place on board the aircraft or in the course of its operations of
embarking or disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if
the occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however,
founded, can only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner:
21
1. In the carriage of passengers the liability of the carrier for each passenger is
limited to the sum of 250,000 francs . . . Nevertheless, by special contract, the
carrier and the passenger may agree to a higher limit of liability. : nad

2. a) In the carriage of registered baggage and of cargo, the liability of the


carrier is limited to a sum of 250 francs per kilogramme, unless the passenger or
consignor has made, at the time when the package was handed over to the
carrier, a special declaration of interest in delivery at destination and has paid a
supplementary sum if the case so requires. In that case the carrier will be liable
to pay a sum not exceeding the declared sum, unless he proves that sum is
greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo,
or of any object contained therein, the weight to be taken into consideration in
determining the amount to which the carrier's liability is limited shall be only the
total weight of the package or packages concerned. Nevertheless, when the loss,
damage or delay of a part of the registered baggage or cargo, or of an object
contained therein, affects the value of other packages covered by the same
baggage check or the same air way bill, the total weight of such package or
packages shall also be taken into consideration in determining the limit of
liability.
3. As regards objects of which the passenger takes charge himself the liability of
the carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in
accordance with its own law, in addition, the whole or part of the court costs and
of the other expenses of litigation incurred by the plaintiff. The foregoing
provision shall not apply if the amount of the damages awarded, excluding court
costs and other expenses of the litigation, does not exceed the sum which the
carrier has offered in writing to the plaintiff within a period of six months from
the date of the occurrence causing the damage, or before the commencement of
the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions
which exclude or limit his liability, if the damage is caused by his wilful misconduct or by
such default on his part as, in accordance with the law of the court seized of the case,
is considered to be equivalent to wilful misconduct," or "if the damage is (similarly)
caused . . by any agent of the carrier acting within the scope of his employment." 22
The Hague Protocol amended the Warsaw Convention by removing the provision that if
the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved
that the damage resulted from an act or omission of the carrier, its servants or agents,
done with intent to cause damage or recklessly and with knowledge that damage would
probably result." The same deletion was effected by the Montreal Agreement of 1966,
with the result that a passenger could recover unlimited damages upon proof of wilful
misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of
an airline's liability, or as an absolute limit of the extent of that liability. Such a
proposition is not borne out by the language of the Convention, as this Court has now,
and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads to the
conclusion that it should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or
delay in its transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" 26 or
misconduct of its officers and employees, or for some particular or exceptional type of
damage. Otherwise, "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." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously
destroy or damage the latter's property, the Convention might successfully be pleaded
as the sole gauge to determine the carrier's liability to the passenger. Neither may the
Convention be invoked to justify the disregard of some extraordinary sort of damage
resulting to a passenger and preclude recovery therefor beyond the limits set by said
Convention. It is in this sense that the Convention has been applied, or ignored,
depending on the peculiar facts presented by each case. :-c ralaw

In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw
Convention was applied as regards the limitation on the carrier's liability, there being a
simple loss of baggage without any otherwise improper conduct on the part of the
officials or employees of the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as
not restrictive of the carrier's liability, where there was satisfactory evidence of malice
or bad faith attributable to its officers and employees. 29 Thus, an air carrier was
sentenced to pay not only compensatory but also moral and exemplary damages, and
attorney's fees, for instance, where its employees rudely put a passenger holding a
first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from
the plane to give his seat to a white man, 31 or gave the seat of a passenger with a
confirmed reservation to another, 32 or subjected a passenger to extremely rude,
even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that
some special species of injury was caused to Dr. Pablo because petitioner ALITALIA
misplaced her baggage and failed to deliver it to her at the time appointed a breach
of its contract of carriage, to be sure with the result that she was unable to read the
paper and make the scientific presentation (consisting of slides, autoradiograms or
films, tables and tabulations) that she had painstakingly labored over, at the
prestigious international conference, to attend which she had traveled hundreds of
miles, to her chagrin and embarrassment and the disappointment and annoyance of
the organizers. She felt, not unreasonably, that the invitation for her to participate at
the conference, extended by the Joint FAO/IAEA Division of Atomic Energy in Food and
Agriculture of the United Nations, was a singular honor not only to herself, but to the
University of the Philippines and the country as well, an opportunity to make some sort
of impression among her colleagues in that field of scientific activity. The opportunity to
claim this honor or distinction was irretrievably lost to her because of Alitalia's breach
of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned
that her suitcases were missing up to the time when, having gone to Rome, she finally
realized that she would no longer be able to take part in the conference. As she herself
put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in
the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but
safely. She is however entitled to nominal damages which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the
purely technical argument that the award to her of such nominal damages is precluded
by her omission to include a specific claim therefor in her complaint, it suffices to draw
attention to her general prayer, following her plea for moral and exemplary damages
and attorney's fees, "for such other and further just and equitable relief in the
premises," which certainly is broad enough to comprehend an application as well for
nominal damages. Besides, petitioner should have realized that the explicit assertion,
and proof, that Dr. Pablo's right had been violated or invaded by it absent any claim
for actual or compensatory damages, the prayer thereof having been voluntarily
deleted by Dr. Pablo upon the return to her of her baggage necessarily raised the
issue of nominal damages. : rd

