Republic of the Philippines Thereafter, notwithstanding the protest and demand of the petitioner as aforesaid, the Insular Auditor,
SUPREME COURT in conformity with his ruling, declined and still declines to issue to the petitioner a warrant for the full
Manila
EN BANC
G.R. No. L-15652 December 14, 1920
THE YNCHAUSTI STEAMSHIP COMPANY, petitioner,
vs.
I. B. DEXTER, as Auditor of the Philippine Islands, and C. E. UNSON, as Acting Purchasing Agent
of the Philippine Islands, respondents.
Cohn & Fisher for petitioner.
Attorney-General Paredes and Assistant Attorney-General A. Santos for respondents.
STREET, J.:
This a petition for a writ of mandamus filed in this court of the Ynchausti Steamship Company to compel
the Purchasing Agent of the Philippine Islands and the Insular Auditor to sign, countersign, and deliver
to the petitioner a warrant upon the Treasurer of the Philippine Islands for the sum of P82.79 in
satisfaction of a claim for that amount, which is alleged to be due the petitioner as a common carrier for
freight earned in transporting for the Government two distinct consignments of mineral oil from Manila
to two other ports in the Philippine Islands. After the defendants had duly answered, denying all the
allegations of the petition except such as relate to the character and places of residence of the parties
to the petition (which are admitted) the controversy was submitted for determination by this court upon
an agreed statement of facts as follows:
On July 23, 1918, the Government of the Philippine Islands, acting by and through the respondent
Insular Purchasing Agent, employed the services of the petitioner, Ynchausti Steamship Co., a common
carrier, for the transportation, on board the steamship Venus, from the port of Manila to the port of
Aparri, Cagayan, of a consignment of merchandise, consisting of thirty (30) cases of "White Rose"
mineral oil of two five-gallon cans to the case; and on September 18, 1918, the said Government likewise
employed the services of petitioner for the transportation on board the steamship Venus, from Manila
to Aparri, Cagayan, of ninety-six cases of "Cock" Brand mineral oil, ten gallons to the case. The goods
were delivered by the shipper to the carrier, which accordingly received them, and to evidence the
contract of transportation, the parties duly executed and delivered what is popularly called the
Government bill of lading (General Form 9-A), hereto attached, marked Exhibit A and made a part hereof,
wherein and whereby it was stipulated that the carrier, the petitioner Ynchausti & Co., received the
above-mentioned supplies in apparent good condition, obligating itself to carry said supplies to the place
agreed upon, in accordance with the authorized and prescribed rates and classifications, and subject to
the law of common carriers in force on the date of the shipment, and to the conditions prescribed by
the Insular Collector of Customs in Philippine Marine Regulations at page 16 under the heading of "Bill
of Lading Conditions," hereto attached, marked Exhibit B and made a part hereof.
Upon the delivery of the said shipment of "Cock" brand oil and consignee claimed that one case was
delivered empty, and noted such claim upon the bill of lading; and upon the delivery of the said shipment
of "White Rose," brand oil the consignee claimed that one case was delivered empty, and noted said
claim upon the bill of lading.
Thereafter, notwithstanding the protestations of the petitioner, Ynchausti Steamship Co., that said
shortages were due to causes entirely unknown to it, and were not due to any fault or negligence on its
part, or on the part of its agents or servants, the Acting Insular Purchasing Agent of the Philippine
Islands notified the petitioners herein that after due investigation the Insular Auditor found and decided
that the leakages of the two whole cases were due to its negligence and that the deduction of the sum
of P22.53, the invoice value of the goods lost, and held by the Auditor to be the true value thereof had
been authorized by the said Insular Auditor.
Petitioner thereupon protested against the threatened deduction, and demanded that it be paid the full
amount due for the transportation of the two said shipments of merchandise, to wit, the sum of P82.79,
as shown by its transportation voucher presented in this cause, hereto attached. marked Exhibit C and
made a part hereof.
1
sum of P82.79, and has tendered to it a warrant for the sum of P60.26, which the petitioner has refused
to accept.
The sum of P22.53 authorized to be deducted by the Insular Auditor, as appears herein, has not at any
time been liquidated by consent, agreement, or by the judgment of any court of competent jurisdiction.
Upon a perusal of the foregoing agreed statement it will be seen that the present litigation had its origin
in a situation practically identical with that considered by this court in Compaia General de
Tabacos vs. French and Unson (39 Phil., 34). It will be noted, however, that the case mentioned was
decided upon demurrer, while the one now before us is to be heard and determined upon the petition,
answer, and the admitted facts.
We note that in this case, as in the case of Compaia General de Tabacos vs. French and Unson (supra),
the petition alleges that the leakage of the lost gasoline was due to causes unknown to the petitioner
and was not due to any fault or negligence of petitioner, its agents, or servants. The respondents, by
demurring to the petition in the earlier case, admitted that allegation. In the case now before us that
allegation is put in issue, and we find nothing in the admitted statement of facts to support it. It results
that if that allegation is material to the relief here sought, the petition must fail.
We are of the opinion that the allegation in question is material and that the belief sought in this case
cannot be granted.
In section 646 of the Administrative Code it is provided that when Government property is transmitted
from one place to another by carrier, it shall be upon proper bill of lading, or receipt, from such carrier,
and it shall be the duty of the consignee, or his representative, to make full notation of any evidence of
loss, shortage, or damage, upon the bill of lading, or receipt, before accomplishing it. It is admitted by
the petitioner in the agreed statement of facts that the consignee, at the time the oil was delivered,
noted the loss in the present case upon the two respective bills of lading. The notation of these losses
by the consignee, in obedience to the precept of section 646 of the Administrative Code, is competent
evidence to show that the shortage in fact existed. As the petitioner admits that the oil was received by
it for carriage and inasmuch as the fact of loss is proved in the manner just stated, it results that there
is a presumption that the petitioner was to blame for the loss; and it was incumbent upon the petitioner
in order to entitle it to relief in the case to rebut that presumption by proving, as is alleged in the petition,
that the loss was not due to any fault or negligence of the petitioner.
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. (4 R. C. L., p. 917.) It is
incumbent upon the carrier to prove that the loss was due to accident or some other circumstance
inconsistent with its liability. (Articles
361-363, Code of Commerce.) Indeed, if the Government of the Philippine Islands had instituted an
action in a court of law against the petitioner to recover the value of the oil lost while these consignments
were in the court of transportation, it would, upon the facts appearing before us, have been entitled to
judgment.
From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of universal
application that a petition for extraordinary relief of the character here sought must show merit. That is,
the petitioner's right to relief must be clear. Such cannot be said to be the case where, as here, a
presumption of responsibility on the part of the petitioner stands unrefuted upon the record.
We are of the opinion that, in the absence of proof showing that the carrier was not at fault in respect
to the matter under discussion, the Insular Auditor was entitled to withhold, from the amount admittedly
due to the petitioner for the freight charges, a sum sufficient to cover the value of the oil lost in transit.
The petition will be dismissed, with costs against the petitioner. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29721 March 27, 1929
AMANDO MIRASOL, plaintiff-appellant,
vs.
THE ROBERT DOLLAR CO., defendant-appellant.
Vicente Hilado for plaintiff-appellant.
J.A. Wolfson for defendant-appellant.
STATEMENT
After the promulgation of the decision rendered by the Second Division of February 13, 1929,1 the
defendant filed a motion to have the case heard and decided in banc, and inasmuch as the legal
questions involved are important to the shipping interests, the court thought it best to do so.
After the formal pleas, plaintiff alleges that he is the owner and consignee of two cases of books,
shipped in good order and condition at New York, U.S.A., on board the defendant's
steamship President Garfield, for transport and delivery to the plaintiff in the City of Manila, all
freight charges paid. That the two cases arrived in Manila on September 1, 1927, in bad order
and damaged condition, resulting in the total loss of one case and a partial loss of the other. That
the loss in one case is P1,630, and the other P700, for which he filed his claims, and defendant
has refused and neglected to pay, giving as its reason that the damage in question "was caused
by sea water." That plaintiff never entered into any contract with the defendant limiting
defendant's liability as a common carrier, and when he wrote the letter of September 3, 1927, he
had not then ascertained the contents of the damaged case, and could not determine their value.
That he never intended to ratify or confirm any agreement to limit the liability of the defendant.
That on September 9, 1927, when the other case was found, plaintiff filed a claim for the real
damage of the books therein named in the sum of $375.
Plaintiff prays for corresponding judgment, with legal interest from the filing of the complaint and
costs.
For answer the defendant made a general and specific denial, and as a separate and special
defense alleges that the steamship President Garfield at all the times alleged was in all respects
seaworthy and properly manned, equipped and supplied, and fit for the voyage. That the damage
to plaintiff's merchandise, if any, was not caused through the negligence of the vessel, its master,
agent, officers, crew, tackle or appurtenances, nor by reason of the vessel being unseaworthy or
improperly manned, "but that such damage, if any, resulted from faults or errors in navigation or
in the management of said vessel." As a second separate and special defense, defendant alleges
that in the bill of lading issued by the defendant to plaintiff, it was agreed in writing that defendant
should not be "held liable for any loss of, or damage to, any of said merchandise resulting from
any of the following causes, to wit: Acts of God, perils of the sea or other waters," and that
plaintiff's damage, if any, was caused by "Acts of God" or "perils of the sea." As a third special
defense, defendant quoted clause 13 of the bill of lading, in which it is stated that in no case shall
it be held liable "for or in respect to said merchandise or property beyond the sum of two hundred
and fifty dollars for any piece, package or any article not enclosed in a package, unless a higher
value is stated herein and ad valorem freight paid or assessed thereon," and that there was no
other agreement. That no September 3, 1927 the plaintiff wrote the defendant a letter as follows:
2
Therefore, I wish to file claim of damage to the meager maximum value that your bills of lading
will indemnify me, that is $250 as per condition 13.
As a fourth special defense, defendant alleges that the damage, if any, was caused by "sea water,"
and that the bill of lading exempts defendant from liability for that cause. That damage by "sea
water" is a shipper's risk, and that defendant is not liable.
As a result of the trial upon such issues, the lower court rendered judgment for the plaintiff for
P2,080, with legal interest thereon from the date of the final judgment, with costs, from which
both parties appealed, and the plaintiff assigns the following errors:
I. The lower court erred in holding that plaintiff's damage on account of the loss of the damaged
books in the partially damaged case can be compensated with an indemnity of P450 instead of
P750 as claimed by plaintiff.
II. The lower court, consequently, also erred in giving judgment for plaintiff for only P2,080 instead
of P2,380.
III. The lower court erred in not sentencing defendant to pay legal interest on the amount of the
judgment, at least, from the date of the rendition of said judgment, namely, January 30, 1928.
The defendant assigns the following errors:
I. The lower court erred in failing to recognize the validity of the limited liability clause of the bill
of lading, Exhibit 2.
II. The lower court erred in holding defendant liable in any amount and in failing to hold, after its
finding as a fact that the damage was caused by sea water, that the defendant is not liable for
such damage by sea water.
III. The lower court erred in awarding damages in favor of plaintiff and against defendant for
P2,080 or in any other amount, and in admitting, over objection, Exhibits G, H, I and J.
JOHNS, J.:
Plaintiff's contention that he is entitled to P700 for his Encyclopedia Britannica is not tenable. The
evidence shows that the P400 that the court allowed, he could buy a new set which could contain
all of the material and the subject matter of the one which he lost. Plaintiff's third assignment of
error is well taken, as under all of the authorities, he is entitled to legal interest from the date of
his judgement rendered in the lower court and not the date when it becomes final. The lower
court found that plaintiff's damage was P2,080, and that finding is sustained by that evidence.
There was a total loss of one case and a partial loss of the other, and in the very nature of the
things, plaintiff could not prove his loss in any other way or manner that he did prove it, and the
trial court who heard him testify must have been convinced of the truth of his testimony.
There is no claim or pretense that the plaintiff signed the bill of lading or that he knew of his
contents at the time that it was issued. In that situation he was not legally bound by the clause
which purports to limit defendant's liability. That question was squarely met and decided by this
court in banc in Juan Ysmael and Co., vs. Gabino Baretto and Co., (51 Phil., 90; see numerous
authorities there cited).
Among such authorities in the case of The Kengsington decided by the Supreme Court of the U.S.
January 6, 1902 (46 Law. Ed., 190), in which the opinion was written by the late Chief Justice
White, the syllabus of which is as follows:
1. Restrictions of the liability of a steamship company for its own negligence or failure of duty
toward the passenger, being against the public policy enforced by the courts of the United States,
will not to be upheld, though the ticket was issued and accepted in a foreign country and contained
a condition making it subject to the law thereof, which sustained such stipulation.
2. The stipulation in a steamship passenger's ticket, which compels him to value his baggage, at
a certain sum, far less than it is worth, or, in order to have a higher value put upon it, to subject
it to the provisions of the Harter Act, by which the carrier would be exempted from all the liability
therefore from errors in navigation or management of the vessel of other negligence is
unreasonable and in conflict with public policy.
3. An arbitrary limitation of 250 francs for the baggage of any steamship passenger
unaccompanied by any right to increase the amount of adequate and reasonable proportional
payment, is void as against public policy.
Both the facts upon which it is based and the legal principles involved are square in point in this
case.
The defendant having received the two boxes in good condition, its legal duty was to deliver them
to the plaintiff in the same condition in which it received them. From the time of their delivery to
the defendant in New York until they are delivered to the plaintiff in Manila, the boxes were under
the control and supervision of the defendant and beyond the control of the plaintiff. The defendant
having admitted that the boxes were damaged while in transit and in its possession, the burden
of proof then shifted, and it devolved upon the defendant to both allege and prove that the
damage was caused by reason of some fact which exempted it from liability. As to how the boxes
were damaged, when or where, was a matter peculiarly and exclusively within the knowledge of
the defendant and in the very nature of things could not be in the knowledge of the plaintiff. To
require the plaintiff to prove as to when and how the damage was caused would force him to call
and rely upon the employees of the defendant's ship, which in legal effect would be to say that
he could not recover any damage for any reason. That is not the law.
Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights,
and when goods are delivered on board ship in good order and condition, and the shipowner
delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to
both allege and prove that the goods were damaged by the reason of some fact which legally
exempts him from liability; otherwise, the shipper would be left without any redress, no matter
what may have caused the damage.
Therefore, all damages and impairment suffered by the goods during the transportation, by reason
of accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the
account and risk of the shipper.
The proof of these accidents is incumbent on the carrier.
In the final analysis, the cases were received by the defendant in New York in good order and
condition, and when they arrived in Manila, they were in bad condition, and one was a total loss.
The fact that the cases were damaged by "sea water," standing alone and within itself, is not
evidence that they were damaged by force majeure or for a cause beyond the defendant's control.
The words "perils of the sea," as stated in defendant's brief apply to "all kinds of marine casualties,
such as shipwreck, foundering, stranding," and among other things, it is said: "Tempest, rocks,
shoals, icebergs and other obstacles are within the expression," and "where the peril is the
proximate cause of the loss, the shipowner is excused." "Something fortuitous and out of the
ordinary course is involved in both words 'peril' or 'accident'."
Defendant also cites and relies on the case of Government of the Philippine Islands vs. Ynchausti
& Company (40 Phil., 219), but it appears from a reading of that case that the facts are very
different and, hence, it is not in point. In the instant case, there is no claim or pretense that the
two cases were not in good order when received on board the ship, and it is admitted that they
were in bad order on their arrival at Manila. Hence, they must have been damaged in transit. In
the very nature of things, if they were damaged by reason of a tempest, rocks, icebergs,
foundering, stranding or the perils of the sea, that would be a matter exclusively within the
knowledge of the officers of defendant's ship, and in the very nature of things would not be within
plaintiff's knowledge, and upon all of such questions, there is a failure of proof.
The judgment of the lower court will be modified, so as to give the plaintiff legal interest on the
amount of his judgment from the date of its rendition in the lower court, and in all respects
affirmed, with costs. So ordered.
Johnson, Malcolm, Ostrand, Romualdez, and Villa-Real, JJ., concur.

The lower court in its opinion says:

The defendant has not even attempted to prove that the two cases were wet with sea water by
fictitious event, force majeure or nature and defect of the things themselves. Consequently, it
must be presumed that it was by causes entirely distinct and in no manner imputable to the
plaintiff, and of which the steamer President Garfield or any of its crew could not have been
entirely unaware.

And the evidence for the defendant shows that the damage was largely caused by "sea water,"
from which it contends that it is exempt under the provisions of its bill of lading and the provisions
of the article 361 of the Code of Commerce, which is as follows:

Merchandise shall be transported at the risk and venture of the shipper, if the contrary was not
expressly stipulated.

