[G.R. No. 149038.

April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS SHIPPING COMPANY, respondent.

DECISION

VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping Company (PKS Shipping) for the shipment to Tacloban
City of seventy-five thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the
goods for its full value with petitioner Philippine American General Insurance Company (Philamgen). The goods were loaded aboard the dumb
barge Limar I belonging to PKS Shipping. On the evening of 22 December 1988, about nine oclock, while Limar I was being towed by respondents
tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo
of 75,000 bags of cement.

DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly made payment; it then sought reimbursement from
PKS Shipping of the sum paid to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the Makati
RTC.

The RTC dismissed the complaint after finding that the total loss of the cargo could have been caused either by a fortuitous event, in which case the ship
owner was not liable, or through the negligence of the captain and crew of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by abandoning, as it apparently so did, the vessel with all her equipment and earned
freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the trial court. The appellate court ruled that evidence
to establish that PKS Shipping was a common carrier at the time it undertook to transport the bags of cement was wanting because the peculiar
method of the shipping companys carrying goods for others was not generally held out as a business but as a casual occupation. It then concluded that
PKS Shipping, not being a common carrier, was not expected to observe the stringent extraordinary diligence required of common carriers in the care of
goods. The appellate court, moreover, found that the loss of the goods was sufficiently established as having been due to fortuitous event, negating any
liability on the part of PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent error in ruling that PKS Shipping is not a common carrier and
that it is not liable for the loss of the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such carrier can be held exempt for the loss of the cargo would be if the loss were
caused by natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the Philippine area of responsibility and that, even if it
did, respondent would not be exempt from liability because its employees, particularly the tugmaster, have failed to exercise due diligence to prevent
or minimize the loss.

PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of both
courts find support from the evidence and applicable jurisprudence.

The determination of possible liability on the part of PKS Shipping boils down to the question of whether it is a private carrier or a common carrier and, in
either case, to the other question of whether or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.

The findings of fact made by the Court of Appeals, particularly when such findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of Court.[1] The conclusions derived from those factual findings, however, are not
necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a requisite appreciation of the applicable law. In such
instances, the conclusions made could well be raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether a
carrier is private or common on the basis of the facts found by a trial court or the appellate court can be a valid and reviewable question of law.

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air for compensation, offering their services to the public.

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it defines public service to be

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

The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs. Court of Appeals.[2] Applying Article 1732 of the Code,
in conjunction with Section 13(b) of the Public Service Act, this Court has held:

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does
such carrying only as an ancillary activity (in local idiom, as `a sideline). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the `general public, i.e., the general community or population, and
one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1732 deliberately refrained from
making such distinctions.

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

Much of the distinction between a common or public carrier and a private or special carrier lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or occupation, and the carrier does not hold itself out to carry the goods for the general
public or to a limited clientele, although involving the carriage of goods for a fee,[3] the person or corporation providing such service could very well be
just a private carrier. A typical case is that of a charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the
charterer obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages[4] and gets the control of the vessel and its
crew.[5] Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods for a fee. The regularity of its activities in this area indicates
more than just a casual activity on its part.[6] Neither can the concept of a common carrier change merely because individual contracts are executed
or entered into with patrons of the carrier. Such restrictive interpretation would make it easy for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with clients.

Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or deterioration
of goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them.[7] The
provisions of Article 1733, notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of the goods due to any of the
following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers; and

(5) Order or act of competent public authority.[8]

The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective vessel masters of Limar I and MT Iron Eagle, that
there was no way by which the barges or the tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by waves of
extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the entry of water into the barges hatches. The official
Certificate of Inspection of the barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to the seaworthiness
of Limar I and should strengthen the factual findings of the appellate court.

Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized exceptions from the rule - (1) when the factual findings of
the Court of Appeals and the trial court are contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is
a grave abuse of discretion in the appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of the case and
such findings are contrary to the admissions of both appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record would appear to be clearly extant in this instance.

All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for the loss of the DUMC cargo.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.
[G.R. No. 131166. September 30, 1999]

CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAEZAL AND SOTERA E. CAEZAL, respondents.

DECISION
PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no
one could have guessed that it would collide with MV Doa Paz, killing almost all the passengers and crew members of both ships, and thus resulting in
one of the countrys worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision[1]holding petitioner jointly liable with the operator of MT Vector for damages when
the latter collided with Sulpicio Lines, Inc.s passenger ship MV Doa Paz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum
products shipped by petitioner Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the
business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on board
gasoline and other oil products owned by Caltex by virtue of a charter contract between them.[3]

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban headed for Manila with a complement of 59 crew
members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance.[4] The MV Doa Paz is a
passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/
Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident.