This Court also agrees that respondent Court of Appeals correctly awarded attorney's
fees to Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises.
The law authorizes recovery of attorney's fees inter alia where, as here, "the
defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest," 34 or "where the court deems it just and
equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of
Appeals, it appearing on the contrary to be entirely in accord with the facts and the law,
said decision is hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.

5.7 Philippine Charter Insurance Corpo v. Neptune


Orient Lines June 12, 2008

This is a petition for review on certiorari[1] of the Resolution of the


Court of Appeals (CA) in CA-G.R. CV No. 52855 promulgated on April 13,
2000 granting respondents motion for reconsideration dated March 9,
2000. The Resolution held respondents liable for damages to petitioner
subject to the limited-liability provision in the bill of lading.

The facts are as follows:


On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd.
shipped from Hong Kong three sets of warp yarn on returnable beams aboard
respondent Neptune Orient Lines vessel, M/V Baltimar Orion, for transport
and delivery to Fukuyama Manufacturing Corporation (Fukuyama) of No. 7
Jasmin Street, AUV Subdivision, Metro Manila.

The said cargoes were loaded in Container No. IEAU-4592750 in good


condition under Bill of Lading No. HKG-0396180. Fukuyama insured the
shipment against all risks with petitioner Philippine Charter Insurance
Corporation (PCIC) under Marine Cargo Policy No. RN55581 in the amount
of P228,085.
During the course of the voyage, the container with the cargoes fell
overboard and was lost.

Thus, Fukuyama wrote a letter to respondent Overseas Agency


Services, Inc. (Overseas Agency), the agent of Neptune Orient Lines
in Manila, and claimed for the value of the lost cargoes.However, Overseas
Agency ignored the claim. Hence, Fukuyama sought payment from its insurer,
PCIC, for the insured value of the cargoes in the amount of P228,085, which
claim was fully satisfied by PCIC.

On February 17, 1994, Fukuyama issued a Subrogation Receipt to


petitioner PCIC for the latter to be subrogated in its right to recover its losses
from respondents.

PCIC demanded from respondents reimbursement of the entire amount


it paid to Fukuyama, but respondents refused payment.

On March 21, 1994, PCIC filed a complaint for damages against


respondents with the Regional Trial Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying
liability. They alleged that during the voyage, the vessel encountered strong
winds and heavy seas making the vessel pitch and roll, which caused the
subject container with the cargoes to fall overboard. Respondents contended
that the occurrence was a fortuitous event which exempted them from any
liability, and that their liability, if any, should not exceed US$500 or the limit
of liability in the bill of lading, whichever is lower.