3

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6092 March 8, 1912
TAN CHIONG SIAN, plaintiff-appellee,
vs.
INCHAUSTI AND CO., defendant-appellant.
Haussermann, Cohn and Fisher for appellant.
O'Brien and DeWitt for appellee.
TORRES, J.:
This is an appeal through bill of exceptions, by counsel for the firm of Inchausti & Co., from a
judgment rendered by the Honorable A.S. Crossfield, judge.
On January 11, 1909, the Chinaman, Tan Chiong Sian or Tan Chinto, filed a written complaint,
which was amended on the 28th of the same month and again amended on October 27 of the
same year, against the said firm, wherein he alleged, among other things, as a cause of action:
That, on or about November 25, 1908, the plaintiff delivered to the defendant 205 bundles or
cases of general merchandise belonging to him, which Inchausti & Co., upon receiving, bound
themselves to deliver in the pueblo of Catarman, Province of Samar, to the Chinaman, Ong Bieng
Sip, and in consideration of the obligations contracted by the defendant party, the plaintiff
obligated himself to pay to the latter the sum of P250 Philippine currency, which payment should
be made upon the delivery of the said merchandise in the said pueblo Catarman; but that the
defendant company neither carried nor delivered the aforementioned merchandise to the said
Ong Bieng Sip, in Catarman, but unjustly and negligently failed to do so, with the result that the
said merchandise was almost totally lost; that, had the defendant party complied well and
faithfully with its obligation, according to the agreement made, the merchandise concerned would
have a value of P20,000 in the said pueblo of Catarman on the date when it should have been
delivered there, wherefore the defendant party owed the plaintiff the said sum of P20,000, which
it had not paid him, or any part thereof, notwithstanding the many demands of the plaintiff;
therefore the latter prayed for judgment against the defendant for the said sum, together with
legal interest thereon from November 25, 1908, and the costs of the suit.
Counsel for the defendant company, in his answer, set forth, that he admitted the allegations of
paragraphs 1 and 2 of the complaint, amended for the second time, and denied those paragraphs
3, 4, 5, 6 and 7 of the same. As his first special defense, he alleged that on or about November
28, 1908, his client, the said firm, received in Manila from Ong Bieng Sip 205 bundles, bales, or
cases of merchandise to be placed on board the steamer Sorsogon, belonging to the defendant,
for shipment to the port of Gubat, Province of Sorsogon, to be in the said port transshipped into
another of the defendant's vessels for transportation to the port of Catarman, Samar, and
delivered to the aforesaid Chinaman, Ong Bieng Sip; that the defendant company, upon receiving
the said merchandise from the latter, Ong Bieng Sip, and on its entering into a contract of maritime
transportation with him did not know and was not notified that the plaintiff, Tan Chiong Sian, had
any interest whatever in the said merchandise and had made with the plaintiff no contract relative
to the transportation of such goods, for, on receiving the latter from the said Ong Bieng Sip, for
transportation, there were made out and delivered to him three bills of lading, Nos. 38, 39 and
76, which contained a list of the goods received and, printed on the back thereof were the terms
of the maritime transportation contract entered into by and between the plaintiff and the
4
defendant company, copies of which bills of lading and contract, marked as Exhibits A, B, and C,
are of record, attached to and made an integral part of the said answer; that Ong Bieng Sip
accepted the said bills of lading and the contract extended on the backs thereof; that the
merchandise mentioned was put on board the steamer Sorsogon and carried to the port of Gubat,
Province of Sorsogon, where this vessel arrived on November 28, 1908, on which date the lorcha
Pilar, into which the said merchandise was to be transshipped for carriage to Catarman, was not
at Gubat, and therefore the goods had to be unloaded and stored in the defendant company's
warehouses at Gubat; that, on the 4th of December of the same year, the lorcha Pilar arrived at
Gubat and, after the termination of certain necessary work, the goods received from Chinaman,
Ong Bieng Sip, were taken aboard the same, together with other merchandise belonging to the
defendant party, for the purpose of transportation to the port of Catarman; that, before the
said lorcha could leave for its destination, a strong wind arose which in the course of the day
increased in force until, early in the morning of the following day, the lorcha was dragged and
driven, by the force of the storm, upon the shore, despite the means employed by the crew to
avoid the accident, and notwithstanding the five anchors that held the craft, which was thus
wrecked and completely destroyed and the merchandise with which it was laden, including the
205 bundles or packages taken aboard for the said Chinaman, was scattered on the shore; that,
on the occasion, the lorcha Pilar was in good condition, provided with all the proper and necessary
equipment and accessories and carried a crew of sufficient number in command of a
skillful patron or master, wherefore the wreck of the said craft was solely due to the irresistible
force of the elements and of the storm which drove it upon the shore; that the defendant
company, with the greatest possible diligence, gathered up the said shipwrecked goods that had
been shipped by the Chinaman, Ong Bieng Sip, but, owing to the damage they had suffered, it
was impossible to preserve them, so, after having offered to deliver them to him, the defendant
proceeded, in the presence of a notary, to sell them at public auction and realized from the sale
thereof P1,693.67, the reasonable value of the same in the condition in which they were after
they had been gathered up and salved from the wreck of the lorcha Pilar; that the expenses
occasioned by such salvage and sale of the said goods amounted to P151.35, which were paid by
the defendant party; that the latter offered to the Chinese shipper, the plaintiff, the amount
realized from the sale of the said merchandise, less P151.35, the amount of the expenses, and
the sum of P250, the amount of the freight stipulated, and is still willing to pay such products of
the said sale to the aforementioned Ong Bieng Sip or to any other person who should establish
his subrogation to the rights of the Chinaman, Ong Bieng Sip, with respect to the said amount;
that, as his client's second special defense, the defendant company alleged that one of the
conditions of the shipping contract executed between it and the Chinaman, Ong Bieng Sip, relative
to the transportation of the said merchandise, was that the said firm should not be held liable for
more than P25 for any bundle or package, unless the value of its contents should be stated in the
bill of lading, and that the shipper, Chinaman, Ong Bieng Sip, did not state in the bill of lading the
value of any of the bundles or packages in which the goods shipped by him were packed. Counsel
for the defendant company, therefore, prayed the court to absolve his client from the complaint,
with costs against the plaintiff.
After the hearing of the case and the introduction of testimony by the parties, judgment was
rendered, on March 18, 1910, in favor of the plaintiff, Tan Chiong Sian or Tan Chinto, against the
defendant Inchausti and Co., for the sum of P14,642.63, with interest at the rate of 6 per cent
per annum from January 11, 1909, and for the costs of the trial. The defendant party appealed
from this judgment.
This suit was brought for the purpose of collecting a certain sum which it is alleged the defendant
firm owes the plaintiff for losses and damages suffered by the latter as a result of the former's
noncompliance with the terms of an agreement or contract to transport certain merchandise by
sea from this city to the pueblo of Catarman, Island of Samar, for the sum of P250.
The principal question to be determined is whether the defendant is liable for the loss of the
merchandise and for failure to deliver the same at the place of destination, or whether he is
relieved from responsibility on the ground of force majeure.
Article 1601 of the Civil Code prescribes:
Carriers of goods by land or by water shall be subject with regard to the keeping and preservation
of the things entrusted to them, to the same obligations as determined for innkeepers by articles
1783 and 1784.
The provisions of this article shall be understood without prejudice to what is prescribed by the
Code of Commerce with regard to transportation by sea and land.
Article 1602 reads:
Carriers are also liable for the loss of and damage to the things which they receive, unless they
prove that the loss or damage arose from a fortuitous event or force majeure.
The articles aforecited are as follows:
ART. 1783. The depositum of goods made by travelers in inns or hostelries shall also be considered
a necessary one. The keepers of inns and hostelries are liable for them as such bailees, provided
that notice thereof may have been given to them or to their employees, and that the travelers on
their part take the precautions which said innkeepers or their substitutes may have advised them
concerning the care and vigilance of said goods.
ART. 1784. The liability referred to in the preceding article shall include damages to the goods of
the travelers caused the servants or employees of the keepers for inns or hostelries as well as by
strangers, but not those arising from robbery or which may be caused by any other case of force
majeure.
Article 361 of the Code of Commerce provides:
Merchandise shall be transported at the risk and venture of the shipper, unless the contrary was
expressly stipulated.
Therefore, all damages and impairment suffered by the goods in transportation, by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account
and risk of the shipper.
The proof of these accidents in incumbent on the carrier.
ART. 362. The carrier, however, shall be liable for the losses and damages arising from the causes
mentioned in the foregoing article if it is proved that they occurred on account of his negligence
or because he did not take the precautions usually adopted by careful persons, unless the shipper
committed fraud in the bill of lading, stating that the goods were of a class or quality different
from what they really were.
If, notwithstanding the precaution referred to in this article, the goods transported run the risk of
being lost on account of the nature or by reason of an unavoidable accident, without there being
time for the owners of the same to dispose thereof, the carrier shall proceed to their sale, placing
them for this purpose at the disposal of the judicial authority or of the officials determined by
special provisions.
5
ART. 363. With the exception of the cases prescribed in the second paragraph of article 361, the
carrier shall be obliged to deliver the goods transported in the same condition in which, according
to the bill of lading, they were at the time of their receipt, without any detriment or impairment,
and should he not do so, he shall be obliged to pay the value of the goods not delivered at the
point where they should have been and at the time the delivery should have taken place.
If part of the goods transported should be delivered the consignee may refuse to receive them,
when he proves that he can not make use thereof without the others.
On November 25, 1908, Inchausti & Co. received in Manila from the Chinaman, Ong Bieng Sip,
205 bundles, bales or cases of goods to be conveyed by the steamer Sorsogon to the port of
Gubat, Province of Sorsogon, where they were to be transshipped to another vessel belonging to
the defendant company and by the latter transported to the pueblo of Catarman, Island of Samar,
there to be delivered to the Chinese shipper with whom the defendant party made the shipping
contract. To this end three bills of lading were executed, Nos. 38, 39, and 76, copies of which,
marked as Exhibits A, B, and C, are found on pages 13, 14, and 15 of the record.
The steamer Sorsogon, which carried the goods, arrived at the port of Gubat on the 28th of that
month and as the lorcha Pilar, to which the merchandise was to be transshipped for its
transportation to Catarman, was not yet there, the cargo was unloaded and stored in the
defendant company's warehouses at that port.
Several days later, the lorcha just mentioned arrived at Gubat and, after the cargo it carried had
been unloaded, the merchandise belonging to the Chinaman, Ong Bieng Sip, together with other
goods owned by the defendant Inchausti & Co., was taken aboard to be transported to Catarman;
but on December 5, 1908, before the Pilar could leave for its destination, towed by the
launch Texas, there arose and, as a result of the strong wind and heavy sea, the lorcha was driven
upon the shore and wrecked, and its cargo, including the Chinese shipper's 205 packages of
goods, scattered on the beach. Laborers or workmen of the defendant company, by its order,
then proceeded to gather up the plaintiff's merchandise and, as it was impossible to preserve it
after it was salved from the wreck of the lorcha, it was sold at public auction before a notary for
the sum of P1,693.67.
The contract entered into between the Chinese shipper, Ong Bieng Sip, and the firm of Inchausti
& Co., provided that transportation should be furnished from Manila to Catarman, although the
merchandise taken aboard the steamer Sorsogon was to be transshipped at Gubat to another
vessel which was to convey it from that port to Catarman; it was not stipulated in the said contract
that the Sorsogon should convey the goods to their final destination, nor that the vessel into which
they were to be transshipped, should be a steamer. The shipper, Ong Bieng Sip, therefore
assented to these arrangements and made no protest when his 205 packages of merchandise
were unloaded from the ship and, on account of the absence of the lorcha Pilar, stored in the
warehouses at Gubat nor did he offer any objection to the lading of his merchandise on to
this lorcha as soon as it arrived and was prepared to receive cargo; moreover, he knew that to
reach the port of Catarman with promptness and dispatch, the lorcha had to be towed by some
vessel like the launch Texas, which the defendant company had been steadily using for similar
operations in those waters.
Hence the shipper, Ong Bieng Sip, made no protest or objection to the methods adopted by the
agents of the defendant for the transportation of his gods to the port of their destination, and the
record does not show that in Gubat the defendant possessed any other means for the conveyance
and transportation of merchandise, at least for Catarman, than the lorcha Pilar, towed by said
launch and exposed during its passage to all sorts of accidents and perils from the nature and
seafaring qualities of a lorcha, from the circumstances then present and the winds prevailing on
the Pacific Ocean during the months of November and December.
It is to be noted that a lorcha is not easily managed or steered when the traveling, for, out at sea,
it can only be moved by wind and sails; and along the coast near the shore and in the estuaries
where it customarily travels, it can only move by poling. For this reason, in order to arrive at the
pueblo of Catarman with promptness and dispatch, the lorcha was usually towed by the
launch Texas.
The record does not show that, from the afternoon of the 4th of December, 1908, until the
morning of the following day, the 5th, the patron or master of the lorcha which was anchored in
the cove of Gubat, received any notice from the captain of the steamer Ton Yek, also anchored
near by, of the near approach of a storm. The said captain, Juan Domingo Alberdi, makes no
reference in his sworn testimony of having given any such notice to the patron of the lorcha, nor
did the latter, Mariano Gadvilao, testify that he received such notice from the captain of the Ton
Yek or from the person in charge of the Government observatory. Gadvilao, the patron, testified
that only between 10 and 11 o'clock of Saturday morning, the 5th of December, was he informed
by Inchausti & Co.'s agent in Gubat that a baguio was approaching; that thereupon, on account
of the condition of the sea, he dropped the four anchors that the lorcha had on board and
immediately went ashore to get another anchor and a new cable in order more securely to hold
the boat in view of the predicted storm. This testimony was corroborated by the said
representative, Melchor Muoz. So the lorcha, when the storm broke upon it, was held fast by
five anchors and was, as testified by the defendant without contradiction or evidence to the
contrary, well found and provided with all proper and necessary equipment and had a sufficient
crew for its management and preservation.
The patron of the lorcha testified specifically that at Gubat or in its immediate vicinity there is no
port whatever adequate for the shelter and refuge of vessels in cases of danger, and that, even
though there were, on being advised between 10 and 11 o'clock of the morning of the 5th, of the
approach of a storm from the eastern Pacific, it would have been impossible to spread any sails
or weigh anchor on the lorcha without being dragged or driven against the reefs by the force of
the wind. As the craft was not provided with steam or other motive power, it would not have been
possible for it to change its anchorage, nor move from the place where it lay, even several hours
before the notice was received by its patron. A lorcha can not be compared with a steamer which
does not need the help or assistance of any other vessel in its movements.
Due importance must be given to the testimony of the weather observer, Antonio Rocha, that the
notice received from the Manila Observatory on the afternoon of December 4, with regard to a
storm travelling from the east of the Pelew Islands toward the northwest, was not made known
to the people of Gubat and that he merely left a memorandum notice on the desk of the station,
intending to give explanations thereof to any person who should request them of him. So the
notice of the storm sent by the Manila Observatory was only known to the said observer, and he
did not apprise the public of the approach of the storm until he received another notice from
Manila at 20 minutes past 8 o'clock on Saturday morning, December 5. Then he made a public
announcement and advised the authorities of the storm that was coming.
The patron of the lorcha Pilar is charged with gross negligence for not having endeavored to
remove his craft to a safe place in the Sabang River, about half a mile from where it was anchored.
In order to find out whether there was or was not such negligence on the part of the patron, it
becomes necessary to determine, first, whether the lorcha, on the morning of December 5, could
be moved by its own power and without being towed by any steamboat, since it had no steam
6
engine of its own; second, whether the lorcha, on account of its draft and the shallowness of the
mouth of the said river, could have entered the latter before the storm broke.
The patron, Mariano Gadvilao, stated under oath that the weather during the night of December
4 was not threatening and he did not believe there would be a storm; that he knew the Sabang
River; and that the lorcha Pilar, when loaded, could not enter as there was not sufficient water in
its channel; that, according to an official chart of the port of Gubat, the bar of the Sabang River
was covered by only a foot and a half of water at ordinary low tide and the lorcha Pilar, when
loaded, drew 6 feet and a half; that aside from the fact that the condition of the sea would not
have permitted the lorcha to take shelter in the said river, even could it have relied upon the
assistance of a towboat, at half past 8 o'clock in the morning the tide was still low; there was but
little water in the river and still less over the bar.
It was proven by the said official chart of the port of Gubat, that the depth of water over the bar
or entrance of the Sabang River is only one foot and a half at ordinary low tide; that the rise and
fall of the tide is about 4__ feet, the highest tide being at 2 o'clock in the afternoon of every
day; and at that hour, on the 5th of December, the hurricane had already made its appearance
and the wind was blowing with all its fury and raising great waves.
The lorcha Pilar, loaded as it had been from the afternoon of December 4, even though it could
have been moved by means of poles, without being towed, evidently could not have entered the
Sabang River on the morning of the 5th, when the wind began to increase and the sea to become
rough, on account of the low tide, the shallowness of the channel, and the boat's draft.
The facts stated in the foregoing paragraph were proved by the said chart which was exhibited in
evidence and not rejected or assailed by the plaintiff. They were also supported by the sworn
testimony of the patron of the lorcha, unrebutted by any oral evidence on the part of the plaintiff
such as might disprove the certainty of the facts related, and, according to section 275 of the
Code of Civil Procedure, the natural phenomenon of the tides, mentioned in the official
hydrographic map, Exhibit 7, which is prima facie evidence on the subject, of the hours of its
occurrence and of the conditions and circumstances of the port of Gubat, shall be judicially
recognized without the introduction of proof, unless the facts to the contrary be proven, which
was not done by the plaintiff, nor was it proven that between the hours of 10 and 11 o'clock of
the morning of December 5, 1908, there did not prevail a state of low tide in the port of Gubat.
The oral evidence adduced by the plaintiff with respect to the depth of the Sabang River, was
unable to overcome that introduced by the defendant, especially the said chart. According to
section 320 of the Code of Civil Procedure, such a chart is prima facie evidence of particulars of
general notoriety and interest, such as the existence of shoals of varying depths in the bar and
mouth of the Sabang River and which obstruct the entrance into the same; the distance, length,
and number of the said shoals, with other details apparently well known to the patron of
the lorcha Pilar, to judge from his testimony.
Vessels of considerable draft, larger than the said lorcha, might have entered the Sabang River
some seven or nine years before, according to the testimony of the Chinaman, Antonio B. Yap
Cunco, though he did not state whether they did so at high tide; but, since 1901, or previous
years, until 1908, changes may have taken place in the bed of the river, its mouth and its bar.
More shoals may have formed or those in existence may have increased in extent by the constant
action of the sea. This is the reason why the patron, Gadvilao, who was acquainted with the
conditions of the port and cove of Gubat, positively declared that the lorcha Pilar could not, on
account of her draft, enter the Sabang River, on account of low water.
The patron of the lorcha, after stating (p.58) that at Gubat or in its vicinity there is no port that
affords shelter, affirmed that it was impossible to hoist the sails or weigh the anchors on the
morning of the 5th of December, owing to the force of the wind and because the boat would
immediately have been dragged or driven upon the shoals; that furthermore the lorcha was
anchored in a channel some 300 brazas wide, but, notwithstanding this width, the Pilar was, for
want of motive power, unable to move without being exposed to be dashed against the coast by
the strong wind and the heavy sea then prevailing. The testimony of this witness was neither
impugned nor offset by any evidence whatever; he was a patron of long years of service and of
much practice in seafaring, especially in the port of Gubat and its vicinity, who had commanded
or been intrusted with the command of other crafts similar to the lorcha Pilar and his testimony
was absolutely uncontradicted.
The patron Gadvilao, being cognizant of the duties imposed upon him by rules 14 and 15 of article
612, and others, of the Code of Commerce, remained with sailors, during the time the hurricane
was raging, on board the lorcha from the morning of December 5 until early the following
morning, the 6th, without abandoning the boat, notwithstanding the imminent peril to which he
was exposed, and kept to his post until after the wreck and the lorcha had been dashed against
the rocks. Then he solicited help from the captain of the steamer Ton Yek, and, thanks to the
relief afforded by a small boat sent by the latter officer, Gadvilao with his crew succeeded in
reaching land and immediately reported the occurrence to the representative of Inchausti & Co.
and to the public official from whom he obtained the document of protest, Exhibit 1. By such
procedure, he showed that, as a patron skilled in the exercise of his vocation, he performed the
duties imposed by law in cases of shipwreck brought about by force majeure.
Treating of shipwrecks, article 840 of the Code of Commerce prescribes:
The losses and damages suffered by a vessel and her cargo by reason of shipwreck or standing
shall be individually for the account of the owners, the part of the wreck which may be saved
belonging to them in the same proportion.
And Article 841 of the same code reads:
If the wreck or stranding should arise through the malice, negligence, or lack of skill of the captain,
or because the vessel put to sea insufficiently repaired and supplied, the owner or the freighters
may demand indemnity of the captain for the damages caused to the vessel or cargo by the
accident, in accordance with the provisions contained in articles 610, 612, 614, and 621.
The general rule established in the first of the foregoing articles is that the loss of the vessel and
of its cargo, as the result of shipwreck, shall fall upon the respective owners thereof, save for the
exceptions specified in the second of the said articles.
These legal provisions are in harmony with those of articles 361 and 362 of the Code of Commerce,
and are applicable whenever it is proved that the loss of, or damage to, the goods was the result
of a fortuitous event or of force majeure; but the carrier shall be liable for the loss or the damage
arising from the causes aforementioned, if it shall have been proven that they occurred through
his own fault or negligence or by his failure to take the same precautions usually adopted by
diligent and careful persons.
In the contract made and entered into by and between the owner of the goods and the defendant,
no term was fixed within which the said merchandise should be delivered to the former at
Catarman, nor was it proved that there was any delay in loading the goods and transporting them
to their destination. From the 28th of November, when the steamer Sorsogon arrived at Gubat
and landed the said goods belonging to Ong Bieng Sip to await the lorcha Pilarwhich was to
7
convey them to Catarman, as agreed upon, no vessel carrying merchandise made the voyage
from Gubat to the said pueblo of the Island of Samar, and with Ong Bieng Sip's merchandise there
were also to be shipped goods belonging to the defendant company, which goods were actually
taken on board the said lorcha and suffered the same damage as those belonging to the
Chinaman. So that there was no negligence, abandonment, or delay in the shipment of Ong Bieng
Sip's merchandise, and all that was done by the carrier, Inchausti & Co., was what it regularly and
usually did in the transportation by sea from Manila to Catarman of all classes of merchandise. No
attempt has been made to prove that any course other than the foregoing was pursued by that
firm on this occasion; therefore the defendant party is not liable for the damage occasioned as a
result of the wreck or stranding of the lorcha Pilar because of the hurricane that overtook this
craft while it was anchored in the port of Gubat, on December 5, 1908, ready to be conveyed to
that of Catarman.
It is a fact not disputed, and admitted by the plaintiff, that the lorcha Pilar was stranded and
wrecked on the coast of Gubat during the night of the 5th or early in the morning of the 6th of
December, 1908, as a result of a violent storm that came from the Pacific Ocean, and,
consequently, it is a proven fact that the loss or damage of the goods shipped on the
said lorcha was due to the force majeure which caused the wreck of the said craft.
According to the aforecited article 361 of the Code of Commerce, merchandise shall be transported
at the risk and venture of the shipper, unless the contrary be expressly stipulated. No such
stipulation appears of record, therefore, all damages and impairment suffered by the goods in
transportation, by reason of accident, force majeure, or by virtue of the nature or defect of the
articles, are for the account and risk of the shipper.
A final clause of this same article adds that the burden of proof of these accidents is upon the
carrier; the trial record fully discloses that the loss and damage of the goods shipped by the
Chinaman, Ong Bieng Sip, was due to the stranding and wreck of the lorcha Pilar in the heavy
storm or hurricane aforementioned; this the plaintiff did not deny, and admitted that it took place
between the afternoon of the 5th and early in the morning of the 6th of December, 1908, so it is
evident that the defendant is exempt from the obligation imposed by the law to prove the
occurrence of the said storm, hurricane, or cyclone in the port of Gubat, and, therefore, if said
goods were lost or damaged and could not be delivered in Catarman, it was due to a fortuitous
event and a superior, irresistible natural force, or force majeure, which completely disabled
the lorcha intended for their transportation to the said port of the Island of Samar.
The record bears no proof that the said loss or damage caused by the stranding or wreck of
the lorcha Pilar as a result of the storm mentioned, occurred through carelessness or negligence
on the part of the defendant company, its agents or the patron of the said lorcha, or because they
did not take the precautions usually adopted by careful and diligent persons, as required by article
362 of the Code of Commerce; the defendant company, as well as its agents and the patron of
the lorcha, had a natural interest in preserving the craft and its own goods laden therein an
interest equal to that of the Chinese shipper in preserving his own which were on board the
ship lorcha and, in fact, the defendant, his agents and the patron did take the measures which
they deemed necessary and proper in order to save the lorcha and its cargo from the impending
danger; accordingly, the patron, as soon as he was informed that a storm was approaching,
proceeded to clear the boat of all gear which might offer resistance to the wind, dropped the four
anchors he had, and even procured an extra anchor from the land, together with a new cable,
and cast it into the water, thereby adding, in so far as possible, to the stability and security of the
craft, in anticipation of what might occur, as presaged by the violence of the wind and the heavy
sea; and Inchausti & Company's agent furnished the articles requested by the patron of
the lorcha for the purpose of preventing the loss of the boat; thus did they all display all the
diligence and care such as might have been employed by anyone in similar circumstances,
especially the patron who was responsible for the lorcha under his charge; nor is it possible to
believe that the latter failed to adopt all the measures that were necessary to save his own life
and those of the crew and to free himself from the imminent peril of shipwreck.