The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy after having
been rescued from the burning waters by vessels that responded to distress calls.[5] Among those who perished were public school teacher Sebastian
Caezal (47 years old) and his daughter Corazon Caezal (11 years old), both unmanifested passengers but proved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its registered operator Francisco
Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doa Paz.[6]

On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother respectively, filed with the Regional Trial Court, Branch 8,
Manila, a complaint for Damages Arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third
party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector
with gross and evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation;
as a result, it rammed against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.

On September 15, 1992, the trial court rendered decision dismissing the third party complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal, including loss of future earnings of said Sebastian, moral and
exemplary damages, attorneys fees, in the total amount of P 1,241,287.44 and finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.

ARSENIO M. GONONG

Judge[7]

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal modified the trial courts ruling and included
petitioner Caltex as one of the those liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal and Corazon Caezal:

1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);

4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P 50,000.00);

5. Costs of the suit.

Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorneys fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that
negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).

SO ORDERED.

JORGE S. IMPERIAL
Associate Justice

WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS

Associate Justice Associate Justice[8]

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private, but on whether the contract of
carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or similar contract on the other.[9]

Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.[10]

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight.[11]

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of
time or for a single or consecutive voyage, the ship owner to supply the ships store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.[12]

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the
voyage or service stipulated, subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.[13]

Second : MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter. Does a charter party agreement turn the
common carrier into a private one? We need to answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into a voyage charter, which
retains the character of the vessel as a common carrier.

In Planters Products, Inc. vs. Court of Appeals,[14] we said:

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-
party is concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer.

Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment xxx
A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who may choose to employ and to
remunerate him.[16] MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals,[17] we ruled:

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers for
passengers or goods or both, by land, water, or air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does
such carrying only as an ancillary activity (in local idiom, as a sideline). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such services on a an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the general public, i.e., the general community or population, and
one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from
making such distinctions.

It appears to the Court that private respondent is properly characterized as a common carrier even though he merely back-hauled goods for other
merchants from Manila to Pangasinan, although such backhauling was done on a periodic, occasional rather than regular or scheduled manner, and
even though respondents principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his
customers a fee for hauling their goods; that the fee frequently fell below commercial freight rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to -

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the
vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.[18]

The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public
must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the
modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous.[19] For these
reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to
impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy vessel such as the MT Vector when Caltex:

1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;

3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:

1. The master of M/T Vector did not posses the required Chief Mate license to command and navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only in bays and rivers when the subject collision occurred
in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operator and a lookout; and

5. The vessel had a defective main engine.[20]

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which provide:

Article 20. - Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

Article 2176. - Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.

And what is negligence?

The Civil Code provides:

Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Article 1171 and
2201 paragraph 2, shall apply.

If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly understood, is conduct which naturally or reasonably
creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance, which the circumstances justly
demand, or the omission to do something which ordinarily regulate the conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements. The
duty rests upon the common carrier simply for being engaged in public service.[22] The Civil Code demands diligence which is required by the nature of
the obligation and that which corresponds with the circumstances of the persons, the time and the place.Hence, considering the nature of the
obligation between Caltex and MT Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the implied warranty of seaworthiness,[23] shippers of goods,
when transacting with common carriers, are not expected to inquire into the vessels seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the
protection of the public in general is concerned. By the same token, we cannot expect passengers to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all the carriers employees are qualified. Such a practice would be an absurdity in a business
where time is always of the essence. Considering the nature of transportation business, passengers and shippers alike customarily presume that common
carriers possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally transport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here under VESSELS DOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987, Mr. Witness, what steps did you take regarding the
impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the hiring of MT Vector?

Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. which will expire on December 7, 1987 but on
the last week of November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will renew
the same.

Q: What happened after that?

A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going to send me a copy as soon as possible, sir.[24]

xxx xxx xxx

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long business relation, we trust Mr. Abalos and the fact
that the vessel was able to sail indicates that the documents are in order. xxx[25]

On cross examination -

Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection has expired on December 7. Did it occur to you not
to let the vessel sail on that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to secure a renewal of the Certificate of Inspection
and that they will in time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in the coastwise license on December 7, 1987. What
was your assurance for the record that this document was renewed by the MT Vector?