In a Decision dated January 12, 1996, the RTC held that respondents,
as common carrier,[2] failed to prove that they observed the required
extraordinary diligence to prevent loss of the subject cargoes in accordance
with the pertinent provisions of the Civil Code.[3] The dispositive portion
of the Decision reads:

WHEREFORE, judgment is rendered ordering the


defendants, jointly and severally, to pay the plaintiff the Peso
equivalent as of February 17, 1994 of HK$55,000.00 or the sum
of P228,085.00, whichever is lower, with costs against the
defendants.[4]

Respondents motion for reconsideration was denied by the RTC in an


Order dated February 19, 1996.
Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the
RTC Decision with modification, thus:

WHEREFORE, the assailed decision is hereby


MODIFIED. Appellants Neptune and Overseas are hereby
ordered to pay jointly and severally appellee PCIC P228,085.00,
representing the amount it paid Fukuyama. Costs against the
appellants.[5]

Respondents moved for reconsideration of the Decision of the CA


arguing, among others, that their liability was only US$1,500 or US$500 per
package under the limited liability provision of the Carriage of Goods by Sea
Act (COGSA).

In its Resolution dated April 13, 2000, the CA found the said argument
of respondents to be meritorious. The dispositive portion of the Resolution
reads:

WHEREFORE, the motion is partly granted in the sense


that appellants shall be liable to pay appellee PCIC the value of
the three packages lost computed at the rate of US$500 per
package or a total of US$1,500.00.[6]

Hence, this petition raising this lone issue:

THE COURT OF APPEALS ERRED IN AWARDING


RESPONDENTS DAMAGES SUBJECT TO THE US$500 PER
PACKAGE LIMITATION.

Petitioner contends that the CA erred in awarding damages to


respondents subject to the US$500 per package limitation since the vessel
committed a quasi deviation which is a breach of the contract of carriage
when it intentionally threw overboard the container with the subject
shipment during the voyage to Manila for its own benefit or preservation
based on a Survey Report[7]conducted by Mariners Adjustment Corporation,
which firm was tasked by petitioner to investigate the loss of the subject
cargoes. According to petitioner, the breach of contract resulted in the
abrogation of respondents rights under the contract and COGSA including
the US$500 per package limitation. Hence, respondents cannot invoke the
benefit of the US$500 per package limitation and the CA erred in
considering the limitation and modifying its decision accordingly.

The contention lacks merit.


The facts as found by the RTC do not support the new allegation of
facts by petitioner regarding the intentional throwing overboard of the subject
cargoes and quasi deviation. The Court notes that in petitioners Complaint
before the RTC, petitioner alleged as follows:

xxx xxx xxx


2.03 In the course of the maritime voyage from
Hongkong to Manila subject shipment fell
overboard while in the custody of the defendants
and were never recovered; it was part of the LCL
cargoes packed by defendants in container
IEAU-4592750 that fell overboard during the
voyage.[8]

Moreover, the same Survey Report cited by petitioner stated:

From the investigation conducted, we noted that Capt. S.L.


Halloway, Master of MV BALTIMAR ORION filed a Note of
Protest in the City of Manila, and was notarized on 06 October
1993.

Based on Note of Protest, copy attached hereto for your


reference, carrier vessel sailed from Hongkong on 1st October
1993 carrying containers bound for Manila.

Apparently, at the time the vessel [was] sailing at about


2400 hours of 2nd October 1993, she encountered winds and seas
such as to cause occasional moderate to heavy pitching and rolling
deeply at times. At 0154 hours, same day, while in position Lat.
20 degrees, 29 minutes North, Long. 115 degrees, 49 minutes East,
four (4) x 40 ft. containers were lost/fell overboard. The
numbers of these containers are NUSU-3100789, TPHU -5262138,
IEAU-4592750, NUSU-4515404.

xxx xxx xxx


Furthermore, during the course of voyage, high winds and
heavy seas were encountered causing the ship to roll and pitch
heavily. The course and speed was altered to ease motion of the
vessel, causing delay and loss of time on the voyage.
xxx xxx xxx
SURVEYORS REMARKS:

In view of the foregoing incident, we are of the opinion that the


shipment of 3 cases of Various Warp Yarn on Returnable Beams
which were containerized onto 40 feet LCL (no. IEAU-4592750)
and fell overboardthe subject vessel during heavy weather is an
Actual Total Loss.[9]

The records show that the subject cargoes fell overboard the ship and
petitioner should not vary the facts of the case on appeal. This Court is not a
trier of facts, and, in this case, the factual finding of the RTC and the CA,
which is supported by the evidence on record, is conclusive upon this Court.

As regards the issue on the limited liability of respondents, the Court


upholds the decision of the CA.