In view of the fact that the lorcha Pilar had no means of changing its anchorage, even supposing
that there was a better one, and was unable to accept help from any steamer that might have
towed it to another point, as wherever it might have anchored, it would continually have been
exposed to the lashing of the waves and to the fury of the hurricane, for the port of Gubat is a
cove or open roadstead with no shelter whatever from the winds that sweep over it from the
Pacific Ocean, and in view of the circumstances that it was impossible for the said lorcha, loaded
as it then was, to have entered the Sabang River, even though there had been a steamer to tow
it, not only because of an insufficient depth of water in its channel, but also on account of the
very high bar at the entrance of the said river, it is incontrovertible that the stranding and wreck
of the lorcha Pilar was due to a fortuitous event or to force majeureand not to the fault and
negligence of the defendant company and its agents or of the patron, Mariano Gadvilao, inasmuch
as the record discloses it to have been duly proved that the latter, in difficult situation in which
unfortunately the boat under his charge was placed, took all the precautions that any diligent man
should have taken whose duty it was to save the boat and its cargo, and, by the instinct of self-
preservation, his own life and those of the crew of the lorcha; therefore, considering the conduct
of the patron of the lorcha and that of the defendant's agent in Gubat, during the time of the
occurrence of the disaster, the defendant company has not incurred any liability whatever for the
loss of the goods, the value of which is demanded by the plaintiff; it must, besides, be taken into
account that the defendant itself also lost goods of its own and the lorcha too.

From the moment that it is held that the loss of the said lorcha was due to force majeure, a
fortuitous event, with no conclusive proof or negligence or of the failure to take the precautions
such as diligent and careful persons usually adopt to avoid the loss of the boat and its cargo, it is
neither just nor proper to attribute the loss or damage of the goods in question to any fault,
carelessness, or negligence on the part of the defendant company and its agents and, especially,
the patron of the lorcha Pilar.

Moreover, it is to be noted that, subsequent to the wreck, the defendant company's agent took
all the requisite measures for the salvage of such of the goods as could be recovered after the
accident, which he did with the knowledge of the shipper, Ong Bieng Sip, and, in effecting their
sale, he endeavored to secure all possible advantage to the Chinese shipper; in all these
proceedings, as shown by the record, he acted in obedience to the law.

From all the foregoing it is concluded that the defendant is not liable for the loss and damage of
the goods shipped on the lorcha Pilar by the Chinaman, Ong Bieng Sip, inasmuch as such loss and
damage were the result of a fortuitous event or force majeure, and there was no negligence or
lack of care and diligence on the part of the defendant company or its agents.

Therefore, we hold it proper to reverse the judgment appealed from, and to absolve, as we hereby
do, the defendant, Inchausti & Co., without special findings as to costs.

Arellano, C.J., Mapa and Johnson, JJ., concur.

Carson and Trent, JJ., dissent.

8
 EN BANC
[G.R. No. 13972. July 28, 1919.]
G. MARTINI, LTD., Plaintiff-Appellee, vs. MACONDRAY & CO. (INC.), Defendant-
Appellant.
DECISION
STREET, J.:
In September of the year 1916, the Plaintiff G. Martini, Ltd., arranged with
the Defendantcompany, as agents of the Eastern and Australian Steamship Company, for the
shipment of two hundred and nineteen cases or packages of chemical products from Manila,
Philippine Islands, to Kobe, Japan. The goods were embarked at Manila on the steamship Eastern,
and were carried to Kobe on the deck of that ship. Upon arrival at the port of destination it was
found that the chemicals comprised in the shipment had suffered damage from the effects of both
fresh and salt water; and the present action was instituted by the Plaintiff to recover the amount
of the damage thereby occasioned. In the Court of First Instance judgment was rendered in favor
of the Plaintiffsfor the sum of P34,997.56, with interest from March 24, 1917, and costs of the
proceeding. From this judgment the Defendant appealed.
That the damage was caused by water, either falling in the form of rain or splashing aboard by
the action of wind and waves, is unquestionable; and the contention of the Plaintiff is that it was
the duty of the ships company to stow this cargo in the hold and not to place it in an exposed
position on the open deck. The defense is that by the contract of affreightment the cargo in
question was to be carried on deck at the shippers risk; and attention is directed to the fact that
on the face of each bill of lading is clearly stamped with a rubber stencil in conspicuous letters the
words on deck at shippers risk. In this connection the Defendant relies upon paragraph 19 of
the several bills of lading issued for transportation of this cargo, which reads as follows:
19. Goods signed for on this bill of lading as carried on deck are entirely at shippers risk,
whether carried on deck or under hatches, and the steamer is not liable for any loss or damage
from any cause whatever.
The Plaintiff insists that the agreement was that the cargo in question should be carried in the
ordinary manner, that is, in the ships hold, and that the Plaintiff never gave its consent for the
goods to be carried on deck. The material facts bearing on this controverted point appear to be
these: On September 15, 1916, the Plaintiff applied to the Defendant for necessary space on the
steamship Eastern, and received a shipping order, which constituted authority for the ships
officers to receive the cargo aboard. One part of this document contained a form which, when
signed by the mate, would constitute the mates receipt, showing that the cargo had been taken
on.
Ordinarily the shipper is supposed to produce the mates receipt to the agents of the ships
company, who thereupon issue the bill of lading to the shipper. When, however, the shipper, as
not infrequently happens, desires to procure the bill of lading before he obtains the mates receipt,
it is customary for him to enter into a written obligation, binding himself, among other things, to
abide by the terms of the mates receipt. In the present instance the mates receipt did not come
to the Plaintiffs hand until Monday night, but as the Plaintiff was desirous of obtaining the bills of
lading on the Saturday morning preceding in order that he might negotiate them at the bank, a
request was made for the delivery of the bills of lading on that day To effectuate this,
the Plaintiff was required to enter into the written obligation, calling itself a letter of guarantee,
which was introduced in evidence as Exhibit D-C. This document is of the date of September 16,
1916, and of the following tenor:
9
In consideration of your signing us clean B/L for the undermentioned cargo per above steamer
to be shipped on or under deck at ships option, for Kobe without production of the mates receipt,
we hereby guarantee to hold you free from any responsibility by your doing so, and for any
expense should the whole or part of the cargo be shut out, or otherwise, and to hand you said
mates receipt as soon as it reaches us and to abide by all clauses and notations on the same.
In conformity with the purpose of this document the bills of lading were issued, and the negotiable
copies were, upon the same day, negotiated at the bank by the Plaintiff for 90 per cent of the
invoice value of the goods. As already stated these bills of lading contained on their face,
conspicuously stenciled, the words on deck at shippers risks. The mates receipt, received by
the Plaintiff two days later also bore the notation on deck at shippers risk, written with pencil,
and evidently by the officer who took the cargo on board and signed the receipt.
The Plaintiff insists that it had at no time agreed for the cargo to be carried on deck; and G.
Martini, manager of Martini & Company, says that the first intimation he had of this was when, at
about 4 p.m. on that Saturday afternoon, he examined the nonnegotiable copies of the bills of
lading, which had been retained by the house, and discovered the words on deck at shippers
risk stamped thereon. Martini says that upon seeing this, he at once called the attention of S.
Codina thereto, the latter being an employee of the house whose duty it was to attend to all
shipments of merchandise and who in fact had entire control of all matters relating to the shipping
of this cargo. Codina pretends that up to the time when Martini directed his attention to the fact,
he himself was unaware that the cargo was being stowed on deck; and upon the discovery of this
fact the two gentlemen mentioned expressed mutual surprise and dissatisfaction. Martini says
that he told Codina to protest at once to Macondray & Company over the telephone, while Martini
himself proceeded to endite a letter, which appears in evidence as Exhibit D-T of
the Defendant and is in its material part as follows:
MANILA, September 16, 1916.
MESSRS. MACONDRAY & Co.,
Manila,
DEAR SIRS: In re our shipment per steamship Eastern, we are very much surprised to see that
the remark on deck at shippers risk has been stamped on the bills of lading Nos. 8 to 23. . . .
and although not believing that the same have actually been shipped on deck we must hold you
responsible for any consequence, loss, or damage deriving from your action should they have
been shipped as stated.
Yours faithfully,
G. MARTINI, LTD.
By S. CODINA.
This letter was followed by another of the same date and of substantially the same tenor but
containing the following additional statement:
It is the prevailing practice that, whenever a cargo is being carried on deck, shipowners or agents
give advice of it to shippers previous to shipment taking place, and obtain their consent to it. If
we had been advised of it, shipment would not have been effected by us. We regret very much
this occurrence, but you will understand that in view of your having acted in this case on your
own responsibility, we shall have to hold you amenable for any consequences that may be caused
from your action.
The first of these letters was forthwith dispatched by messenger, and upon receiving it, Macondray
& Company called Codina by telephone at about 4.30 p.m. and, referring to the communication
just received, told him that Macondray & Company could not accept the cargo for transportation
otherwise than on deck and that if Martini & Company were dissatisfied, the cargo could be
discharged from the ship.
There is substantial conformity in the testimony of the two parties with respect to the time of the
conversation by telephone and the nature of the message which Macondray & Company intended
to convey, though the witnesses differ as to some details and in respect to what occurred
immediately thereafter. Basa, who was in charge of the shipping department of Macondray &
Company and who conducted the conversation on the part of the latter, says that he told Codina
that if Martini & Company was unwilling for the cargo to be carried on deck that they could
discharge it and further advised him that Macondray & Companys empty boats were still at the
ships side ready to receive the cargo. In reply Codina stated that Martini, the manager, was then
out and that he would answer in a few minutes, after communication with Martini. Within the
course of half an hour Codina called Basa up and said that as the cargo was already stowed on
deck, Martini & Company were willing for it to be carried in this way, and that their protest was a
mere formality. Codina admits that he was informed by Basa that the cargo could not be carried
under the hatches, and that if Martini & Company were dissatisfied to have it carried on deck,
they could discharge it. He denies being told that it could be taken off in Macondray & Companys
boats. Codina further states that when the conversation was broken off for the purpose of enabling
him to communicate with Martini, he consulted with the latter, and was directed to say that Martini
& Company did not consent for the cargo to be carried on deck and that it must be discharged.
Upon returning to the telephone, he found that the connection had been broken, and he says that
he was thereafter unable to get Macondray & Company by telephone during that afternoon,
although he attempted to do so more than once.
In the light of all the evidence the conclusion seems clear enough that, although Martini &
Company would have greatly preferred for the cargo to be carried under the hatches, they
nevertheless consented for it to go on deck. Codina, if attentive to the interests of his house, must
have known from the tenor of the guaranty to which his signature is affixed that the Defendanthad
reserved the right to carry it on deck, and when the bills of lading were delivered to
the Plaintiff they plainly showed that the cargo would be so carried.
It must therefore be considered that the Plaintiff was duly affected with notice as to the manner
in which the cargo was shipped. No complaint, however, was made until after the bills of lading
had been negotiated at the bank. When the manager of Martini & Company first had his attention
drawn to the fact that the cargo was being carried on deck, he called Codina to account, and the
latter found it to his interest to feign surprise and pretend that he had been deceived by Macondray
& Company. Even then there was time to stop the shipment, but Martini & Company failed to give
the necessary instructions, thereby manifesting acquiescence in the accomplished fact.
In a later letter of October 25, 1916, addressed to Macondray & Company, Martini, referring to
the incident says: If previous to the mailing of the documents, you had actually notified us by
phone or otherwise that you could not accept our cargo in any other way but on deck, we should
have promptly given you instructions to leave it on the lighters and at our disposal.
From this it is inferable that one reason why the Plaintiff allowed the cargo to be carried away
without being discharged, was that the bills had been discounted and to stop the shipment would
have entailed the necessity of refunding the money which the bank had advanced, with the
inconveniences incident thereto. Another reason apparently was that Martini discerned, or thought
he discerned the possibility of shifting the risk so as to make it fall upon the ships company.
10
With reference to the practicability of discharging the cargo in the late afternoon or evening of
Saturday, September 16, before the ship departed, as it did at 8 p.m. some evidence was
introduced tending to show that in order to get the cargo off certain formalities were necessary
which could not be accomplished, as for instance, the return of the mates receipt (which had not
yet come to the Plaintiffs hands), the securing of a permit from the customs authorities, and the
securing of an order of discharge from the steamship company. In view of the fact that
the Plaintiff did nothing whatever looking towards the discharge of the cargo, not even so much
as to notify Macondray & Company that the cargo must come off, the proof relative to the
practicability of discharge is inconclusive. If the Plaintiff had promptly informed Macondray &
Company of their resolve to have the cargo discharged, and the latter had nevertheless permitted
the ship to sail without discharging it, there would have been some ground for Plaintiffs
contention that its consent had not been given for the goods to be carried on deck. Needless to
say we attach no weight to the statement of Codina that he was unable to get Macondray &
Company by telephone in order to communicate directions for the discharge of the cargo.
The evidence submitted in behalf of the Defendant shows that there was no space in the hold to
take the cargo; and it was therefore unnecessary to consider whether the chemicals to be shipped
were of an explosive or inflammable character, such as to require stowage on deck. By reason of
the fact that the cargo had to be carried on deck at all events, if carried at all, the guaranty Exhibit
D-C was so drawn as to permit stowage either on or under deck at the ships option; and the
attention of Codina must have been drawn to this provision because Macondray & Company
refused to issue the bills of lading upon a guaranty signed by Codina upon another form (Exhibit
R), which contained no such provision. The messenger between the two establishments who was
sent for the bills of lading accordingly had to make a second trip and go back for a letter of
guaranty signed upon the desired form. The pretense of Codina that he was deceived into signing
a document different from that which he supposed himself to be signing is wholly unsustained.
The result of the discussion is that Martini & Company must be held to have assented to the
shipment of the cargo on deck and that they are bound by the bills of lading in the form in which
they were issued. The trial court in our opinion erred in holding otherwise, and in particular by
ignoring, or failing to give sufficient weight to the contract of guaranty.
Having determined that the Plaintiff consented to the shipment of the cargo on deck, we proceed
to consider whether the Defendant can be held liable for the damage which befell the cargo in
question. It of course goes without saying that if a clean bill of lading had been issued and
the Plaintiff had not consented for the cargo to go on deck, the ships company would have been
liable for all damage which resulted from the carriage on deck. In the case of The Paragon (1
Ware, 326; 18 Fed. Cas. No. 10708), decided in 1836 in one of the district courts of the United
States, it appeared that cargo was shipped from Boston, Massachusetts, to Portland, Maine, upon
what is called a clean bill of lading, that is, one in the common form without any memorandum in
the margin or on its face showing that the goods are to be carried on deck. It was proved that
the shipper had not given his consent for carriage on deck. Nevertheless, the master stowed the
goods on deck; and a storm having arisen, it became necessary to jettison them. None of the
cargo in the hold was lost. It was thus evident that although the cargo in question was lost by
peril of the sea, it would not have been lost except for the fact that it was being carried on deck.
It was held that the ship was liable. In the course of the opinion the following language was used:
It is contended that the goods, in this case, having been lost by the dangers of the seas, both
the master and the vessel are exempted from responsibility within the common exemption in bills
of lading; and the goods having been thrown overboard from necessity, and for the safety of the
vessel and cargo, as well as the lives of the crew, that it presents a case for a general average or
contribution, upon the common principle that when a sacrifice is made for the benefit of all, that
the loss shall be shared by all. . . . In every contract of affreightment, losses by the dangers of The maritime codes and writers have recognized the distinction between cargo placed on deck,
the seas are excepted from the risks which the master takes upon himself, whether the exception with the consent of the shipper, and cargo under deck.
is expressed in the contract or not. The exception is made by the law, and falls within the general
principle that no one is responsible for fortuitous events and accidents of major force. Casus There is not one of them which gives a recourse against the master, the vessel, or the owners,
fortuitous nemo praestat. But then the general law is subject to an exception, that when the if the property lost had been placed on deck with the consent of its owner, and they afford very
inevitable accident is preceded by a fault of the debtor or person bound without which it would high evidence of the general and appropriate usages, in this particular, of merchants and
not have happened, then he becomes responsible for it. (Pothier, des Obligations, No. 542; Pret. shipowners.
a Usage, No. 57; Story, Bailm., c. 4, No. 241; In Majorious casibus si culpa ejus interveniat tenetur;
So the courts of this country and England, and the writers on this subject, have treated the owner
Dig. 44, 7, 1, s. 4.)
of goods on deck, with his consent, as not having a claim on the master or owner of the ship in
The master is responsible for the safe and proper stowage of the cargo, and there is no doubt case of jettison. The received law, on the point, is expressed by Chancellor Kent, with his usual
that by the general maritime law he is bound to secure the cargo safely under deck. . . . If the precision, in 3 Com., 240: Nor is the carrier in that case (Jettison of deck load) responsible to the
master carries goods on deck without the consent of the shipper . . . he does it at his own risk. If owner, unless the goods were stowed on deck without the consent of the owner, or a general
they are damaged or lost in consequence of their being thus exposed, he cannot protect himself custom binding him, and then he would be chargeable with the loss.
from responsibility by showing that they were damaged or lost by the dangers of the seas. . . .
In Gould vs. Oliver (4 Bing., N. C., 132), decided in the English Court of Common Pleas in 1837,
When the shipper consents to his goods being carried on deck, he takes the risk upon himself of
Tindal, C.J., said:
these peculiar perils. . . . This is the doctrine of all the authorities, ancient and modern.
Where the loading on deck has taken place with the consent of the merchant, it is obvious that
Van Horn vs. Taylor (2 La. Ann., 587; 46 Am. Dec., 558), was a case where goods stowed on
no remedy against the shipowner or master for a wrongful loading of the goods on deck can exist.
deck were lost in a collision. The court found that the ship carrying these goods was not at fault,
The foreign authorities are indeed express; on that point. And the general rule of the English law,
and that the shipper had notice of the fact that the cargo was being carried on deck. It was held
that no one can maintain an action for a wrong, where he has consented or contributed to the
that the ship was not liable. Said the court:
act which occasioned his loss, leads to the same conclusion.
It is said that the Plaintiffs goods were improperly stowed on deck; that the deck load only was
The foregoing authorities fully sustain the proposition that where the shipper consents to have
thrown overboard by the collision, the cargo in the hold not being injured. The goods were thus
his goods carried on deck he takes the risks of any damage or loss sustained as a consequence
laden with the knowledge and implied approbation of the Plaintiff. He was a passenger on board
of their being so carried. In the present case it is indisputable that the goods were injured during
the steamer, and does not appear to have made any objection to the goods being thus carried,
the voyage and solely as a consequence of their being on deck, instead of in the ships hold. The
though the collision occurred several days after the steamer commenced her voyage.
loss must therefore fall on the owner. And this would be true, under the authorities, even though
In the case of The Thomas P. Thorn (8 Ben., 3; 23 Fed., Cas. No. 13927), decided in the District paragraph 19 of the bills of lading, quoted near the beginning of this opinion, had not been made
Court in the State of New York, it appeared that tobacco was received upon a canal boat, with a term of the contract.
the understanding that it was to be carried on deck, covered with tarpaulins. Upon arrival at its
It is undoubtedly true that, upon general principle, and momentarily ignoring paragraph 19 of
destination it was found damaged by water, for the most part on the top, and evidently as a
these bills of lading, the ships owner might be held liable for any damage directly resulting from
consequence of rains. At the same time a quantity of malt stowed below deck on the same voyage
a negligent failure to exercise the care properly incident to the carriage of the merchandise on
was uninjured. In discussing the question whether upon a contract to carry on deck, the vessel
deck. For instance, if it had been improperly placed or secured, and had been swept overboard
was liable for the wetting of the tobacco, the court said:
as a proximate result of such lack of care, the ship would be liable, to the same extent as if the
It is manifest that the injury to the tobacco arose simply from the fact that it was carried on deck. cargo had been deliberately thrown over without justification. So, if it had been shown that,
The malt, carried below, although an article easily injured, received no damage, and the voyage notwithstanding the stowage of these goods on deck, the damage could have been prevented, by
was performed with usual care, and without disaster. Indeed, there is evidence of a statement by the exercise of proper skill and diligence in the discharge of the duties incumbent on the ship, the
the libelant, that tobacco must of necessity be injured by being carried on deck. But, under a owner might still be held.
contract to carry upon deck, the risk of any damage resulting from the place of carriage rests
To put the point concretely, let it be supposed that a custom had been proved among mariners
upon the shipper, and, without proof of negligence causing the damage, there can be no recovery.
to protect deck cargo from the elements by putting a tarpaulin over it; or approaching still more
Here the evidence shows that all reasonable care was taken of the tobacco during its
to imaginable conditions in the present case, let it be supposed that the persons charged with the
transportation; that the manner of stowing and covering it was known to and assented to by the
duty of transporting this cargo, being cognizant of the probability of damage by water, had
shipper; and the inference is warranted that the injury arose, without fault of the carrier, from
negligently and without good reason failed to exercise reasonable care to protect it by covering it
rain, to which merchandise transported on deck must necessarily be in some degree exposed. Any
with tarpaulins. In such case it could hardly be denied that the ships company should be held
loss arising from damaged thus occasioned is to be borne by the shipper.
liable for such damage as might have been avoided by the use of such precaution.
Lawrence vs. Minturn (17 How [U.S,], 100; 15 L ed., 58), was a case where goods stowed on
But it should be borne in mind in this connection that it is incumbent on the Plaintiff, if his cause
deck with the consent of the shipper were jettisoned during a storm at sea. In discussing whether
of action is founded on negligence of this character, to allege and prove that the damage suffered
this cargo was entitled to general average, the Supreme Court of the United States said:

11
was due to failure of the persons in charge of the cargo to use the diligence properly incident to Arellano, C.J., Torres, Johnson, Araullo, Malcolm, Avancea and Moir, JJ., concur.
carriage under these conditions.

In Clark vs. Barnwell (12 How. [U.S.], 272; 13 L. ed., 985), the Supreme Court distinguishes with
great precision between the situation where the burden of proof is upon the shipowner to prove
that the loss resulted from an excepted peril and that where the burden of proof is upon the
owner of the cargo to prove that the loss was caused by negligence on the part of the persons
employed in the conveyance of the goods. The first two syllabi in Clark vs. Barnwell read as
follows:

Where goods are shipped and the usual bill of lading given, promising to deliver them in good
order, the dangers of the seas excepted, and they are found to be damaged the onus probandi
is upon the owners of the vessel, to show that the injury was occasioned by one of the excepted
causes.

But, although the injury may have been occasioned by one of the excepted causes, yet still the
owners of the vessel are responsible if the injury might have been avoided, by the exercise of
reasonable skill and attention on the part of the persons employed in the conveyance of the goods.
But the onus probandi then becomes shifted upon the shipper, to show the negligence.

The case just referred to was one where cotton thread, put up in boxes, had deteriorated during
a lengthy voyage in a warm climate, owing to dampness and humidity. In discussing the question
of the responsibility of the ships owner, the court said:

Notwithstanding, therefore, the proof was clear that the damage was occasioned by the effect
of the humidity and dampness of the vessel, which is one of the dangers of navigation, it was
competent for the libelants to show that the Respondents might have prevented it by proper skill
and diligence in the discharge of their duties; but no such evidence is found in the record. For
caught that appears every precaution was taken that is usual or customary, or known to
shipmasters, to avoid the damage in question. And hence we are obliged to conclude that it is to
be attributed exclusively to the dampness of the atmosphere of the vessel, without negligence or
fault on the part of the master or owners.

Exactly the same words might be used as applicable to the facts of the present case; and as it is
apparent that the damage here was caused by rain and sea water the risk of which is inherently
incident to carriage on deck the Defendant cannot be held liable. It is not permissible for the
court, in the absence of any allegation or proof of negligence, to attribute negligence to the ships
employees in the matter of protecting the goods from rains and storms. The complaint on the
contrary clearly indicates that the damage done was due to the mere fact of carriage on deck, no
other fault or delinquency on the part of anybody being alleged.

It will be observed that by the terms of paragraph 19 of the bills of lading, the ship is not to be
held liable, in the case of goods signed for as carried on deck, for any loss or damage from any
cause whatever. We are not to be understood as holding that this provision would have protected
the ship from liability for the consequences of negligent acts, if negligence had been alleged and
proved. From the discussion in Manila Railroad Co. vs. Compania Transatlantica and Atlantic, Gulf
& Pacific Co. (38 Phil. Rep., 875), it may be collected that the carrier would be held liable in such
case, notwithstanding the exemption contained in paragraph 19. But however that may be
damages certainly cannot be recovered on the ground of negligence, even from a carrier, where
negligence is neither alleged nor proved.

The judgment appealed from is reversed and the Defendant is absolved from the complaint. No
express pronouncement will be made as to the costs of either instance. SO ORDERED.

12
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD., respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts
valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured
against marine risk for their stated value with respondent Development Insurance and Surety
Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and
two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The
128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance
Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd.,
for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of
ship and cargo. The respective respondent Insurers paid the corresponding marine insurance
values to the consignees concerned and were thus subrogated unto the rights of the latter as the
insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed
suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before
the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.
13
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which,
on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit
against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then
Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness
of the ship and non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking
of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea
Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of
the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's
fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September
10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount
recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under
the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the
First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March
25, 1985, and the parties were required to submit their respective Memoranda, which they have
done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-
numbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are
represented by various counsel representing various consignees or insurance companies. The
common defendant in these cases is petitioner herein, being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in
a party's pleading are deemed admissions of that party and binding upon it. 2 And an admission
in one pleading in one action may be received in evidence against the pleader or his successor-
in-interest on the trial of another action to which he is a party, in favor of a party to the latter
action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions
on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof
to show negligence of the carrier?
On the Law Applicable
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. 4 As the cargoes in question
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of Commerce and by special
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code. 7
On the Burden of Proof
Under 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 goods, according to all
the circumstances of each case. 8Common 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;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man
or by human means. 10 It does not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault
or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases of rural lands where a reduction of the rent is allowed when more than one-half of the
fruits have been lost due to such event, considering that the law adopts a protection policy towards
agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article
1735 of the Civil Code provides that all cases than those mention in Article 1734, the common
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that
it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court,
made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and
3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No.
2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire must
have started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released
and the crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting
by sea water: that all of these effort were not enough to control the fire.
14
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance
over the goods. The evidence of the defendant did not show that extraordinary vigilance was
observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's
evidence did not likewise show he amount of diligence made by the crew, on orders, in the care
of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage. Consequently, the crew could not
have even explain what could have caused the fire. The defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent
the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for
said lack of deligence required of it under Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of
the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must
have been the "proximate and only cause of the loss," and that the carrier has "exercised due
diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. "
This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or
resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there
was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed,
the fire was already big; that the fire must have started twenty-four (24) hours before the same
was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection was
made as to their condition during the voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread are such as to show that Petitioner
Carrier or its servants were negligent in connection therewith. Consequently, the complete defense
afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided
in section 4(5) of the COGSA, which reads:
(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
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 bill of lading. This
declaration if embodied in the bill of lading shall be prima facie evidence, but all be conclusive on
the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be Liable
for more than the amount of damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a
fixed amount per package although the Code expressly permits a stipulation limiting such liability.
Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements
the Code by establishing a statutory provision limiting the carrier's liability in the absence of a
declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of
the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though
physically in it and as much a part thereof as though placed therein by agreement of the
parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-
3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed
US $500 per package, or its peso equivalent, at the time of payment of the value of the goods
lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"),
and the amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages
(Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at
the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of
damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount
was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by $500 per
package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield
P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts,
and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package
and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is
more than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding
said amount only for the 128 cartons, which amount is less than the maximum limitation of the
carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered
as the shipping unit.
15
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for
the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by the
carrier and the number of such units is disclosed in the shipping documents, each of those units
and not the container constitutes the "package" referred to in liability limitation provision of
Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-
furnished containers whose contents are disclosed should be treated as packages, the interest in
securing international uniformity would suggest that they should not be so treated. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container
as a package is inconsistent with the congressional purpose of establishing a reasonable minimum
level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much to
commend it. It gives needed recognition to the responsibility of the courts to construe and apply
the statute as enacted, however great might be the temptation to "modernize" or reconstitute it
by artful judicial gloss. If COGSA's package limitation scheme suffers from internal illness,
Congress alone must undertake the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements, whether or not forseeable by the
COGSA promulgators, do not warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of transport equipment qualify as
COGSA packages at least where, as here, they were carrier owned and supplied would
amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can
rightly be considered "packages" standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these containers to detachable stowage
compartments of the ship. They simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally "stowed" in the containers
utilizing stevedoring practices and materials analogous to those employed in traditional on board
stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595
F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks'
reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam held
that when rolls of polyester goods are packed into cardboard cartons which are then placed in
containers, the cartons and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which
were then placed by the shipper into a carrier- furnished container. The number of cartons was
disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the
cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier
could limit its liability to $500 per container if the bill of lading failed to disclose the number of
cartons or units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World
Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International
Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
pre-trial conference was conducted for the last time, the defendant had more than nine months
to prepare its evidence. Its belated notice to take deposition on written interrogatories of its
witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set
for August 27th, knowing fully well that it was its undertaking on July 11 the that the deposition
of the witnesses would be dispensed with if by next time it had not yet been obtained, only proves
the lack of merit of the defendant's motion for postponement, for which reason it deserves no
sympathy from the Court in that regard. The defendant has told the Court since February 16,
1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until
August 25, 1979, or more than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in support of its defenses.
xxx xxx xxx 22

(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should
be considered as the shipping unit subject to the $500 limitation of liability.
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain
now that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance
in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry
the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading
(Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill
of Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at
liberty to pack and carry them in any type of container(s).
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in
G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for
the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of
spare parts, with interest at the legal rate from the date of the filing of the complaint on June 13,
1978, plus P5,000 as attorney's fees, and the costs.

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of 2) In G.R.No.71478,the judgment is hereby affirmed.
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that
SO ORDERED.
the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first
entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
principle in the construction of contracts that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater
force in a contract of adhesion where a contract is already prepared and the other party merely
adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions
of its witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed
to do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June
27, 1978, when its answer was prepared and filed in Court, until September 26, 1978, when the

16
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February
21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial
Court of 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$423,192.354 was shipped by Marubeni American 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-4.5The 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. 03647 for delivery 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, 1990.8 It
likewise secured the services of Gaspar Salvaging Corporation which refloated the barge.9 The
hole was then patched with clay and cement.
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.11 A second Marine Protest was filed on September 7,
1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.13 The 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.
17
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it 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.16 Petitioner filed its answer with
counterclaim.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.
Petitioner's 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 CONSIGNEE'S 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 consignee's 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,21 we held that the definition 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 drayage22 and
it offers its barges to the public for carrying or transporting goods by water for compensation.
Petitioner is clearly a common carrier. In De Guzman, supra,23 we considered private 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.24 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." 25 In the case at bar,
the petitioner admitted that it is engaged in the business of shipping and lighterage,26 offering its
barges to the 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 consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.28 They are presumed to have been at fault or to have acted negligently if
the goods are lost, destroyed or deteriorated.29 To overcome the presumption of negligence 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:
18
(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.30 The evidence
show that, even 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
xxx xxx xxx
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 consignee's 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.
xxx xxx xxx
This is not all. Petitioner still headed to the consignee's 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.32 A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
xxx xxx xxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie SO ORDERED.
where she was instead of towing it?
Panganiban, and Sandoval-Gutierrez, JJ., concur.
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the Corona, and Carpio-Morales, JJ., on official leave.
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.

xxx xxx xxx

CROSS-EXAMINATION BY ATTY. IGNACIO:34

xxx xxx xxx

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.

19
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 14191 September 29, 1919
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellant,
vs.
YNCHAUSTI & COMPANY, defendant-appellee.
Attorney-General Paredes for the appellant.
Charles C. Cohn for the appellee.
JOHNSON, J.:
The purpose of this action was to recover the sum of P200 as damages to certain cargo of roofing
tiles shipped by the plaintiff from Manila to Iloilo on a vessel belonging to the defendant. The tiles
were delivered by the defendant to the consignee of the plaintiff at Iloilo. Upon delivery it was
found that some of the tiles had been damaged; that the damage amounted to about P200. Upon
a submission of that question to the lower court a judgment was rendered against the plaintiff in
favor of the defendant, absolving the latter from all liability under the complaint.
There seems to be no dispute about the facts, except whether or not the tiles were broken by the
negligence of the defendant. The defendant denied that the tiles were broken by reason of its
negligence. The defendant proved, and the plaintiff did not attempt to dispute, that the roofing
tiles in question were of a brittle and fragile nature; that they were delivered by the plaintiff to
the defendant in bundles of ten each, tied with bejuco [rattan], without any packing or protective
covering. The plaintiff did not even attempt to prove any negligence on the part of the defendant.
On the hand, the defendant offered proof to show that there was no negligence on its part, by
showing that the tiles were loaded, stowed, and discharged by handlabor, and not be mechanical
devices which might have caused the breakage in question.
It appears from the record that the tiles in question were received by the defendant from the
plaintiff, as representative on a Government bill of lading known as "General Form No. 9-A," which
was made out and submitted by a representative of the Bureau of Supply to the defendant.
(Exhibit A.) At the head of Exhibit A is found the following:
You are hereby authorized to receive, carry, and deliver the following described merchandise to
treasurer of Iloilo at Iloilo in accordance with the authorized and prescribed rates and
classifications, and according to the laws of common carriers in force on the date hereof,
settlement and payment of charges to be made by Bureau of Supply. (Sgd.) T. R. SCHOON, Chief
Division of Supplies, Bureau of Supply.
On the said bill of lading we find the following, which was attempted thereon by the defendant:
The goods have been accepted for transportation subject to the conditions prescribed by the
Insular Collector of Customs in Philippine Marine Regulations, page 16, under the heading "Bill of
Lading Conditions."
The lower court, in discussing the said bill of lading with the two conditions found thereon, reached
the conclusion that the plaintiff was bound by the terms of the bill of lading as issued by the
defendant and not by the terms which the plaintiff attempted to impose, that is to say, that
such merchandise was to be carried at owner's risk only; that there was no presumption of
negligence on the part of the defendant from the fact that the tiles were broken when received
by the consignee; and that since the plaintiff did not prove negligence on the part of the
20
defendant, the former was not entitled to recover damages from the latter. The lower court
rendered judgment absolving the defendant from all liability under the complaint.
The important questions presented by the appeal are: (a) Where the terms and conditions
stamped by the defendant upon the Government's bill of lading binding upon the plaintiff? (b)
Was there a presumption of negligence on the part of the defendant?
The record shows that ever since the Government began to use the bill of lading, General Form
No. 9-A, the shipowners had always used the "stamp" in question; that in the present case the
defendant placed said stamp upon the bill of lading before the plaintiff shipped the tiles in
question; that having shipped the goods under the said bill of lading, with the terms and conditions
of the carriage stamped thereon, the appellant must be deemed to have assented to the said
terms and conditions thereon stamped.
The appellant contends also that it was not bound by the terms and conditions inserted by the
appellee, because (a) the reference made by the appellee to the "Philippine Marine Regulations"
prescribed by the Collector of Customs was vague; that the appellee should have expressed the
conditions fully and clearly on the face of the bill of lading; and ( b) that the Insular Collector of
Customs had no authority to issue such regulations.
As to the first contention, it seems that the appellant fully knew the import and significance of the
reference made in said regulations. The appellant attempted to show that prior to the transaction
in question the Government notified the defendant and other shipowners that it would not be
bound by the "stamp" that was placed by the shipowners on the Government's bill of lading.
With reference to the contention of the appellant that the Collector of Customs had no authority
to make such regulations, it may be said in the present case that the binding effect of the
conditions stamped on the bill of lading did not proceed from the authority of the Collector of
Customs but from the actual contract which the parties made in the present case. Each bill of
lading is a contract and the parties thereto are bound by its terms.
Findings as we do that the tiles in question were shipped at the owner's risk, under the law in this
jurisdiction, the carrier is only liable where the evidence shows that he was guilty of some
negligence and that the damages claimed were the result of such negligence. As was said above,
the plaintiff offered no proof whatever to show negligence on the part of the defendant.
The plaintiff cites some American authorities to support its contention that the carrier is an
absolute insurer of merchandise shipped and that the proof of breakage or damage to goods
shipped in the hands of the carrier makes out a prima facie case of negligence against him, and
that the burden of proof is thrown on him to show due care and diligence.
The law upon that question in this jurisdiction is found in articles 361 and 362 of the Commercial
Code. Article 361 provides:
ART. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary
be not expressly stipulated.
Therefore, all damages and impairment, suffered by the goods in transportation by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account
and risk of the shipper.
The proof of these accidents is incumbent upon the carrier.
Article 362 provides:
ART. 362. The carrier, however, shall be liable for the losses and damages arising from the causes
mentioned in the foregoing article, if it be proved against him that they occurred on account of
his negligence or because he did not take the precautions usually adopted by careful persons,
unless the shipper committed fraud in the bill of lading stating that the goods were of a class or
quality different from what they really were. . . .