Atty. Sarenas: xxx

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three years, they were allowed to sail by the Coast
Guard. That are some that make me believe that they in fact were able to secure the necessary renewal.

Q: If the Coast Guard clears a vessel to sail, what would that mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross examination to the effect that if it was allowed, referring to MV Vector, to sail, where it is loaded and that it
was scheduled for a destination by the Coast Guard, it means that it has Certificate of Inspection extended as assured to this witness by Restituto
Abalos. That in no case MV Vector will be allowed to sail if the Certificate of Inspection is, indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no need to clarify the same in the re-direct examination.[27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987. Past
services rendered showed no reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was
convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit our ruling to the liability of Caltex alone. However, we
maintain the Court of Appeals ruling insofar as Vector is concerned .

WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April
15, 1997, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is
adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco
Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and costs the latter is adjudged to pay
plaintiffs-appellees in the case.

No costs in this instance.

SO ORDERED
G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,

vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.

RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993, affirming Branch 35 of the Regional Trial Court,
Manila in holding that herein petitioner is liable to pay herein private respondent the amount of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at
the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the
shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged cargo
of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila, seeking to recover the amount of
P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims
which the consignee may have against the carrier, which is presumed to have violated the contract of carriage.

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of Appeals, the award was affirmed.

Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage was transformed into a private carrier, by virtue of
the contract of affreightment which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier,
did it exercise the ordinary diligence to which a private carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of the
consignee against the carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one of the carrier's vessels.

On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a common carrier. It stresses the fact that it
contracted with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship Agencies, Inc.2 wherein this Court held: ". . . a
common carrier undertaking to carry a special cargo or chartered to a special person only becomes a private carrier."

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are as follows:

Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As such, the liability of the shipowner for acts
or negligence of its captain and crew, would remain in the absence of stipulation.3

The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of affreightment) is more clearly set out in the case
of Puromines, Inc. vs. Court of Appeals,4 wherein we ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to liability to others for damages caused by negligence. To
create a demise, the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the vessel and under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of the charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment on account of
the aforementioned distinctions between the two.

Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We agree. Pag-asa Sales, Inc. only leased three of
petitioner's vessels, in order to carry cargo from one point to another, but the possession, command and navigation of the vessels remained with
petitioner Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of affreightment, was not converted into a
private carrier, but remained a common carrier and was still liable as such.

The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to a carrier and the subsequent arrival
of the same goods at the place of destination in bad order makes for a prima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods it transports are lost, destroyed or deteriorated,
applies to the petitioner. This presumption, which is overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.

The records show that the damage to the barge which carried the cargo of molasses was caused by its hitting an unknown sunken object as it was
heading for Pier 18. The object turned out to be a submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of
the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any effort to prepare a chart to indicate the location of
sunken derelicts within Manila North Harbor to avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same. Nothing could have prevented the event,
making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from having rendered service with the greatest skill and
utmost foresight, and being free from fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The Code of Commerce, which subsidiarily governs
common carriers (which are primarily governed by the provisions of the Civil Code) provides:

Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with this code, and prove the skill
capacity and qualifications necessary to command and direct the vessel, as established by marine and navigation laws, ordinances or regulations, and
must not be disqualified according to the same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this rule. It cannot safely claim to have exercised
extraordinary diligence, by placing a person whose navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill to do so, but also the utmost familiarity with the
usual and safe routes taken by seasoned and legally authorized ones. Had the patron been licensed, he could be presumed to have both the skill and
the knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome the presumption of negligence with the loss
and destruction of goods it transported, by proof of its exercise of extraordinary diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule against the petitioner. We have already found
petitioner liable for breach of the contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the
cargo which petitioner-carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein
private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who violated the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line of cases including Compania Maritima v. Insurance
Company of North America;7 Fireman's Fund Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of
Appeals,9 wherein this Court explained:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the assured will be subrogated to the rights of the assured to recover
from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operated as an equitable
assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer.

Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses
totally damaged while being transported by petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales, Inc. may
have had against the carrier, herein petitioner Coastwise Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the order of Branch 35 of the Regional Trial Court of Manila
for petitioner Coastwise Lighterage to pay respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus interest thereon
at the legal rate computed from March 29, 1989, the date the complaint was filed until fully paid and another sum of P100,000.00 as attorney's fees and
costs"10 is likewise hereby AFFIRMED

SO ORDERED.
G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier into a private one as to negate the civil law presumption of
negligence in case of loss or damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46%
fertilizer which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki
Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master
of the vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform General Charter2 was entered into
between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and
27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected by the charterer's representative and found fit to take
a load of urea in bulk pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau inspector or substitute appointed by
charterers for his account certifying the vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at the
vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of the inspector before daytime commences. (emphasis
supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel hatches were closed with heavy iron
lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use of the vessel's boom. Petitioner
unloaded the cargo from the holds into its steelbodied dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S. clause).6 The hatches remained open throughout the duration
of the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the consignee's warehouse located some
fifty (50) meters from the wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the warehouse were
sandy and the weather was variable, raining occasionally while the discharge was in progress.8 The petitioner's warehouse was made of corrugated
galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins
and GI sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th).10A private marine and cargo surveyor,
Cargo Superintendents Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel
prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of
106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23
M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the resident agent of the carrier, KKKK, for
P245,969.31 representing the cost of the alleged shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for payment because, according to them, what they received
was just a request for shortlanded certificate and not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The defendant
carrier argued that the strict public policy governing common carriers does not apply to them because they have become private carriers by reason of
the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods
lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss or damage of the goods it contracts to
transport, all that a shipper has to do in a suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery by it of less than
what it received. After that, the burden of proving that the loss or damage was due to any of the causes which exempt him from liability is shipted to the
carrier, common or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid, and the defendants considered
private carriers, it was still incumbent upon them to prove that the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the cargo. This they failed to do. By this omission,
coupled with their failure to destroy the presumption of negligence against them, the defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the value of the cargo that was lost or
damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo vessel
M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party. Accordingly,
the Civil Code provisions on common carriers which set forth a presumption of negligence do not find application in the case at bar. Thus

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient evidence to prove the negligence of the
defendant carrier as alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant is under no obligation to prove his exception or
defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action, i.e. the alleged negligence of defendant carrier.
It appears that the plaintiff was under the impression that it did not have to establish defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not negligent in performing its obligation . .
. 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals. Petitioner theorizes that the Home
Insurance case has no bearing on the present controversy because the issue raised therein is the validity of a stipulation in the charter-party delimiting
the liability of the shipowner for loss or damage to goods cause by want of due deligence on its part or that of its manager to make the vessel seaworthy
in all respects, and not whether the presumption of negligence provided under the Civil Code applies only to common carriers and not to private
carriers. 19 Petitioner further argues that since the possession and control of the vessel remain with the shipowner, absent any stipulation to the contrary,
such shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption of
negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on the part of the carrier,
when he was not even at hand to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a charter-party; in the negative, whether
the shipowner in the instant case was able to prove that he had exercised that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it fitting to first define important terms which
are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified
time or use; 20 a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for
the conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter
by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and possession
and consequent control over its navigation, including the master and the crew, who are his servants. Contract of affreightment may either be time
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In
both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the
shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition extends to carriers either by land, air
or water which hold themselves out as ready to engage in carrying goods or transporting passengers or both for compensation as a public employment
and not as a casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation, although involving the carriage of goods
for a fee, the person or corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should observe extraordinary diligence in
the vigilance over the goods they carry.25 In the case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them.26 On the contrary, no such presumption applies to private carriers, for whosoever alleges
damage to or deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting goods indiscriminately for all
persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship,
with the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is evident in the present case considering
that the steering of the ship, the manning of the decks, the determination of the course of the voyage and other technical incidents of maritime
navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-
party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is misplaced for the reason that the
meat of the controversy therein was the validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to the negligence
of its agent, and not the effects of a special charter on common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing concern for
safety in the transportation of passengers and /or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more particularly,
the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30

As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to convey the goods of one and of several persons.
Where the ship herself is let to a charterer, so that he takes over the charge and control of her, the case is different; the shipowner is not then a carrier.
But where her services only are let, the same grounds for imposing a strict responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually without any representative on board the ship; the same opportunities for
fraud or collusion occur; and the same difficulty in discovering the truth as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee should first prove the fact of shipment
and its consequent loss or damage while the same was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due to
fortuitous event, or some other circumstances inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the Philippine Consul and Legal Attache in the
Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated.
After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the ship was in transit as
the weight of the steel covers made it impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of spillage of the cargo into the sea or
seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded, and in
the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the
whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the showing of extraordinary zeal and
assiduity exercised by the carrier in the care of the cargo. This was confirmed by respondent appellate court thus

. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses clearly show absence of negligence by
the defendant carrier; that the hull of the vessel at the time of the discharge of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and
it was overlaid with tarpaulins, three layers of tarpaulins and therefore their contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that
to open these hatches, the seals would have to be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence required of it as a public carrier began from the time the cargo was
unconditionally placed in its charge after the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its
destination and its hull was reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the parties in the
Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of
the cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo
resulting from improper stowage only when the stowing is done by stevedores employed by him, and therefore under his control and supervision, not
when the same is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or deterioration of the goods if caused by
the charterer of the goods or defects in the packaging or in the containers. The Code of Commerce also provides that all losses and deterioration which
the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and
damage resulting from the preceding causes if it is proved, as against him, that they arose through his negligence or by reason of his having failed to
take the precautions which usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao
Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon
monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80) degrees
centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation
amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell
which does not seal very tightly. Also, the wind tends to blow away some of the materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high temperature in its place of storage, or when it
comes in contact with water. When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion which is in
liquid form still remains potent and usable although no longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made greater by the fact that the fertilizer
was transported in "bulk," thereby exposing it to the inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the vessel's holds during the voyage since the
hull of the vessel was in good condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to
carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and cargo
surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained from time to time at the harbor area
while the cargo was being discharged according to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the risk of loss or damage. More so, with a
variable weather condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly,
respondent carrier has sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the carrier
was remise in the exercise of due diligence in order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case
No. 98623 of the then Court of the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

[G.R. No. 150255. April 22, 2005]

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner, vs. TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA
SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, respondents.

DECISION

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision[1] of the Court of Appeals, as well as its Resolution[2] dated September 28, 2001 denying the motion for
reconsideration, which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132[3] holding petitioner Schmitz
Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent Inchcape
Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V Alexander Saveliev (a vessel of Russian
registry and owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel Pipe Corporation (Little Giant),[4] were
insured against all risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS.[5]
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA) assigned it a place of berth at the outside
breakwater at the Manila South Harbor.[6]
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the cargoes from the shipside, and to deliver
them to its (the consignees) warehouse at Cainta, Rizal,[7] in turn engaged the services of TVI to send a barge and tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVIs tugboat Lailani towed the barge Erika V to shipside.[8]

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left and returned to the port terminal.[9] At 9:00 p.m.,
arrastre operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an approaching storm, the unloading unto the
barge of the 37 coils was accomplished.[10] No tugboat pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,[11] the crew of the barge abandoned it and transferred to the vessel. The barge pitched
and rolled with the waves and eventually capsized, washing the 37 coils into the sea.[12] At 7:00 a.m., a tugboat finally arrived to pull the already empty
and damaged barge back to the pier.[13]

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved futile.[14]

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5,246,113.11. Little Giant thereupon executed a subrogation
receipt[15] in favor of Industrial Insurance.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its representative Inchcape (the defendants) before the
RTC of Manila, for the recovery of the amount it paid to Little Giant plus adjustment fees, attorneys fees, and litigation expenses.[16]

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. 1 was raised in Metro Manila.[17]

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for unloading the cargoes outside of the breakwater
notwithstanding the storm signal.[18] The dispositive portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the defendants to pay plaintiff jointly and severally the
sum of P5,246,113.11 with interest from the date the complaint was filed until fully satisfied, as well as the sum of P5,000.00 representing the adjustment
fee plus the sum of 20% of the amount recoverable from the defendants as attorneys fees plus the costs of suit. The counterclaims and cross claims of
defendants are hereby DISMISSED for lack of [m]erit.[19]

To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing the finding that they are common
carriers and the award of excessive attorneys fees of more than P1,000,000. And they argued that they were not motivated by gross or evident bad faith
and that the incident was caused by a fortuitous event. [20]

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. [21]

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto the decision of the trial court, [22] it finding that
all the defendants were common carriers Black Sea and TVI for engaging in the transport of goods and cargoes over the seas as a regular business and
not as an isolated transaction,[23] and Schmitz Transport for entering into a contract with Little Giant to transport the cargoes from ship to port for a fee.[24]

In holding all the defendants solidarily liable, the appellate court ruled that each one was essential such that without each others contributory
negligence the incident would not have happened and so much so that the person principally liable cannot be distinguished with sufficient
accuracy.[25]
In discrediting the defense of fortuitous event, the appellate court held that although defendants obviously had nothing to do with the force of nature,
they however had control of where to anchor the vessel, where discharge will take place and even when the discharging will commence.[26]