Since the subject cargoes were lost while being transported by


respondent common carrier from Hong Kong to the Philippines, Philippine
law applies pursuant to the Civil Code which provides:

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.

Art. 1766. In all matters not regulated by this Code, the


rights and obligations of common carriers shall be governed by
the Code of Commerce and by special laws.

The rights and obligations of respondent common carrier are thus


governed by the provisions of the Civil Code, and the COGSA, [10] which is a
special law, applies suppletorily.

The pertinent provisions of the Civil Code applicable to this case are as
follows:

Art. 1749. A stipulation that the common carriers liability


is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may be recovered


by the owner or shipper for the loss, destruction, or deterioration
of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to


all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade, provides:

Neither the carrier nor the ship shall in any event be or


become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package
lawful money of the United States, or in case of goods not shipped
in packages, per customary freight unit, or the equivalent of that
sum in other currency, unless the nature and value of such goods
have been declared by the shipper before shipment and inserted in
the bill of lading. This declaration, if embodied in the bill of
lading shall be prima facie evidence, but shall be conclusive on
the carrier.

In this case, Bill of Lading No. 0396180 stipulates:

Neither the Carrier nor the vessel shall in any event become
liable for any loss of or damage to or in connection with the
transportation of Goods in an amount exceeding US$500 (which
is the package or shipping unit limitation under U.S. COGSA) per
package or in the case of Goods not shipped in packages per
shipping unit or customary freight, unless the nature and value
of such Goods have been declared by the Shipper before
shipment and inserted in this Bill of Lading and the Shipper
has paid additional charges on such declared value. . . .

The bill of lading[11] submitted in evidence by petitioner did not show


that the shipper in Hong Kong declared the actual value of the goods as
insured by Fukuyama before shipment and that the said value was inserted in
the Bill of Lading, and so no additional charges were paid. Hence,
the stipulation in the bill of lading that the carriers liability shall not exceed
US$500 per package applies.

Such stipulation in the bill of lading limiting respondents liability for


the loss of the subject cargoes is allowed under Art. 1749 of the Civil Code,
and Sec. 4, paragraph (5) of the COGSA.Everett Steamship Corporation v.
Court of Appeals[12] held:
A stipulation in the bill of lading limiting the common
carriers liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned
by law, particularly Articles 1749 and 1750 of the Civil Code
which provide:

Art. 1749. A stipulation that the common carriers liability


is limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may be recovered


by the owner or shipper for the loss, destruction, or deterioration
of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

Such limited-liability clause has also been consistently


upheld by this court in a number of cases. Thus, in Sea-Land
Service, Inc. vs. Intermediate Appellate Court, we ruled:

It seems clear that even if said section 4 (5) of the Carriage


of Goods by Sea Act did not exist, the validity and binding effect
of the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a
limit to liability only if a greater value is not declared for the
shipment in the bill of lading. To hold otherwise would amount to
questioning the justness and fairness of the law itself.... But over
and above that consideration, the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the
option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and
value of the shipment in the bill of lading.

The CA, therefore, did not err in holding respondents liable for
damages to petitioner subject to the US$500 per package limited- liability
provision in the bill of lading.

WHEREFORE, the petition is DENIED. The Resolution of the


Court of Appeals in CA-G.R. CV No. 52855 promulgated on April 13,
2000 is hereby AFFIRMED.

Costs against petitioner.


SO ORDERED.

5.8 Warsaw convetion.

5.9 COGSA.

5.10 RA 4136.

5.11 RA 9497.

6. Nature of business.

7. Registered owner rule and Kabit System.


7.1 Registration laws.
Compulsory registration of motor vehicles RA 4136
7.2 Registered owner rule.
7.3 Kabit system.
7.4 Pari Delicto Rule.
7.5 Aircrafts and vessels.