Under the provisions of article 361 the defendant, in order to free itself from liability, was only
obliged to prove that the damages suffered by the goods were "by virtue of the nature or defect
of the articles." Under the provisions of article 362 the plaintiff, in order to hold the defendant
liable, was obliged to prove that the damages to the goods by virtue of their nature, occurred on
account of its negligence or because the defendant did not take the precaution usually adopted
by careful persons.

The defendant herein proved, and the plaintiff did not attempt to dispute, that the tiles in question
were of a brittle and fragile nature and that they were delivered by the plaintiff to the defendant
without any packing or protective covering. The defendant also offered proof to show that there
was no negligence on its part, by showing that the tiles were loaded, stowed, and discharged in
a careful and diligent manner.

In this jurisdiction there is no presumption of negligence on the part of the carriers in case like
the present. The plaintiff, not having proved negligence on the part of the defendant, is not
entitled to recover damages.

For the foregoing reasons, the judgment of the lower court is hereby affirmed, with costs. So
ordered.

Arellano, C.J., Araullo, Street, Malcolm and Avancea, JJ., concur.

21
 Republic of the Philippines The only question to be determined in this petition is whether or not the defendant-carrier, the
SUPREME COURT herein petitioner, is liable for the loss or shortage of the rice shipped.
Manila
EN BANC Article 361 of the Code of Commerce provides: .
G.R. No. L-16629 January 31, 1962
ART. 361. The merchandise shall be transported at the risk and venture of the shipper, if the
SOUTHERN LINES, INC., petitioner,
contrary has not been expressly stipulated.
vs.
COURT OF APPEALS and CITY OF ILOILO, respondents. As a consequence, all the losses and deteriorations which the goods may suffer during the
Jose Ma. Lopez Vito, Jr. for petitioner. transportation by reason of fortuitous event, force majeure, or the inherent nature and defect of
The City Fiscal for respondents. the goods, shall be for the account and risk of the shipper.1wph1.t
DE LEON, J.: Proof of these accidents is incumbent upon the carrier.
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 15579- Article 362 of the same Code provides: .
R affirming that of the Court of First Instance of Iloilo which sentenced petitioner Southern Lines,
Inc. to pay respondent City of Iloilo the amount of P4,931.41. ART. 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from
the causes mentioned in the preceding article if it is proved, as against him, that they arose
Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn through his negligence or by reason of his having failed to take the precautions which usage his
Corporation (hereafter referred to as NARIC) in Manila. On August 24 of the same year, NARIC, establisbed among careful persons, unless the shipper has committed fraud in the bill of lading,
pursuant to the order, shipped 1,726 sacks of rice consigned to the City of Iloilo on board the SS representing the goods to be of a kind or quality different from what they really were.
"General Wright" belonging to the Southern Lines, Inc. Each sack of rice weighed 75 kilos and the
entire shipment as indicated in the bill of lading had a total weight of 129,450 kilos. According to If, notwithstanding the precautions referred to in this article, the goods transported run the risk
the bill of lading, the cost of the shipment was P63,115.50 itemized and computed as follows: . of being lost, on account of their nature or by reason of unavoidable accident, there being no time
for their owners to dispose of them, the carrier may proceed to sell them, placing them for this
Unit Price per bag P36.25 P62,567.50 purpose at the disposal of the judicial authority or of the officials designated by special provisions.

Handling at P0.13 per bag
Trucking at P2.50 per bag
Under the provisions of Article 361, the defendant-carrier in order to free itself from liability, was
224.38 only obliged to prove that the damages suffered by the goods were "by virtue of the nature or
defect of the articles." Under the provisions of Article 362, the plaintiff, in order to hold the
defendant liable, was obliged to prove that the damages to the goods by virtue of their nature,
323.62 occurred on account of its negligence or because the defendant did not take the precaution
adopted by careful persons. (Government v. Ynchausti & Co., 40 Phil. 219, 223).

T o t a l . . . . . .. . . . . 63,115.50
On September 3, 1948, the City of Iloilo received the shipment and paid the amount of
P63,115.50. However, it was noted that the foot of the bill of lading that the City of Iloilo 'Received
the above mentioned merchandise apparently in same condition as when shipped, save as noted
below: actually received 1685 sacks with a gross weight of 116,131 kilos upon actual weighing.
Total shortage ascertained 13,319 kilos." The shortage was equivalent to 41 sacks of rice with a
net weight of 13,319 kilos, the proportionate value of which was P6,486.35.
On February 14, 1951 the City of Iloilo filed a complaint in the Court of First Instance of Iloilo
against NARIC and the Southern Lines, Inc. for the recovery of the amount of P6,486.35
representing the value of the shortage of the shipment of rice. After trial, the lower court absolved
NARIC from the complaint, but sentenced the Southern Lines, Inc. to pay the amount of P4,931.41
which is the difference between the sum of P6,486.35 and P1,554.94 representing the latter's
counterclaim for handling and freight.
The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the judgment of the
trial court. Hence, this petition for review.
Petitioner claims exemption from liability by contending that the shortage in the shipment of rice
was due to such factors as the shrinkage, leakage or spillage of the rice on account of the bad
condition of the sacks at the time it received the same and the negligence of the agents of
respondent City of Iloilo in receiving the shipment. The contention is untenable, for, if the fact of
improper packing is known to the carrier or his servants, or apparent upon ordinary observation,
but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or
injury resulting thereform. (9 Am Jur. 869.) Furthermore, according to the Court of Appeals,
"appellant (petitioner) itself frankly admitted that the strings that tied the bags of rice were
broken; some bags were with holes and plenty of rice were spilled inside the hull of the boat, and
that the personnel of the boat collected no less than 26 sacks of rice which they had distributed
among themselves." This finding, which is binding upon this Court, shows that the shortage
resulted from the negligence of petitioner.
Invoking the provisions of Article 366 of the Code of Commerce and those of the bill of lading,
petitioner further contends that respondent is precluded from filing an action for damages on
account of its failure to present a claim within 24 hours from receipt of the shipment. It also cites
the cases of Government v. Ynchausti & Co., 24 Phil. 315 and Triton Insurance Co. v. Jose, 33
Phil. 194, ruling to the effect that the requirement that the claim for damages must be made
within 24 hours from delivery is a condition precedent to the accrual of the right of action to
recover damages. These two cases above-cited are not applicable to the case at bar. In the first

22
cited case, the plaintiff never presented any claim at all before filing the action. In the second
case, there was payment of the transportation charges which precludes the presentation of any
claim against the carrier. (See Article 366, Code of Commerce.) It is significant to note that in the
American case of Hoye v. Pennsylvania Railroad Co., 13 Ann. Case. 414, it has been said: .

... "It has been held that a stipulation in the contract of shipment requiring the owner of the goods
to present a notice of his claim to the carrier within a specified time after the goods have arrived
at their destination is in the nature of a condition precedent to the owner's right to enforce a
recovery, that he must show in the first instance that be has complied with the condition, or that
the circumstances were such that to have complied with it would have required him to do an
unreasonable thing. The weight of authority, however, sustains the view that such a stipulation is
more in the nature of a limitation upon the owner's right to recovery, and that the burden of proof
is accordingly on the carrier to show that the limitation was reasonable and in proper form or
within the time stated." (Hutchinson on Carrier, 3d ed., par. 44) Emphasis supplied.

In the case at bar, the record shows that petitioner failed to plead this defense in its answer to
respondent's complaint and, therefore, the same is deemed waived (Section 10, Rule 9, Rules of
Court), and cannot be raised for the first time at the trial or on appeal. (Maxilom v. Tabotabo, 9
Phil. 390.) Moreover, as the Court of Appeals has said: .

... the records reveal that the appellee (respondent) filed the present action, within a reasonable
time after the short delivery in the shipment of the rice was made. It should be recalled that the
present action is one for the refund of the amount paid in excess, and not for damages or the
recovery of the shortage; for admittedly the appellee (respondent) had paid the entire value of
the 1726 sacks of rice, subject to subsequent adjustment, as to shortages or losses. The bill of
lading does not at all limit the time for filing an action for the refund of money paid in excess.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all respects and the
petition for certioraridenied.

With costs against the petitioner.

Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Dizon, JJ., concur.
Bengzon, C.J., Bautista Angelo and Paredes, JJ., took no part.

23
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48757 May 30, 1988
MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Office for respondents.
SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila an action against the
1
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 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.)
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. 5 The fact that part of
the shipment had not been loaded on board the lighter did not impair the said contract of
transportation as the goods remained in the custody and control of the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

On the basis of the above findings, the respondent Court rendered a decision, the dispositive (2) Act of the public enemy in war, whether international or civil;
portion of which states:
(3) Act or omission of the shipper or owner of the goods;
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 (4) The character of the goods or defects in the packing or in the containers;
sum of P5,895.00 as actual damages, the sum of P5,000.00 as exemplary damages, and the
(5) Order or act of competent public authority.
amount of P2,000.00 as attorney's fees. Costs against defendant-appellee Ganzon. 3
Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason
In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals
of this presumption, the court is not even required to make an express finding of fault or
are:
negligence before it could hold the petitioner answerable for the breach of the contract of carriage.
I 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

24
all the circumstances of the case, or that the loss was due to an unforeseen event or to force This decision is IMMEDIATELY EXECUTORY.
majeure. As it was, there was hardly any attempt on the part of the petitioner to prove that he
exercised such extraordinary diligence. Yap, C.J., Paras and Padilla, JJ., concur.

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 8 and 362 9 of the Code of Commerce which were the basis for this Court's ruling in
Government of the Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in
tills petition. For Art. 1735 of the Civil Code, conversely stated, means that the shipper will suffer
the losses and deterioration arising from the causes enumerated in Art. 1734; and in these
instances, the burden of proving that damages were caused by the fault or negligence of the
carrier rests upon him. However, the carrier must 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.

25
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18965 October 30, 1964
COMPAIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of
hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent
transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral
contract was later on confirmed by a formal and written booking issued by Macleod's branch office
in Sasa and handcarried to Compaia Maritima's branch office in Davao in compliance with which
the latter sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the
hemp was completed on October 29, 1952. These two lighters were manned each by a patron
and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts
and that issued by the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compaia Maritima on which the hemp was to be loaded. During the night of October
29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss
of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the
carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged
hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning,
and redrying. During the period from November 1-15, 1952, the carrier's trucks and lighters hauled
from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the
original cargo of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After
reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value
of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses
in checking, grading, rebating, and other fees for washing, cleaning and redrying in the amount
of P19.610.00, the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025,
were insured with the Insurance Company of North America against all losses and damages. In
due time, Macleod filed a claim for the loss it suffered as above stated with said insurance
company, and after the same had been processed, the sum of P64,018.55 was paid, which was
noted down in a document which aside from being a receipt of the amount paid, was a subrogation
agreement between Macleod and the insurance company wherein the former assigned to the
latter its rights over the insured and damaged cargo. Having failed to recover from the carrier the
sum of P60,421.02, which is the only amount supported by receipts, the insurance company
instituted the present action on October 28, 1953. After trial, the court a quo rendered judgment
ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest
26
thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment
was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the
shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier
which was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which
would carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage
caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event,
storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent
insurance company sue the carrier under its insurance contract as assignee of Macleod in spite of
the fact that the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Has the
Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the
correctness and sufficiency of the shipper's statement of accounts contrary to the burden of proof
rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do
so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod
and Company contracted by telephone the services of petitioner to ship the hemp in question
from the former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to
Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written
booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two
of its lighters to undertake the service. It also appears that the patrons of said lighters were
employees of the carrier with due authority to undertake the transportation and to sign the
documents that may be necessary therefor so much so that the patron of LCT No. 1025 signed
the receipt covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at
Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract
of carriage already entered into between the carrier and the shipper, for that preparatory step is
but part and parcel of said contract of carriage. The lighters were merely employed as the first
step of the voyage, but once that step was taken and the hemp delivered to the carrier's
employees, the rights and obligations of the parties attached thereby subjecting them to the
principles and usages of the maritime law. In other words, here we have a complete contract of
carriage the consummation of which has already begun: the shipper delivering the cargo to the
carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized
employees, under which Macleod became entitled to the privilege secured to him by law for its
safe transportation and delivery, and the carrier to the full payment of its freight upon completion
of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry
and deliver, and if actually no goods are received there can be no such contract. The liability and
responsibility of the carrier under a contract for the carriage of goods commence on their actual
delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to a lighter in charge
of a vessel for shipment on the vessel, where it is the custom to deliver in that way, is a good
delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery
to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another,
and they cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the
goods to it, the lighters are for the time its substitutes, so that the bill of landing is applicable to
the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established is, Had the
control and possession of the cotton been completely surrendered by the shipper to the railroad
company? Whenever the control and possession of goods passes to the carrier and nothing
remains to be done by the shipper, then it can be said with certainty that the relation of shipper
and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep.
202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v.
St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et
al. v. Wade, et al., 200 S.W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually
loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as already
stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the
receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the
cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the
authorities are to the effect that a bill of lading is not indispensable for the creation of a contract
of carriage.
Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading,
although article 350 of the Code of Commerce provides that "the shipper as well as the carrier of
merchandise or goods may mutua-lly demand that a bill of lading is not indispensable. As regards
the form of the contract of carriage it can be said that provided that there is a meeting of the
minds and from such meeting arise rights and obligations, there should be no limitations as to
form." The bill of lading is not essential to the contract, although it may become obligatory by
reason of the regulations of railroad companies, or as a condition imposed in the contract by the
agreement of the parties themselves. The bill of lading is juridically a documentary proof of the
stipulations and conditions agreed upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos,
44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in the contract
of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier
and the shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision,
May 6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance
of a bill of lading is not necessary to complete delivery and acceptance. Even where it is provided
by statute that liability commences with the issuance of the bill of lading, actual delivery and
acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind
the claim of force majeure or storm which occurred on the night of October 29, 1952. But the
evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure,
but to lack of adequate precautions or measures taken by the carrier to prevent the loss as may
be inferred from the following findings of the Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks
on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner
as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh. JJJ-4)
conclusively showing that the barge was not seaworthy it should be noted that on the night of
the nautical accident there was no storm, flood, or other natural disaster or calamity. Certainly,
27
winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing
in Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's
wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather
Bureau standards winds should have a velocity of from 55 to 74 miles per hour in order to be
classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-
G.R. No. 23167-R, March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors,
attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy
compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission
of two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of
the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of
Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee
of the owner of the cargo for the insurance amount it paid to the latter under the insurance
contract. And this is so because since the cargo that was damaged was insured with respondent
company and the latter paid the amount represented by the loss, it is but fair that it be given the
right to recover from the party responsible for the loss. The instant case, therefore, is not one
between the insured and the insurer, but one between the shipper and the carrier, because the
insurance company merely stepped into the shoes of the shipper. And since the shipper has a
direct cause of action against the carrier on account of the damage of the cargo, no valid reason
is seen why such action cannot be asserted or availed of by the insurance company as a subrogee
of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only
because it is not a privy to it but also because it cannot avoid its liability to the shipper under the
contract of carriage which binds it to pay any loss that may be caused to the cargo involved
therein. Thus, we find fitting the following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of whether or
not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134 isued by
appellee. Appellant was neither a party nor privy to this insurance contract, and therefore cannot
avail itself of any defect in the policy which may constitute a valid reason for appellee, as the
insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy
contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim
by appellee. Besides, appellant is herein sued in its capacity as a common carrier, and appellee is
suing as the assignee of the shipper pursuant to exhibit MM. Since, as above demonstrated,
appellant is liable to Macleod and Company of the Philippines for the los or damage to the 1,162
bales of hemp after these were received in good order and condition by the patron of appellant's
LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as assignee
of Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from
appellant the payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the carrier
asked the lower court to order the production of the books of accounts of the Odell Plantation
containing the charges it made for the loss of the damaged hemp for verification of its
accountants, but later it desisted therefrom on the claim that it finds their production no longer
necessary. This desistance notwithstanding, the shipper however pre-sented other documents to
prove the damage it suffered in connection with the cargo and on the strength thereof the court a
quo ordered the carrier to pay the sum of P60,421.02. And after the Court of Appeals affirmed
this award upon the theory that the desistance of the carrier from producing the books of accounts
of Odell Plantation implies an admission of the correctness of the statements of accounts
contained therein, petitioner now contends that the Court of Appeals erred in basing the
affirmance of the award on such erroneous interpretation.

There is reason to believe that the act of petitioner in waiving its right to have the books of
accounts of Odell Plantation presented in court is tantamount to an admission that the statements
contained therein are correct and their verification not necessary because its main defense here,
as well as below, was that it is not liable for the loss because there was no contract of carriage
between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence,
under the carrier's theory, the correctness of the account representing the loss was not so material
as would necessitate the presentation of the books in question. At any rate, even if the books of
accounts were not produced, the correctness of the accounts cannot now be disputed for the
same is supported by the original documents on which the entries in said books were based which
were presented by the shipper as part of its evidence. And according to the Court of Appeals,
these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.

5. Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier
admitted in open court that it is a foreign corporation doing business in the Philippines with a
personality to file the present action.

WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon,
J.P. and Zaldivar JJ., concur.