The defendants respective motions for reconsideration having been denied by Resolution[27] of September 28, 2001, Schmitz Transport (hereinafter
referred to as petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee Little Giant, hence, the transportation contract
was by and between Little Giant and TVI.[28]
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were required to file their respective Comments.[29]

By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in good order, hence, it cannot be faulted, it
having had no control and supervision thereover.[30]

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and transferred them unto the barge upon the instruction of
petitioner.[31]

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence on the part of petitioner Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligation, must be independent of human will; (2) it must be impossible to foresee the event which constitute the caso fortuito, or if it
can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any
manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.[32]

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature. Human
intervention is to be excluded from creating or entering into the cause of the mischief. When the effect is found to be in part the result of the
participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the
rules applicable to the acts of God.[33]

The appellate court, in affirming the finding of the trial court that human intervention in the form of contributory negligence by all the defendants
resulted to the loss of the cargoes,[34] held that unloading outside the breakwater, instead of inside the breakwater, while a storm signal was up
constitutes negligence.[35] It thus concluded that the proximate cause of the loss was Black Seas negligence in deciding to unload the cargoes at an
unsafe place and while a typhoon was approaching.[36]
From a review of the records of the case, there is no indication that there was greater risk in loading the cargoes outside the breakwater. As the
defendants proffered, the weather on October 26, 1991 remained normal with moderate sea condition such that port operations continued and
proceeded normally.[37]

The weather data report,[38] furnished and verified by the Chief of the Climate Data Section of PAG-ASA and marked as a common exhibit of the parties,
states that while typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00 p.m. - 11:00
p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the defendants were negligent in not unloading the cargoes upon the barge
on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the morning[39] is, however, a material fact
which the appellate court failed to properly consider and appreciate[40] the proximate cause of the loss of the cargoes. Had the barge been towed
back promptly to the pier, the deteriorating sea conditions notwithstanding, the loss could have been avoided. But the barge was left floating in open
sea until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.[41] The loss thus falls outside the act of God doctrine.

The proximate cause of the loss having been determined, who among the parties is/are responsible therefor?

Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner is a common carrier. For it undertook to transport the
cargoes from the shipside of M/V Alexander Saveliev to the consignees warehouse at Cainta, Rizal. As the appellate court put it, as long as a person or
corporation holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is already considered a common carrier regardless if [it]
owns the vehicle to be used or has to hire one.[42] That petitioner is a common carrier, the testimony of its own Vice-President and General Manager Noel
Aro that part of the services it offers to its clients as a brokerage firm includes the transportation of cargoes reflects so.

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company. I also handle the various division heads of the
company for operation matters, and all other related functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the Honorable Court if you came to know the company by
the name Little Giant Steel Pipe Corporation?

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you perform in behalf of this company?

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-charged of the delivery of the goods to their
warehouses. We also handled the clearances of their shipment at the Bureau of Customs, Sir.

xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards to this shipment? What work did you do with this
shipment?

A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the] cargo[es] from lighter to BASECO then to the truck
and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform, what equipment do (sic) you require or did you use
in order to effect this unloading, transfer and delivery to the warehouse?

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and on this we hired or we sub-contracted with
[T]ransport Ventures, Inc. which [was] in-charged (sic) of the barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded
from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees warehouse?

A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for the barges of Transport Ventures Incorporated in this
particular operation?

A: Firstly, we dont own any barges. That is why we hired the services of another firm whom we know [al]ready for quite sometime, which is Transport
Ventures, Inc. (Emphasis supplied)[43]

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v.
The Honorable Court of Appeals,[44] held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to
wit,

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public.

xxx

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to prepare the
correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the
goods for pecuniary consideration.[45]

And in Calvo v. UCPB General Insurance Co. Inc.,[46] this Court held that as the transportation of goods is an integral part of a customs broker, the
customs broker is also a common carrier. For to declare otherwise would be to deprive those with whom [it] contracts the protection which the law
affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of petitioners business.[47]
As for petitioners argument that being the agent of Little Giant, any negligence it committed was deemed the negligence of its principal, it does not
persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting the transportation of the cargoes from the shipside
and into Little Giants warehouse, however, petitioner was discharging its own personal obligation under a contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler[48] to provide the barge and the tugboat. In their Service
Contract,[49] while Little Giant was named as the consignee, petitioner did not disclose that it was acting on commission and was chartering the vessel
for Little Giant.[50] Little Giant did not thus automatically become a party to the Service Contract and was not, therefore, bound by the terms and
conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can maintain a cause of action for negligence.[51]

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe extraordinary diligence, it was still required to observe
ordinary diligence to ensure the proper and careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and
2202, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall
be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the same situation exercised by TVI?[52]

This Court holds not.