Laws and Jurisprudence:


a. PCI leasing and finance, Inc. v. UCPB General
Insurance Co., Inc. July 4, 2008
b. Equitable Leasing Corporation v. Lucita Suyon, et al.,
G.R No. 143360 September 5, 2002
c. Aguilar v. Commercial Savings Bank 412 Phil 834
d. Perez v. Gutierrez 63 SCRA 149
e. Aberlardo Lim, et al. v. CA January 16, 2002
f. Teja Marketing v. Intermediate Appellate Court, GR
No. L-65510 March 9, 1987
g. Lita Enterprises, Inc. v. IAC G.R. No. L-64693 April 27, 1984
h. Mariano C Mendoza and Lim v. SPS Gomez and
Gomez June 18, 2014
i. Estela Crisostomo v. CA and Caravan Travel and
Tours August 25, 2003

8. Boundary System.
Laws and Jurisprudence:

a. Gregorio George Amante and Vicente Amante vs.


Bibiano Serwelas September 30, 2005
b. Oscar Villarama Jr v. CA G.R. No. 165881 April 19, 2006
c. Martin Lantaco et al. v. City Judge Francisco R.
Llamas October 28, 1981
d. Isabelo Doce v. WCC and Dadao Jadao G.R. No. L-9417
December 22, 1958
e. Rodolfo J. Serrano v. Severino Santos Transit and/or
Severino Santos, August 9, 2010

Part 2 Obligation of Parties


1. Obligation of the Carrier
Philam Insurance Co. v. Chartis Phil Insurance July 23, 2014
Gregorio Anuran, Maria Maligaya v. Buno et al May 20 1966
1.1 Duty to accept
FC Fisher v. Yangco Steamship Co. G.R. No. 8095 November 5 1914 31
Phil 1
1.2 Valid grounds for non- acceptance
Artilce 356-357-358 of the Code of Commerce(COC)
Article 1742 of the NCC
1.3 Duty to deliver goods
1.4 Consequences of delay
Article 1740 NCC
Article 1747 NCC
A. 370 COC
A. 371 COC
A. 372 COC
A. 373 COC
A. 374 COC
1.5 Rights of passengers in case of delay
Article 698 COC
Trans-asia Shipping Lines, Inc. v. CA, et al., G.R. No. 118126, March 4,
1996
Marina regulation Mem. Circular no. 112
1.6 Place of delivery
A. 360 COC
A. 368 COC
A. 369 COC
1.7 To whom delivered
1.8 Delay to transport Passengers
Marina Memorandum Circular no. 112 December 15, 1995
2. Duty to Exercise Extra-ordinary Diligence
2.1 Code of commerce provisions
2.2 Presumption of negligence
2.3 Duration of Duty in Carriage of Goods
2.4 Commencement of Duty in Carriage of Passengers

Laws and jurisprudence:


a. Article 1733 of the NCC
b. Artilc 1755 of the NCC
c. Article 1736 of the NCC
d. Article of 1737 of the NCC
e. Article of 1738 of the NCC
f. Mariano v. Calleja July 31, 2009
g. Belgian Overseas Chartering and Shipping v. Phil. First Ins. Co., June 5,
2002
h. Ganzon v. CA G.R. No. L-48757 May 30, 1998
i. Saludo v. CA
j. Republic of the Philippines v. Lorenzo Shipping February 7, 2005
k. Regional Container Lines v. Netherlands Insurance Co. September 4,
2009

3. Defenses of Common Carriers


3.1 Proximate Causation
3.2 New Civil Code Provisions
3.3 Defense in Carriage of Passengers
3.4 Fortuitous event
3.5 Public enemy
3.6 Improper Packing
3.7 Order of Public Authority
3.8 Defenses of Carriage of Passengers
3.9 Acts of Employees
(Sabena Belgian World Airlines vs. Honorable Court of Appeals G.R.
No. 82068. March 31, 1989)
(Leopoldo Poblete vs. Donato Fabros, G.R. No. L-29803, 14
September 1979)
(Collin A. Morris vs. Court of Appeals, G.R. No. 127957. February 21,
2001)
(Antonia Maranan vs. Pascual Perez, et al, G.R. No. L-22272, June 26,
1967)
3.10 Act of Other Passengers and 3rd persons
(Jose Pilapil vs. Hon. Court of Appeals, G.R. No. 52159, 22 December
1989)