28
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9840 April 22, 1957
LU DO & LU YM CORPORATION, petitioner-defendant,
vs.
I. V. BINAMIRA, respondent-plaintiff.
Ross, Selph, Carrascoso and Janda for petitioner.
I. V. Binamira in his own behalf.
BAUTISTA ANGELO, J.:
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant
to recover the sum of P324.63 as value of certain missing shipment, P150 as actual and
compensatory damages, and P600 as moral and pecuniary damages. After trial, the court rendered
judgment ordering defendant to pay plaintiff the sum of P216.84, with legal interest. On appeal,
the Court of Appeals affirmed the judgment, hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S
"FERNSIDE" at New York, U.S.A., six cases of films and/or photographic supplies consigned to the
order of respondent I. V. Binamira. For this shipment, Bill of Lading No. 29 was issued. The ship
arrived at the port of Cebu on September 23, 1951 and discharged her cargo on September 23,
and 24, 1951, including the shipment in question, placing it in the possession and custody of the
arrastre operator of said port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo.
During the discharge, good order cargo was separated from the bad order cargo on board the
ship, and a separate list of bad order cargo was prepared by Pascual Villamor, checker of the
stevedoring company. All the cargo unloaded was received at the pier by the Visayan Cebu
Terminal Company Inc, arrastre operator of the port. This terminal company had also its own
checker, Romeo Quijano, who also recorded and noted down the good cargo from the bad one.
The shipment in question, was not included in the report of bad order cargo of both checkers,
indicating that it was discharged from the, ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent
took delivery of his six cases of photographic supplies from the arrastre operator. He discovered
that the cases showed signs of pilferage and, consequently, he hired marine surveyors, R. J. del
Pan & Company, Inc., to examine them. The surveyors examined the cases and made a physical
count of their contents in the presence of representatives of petitioner, respondent and the
stevedoring company. The surveyors examined the cases and made a physical count of their
contents in the presence of representatives of petitioner, respondent and the stevedoring
company. The finding of the surveyors showed that some films and photographic supplies were
missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were discharged
from the ship at the port of Cebu by the stevedoring company hired by petitioner as agent of the
carrier. All the unloaded cargo, including the shipment in question, was received by the Visayan
Cebu Terminal Company Inc., the arrastre operator appointed by the Bureau of Customs. It also
appears that during the discharge, the cargo was checked both by the stevedoring company hired
by petitioner as well as by the arrastre operator of the port, and the shipment in question, when
discharged from the ship, was found to be in good order and condition. But after it was delivered
to respondent three days later, the same was examined by a marine surveyor who found that
some films and supplies were missing valued at P324.63.
29
The question now to be considered is: Is the carrier responsible for the loss considering that the
same occurred after the shipment was discharged from the ship and placed in the possession and
custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following comment:
In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the
same condition in which it received them. Except where the loss, destruction or deterioration of
the merchandise was due to any of the cases enumerated in Article 1734 of the new Civil Code,
a carrier is presumed to have been at fault and to have acted negligently, unless it could prove
that it observed extraordinary diligence in the care and handling of the goods (Article
1735, supra). Such presumption and the liability of the carrier attach until the goods are delivered
actually or constructively, to the consignee, or to the person who has a right to receive them
(Article 1736, supra), and we believe delivery to the customs authorities is not the delivery
contemplated by Article 1736, supra, in connection with second paragraph of Article 1498, supra,
because, in such a case, the goods are then still in the hands of the Government and their owner
could not exercise dominion whatever over them until the duties are paid. In the case at bar, the
presumption against the carrier, represented appellant as its agent, has not been successfully
rebutted.
It is now contended that the Court of Appeals erred in its finding not only because it made wrong
interpretation of the law on the matter, but also because it ignored the provisions of the bill of
lading covering the shipment wherein it was stipulated that the responsibility of the carrier is
limited only to losses that may occur while the cargo is still under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible
for the loss, destruction or deterioration of the goods it assumes to carry from one place to another
unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil
Code, and that, if the goods are lost, destroyed or deteriorated, for causes other that those
mentioned, the common carrier is presumed to have been at fault or to have acted negligently,
unless it proves that it has observed extraordinary diligence in their care (Article 1735, Idem.),
and that this extraordinary liability lasts from the time the goods are placed in the possession of
the carrier until they are delivered to the consignee, or "to the person who has the right to receive
them" (Article 1736, Idem.), but these provisions only apply when the loss, destruction or
deterioration takes place while the goods are in the possession of the carrier, and not after it has
lost control of them. The reason is obvious. While the goods are in its possession, it is but fair
that it exercise extraordinary diligence in protecting them from damage, and if loss occurs, the
law presumes that it was due to its fault or negligence. This is necessary to protect the interest
the interest of the owner who is at its mercy. The situation changes after the goods are delivered
to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to
the person who has a right to receive them", contemplated in Article 1736, because in such case
the goods are still in the hands of the Government and the owner cannot exercise dominion over
them, we believe however that the parties may agree to limit the liability of the carrier considering
that the goods have still to through the inspection of the customs authorities before they are
actually turned over to the consignee. This is a situation where we may say that the carrier losses
control of the goods because of a custom regulation and it is unfair that it be made responsible
for what may happen during the interregnum. And this is precisely what was done by the parties
herein. In the bill of lading that was issued covering the shipment in question, both the carrier
and the consignee have stipulated to limit the responsibility of the carrier for the loss or damage
that may because to the goods before they are actually delivered by insert in therein the following
provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or
misdelivery, or loss of or damage to the goods occurring while the goods are not in the actual
custody of the Carrier. . . . (Emphasis ours.)

(Paragraph 1, Exhibit "1")

2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the goods shall
be considered to be delivered and at their own risk and expense in every respect when taken into
the custody of customs or other authorities. The Carrier shall not be required to give any
notification of disposition of the goods. . . . (Emphasis ours.)

(Paragraph 12, Exhibit "1")

3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at ship's
tackle . . . and delivery beyond ship's tackle shall been tirely at the option of the Carrier and solely
at the expense of the shipper or consignee.

(Paragraph 22, Exhibit "1")

It therefore appears clear that the carrier does not assume liability for any loss or damage to the
goods once they have been "taken into the custody of customs or other authorities", or when they
have been delivered at ship's tackle. These stipulations are clear. They have been adopted
precisely to mitigate the responsibility of the carrier considering the present law on the matter,
and we find nothing therein that is contrary to morals or public policy that may justify their
nullification. We are therefore persuaded to conclude that the carrier is not responsible for the
loss in question, it appearing that the same happened after the shipment had been delivered to
the customs authorities.

Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L. Endencia and Felix,
JJ., concur.

30
 FIRST DIVISION
[G.R. No. L-15671. November 29, 1960.]
AMERICAN PRESIDENT LINES, LTD., Petitioner, v. RICHARD A. KLEPPER, ET
AL., Respondents.
Ross, Selph & Carrascoso for Petitioner.
Ozaeta, Gibbs & Ozaeta for Respondent.
J. A. Wolfson as amicus curiae.
SYLLABUS
1. COMMON CARRIERS; NATURE AND EXTENT OF RESPONSIBILITY. The responsibility of a
common carrier is extraordinary and lasts from the time the goods are placed in its possession
until they are delivered, actually or constructively, to the consignee or to the person who has a
right to receive them. It can only be exempt therefrom for causes enumerated in Article 1734 of
the New Civil Code.
2. ID.; BILL OF LADING; WHEN BINDING UPON CONSIGNEE ALTHOUGH NOT SIGNED BY HIM
OR BY HIS AGENT. Where the bill of lading provides that a shipper or consignee who accepts
the bill becomes bound by all the stipulations contained therein, the said shipper or consignee
cannot elude its provisions simply because they prejudice him and take advantage of those that
are beneficial to him. In the case at bar, the fact that the shipper and consignee paid the
corresponding freight on his goods, shows that he impliedly accepted the bill of lading which was
issued in connection with his shipment. Hence, the same is binding upon him as if it had been
actually signed by him or by any person in his behalf.
3. ID.; ID PROVISION IN CARRIAGE OF GOODS BY SEA ACT LIMITING CARRIERS LIABILITY TO
$500.00. Article 1753 of the Civil Code provides that the law of the country to which the goods
are to be transported shall govern the liability of the common carrier in case of loss, destruction
or deterioration. This means the law of the Philippines, or the Civil Code. Under Article 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," and in the Civil Code there are provisions
that govern said rights and obligations (Articles 1736, 1737 and 1738). Therefore, although
Section 4 (5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable in an
amount exceeding $500.00 per package unless the value of the goods had been declared by the
shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the
Civil Code.
DECISION
BAUTISTA ANGELO, J.:
Richard A. Klepper brought this action before the Court of First Instance of Manila to recover the
sum of P6,729.50 as damages allegedly sustained by his goods contained in a lift van which fell
to the ground while being unloaded from a ship owned and operated by the American President
Lines, Ltd. to the pier, plus the sum of P2,000.00 as sentimental value of the damaged goods and
attorneys fees.
It appears that on February 17, 1955, Klepper shipped on board the S.S. President Cleveland at
Yokohama, Japan one life van under bill of lading No, 82, containing personal and household
effects. The ship arrived in the port of Manila on February 22, 1995 and while the lift van was
being unloaded by the Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and its
contents were spilled and scattered. A survey was made and the result was that Klepper suffered
damages totalling P6,729.50 arising out of the breakage, denting and smashing of the goods.
31
The trial court, on November 5, 1957, rendered decision ordering the shipping company to pay
plaintiff the sum of P6,729.50, value of the goods damaged, plus P500.00 as their sentimental
value, with legal interest from the filing of the complaint, and the sum of P1,000.00 as attorneys
fees. The court ordered that, once the judgment is satisfied, co-defendant Delgado Brothers, Inc.
should pay the shipping company the same amounts by way of reimbursement. Both defendants
appealed to the Court of Appeals which affirmed in toto the decision of the trial court. The shipping
company interposed the present petition for review.
Anent the liability of petitioner relative to the damage caused to the goods in question, the Court
of Appeals made the following comment: "At the outset, it may be well to state that the party
primarily liable to plaintiff is appellant American President Lines, Ltd., the carrier whose duty it
was to deliver the cargo in good order to the consignee. Articles 1734, 1736, Civil code; Articles
355, 363, Code of Commerce. This appellant does not question the finding below that the damage
to plaintiffs goods was due to negligence."cralaw virtua1aw library
To this we agree. And we may add that, regardless of its negligence, the shipping companys
liability would attach because being a common carrier its responsibility is extraordinary and lasts
from the time the goods are placed in its possession until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them (Article 1736,
Idem.) It can only be exempt therefrom for causes enumerated in Article 1734.
But, while petitioner does not dispute its liability as common carrier, it however contends that the
same cannot exceed $500.00 invoking in its favor the bill of lading Exhibit A and Section 4(5) of
the Carriage of Goods by Sea Act (Commonwealth Act No. 65).
The pertinent provision of the bill of lading alluded to is clause 17 which in part
provides:jgc:chanrobles.com.ph
"17. In case of any loss or damage to or in connection with goods exceeding in actual value $500
lawful money of the United States, per package, . . . the value of the goods shall be deemed to
be $500 per package . . . on which basis the freight is adjusted and the Carriers liability, if any,
shall be determined on the basis of a value of $500 per package . . . or pro rata in case of partial
loss or damage, unless the nature of the goods and a valuation higher than $500 shall have been
declared in writing by the shipper upon delivery to the Carrier and inserted in this bill of lading
and extra freight paid if required and in such case if the actual value of the goods per package .
. . shall exceed such declared value, the value shall nevertheless be deemed to be the declared
value and the Carriers liability, if any, shall not exceed the declared value and any partial loss or
damage shall be adjusted pro rata on the basis of such declared value."cralaw virtua1aw library
While it is apparent from the above that the carrier has expressly agreed that in case of any loss
or damage to the goods in question exceeding the sum of $500.00 per package the extent of its
liability shall be deemed to be merely $500.00 per package, and not more, the Court of Appeals
ruled out the above stipulation, holding that the same is not binding upon the shipper. Its
reasoning follows: "Neither plaintiff nor any agent of his signed the bill of lading; neither has
agreed to the two clauses just recited. In fact, plaintiff received the bill of lading only after he had
arrived at Manila. In this posture and lifting from the decision of the Supreme Court in Mirasol v.
Robert Dollar Co., 53 Phil., 124, 128, we hold that plaintiff was not legally bound by the clause
which purports to limit defendants liability." Petitioner now assigns this finding as an error.
We are inclined to agree to this contention. Firstly, we cannot but take note of the following clause
printed in red ink that appears on the very face of the bill of lading: "IN ACCEPTING THIS BILL
OF LADING the shipper, consignee and owner of the goods agree to be bound by all its liability of the carrier with regard to the damage of the goods should only be limited to $500.00
stipulations, exceptions, and conditions whether written, printed, or stamped on the front or back contrary to the conclusion reached by the Court of Appeals.
hereof, any local customs or privileges to the contrary notwithstanding." This clause is very
revealing. It says that a shipper or consignee who accepts the bill of lading becomes bound by all Wherefore, with the modification that petitioner shipping company should only pay to respondent
stipulations contained therein whether on the front or back thereof. Respondent cannot elude its the sum of $500.00 as value of the goods damaged, the decision appealed from should be affirmed
provisions simply because they prejudice him and take advantage of those that are beneficial. in all other respects, without pronouncement as to costs.
Secondly, the fact that respondent shipped his goods on board the ship of petitioner and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading which was issued Paras, C.J., Bengzon, Padilla, Labrador, Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.
in connection with the shipment in question, and so it may be said that the same is binding upon
him as if it has been actually signed by him or by any other person in his behalf. This is more so
where respondent is both the shipper and the consignee of the goods in question. These
circumstances take this case out of our ruling in the Mirasol case (invoked by the Court of Appeals)
and places it within our doctrine in the case of Mendoza v. Philippines Air Lines, Inc., (90 Phil.,
836), where we said:

". . . Later, as already said, he says that he was never a party to the contract of transportation
and was a complete stranger to it, and that he is now suing on a tort or a violation of his rights
as a stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with
the defendant company, then he would hardly have any leg to stand on. His right to prompt
delivery of the can of film at the Pili Air Port stems and is derived from the contract of carriage
under which contract, the PAL undertook to carry the can of film safely and to deliver it to him
promptly. Take away or ignore that contract and the obligation to carry and to deliver the right to
prompt delivery disappear. Common carriers are not obligated by law to carry and to deliver
merchandise, and persons are not vested with the right to prompt delivery, unless such common
carriers previously assume the obligation. Said rights and obligations are created by a specific
contract entered into by the parties.

x x x

"Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains
the stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of
film to him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of
the delivery in his favor contained in the contract of carriage, such demand being one for the
fulfillment of the contract of carriage and delivery. In this case he also made himself a party to
the contract, or at least has come to court to enforce it. His cause of action must necessarily be
founded on its breach."

With regard to the contention that the Carriage of Goods by Sea Act should also control this case,
the same is of no moment. Article 1753 1 provides that the law of the country to which the goods
are to be transported shall govern the liability of the common carrier in case of loss, destruction
or deterioration. This means the law of the Philippines, or our new Civil Code. Under Article 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," and here we have provisions that govern
said rights and obligations (Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of
the Carriage of Goods by Sea Act states that the carrier shall not be liable in an amount exceeding
$500.00 per package unless the value of the goods had been declared by the shipper and inserted
in the bill of lading, said section is merely suppletory to the provisions of the Civil Code. In this
respect, we agree to the opinion of the Court of Appeals.

On the strength of the opinion we have above expressed, we are constrained to rule that the

32
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.: This is an appeal taken directly to Us on certiorari from the decision of the defunct
Court of First Instance of Manila, finding defendants carrier and agent, liable for the value of
goods never delivered to plaintiff consignee. The issue raised is a pure question of law, which is,
the liability of the defendants, now appellants, under the bill of lading covering the subject
shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition
to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received
by, the consignee at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing
rate of exchange at that time, against the former, but neither paid. Hence, the filing of the instant
suit to enforce payment. Defendants-appellants brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of
the bill of lading which operates both as a receipt for the goods; and more importantly, as a
contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the law
between the parties thereto 3 who are bound by its terms and conditions 4 provided that these
are not contrary to law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge
wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port
of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its
vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the
goods were to be transshipped by the carrier to the port of destination or "port of discharge of
goods The stipulation is plainly indicated on the face of the bill which contains the following phrase
printed below the space provided for the port of discharge from ship", thus:
if goods are to be transshipped at port of discharge, show destination under the column for
"description of contents" 7
33
As instructed above, the following words appeared typewritten under the column for "description
of contents":
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering
the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord
with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to
AMCYL was part of appellants' duty to transship the goods from Manila to their port of destination-
Davao. The word "transship" means:
to transfer for further transportation from one ship or conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit:
The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring
before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be
discharged, transshipped or forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides:
Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed
at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge,
the carrier or master may, without notice, forward the whole or any part of the goods before or
after loading at the original port of shipment, ... This carrier, in making arrangements for any
transshipping or forwarding vessels or means of transportation not operated by this carrier shall
be considered solely the forwarding agent of the shipper and without any other responsibility
whatsoever even though the freight for the whole transport has been collected by him. ... Pending
or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as
agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the
goods are entrusted or delivered for storage, handling or any service incidental thereto (Emphasis
supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they
have discharged the same in full and good condition unto the custody of AMCYL at the port of
discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in
the bill of lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the
carrier from liability for loss or damage to the goods when the same are not in its actual custody
has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA
674 (1968). Said case matches the present controversy not only as to the material facts but more
importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides:
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods
while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation or forwarding
of goods not used or operated by the carrier, shall be considered solely the agent of the shipper
and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par.
16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public
policy, We sustained their validity 13 Applying said stipulations as the law between the parties in
the aforecited case, the Court concluded that:
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo
is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant
to the terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the
moment the goods were unloaded in Manila and in the matter of transshipment, appellee acted merely
as an agent of the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and
in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and
the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt
the carrier from liability for loss or damage to the goods while the same are not in the latter's actual
custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a
foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of
Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil Code on common
carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads:
Article 1736. The extraordinary responsibility of the common carrier 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, without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus:
Article 1738. The extraordinary liability of the common carrier continues to be operative even during the
time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee
has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove
them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates
a situation where the goods had already reached their place of destination and are stored in the
warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination,
and were stored in the warehouse of a third party when last seen and/or heard of. However, Article
1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility
for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the
consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined
as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession
by the buyer or by some person authorized by him to receive the goods as his representative for the
purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the
transport of goods when possession has been turned over to the consignee or to his duly authorized
34
agent and a reasonable time is given him to remove the goods. 18 The court a quo found that there
was actual delivery to the consignee through its duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is
FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT
OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. 20 At the
hiatus between these two undertakings of appellant which is the moment when the subject goods are
discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus,
the character of appellant's possession also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter's agent. Such being the case, there was, in effect,
actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee.
Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage
that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to
the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency, was
not fully performed. However, appellant had commenced said performance, the completion of which
was aborted by circumstances beyond its control. An agent who carries out the orders and instructions
of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the
failure of the principal to accomplish the object of the agency, 21This can be gleaned from the following
provisions of the New Civil Code on the obligations of the agent: t.hqw
Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages
which, through his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and
those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the person appointed was
notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged
with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency
on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby
DISMISSED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on
a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the
arrastre operator and the customs broker; (b) whether the payment of legal interest on an award
for loss or damage is to be computed from the time the complaint is filed or from the date the
decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder
for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee
who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody
of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order,
which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey."
Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649,
Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of
35
action of said consignee against defendants (per "Form of Subrogation", "Release" and
Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged
in good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the
cargo to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants (in
whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-
Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two
drums were shipped in good order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C).
But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service,
Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained while
in the respective and/or successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the
Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the
latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15,
South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report
further states that when defendant Allied Brokerage withdrew the shipment from defendant
arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello
bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was
found with adulterated/faked contents. It is obvious, therefore, that these losses/damages
occurred before the shipment reached the consignee while under the successive custodies of
defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods
are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of
destination, until the consignee has been advised and has had reasonable opportunity to remove
or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum
was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1,
1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser,
while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to
Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time
for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the
goods shipped either are lost or arrive in damaged condition, a presumption arises against the
carrier of its failure to observe that diligence, and there need not be an express finding of
negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals,
139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but these cases, enumerated
in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:

3. Costs. The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage between the consignee and the common carrier is similar to that of the consignee and the arrastre
Corporation. operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
SO ORDERED. (p. 207, Record).
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
Dissatisfied, defendant's recourse to US. ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.
The appeal is devoid of merit.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-
correct. As there is sufficient evidence that the shipment sustained damage while in the successive versa, nor that attendant facts in a given case may not vary the rule. The instant petition has
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able
it paid to the consignee. (pp. 87-89, Rollo.) to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual
finding of both the court a quo and the appellate court, we take note, is that "there is sufficient
The Court of Appeals thus affirmed in toto the judgment of the court evidence that the shipment sustained damage while in the successive possession of appellants"
a quo. (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines,
Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse liable with it.
of discretion on the part of the appellate court when
It is over the issue of legal interest adjudged by the appellate court that deserves more than just
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE a passing remark.
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN
THE QUESTIONED DECISION; Let us first see a chronological recitation of the major rulings of this Court:

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not
all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely
tack to.
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the
lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in
lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

36
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal
rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The
trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the
suit were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants
and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the
value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month
as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the
time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal
interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with
costs against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid.
When the appellate court's decision became final, the case was remanded to the lower court for
execution, and this was when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board
in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the
loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum.
This Circular shall take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any money, goods or credits does not
fall within the coverage of the said law for it is not within the ambit of the authority granted to
the Central Bank.
xxx xxx xxx
37
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action
for Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six
percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28
July 1986. The case was for damages occasioned by an injury to person and loss of property. The
trial court awarded private respondent Pedro Manabat actual and compensatory damages in the
amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification
of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision.
When taken to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing,
as We do hereby impose, upon the defendant and the third-party defendants (with the exception
of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos
to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of
this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall
be imposed upon aforementioned amounts from finality until paid. Solidary costs against the
defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular
No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or
credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA
160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant
case, there is neither a loan or a forbearance, but then no interest is actually imposed provided
the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the
payment of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total
sum, from the filing of the complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the
then Intermediate Appellate Court reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated
29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00
as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per
annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court,
while recognizing the right of the private respondent to recover damages, held the award,
however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably
large. The Court12 thus set aside the decision of the appellate court and rendered a new one,
"ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose
from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated
October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants,
except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts
stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate from the date of the filing of the complaint
until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the
trial court, and an entry of judgment was made. The writ of execution issued by the trial court
directed that only compensatory damages should earn interest at 6% per annum from the date
of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416]
does not apply to actions based on a breach of employment contract like the case at bar.
(Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from
the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner
to pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal
interest per annum under the Civil Code, the Court15 declared:
38
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits
but expropriation of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount of just compensation
for the properties expropriated is manifestly in the form of indemnity for damages for the delay
in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the
lower court sought to be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing the
12% interest per annum applies only to loans or forbearance16 of money, goods or credits, as well
as to judgments involving such loan or forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the transaction involves the payment of indemnities
in the concept of damage arising from the breach or a delay in the performance of obligations in
general. Observe, too, that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged
amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum,17depending on whether or not the amount involved is a loan or forbearance,
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be from
the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of
the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International v. IAC, introduced a different
time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the)
decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on
the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.20
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

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.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.22 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 116923 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 court24 at the rate
of 6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty.26 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.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED

39
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16598 October 3, 1921
H. E. HEACOCK COMPANY, plaintiff-appellant,
vs.
MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff-appellant.
Wolfson, Wolfson & Schwarzkopf for defendant-appellant.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum
of P240 together with interest thereon. The facts are stipulated by the parties, and are, briefly,
as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of
steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one of which
contained twelve (12) 8-day Edmond clocks properly boxed and marked for transportation to
Manila, and paid freight on said clocks from New York to Manila in advance. The said steampship
arrived in the port of Manila on or about the 10th day of September, 1919, consigned to the
defendant herein as agent and representative of said vessel in said port. Neither the master of
said vessel nor the defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve
8-day Edmond clocks, although demand was made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and
the market value of the same in the City of Manila at the time when they should have been
delivered to the plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castle contained, among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and
ad valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the
carrier shall not be liable for more than the net invoice price plus freight and insurance less all
charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and
the freight ton value thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on
the aforesaid clocks, and no ad valorem freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate
freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim,
which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment
in favor of the plaintiff against the defendant for the sum of P226.02, this being the invoice value
of the clocks in question plus the freight and insurance thereon, with legal interest thereon from
40
November 20, 1919, the date of the complaint, together with costs. From that judgment both
parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of
the clocks in question, to wit: the sum of P420. The defendant-appellant, on the other hand,
contends that, in accordance with clause 1 of the bill of lading, the plaintiff is entitled to recover
only the sum of P76.36, the proportionate freight ton value of the said clocks. The claim of the
plaintiff is based upon the argument that the two clause in the bill of lading above quoted, limiting
the liability of the carrier, are contrary to public order and, therefore, null and void. The defendant,
on the other hand, contends that both of said clauses are valid, and the clause 1 should have
been applied by the lower court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted
in the bill of lading, limit its liability for the loss of or damage to the cargo to an agreed valuation
of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence.
The second is one providing for an unqualified limitation of such liability to an agreed valuation.
And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and pays a higher rate of freight. According to an almost uniform weight
of authority, the first and second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February
13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr.,
124; 48 Am. Rep., 742) support the proposition that the first and second stipulations in a bill of
lading are invalid which either exempt the carrier from liability for loss or damage occasioned by
its negligence, or provide for an unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the
present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the
liability of the carrier to a certain amount unless the shipper declares a higher value and pays a
higher rate of freight, is valid and enforceable. This proposition is supported by a uniform lien of
decisions of the Supreme Court of the United States rendered both prior and subsequent to the
passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24,
1884; 112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921,
Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of
carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a valuation
of the property carried, with the rate of freight based on the condition that the carrier assumes
liability only to the extent of the agreed valuation, even in case of loss or damage by the
negligence of the carrier, the contract will be upheld as proper and lawful mode of securing a due
proportion between the amount for which the carrier may be responsible and the freight he
receives, and protecting himself against extravagant and fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from
the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep.,
151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup.
Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be the settled
Federal law that if a common carrier gives to a shipper the choice of two rates, the lower of the
conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the
carrier's negligence, if the shipper makes such a choice, understandingly and freely, and names
his valuation, he cannot thereafter recover more than the value which he thus places upon his
property. As a matter of legal distinction, estoppel is made the basis of this ruling, that, having
accepted the benefit of the lower rate, in common honesty the shipper may not repudiate the
conditions on which it was obtained, but the rule and the effect of it are clearly established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with
a shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than
the real value thereof, unless the shipper is given a choice of rates, based on valuation."
A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with
any sound principle of public policy; and it is not conformable to plain principles of justice that a
shipper may understate value in order to reduce the rate and then recover a larger value in case
of loss. (Adams Express Co. vs.Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C. C.
A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and Co.
(227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
contract. "A written contract should, in case of doubt, be interpreted against the party who has
drawn the contract." (6 R. C. L. 854.) It is a well-known principle of construction that ambiguity
or uncertainty in an agreement must be construed most strongly against the party causing it. (6
R. C. L., 855.) These rules as applicable to contracts contained in bills of lading. "In construing a
bill of lading given by the carrier for the safe transportation and delivery of goods shipped by a
consignor, the contract will be construed most strongly against the carrier, and favorably to the
consignor, in case of doubt in any matter of construction." (Alabama, etc. R. R. Co. vs. Thomas,
89 Ala., 294; 18 Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed, without
any finding as to costs. So ordered.
Araullo, street, Avancea and Villamor, JJ., concur.

It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here
in question are not contrary to public order. Article 1255 of the Civil Code provides that "the
contracting parties may establish any agreements, terms and conditions they may deem advisable,
provided they are not contrary to law, morals or public order." Said clauses of the bill of lading
are, therefore, valid and binding upon the parties thereto.

II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the
bill of lading here in question is to be adopted as the measure of defendant's liability. Clause 1
provides as follows:

1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and
ad valorem freight paid thereon. Clause 9 provides:

9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the
carrier shall not be liable for more than the net invoice price plus freight and insurance less all
charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.

The defendant-appellant contends that these two clauses, if construed together, mean that the
shipper and the carrier stipulate and agree that the value of the goods receipted for does not
exceed $500 per freight ton, but should the invoice value of the goods be less than $500 per
freight ton, then the invoice value governs; that since in this case the invoice value is more than
$500 per freight ton, the latter valuation should be adopted and that according to that valuation,
the proportionate value of the clocks in question is only P76.36 which the defendant is ready and
willing to pay to the plaintiff.

It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in
case of loss on the basis of not exceeding $500 per freight ton, clause 9 contains
an express undertaking to settle on the basis of the net invoice price plus freight and insurance
less all charges saved. "Any loss or damage for which the carrier may be liable shall be
adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us that there is an
irreconcilable conflict between the two clauses with regard to the measure of defendant's liability.
It is difficult to reconcile them without doing violence to the language used and reading exceptions
and conditions into the undertaking contained in clause 9 that are not there. This being the case,
the bill of lading in question should be interpreted against the defendant carrier, which drew said

41
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20099 July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee,
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted
an action to recover damages suffered by him due to the alleged failure of defendant-appellant
Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his
luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the
appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary damages, P150.00
as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court
by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with
legal interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award
of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court
on a question of law, assigning two errors allegedly committed by the lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the
tariff regulations filed by defendant-appellant with the civil aeronautics board and the conditions
of carriage printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-
appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger
with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound
for Manila; that defendant is a common carrier engaged in air line transportation in the Philippines,
offering its services to the public to carry and transport passengers and cargoes from and to
different points in the Philippines; that on the above-mentioned date of November 23, 1959, he
checked in three (3) pieces of baggages a suitcase and two (2) other pieces; that the suitcase
was mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check
No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in Manila
on the date of November 23, 1959, his suitcase did not arrive with his flight because it was sent
to Iligan. So, he made a claim with defendant's personnel in Manila airport and another suitcase
similar to his own which was the only baggage left for that flight, the rest having been claimed
and released to the other passengers of said flight, was given to the plaintiff for him to take
delivery but he did not and refused to take delivery of the same on the ground that it was not his,
alleging that all his clothes were white and the National transistor 7 and a Rollflex camera were
not found inside the suitcase, and moreover, it contained a pistol which he did not have nor placed
42
inside his suitcase; that after inquiries made by defendant's personnel in Manila from different
airports where the suitcase in question must have been sent, it was found to have reached Iligan
and the station agent of the PAL in Iligan caused the same to be sent to Manila for delivery to Mr.
Shewaram and which suitcase belonging to the plaintiff herein arrived in Manila airport on
November 24, 1959; that it was also found out that the suitcase shown to and given to the plaintiff
for delivery which he refused to take delivery belonged to a certain Del Rosario who was bound
for Iligan in the same flight with Mr. Shewaram; that when the plaintiff's suitcase arrived in Manila
as stated above on November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting
station agent of the Manila airport of the arrival of his suitcase but of course minus his Transistor
Radio 7 and the Rollflex Camera; that Shewaram made demand for these two (2) items or for the
value thereof but the same was not complied with by defendant.
xxx xxx xxx
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The
tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase
arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff had
it under key when he delivered the suitcase to defendant's personnel in Zamboanga City.
Moreover, it was established during the hearing that there was space in the suitcase where the
two items in question could have been placed. It was also shown that as early as November 24,
1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that check
of the things inside his suitcase be made and defendant admitted that the two items could not be
found inside the suitcase. There was no evidence on record sufficient to show that plaintiff's
suitcase was never opened during the time it was placed in defendant's possession and prior to
its recovery by the plaintiff. However, defendant had presented evidence that it had authority to
open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the defendant
would show that the baggage that was offered to plaintiff as his own was opened and the plaintiff
denied ownership of the contents of the baggage. This proven fact that baggage may and could
be opened without the necessary authorization and presence of its owner, applied too, to the
suitcase of plaintiff which was mis-sent to Iligan City because of mistagging. The possibility of
what happened in the baggage of Mr. Del Rosario at the Manila Airport in his absence could have
also happened to plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the Court
believes that these two items were really in plaintiff's suitcase and defendant should be held liable
for the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court had
found that the suitcase of the appellee was tampered, and the transistor radio and the camera
contained therein were lost, and that the loss of those articles was due to the negligence of the
employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the
camera cost P176.00, so the total value of the two articles was P373.00.
There is no question that the appellant is a common carrier.1 As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by it according to the circumstances of each case. 2 It having been shown that the
loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the
negligence of the employees of the appellant, it is clear that the appellant should be held liable
for the payment of said loss.3
It is, however, contended by the appellant that its liability should be limited to the amount stated
in the conditions of carriage printed at the back of the plane ticket stub which was issued to the
appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with
the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the
appellant in this case provides as follows:
The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is
limited to its value and, unless the passenger declares in advance a higher valuation and pay an
additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for each
ticket.
The appellant maintains that in view of the failure of the appellee to declare a higher value for his
luggage, and pay the freight on the basis of said declared value when he checked such luggage
at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand
payment from the appellant of an amount in excess of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code which
provides as follows:
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 accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary
liability of a common carrier may, by contract, be limited to a fixed amount. 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 Article 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 before us We believe that
the requirements of said article have not been met. It can not be said that the appellee had
actually entered into a contract with the appellant, embodying the conditions as printed at the
back of the ticket stub that was issued by the appellant to the appellee. The fact that those
conditions are printed at the back of the ticket stub in letters so small that they are hard to read
would not warrant the presumption that the appellee was aware of those conditions such that he
had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its
decision that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff
herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that
the appellee is not, and can not be, bound by the conditions of carriage found at the back of the
ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles
1734 and 1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries 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, 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.
43
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733.
It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the liability
of the appellant is clear it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or
loss of goods shipped where such injury or loss was caused by its own negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot
lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and
unless the contract is freely and fairly made. No contractual limitation is reasonable which is
subversive of public policy.
"Par. 195. 7. What Limitations of Liability Permissible. a. Negligence (1) Rule in America
(a) In Absence of Organic or Statutory Provisions Regulating Subject aa. Majority Rule. In
the absence of statute, it is settled by the weight of authority in the United States, that whatever
limitations against its common-law liability are permissible to a carrier, it cannot limit its liability
for injury to or loss of goods shipped, where such injury or loss is caused by its own negligence.
This is the common law doctrine and it makes no difference that there is no statutory prohibition
against contracts of this character.
"Par. 196. bb. Considerations on which Rule Based. The rule, it is said, rests on considerations
of public policy. The undertaking is to carry the goods, and to relieve the shipper from all liability
for loss or damage arising from negligence in performing its contract is to ignore the contract
itself. The natural effect of a limitation of liability against negligence is to induce want of care on
the part of the carrier in the performance of its duty. The shipper and the common carrier are not
on equal terms; the shipper must send his freight by the common carrier, or not at all; he is
therefore entirely at the mercy of the carrier unless protected by the higher power of the law
against being forced into contracts limiting the carrier's liability. Such contracts are wanting in the
element of voluntary assent.
"Par. 197. cc. Application and Extent of Rule (aa) Negligence of Servants. The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that of
its servants; and it has been specifically decided in many cases that no contract limitation will
relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its
employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P. and Sanchez,
JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-40597 June 29, 1979
AGUSTINO B. ONG YIU, petitioner,
vs.
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim
for damages for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines,
Inc. (PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was
scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First
Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked
in one piece of luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh.
"A"). The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi
airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed
his luggage but it could not be found. According to petitioner, it was only after reacting indignantly
to the loss that the matter was attended to by the porter clerk, Maximo Gomez, which, however,
the latter denies, At about 3:00 o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring
about the missing luggage, which message was, in turn relayed in full to the Mactan Airport
teletype operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been transmitted to
Manila immediately, for at 3:59 that same afternoon, PAL Manila wired PAL Cebu advising that
the luggage had been over carried to Manila aboard Flight No. 156 and that it would be forwarded
to Cebu on Flight No. 345 of the same day. Instructions were also given that the luggage be
immediately forwarded to Butuan City on the first available flight (Exh. "3"). At 5:00 P.M. of the
same afternoon, PAL Cebu sent a message to PAL Butuan that the luggage would be forwarded
on Fright No. 963 the following day, August 27, 196'(. However, this message was not received
by PAL Butuan as all the personnel had already left since there were no more incoming flights
that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu
demanding the delivery of his baggage before noon the next day, otherwise, he would hold PAL
liable for damages, and stating that PAL's gross negligence had caused him undue inconvenience,
worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu
PAL supervisor but the latter felt no need to wire petitioner that his luggage had already been
forwarded on the assumption that by the time the message reached Butuan City, the luggage
would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to
inquire about his luggage. He did not wait, however, for the morning flight which arrived at 10:00
o'clock that morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez,
paged petitioner, but the latter had already left. A certain Emilio Dagorro a driver of a "colorum"
car, who also used to drive for petitioner, volunteered to take the luggage to petitioner. As Maximo
Gomez knew Dagorro to be the same driver used by petitioner whenever the latter was in Butuan
City, Gomez took the luggage and placed it on the counter. Dagorro examined the lock, pressed
44
it, and it opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez
took a look at its contents, but did not touch them. Dagorro then delivered the "maleta" to
petitioner, with the information that the lock was open. Upon inspection, petitioner found that a
folder containing certain exhibits, transcripts and private documents in Civil Case No. 1005 and
Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner
refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo Gomez, who sealed
it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss
of his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to
Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu,
petitioner called attention to his telegram (Exh. "D"), demanded that his luggage be produced
intact, and that he be compensated in the sum of P250,000,00 for actual and moral damages
within five days from receipt of the letter, otherwise, he would be left with no alternative but to
file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's
office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the
contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of
the investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager,
Southern Philippines.
First of all, may we apologize for the delay in informing you of the result of our investigation since
we visited you in your office last August 31, 1967. Since there are stations other than Cebu which
are involved in your case, we have to communicate and await replies from them. We regret to
inform you that to date we have not found the supposedly lost folder of papers nor have we been
able to pinpoint the personnel who allegedly pilferred your baggage.
You must realize that no inventory was taken of the cargo upon loading them on any plane.
Consequently, we have no way of knowing the real contents of your baggage when same was
loaded.
We realized the inconvenience you encountered of this incident but we trust that you will give us
another opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu
(Exhibit G, Folder of Exhibits) 1
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of
contract of transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil
Case No. R-10188, which PAL traversed. After due trial, the lower Court found PAL to have acted
in bad faith and with malice and declared petitioner entitled to moral damages in the sum of
P80,000.00, exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the
sum of P80,000.00 as moral damages; and defendant because of the unfavorable judgment
rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but
ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the
following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY
OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF
TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW WHEN
IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL
DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND
P5,000.00 REPRESENTING ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO
COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS
OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question
is the correctness of respondent Court's conclusion that there was no gross negligence on the
part of PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to an
award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith.
Bad faith means a breach of a known duty through some motive of interest or ill will. 2 It was the
duty of PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence
in complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had
exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith
because PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same afternoon,
despite plaintiff's indignation for the non-arrival of his baggage. The message was sent within less
than one hour after plaintiff's luggage could not be located. Efforts had to be exerted to locate
plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers and to the
outgoing passengers. Certainly, no evidence of bad faith can be inferred from these facts. Cebu
office immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59 P.M.,
Manila station agent at the domestic airport wired Cebu that the baggage was over carried to
Manila. And this message was received in Cebu one minute thereafter, or at 4:00 P.M. The
baggage was in fact sent back to Cebu City that same afternoon. His Honor stated that the fact
45
that the message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at 4:00
P.M., or within one minute, made the message appear spurious. This is a forced reasoning. A
radio message of about 50 words can be completely transmitted in even less than one minute
depending upon atmospheric conditions. Even if the message was sent from Manila or other
distant places, the message can be received within a minute. that is a scientific fact which cannot
be questioned. 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith,
The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The
PAL supervisor at Mactan Airport was notified of it only in the morning of the following day. At
that time the luggage was already to be forwarded to Butuan City. There was no bad faith,
therefore, in the assumption made by said supervisor that the plane carrying the bag would arrive
at Butuan earlier than a reply telegram. Had petitioner waited or caused someone to wait at the
Bancasi airport for the arrival of the morning flight, he would have been able to retrieve his
luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to
moral damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232
of the Civil Code, exemplary damages can be granted if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this
connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL
for the loss, in accordance with the stipulation written on the back of the ticket, Exhibit 12, is
limited to P100.00 per baggage, plaintiff not having declared a greater value, and not having
called the attention of the defendant on its true value and paid the tariff therefor. The validity of
this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big
letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL from
Cebu to Butuan City and back, and he, being a lawyer and businessman, must be fully aware of
these conditions. 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation
in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and additional
charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less did
he pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750* of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation". 5 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. 6 And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an
agreed valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence.