4. Passengers baggages
4.1 Define baggage
4.2 Checked-in-Baggage
4.3 Hand Carried baggage
(Philippine Airlines Inc. vs. Court of Appeals, G.R. No. 119706, March
14, 1996)
(British Airways vs. Court of Appeals, G.R. No. 121824, January 29,
1998)
(Philippine Airlines Inc. vs. Hon. Adriano Savillo, et. al., G.R. No.
149547, July 4, 2008)
(Philippine Airlines Inc. vs. Hon. Adriano Savillo, et. al., G.R. No.
149547, July 4, 2008)

5. Obligations of Shipper, Consignee and Passenger


5.1 Negligence of Shipper or Passenger
5.2 Payment of Freight
5.3 Who will pay the freight
5.4 Time to pay the freight
5.5 Carriers lien
5.6 Payment of Demurrage
Part 3 Extraordinary Diligence of Common carriers
Laws and Jurisprudence:
a. Loadmasters Customs Services v. Glodel Brokerage Corporation and
R&B Insurance January 10, 2011, G.R No. 179446
b. Cesar Isaac v. A.L. Ammen Transportation Co., Inc. August 23, 1957 G.R
No. L-9671
c. Jose Pilapil v. Hon. CA and Alatco Transportation Co. December 22,
1989
d. Herminio Nocum v. Laguna Tayabas Bus Company G.R. No. L-23733
October 31, 1969
e. Batangas Transportation Co. v. Gregorio Caguimbal et al. G.R. No.
L-22985 January 24, 1968
f. Loadmasters Customs Services v. Glodel Brokerage Corporation and
R&B Insurance G.R. No. 179446 January 10, 2011
g. Pedro Guzman v CA December 22, 1988
h. Estela Crisostomo v. CA and Caravan Travel & Tours, G.R. No. 138334,
August 25, 2003
i. American Home Assurance Co. v. The Court of Appeals, G.R. No.
94149, May 5, 1992
j. Amparo C. Servando, Claro Uy Bico v. Philippine Steam Navigation
October 23, 1982
k. Vda. De Abeto v. Philippine Airlines, Inc. 115 SCRA 489
l. R. Transport Corporation v. Pante September 15, 2009
m. Asian Terminals, Inc. v. Simon Enterprise, Inc. G.R. No. 177116 February
27, 2013
3.1 LIABILITIES OF COMMON CARRIERS
> Victorino Cusi and Pilar Pobre v. Philippine National Railways, G.R. No. L-29889 May
31, 1979
> Loadstar Shipping Co., Inc. vs. Court of Appeals, G.R. No. 131621, September 28,
1999)
Light Rail Transit Authority & Rodolfo Roman vs. Marjorie Navidad,
G.R. No. 145804, 6 February 2003
Lita Enterprises, Inc. vs. Intermediate Appellate Court, G.R. No.
L-64693, 27 April 1984)
(Victor Juaniza vs. Eugenio Jose, G.R. No.L-50127-28, 30 March 1979)
(Ma. Luisa Benedicto vs. Hon. Intermediate Appellate Court, G.R. No.
70876, 19 July 1990)
(Angel Jereos vs. Hon. Court of Appeals, G.R. No. L-48747, 30
September 1982)
(Equitable Leasing Corporation vs. Lucita Suyom et al., G.R. No.
143360, 5 September 2002)
(William Tiu, doing business under the name and style of D Rough
Riders, vs. Pedro A. Arriesgado, G.R. No. 138060, 1 September 2004)
(Spouses Cesar & Suthira Zalamea vs. Court of Appeals, G.R. No.
104235 November 18, 1993)
(Singapore Airlines Limited vs. Fernandez, G.R. No. 142305, December
10, 2003)
(Philippine Airlines, Inc., vs. Court of Appeals, G.R. No. 119641, May 17,
1996)
(Philippine Airlines, Inc. vs. Court of Appeals, G.R. No. 120262, July 17,
1997)
(Carlos Singson vs. Court of Appeals, G.R. No. 119995, November 18,
1997)
(Cathay Pacific Airways, Ltd., vs. Spouses Daniel Vazquez And Maria
Luisa Madrigal Vazquez, G.R. No. 150843, March 14, 2003)
(Philippine Airlines Inc. vs. Court of Appeals, G.R. No. 123238,
September 22, 2008)
The Heirs of the late Ruben Reinoso, Sr. vs. Court of Appeals, GR No.
116121, July 18, 2011
Heirs of Josemaria Ochoa vs. G&S Transport Corporation, March 19, as
affirmed in the July 16, 2012 decision
3.2 VIGILANCE OVER GOODS
1. Exempting Causes
1.1 Requirement of Absence of Negligence
Cases:
(Saturnino Bayasen vs. Court of Appeals, G.R. No.L-25785, 26 February
1981)
(Alberta Yobido vs. Court of Appeals, G.R. No. 113003, 17 October
1997)
(Bachelor Express, Incorporated vs. The Honorable Court of Appeals
(Sixth Division), G.R. No. 85691, 31 July 1990)
(Sweet Lines, Inc. vs. The Honorable Court of Appeals, Micaela b.
Quintos, et al., G.R. No. L-43640, 28 April 1983
(Vicente Vergara vs. The Court of Appeals, G.R. No. 77679, 30
September 1987)
(Mauro Ganzon vs. Court of Appeals, G.R. no. L-48757, 30 May 1988)
(Fortune Express, Inc. vs. Court of Appeals, G.R. No. 119756, 18 March
1999)
(Pedro Vasquez, et al., vs. The Court of Appeals, G.R. No. L-42926, 13
September 1985)
(Loadstar Shipping Co., Inc. vs. Court of Appeals, G.R. No. 131621, 28
September 1999)
(Smith Bell Dodwell Shipping Agency Corporation vs. Catalino Borja,
G.R. No. 143008. June 10, 2002)

3.3 LIABILITY OF SHIP OWNERS AND SHIPPING AGENTS


Cases:
(Aboitiz Shipping Corporation vs. General Accident Fire and Life
Assurance Corporation Ltd., 217 SCRA 359, 1993)
(Luzon Stevedoring Corporation vs. Court of Appeals, G.R. No.
L-58897, 3 December 1987)
(Chua Yek Hong vs. Intermediate Appellate Court, G.R. No. 74811, 30
September 1988)
Dela Torre vs. Court of Appeals, GR No. 160088, July 13, 2011
Also read
ALSO READ:
3.4 Extra ordinary diligence in Carriage by Sea
Seaworthiness
Meaning of seaworthiness
Deviation
Negligence of Captain and Crew
Rules on passengers safety
Transshipment
Part 4 Bill of Lading and Other Formalities
4.1 Concepts
4.2 Definition
4.3 Kind of Bill of lading
4.4 Nature of Bill of lading
4.5 When effective
4.6 Bill of lading as Contract
Parties
Contract of adhesion
Parol evidence rule
Bill of lading as evidence
Bill of lading as actionable document
Shipment terms

PART 5 ACTIONS AND DAMAGES IN CASE OF BREACH

5.1 Distinctions CULPA CONTRACTUAL V. CULPA AQUILIANA


5.2 Concurrent causes of actions
Concurrence with 3rd persons
Solidary liability
Alternative compensation scheme
5.3 Notice of claim and prescriptive period
Claim in overland Transportation and coastwise shipping
Prescription in Overland Transportation and coastwise shipping
Claim in International carriage of goods by sea
Prescription in International Carriage of goods
5.4 Recoverable Damages
Extent of recovery
Kinds of damages
1. Actual or Compensatory Damages
2. Attorneys fees
3. Interest
4. Moral damages
5. Nominal damages
6. Temperate or moderate damages
7. Liquidated damages
8. Exemplary or corrective damages

PART 6 MARITIME LAW

Maritime law defined


Real and Hypothecary Nature
Protest
Admiralty jurisdiction
Maritime pollution
Marine insurance

PART 7 VESSELS

PART 8 CHARTER PARTIES

8.1 Definition
8.2 Different kinds of charter parties
Bareboat charter
Contract of affreightment
8.3 Effect of charter on character of carrier
8.4 Persons who may make charter
Charterer
Part owners
Ship agents
Captain or master
8.5 Requisites of a valid charter party
8.6 Freight
8.7 Port of unloading
8.8 Demurrage

PART 9 LOANS ON BOTTOMRY AND RESPODENTIA


PART 10 AVERAGES
PART 11 COLLISSIONS
PART 12 ARRIVAL UNDER STRESS AND SHIPWRECKS
PART 13 SALVAGE
PART 14 - COGSA