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00.Besides, passengers are advised not to place
valuable items inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise
to be noted that there is nothing in the evidence to show the actual value of the goods allegedly
lost by petitioner.

There is another matter involved, raised as an error by PAL the fact that on October 24, 1974
or two months after the promulgation of the Decision of the appellate Court, petitioner's widow
filed a Motion for Substitution claiming that petitioner died on January 6, 1974 and that she only
came to know of the adverse Decision on October 23, 1974 when petitioner's law partner informed
her that he received copy of the Decision on August 28, 1974. Attached to her Motion was an
Affidavit of petitioner's law partner reciting facts constitutive of excusable negligence. The
appellate Court noting that all pleadings had been signed by petitioner himself allowed the widow
"to take such steps as she or counsel may deem necessary." She then filed a Motion for
Reconsideration over the opposition of PAL which alleged that the Court of Appeals Decision,
promulgated on August 22, 1974, had already become final and executory since no appeal had
been interposed therefrom within the reglementary period.

Under the circumstances, considering the demise of petitioner himself, who acted as his own
counsel, it is best that technicality yields to the interests of substantial justice. Besides, in the 'last
analysis, no serious prejudice has been caused respondent PAL.

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are
not erroneous.

WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to
be reviewed hereby affirmed in toto.

No costs.

SO ORDERED.

46
 Republic of the Philippines H-1). The two luggages contained the promotional and advertising materials, the clutch bags,
SUPREME COURT barong tagalog and his personal belongings. Subsequently, Pangan was informed that his name
Manila was not in the manifest and so he could not take Flight No. 842 in the economy class. Since there
THIRD DIVISION was no space in the economy class, plaintiff Pangan took the first class because he wanted to be
G.R. No. 70462 August 11, 1988 on time in Guam to comply with his commitment, paying an additional sum of $112.00.
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs. When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS arrive with his flight, as a consequence of which his agreements with Slutchnick and Quesada for
PRODUCTIONS and ARCHER PRODUCTIONS, respondents. the exhibition of the films in Guam and in the United States were cancelled (Exh. L). Thereafter,
Guerrero & Torres for petitioner. he filed a written claim (Exh. J) for his missing luggages.
Jose B. Layug for private respondents.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of the
CORTES, J.:
defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost plaintiff Pangan that his grievances would be investigated and given its immediate consideration
baggage, containing promotional and advertising materials for films to be exhibited in Guam and (Exhs. N, P and R). Due to the defendant's failure to communicate with Pangan about the action
the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the taken on his protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record On
airline ticket absent a declaration of a higher valuation and the payment of additional charges. Appeal). [Rollo, pp. 27-29.]

The undisputed facts of the case, as found by the trial court and adopted by the appellate court, On the basis of these facts, the Court of First Instance found petitioner liable and rendered
are as follows: judgment as follows:

On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang (1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
Bastos and Archer Production while in San Francisco, Califonia and Primo Quesada of Prime Films, P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from
San Francisco, California, entered into an agreement (Exh. A) whereby the former, for and in December 6, 1978, when the complaint was filed, until the same is fully paid, plus the further sum
consideration of the amount of US $2,500.00 per picture, bound himself to supply the latter with of P10,000.00 as attorney's fees;
three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum
'Kambal Dragon' for exhibition in the United States. It was also their agreement that plaintiffs
of P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per annum
would provide the necessary promotional and advertising materials for said films on or before May
from December 6, 1978, until the same is fully paid;
30, 1978.
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo
Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement (4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-
with Slutchnick for the exhibition of two of the films above-mentioned at the Hafa Adai Theater in 107.]
Guam on May 30, 1978 for the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979).
Plaintiff Pangan undertook to provide the necessary promotional and advertising materials for said On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
films on or before the exhibition date on May 30,1978.
Hence, the instant recourse to this Court by petitioner.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite
promotional handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B- The petition was given due course and the parties, as required, submitted their respective
1, C and C1). Likewise in preparation for his trip abroad to comply with his contracts, plaintiff memoranda. In due time the case was submitted for decision.
Pangan purchased fourteen clutch bags, four capiz lamps and four barong tagalog, with a total
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following
value of P4,400.00 (Exhs. D, D-1, E, and F).
errors:
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the
1. The respondent court erred as a matter of law in affirming the trial court's award of actual
Your Travel Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage
damages beyond the limitation of liability set forth in the Warsaw Convention and the contract of
from Manila to Guam on defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff
carriage.
of the regular fare. The Your Travel Guide is a tour and travel office owned and managed by
plaintiffs witness Mila de la Rama. 2. The respondent court erred as a matter of law in affirming the trial court's award of actual
damages consisting of alleged lost profits in the face of this Court's ruling concerning special or
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket
consequential damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
counter at the Manila International Airport and presented his ticket and checked in his two
luggages, for which he was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and The assigned errors shall be discussed seriatim

47
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the
country of departure the Warsaw Convention may be applicable and the Convention governs and
in most cases limits the liability of carriers for death or personal injury and in respect of loss of or
damage to baggage. See also notice headed "Advice to International Passengers on Limitation of
Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which these
conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier" means
all air carriers that carry or undertake to carry the passenger or his baggage hereunder or perform
any other service incidental to such air carriage. "WARSAW CONVENTION" means the convention
for the Unification of Certain Rules Relating to International Carriage by Air signed at Warsaw,
12th October 1929, or that Convention as amended at The Hague, 28th September 1955,
whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability established by the
Warsaw Convention unless such carriage is not "international carriage" as defined by that
Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's
conditions of carriage and related regulations which are made part hereof (and are available on
application at the offices of carrier), except in transportation between a place in the United States
or Canada and any place outside thereof to which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared
in advance and additional charges are paid: (1)for most international travel (including domestic
portions of international journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked
baggage and $400 per passenger for unchecked baggage: (2) for travel wholly between U.S.
points, to $750 per passenger on most carriers (a few have lower limits). Excess valuation may
not be declared on certain types of valuable articles. Carriers assume no liability for fragile or
perishable articles. Further information may be obtained from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends
that its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x
30 kilos) as the latter did not declare a higher value for his baggage and pay the corresponding
additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-
40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed
stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a
specified amount and ruled that the carrier's liability was limited to said amount since the
passenger did not declare a higher value, much less pay additional charges.
48
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court,
through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation
in excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00 and additional
charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less (lid
he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750 * of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d
400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So.
2d 634.] It is what is known as a contract of "adhesion," in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract on the other, as
the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent,[Tolentino,
Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31,
1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878;
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an
agreed valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2,
1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a
specified amount was invalid, finds no application in the instant case, as the ruling in said case
was premised on the finding that the conditions printed at the back of the ticket were so small
and hard to read that they would not warrant the presumption that the passenger was aware of
the conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts
that would make the case fall under the exception have not been alleged, much less shown to
exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00,
as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state
that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R.
No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw
Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases of
contractual breach of carriage ** is against public policy" is utterly misplaced, to say the least. In
said case, while the Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of
death of a passenger or injury suffered by him, or of destruction or loss of, or damages to any
checked baggage or any goods, or of delay in the transportation by air of passengers, baggage
or goods. This pretense is not borne out by the language of said Articles. The same merely declare
the carrier liable for damages in enumerated cases, if the conditions therein specified are present.
Neither said provisions nor others in the aforementioned Convention regulate or exclude liability
for other breaches of contract by the carrier. Under petitioner's theory, an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply
with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the ground that the lower
court has erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to
transportation by air is not in force in the Philippines: (2) in not holding that respondent has no
cause of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error because the same is the basis
of the second assignment of error, and the latter is devoid of merit, even if we assumed the
former to be well taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the
validity of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination
may said quotation from Northwest be considered as supportive of the appellate court's statement
that the provisions of the Warsaw Convention limited a carrier's liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the
Court of Appeals, awarding private respondents damages as and for lost profits when their
contracts to show the films in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held
liable only for damages that were foreseen or might have been foreseen at the time the contract
of transportation was entered into. The trial court correctly found that the defendant company
could not have foreseen the damages that would be suffered by Mendoza upon failure to deliver
the can of film on the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit
that film during the town fiesta and his preparations, specially the announcement of said exhibition
by posters and advertisement in the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration.
In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York,
delivered motion picture films to the defendant Fargo, an express company, consigned and to be
delivered to him in Utica. At the time of shipment the attention of the express company was called
to the fact that the shipment involved motion picture films to be exhibited in Utica, and that they
should be sent to their destination, rush. There was delay in their delivery and it was found that
the plaintiff because of his failure to exhibit the film in Utica due to the delay suffered damages
49
or loss of profits. But the highest court in the State of New York refused to award him special
damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of profits
on account of delay or failure of delivery, it must have appeared that he had notice at the time of
delivery to him of the particular circumstances attending the shipment, and which probably would
lead to such special loss if he defaulted. Or, as the rule has been stated in another form, in order
to purpose on the defaulting party further liability than for damages naturally and directly, i.e., in
the ordinary course of things, arising from a breach of contract, such unusual or extraordinary
damages must have been brought within the contemplation of the parties as the probable result
of breach at the time of or prior to contracting. Generally, notice then of any special circumstances
which will show that the damages to be anticipated from a breach would be enhanced has been
held sufficient for this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that
the attention of the common carrier in said case was called to the nature of the articles shipped,
the purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in
the present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing
that petitioner's attention was called to the special circumstances requiring prompt delivery of
private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an eventuality when it accepted
the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down
in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages
based on the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the
exhibition of the films in Guam and California were cancelled because of the loss of the two
luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to deliver the promotional
and advertising materials on the dates agreed upon. For this petitioner cannot be held liable.
Private respondent Pangan had not declared the value of the two luggages he had checked in and
paid additional charges. Neither was petitioner privy to respondents' contracts nor was its
attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket,
the award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to
satisfy private respondent's just and valid claim, loses support and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate
Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay private respondents
damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual
payment.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin JJ., concur.
Gutierrez, Jr., J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 60501. March 5, 1993.
CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L.
ALCANTARA, respondents.
Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner.
Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS
CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS
LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner breached its contract of carriage
with private respondent when it failed to deliver his luggage at the designated place and time, it
being the obligation of a common carrier to carry its passengers and their luggage safely to their
destination, which includes the duty not to delay their transportation, and the evidence shows
that petitioner acted fraudulently or in bad faith.
2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT
OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF
A PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT
OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE GRANT OF MORAL
AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages predicated upon a breach of
contract of carriage may only be recoverable in instances where the mishap results in death of a
passenger, or where the carrier is guilty of fraud or bad faith. The language and conduct of
petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify
the grant of moral damages. The CATHAY representative was not only indifferent and impatient;
he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even
that was not sincere because the representative knew that the passenger was limited only to
$20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an
executive conference. Considering that Alcantara was not only a revenue passenger but even paid
for a first class airline accommodation and accompanied at the time by the Commercial Attache
of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should
have been more courteous and accommodating to private respondent, instead of giving him a
curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can
buy anything you need, charged to Cathay Pacific." Where in breaching the contract of carriage
the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages
is limited to the natural and probable consequences of the breach of obligation which the parties
had foreseen or could have reasonably foreseen. In that case, such liability does not include moral
and exemplary damages. Conversely, if the defendant airline is shown to have acted fraudulently
or in bad faith, the award of moral and exemplary damages is proper.
3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED
SOME PECUNIARY LOSS. However, respondent Alcantara is not entitled to temperate damages,
contrary to the ruling of the court a quo, in the absence of any showing that he sustained some
pecuniary loss. It cannot be gainsaid that respondent's luggage was ultimately delivered to him
without serious or appreciable damage.
4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE
INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR
AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE
50
OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We have repeatedly held,
although the Warsaw Convention has the force and effect of law in this country, being a treaty
commitment assumed by the Philippine government, said convention does not operate as an
exclusive enumeration of the instances for declaring a carrier liable for breach of contract of
carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares the
carrier liable for damages in the enumerated cases and under certain limitations. However, it must
not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for violating the rights of its
passengers under the contract of carriage, especially if wilfull misconduct on the part of the
carrier's employees is found or established, which is clearly the case before Us.
DECISION
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed
with modification that of the trial court by increasing the award of damages in favor of private
respondent Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class
passenger of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900
from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The
purpose of his trip was to attend the following day, 20 October 1975, a conference with the
Director General of Trade of Indonesia, Alcantara being the Executive Vice-President and General
Manager of Iligan Cement Corporation, Chairman of the Export Committee of the Philippine
Cement Corporation, and representative of the Cement Industry Authority and the Philippine
Cement Corporation. He checked in his luggage which contained not only his clothing and articles
for personal use but also papers and documents he needed for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired
about his luggage from CATHAY's representative in Jakarta, private respondent was told that his
luggage was left behind in Hongkong. For this, respondent Alcantara was offered $20.00 as
"inconvenience money" to buy his immediate personal needs until the luggage could be delivered
to him.
His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However,
it was not delivered to him at his hotel but was required by petitioner to be picked up by an official
of the Philippine Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the Court of First Instance
(now Regional Trial Court) of Lanao del Norte praying for temperate, moral and exemplary
damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00
for moral damages, P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and
P25,000.00 for attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court
that it was accountable for breach of contract and questioned the non-application by the court of
the Warsaw Convention as well as the excessive damages awarded on the basis of its finding that
respondent Alcantara was rudely treated by petitioner's employees during the time that his
luggage could not be found. For his part, respondent Alcantara assigned as error the failure of
the trial court to grant the full amount of damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings
of fact of the trial court but modifying its award by increasing the moral damages to P80,000.00,
exemplary damages to P20,000.00 and temperate or moderate damages to P10,000.00. The
award of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY
contends that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara
for moral, exemplary and temperate damages as well as attorney's fees; and, (2) the Court of
Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its
passengers.
On its first assigned error, CATHAY argues that although it failed to transport respondent
Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify moral,
exemplary and temperate damages. It submits that the conclusion of respondent appellate court
that private respondent was treated rudely and arrogantly when he sought assistance from
CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to stand
on.
Petitioner's first assigned error involves findings of fact which are not reviewable by this Court. 2
At any rate, it is not impressed with merit. Petitioner breached its contract of carriage with private
respondent when it failed to deliver his luggage at the designated place and time, it being the
obligation of a common carrier to carry its passengers and their luggage safely to their destination,
which includes the duty not to delay their transportation, 3 and the evidence shows that petitioner
acted fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of
fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly
negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place
and time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage
on board the first aircraft bound for Jakarta were unloaded and transferred to the second aircraft
which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not
even aware that it left behind private respondent's luggage until its attention was called by the
Hongkong Customs authorities. More, bad faith or otherwise improper conduct may be attributed
to the employees of petitioner. While the mere failure of CATHAY to deliver respondent's luggage
at the agreed place and time did not ipso facto amount to willful misconduct since the luggage
was eventually delivered to private respondent, albeit belatedly, 6 We are persuaded that the
employees of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma, Commercial
Attache of the Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter
sought assistance from the employees of CATHAY. This deposition was the basis of the findings
of the lower courts when both awarded moral damages to private respondent. Hereunder is part
of Palma's testimony
"Q: What did Mr. Alcantara say, if any?
A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the
experience because probably he was thinking he was going to meet the Director-General the
following day and, well, he was with no change of proper clothes and so, I would say, he was not
happy about the situation.
Q: What did Mr. Alcantara say?
51
A: He was trying to press the fellow to make the report and if possible make the delivery of his
baggage as soon as possible.
Q: And what did the agent or duty officer say, if any?
A: The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I
cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to Cathay
Pacific.'
Q: What was the demeanor or comportment of the duty officer of Cathay Pacific when he said to
Mr. Alcantara 'You can buy anything chargeable to Cathay Pacific'?
A: If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as
possible by saying indifferently 'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's
representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of
moral damages. The CATHAY representative was not only indifferent and impatient; he was also
rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was
not sincere because the representative knew that the passenger was limited only to $20.00 which,
certainly, was not enough to purchase comfortable clothings appropriate for an executive
conference. Considering that Alcantara was not only a revenue passenger but even paid for a first
class airline accommodation and accompanied at the time by the Commercial Attache of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have
been more courteous and accommodating to private respondent, instead of giving him a curt
reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy
anything you need, charged to Cathay Pacific." CATHAY's employees should have been more
solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To compound
matters, CATHAY refused to have the luggage of Alcantara delivered to him at his hotel; instead,
he was required to pick it up himself and an official of the Philippine Embassy. Under the
circumstances, it is evident that petitioner was remiss in its duty to provide proper and adequate
assistance to a paying passenger, more so one with first class accommodation.
Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of obligation which the parties had foreseen or could have reasonably
foreseen. In that case, such liability does not include moral and exemplary damages. 8 Conversely,
if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral
and exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of
the court a quo, in the absence of any showing that he sustained some pecuniary loss. 9 It cannot
be gainsaid that respondent's luggage was ultimately delivered to him without serious or
appreciable damage.
As regards its second assigned error, petitioner airline contends that the extent of its liability for
breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We
do not agree. As We have repeatedly held, although the Warsaw Convention has the force and
effect of law in this country, being a treaty commitment assumed by the Philippine government,
said convention does not operate as an exclusive enumeration of the instances for declaring a
carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability.
10 The Warsaw Convention declares the carrier liable for damages in the enumerated cases and
under certain limitations. 11 However, it must not be construed to preclude the operation of the
Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its passengers under the contract of carriage, 12
especially if wilfull misconduct on the part of the carrier's employees is found or established, which
is clearly the case before Us. For, the Warsaw Convention itself provides in Art. 25 that

"(1) The carrier shall not be entitled to avail himself of the provisions of this convention which
exclude or limit his liability, if the damage is caused by his wilfull misconduct or by such default
on his part as, in accordance with the law of the court to which the case is submitted, is considered
to be equivalent to wilfull misconduct."

(2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage
is caused under the same circumstances by any agent of the carrier acting within the scope of his
employment."

When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at
the appointed place and time, some special species of injury must have been caused to him. For
sure, the latter underwent profound distress and anxiety, and the fear of losing the opportunity
to fulfill the purpose of his trip. In fact, for want of appropriate clothings for the occasion brought
about by the delay of the arrival of his luggage, to his embarrassment and consternation
respondent Alcantara had to seek postponement of his pre-arranged conference with the Director
General of Trade of the host country.

In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety
and shock when he finds that his luggage did not travel with him and he finds himself in a foreign
land without any article of clothing other than what he has on.

Thus, respondent is entitled to moral and exemplary damages. We however find the award by the
Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount to
P30,000.00. The exemplary damages of P20,000.00 being reasonable is maintained, as well as
the attorney's fees of P25,000.00 considering that petitioner's act or omission has compelled
Alcantara to litigate with third persons or to incur expenses to protect his interest. 14

WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the
exception of the award of temperate damages of P10,000.00 which is deleted, while the award of
moral damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for exemplary
damages is maintained as reasonable together with the attorney's fees of P25,000.00. The moral
and exemplary damages shall earn interest at the legal rate from 1 March 1976 when the
complaint was filed until full payment.

SO ORDERED.

Cruz, Grio-Aquino and Quiason, JJ ., concur.

52