TVIs failure to promptly provide a tugboat did not only increase the risk that might have been reasonably anticipated during the shipside operation, but
was the proximate cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number of hours,
at such a precarious time, and in the open sea, knowing that the barge does not have any power of its own and is totally defenseless from the ravages
of the sea. That it was nighttime and, therefore, the members of the crew of a tugboat would be charging overtime pay did not excuse TVI from calling
for one such tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739 [53] of the Civil Code, prove that it exercised due diligence to prevent or
minimize the loss, before, during and after the occurrence of the storm in order that it may be exempted from liability for the loss of the goods.

While petitioner sent checkers[54] and a supervisor[55] on board the vessel to counter-check the operations of TVI, it failed to take all available and
reasonable precautions to avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge despite the deteriorating sea
conditions, it should have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable[56] for the loss of the cargoes. The following pronouncement of the Supreme Court is
instructive:

The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of
its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier
may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of Article 2176 and related provisions, in
conjunction with Article 2180 of the Civil Code. x x x [O]ne might ask further, how then must the liability of the common carrier, on one hand, and an
independent contractor, on the other hand, be described? It would be solidary. A contractual obligation can be breached by tort and when the same
act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In
fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes
a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can
be said to have been breached by tort, thereby allowing the rules on tort to apply.[57]

As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or unconditionally placed in its possession and
received for transportation until they were delivered actually or constructively to consignee Little Giant. [58]

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the services rendered by the carrier. In the case at bar,
Bill of Lading No. 2 covering the shipment provides that delivery be made to the port of discharge or so near thereto as she may safely get, always
afloat.[59] The delivery of the goods to the consignee was not from pier to pier but from the shipside of M/V Alexander Saveliev and into barges, for which
reason the consignee contracted the services of petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it
had discharged its duty.[60]

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorneys fees in an amount over P1,000,000.00 to Industrial Insurance, for lack of factual and legal basis, this Court sets it aside.
While Industrial Insurance was compelled to litigate its rights, such fact by itself does not justify the award of attorneys fees under Article 2208 of the Civil
Code. For no sufficient showing of bad faith would be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness
of his cause.[61] To award attorneys fees to a party just because the judgment is rendered in its favor would be tantamount to imposing a premium on
ones right to litigate or seek judicial redress of legitimate grievances.[62]

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial Insurance in its voluntary but unsuccessful efforts
to locate and retrieve the lost cargo. They do not constitute actual damages.[63]
As for the court a quos award of interest on the amount claimed, the same calls for modification following the ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals[64] that when the demand cannot be reasonably established at the time the demand is made, the interest shall begin to run not from
the time the claim is made judicially or extrajudicially but from the date the judgment of the court is made (at which the time the quantification of
damages may be deemed to have been reasonably ascertained).[65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation, and Transport Venture Incorporation jointly
and severally liable for the amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per annum of the amount due should be
computed from the promulgation on November 24, 1997 of the decision of the trial court.
Costs against petitioner.

SO ORDERED.
[G.R. No. 147079. December 21, 2004]

A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts Decision[1] of August 10, 2000 reversing and setting aside the judgment of Branch 133,
Regional Trial Court of Makati City, in Civil Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU Insurance)
against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives consisting of
86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the consignee, Wyeth-
Suaco Laboratories, Inc.[2] The Femenal tablets were placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed
together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in two pallets, each of which contained 30 cartons.[3]

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk Note No. 4995 pursuant to Marine Open Policy No. 138.[4]

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),[5] it was discharged without exception[6] and delivered to
the warehouse of the Philippine Skylanders, Inc. (PSI) located also at the NAIA for safekeeping.[7]

In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage which
had been its licensed broker since 1984.[8] As its customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco.[9]

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for
which, Official Receipt No. 016992,[10] was issued. On the receipt, another representative of Sanchez Brokerage, M. Sison,[11] acknowledged that he
received the cargoes consisting of three pieces in good condition.[12]

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes[13] which were thereupon stripped from the aluminum
containers[14] and loaded inside two transport vehicles hired by Sanchez Brokerage.[15]

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso and Tony Akas,[16] employees of Elite Adjusters and
Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo City for quality control check.[17] The delivery receipt,
bearing No. 07037 dated July 29, 1992, indicated that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1 pallet
containing Trinordiol.[18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the cargoes by affixing his signature on the delivery
receipt.[19] Upon inspection, however, he, together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol
tablets were in bad order.[20] He thus placed a note above his signature on the delivery receipt stating that 44 cartons of oral contraceptives were in
bad order. The remaining 160 cartons of oral contraceptives were accepted as complete and in good order.

Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report[21] dated July 31, 1992 stating that 41 cartons of Femenal tablets and 3
cartons of Nordiol tablets were wetted (sic).[22]

The Elite Surveyors later issued Certificate No. CS-0731-1538/92[23] attached to which was an Annexed Schedule whereon it was indicated that prior to
the loading of the cargoes to the brokers trucks at the NAIA, they were inspected and found to be in apparent good condition.[24] Also noted was that
at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44 cartons of
Femenal and Nordiol tablets.[25]

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report[26] confirming that 38 x 700 blister packs of Femenal tablets, 3 x 700 blister
packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets were heavily damaged with water and emitted foul smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection[27] of 38 cartons of Femenal and 3 cartons of Nordiol on the ground that they
were delivered to Hizon Laboratories with heavy water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily attracted
flies.[28]

Wyeth-Suaco later demanded, by letter[29] of August 25, 1992, from Sanchez Brokerage the payment of P191,384.25 representing the value of its loss
arising from the damaged tablets.

As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim against FGU Insurance which paid Wyeth-Suaco the
amount of P181,431.49 in settlement of its claim under Marine Risk Note Number 4995.

Wyeth-Suaco thus issued Subrogation Receipt[30] in favor of FGU Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by letter[31] of January 7, 1993,
disclaimed liability for the damaged goods, positing that the damage was due to improper and insufficient export packaging; that when the sealed
containers were opened outside the PSI warehouse, it was discovered that some of the loose cartons were wet,[32] prompting its (Sanchez Brokerages)
representative Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the latter
advised to still deliver them to Hizon Laboratories where an adjuster would assess the damage.[33]

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of Makati City against the Sanchez Brokerage.

The trial court, by Decision[34] of July 29, 1996, dismissed the complaint, holding that the Survey Report prepared by the Elite Surveyors is bereft of any
evidentiary support and a mere product of pure guesswork.[35]

On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez Brokerage engaged not only in the business of
customs brokerage but also in the transportation and delivery of the cargo of its clients, hence, a common carrier within the context of Article 1732 of
the New Civil Code.[36]

Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good order and condition but were in a damaged state
when delivered to Wyeth-Suaco, the appellate court held that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving that
it exercised extraordinary negligence not only in instances when negligence is directly proven but also in those cases when the cause of the damage is
not known or unknown.[37]

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision of the Court a quo is REVERSED. Another Decision is hereby
rendered in favor of the Appellant and against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49, with interest thereupon at the rate of 6% per annum, from
the date of the Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and by way of attorneys fees; and

3. The counterclaims of the Appellee are DISMISSED.[38]

Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts Resolution of December 8, 2000 which was received by
petitioner on January 5, 2001, it comes to this Court on petition for certiorari filed on March 6, 2001.

In the main, petitioner asserts that the appellate court committed grave and reversible error tantamount to abuse of discretion when it found petitioner
a common carrier within the context of Article 1732 of the New Civil Code.

Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner should have taken was to file a petition for review on
certiorari since the sole office of a writ of certiorari is the correction of errors of jurisdiction including the commission of grave abuse of discretion
amounting to lack or excess of jurisdiction and does not include correction of the appellate courts evaluation of the evidence and factual findings
thereon.

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to overcome the presumption of negligence, it being
documented that petitioner withdrew from the warehouse of PSI the subject shipment entirely in good order and condition.[39]

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings
involved, may be appealed to this Court by filing a petition for review, which would be but a continuation of the appellate process over the original
case.[40]

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for reconsideration of its Decision of August 10, 2000 was received
by petitioner on January 5, 2001. Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate courts decision had
become final and executory. The filing by petitioner of a petition for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of
appeal.

In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not merely reversible error but also grave abuse of
discretion amounting to lack or excess of jurisdiction.

Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial court based on its finding that petitioner is liable for
the damage to the cargo as a common carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the subject of an
ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision not the jurisdiction of the court to render said decision the
same is beyond the province of a petition for certiorari.[41] The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in order to
review the judgment of lower courts as to its intrinsic correctness, either upon the law or the facts of the case.[42]

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to
wit:

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public.

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified that the services the firm offers include the delivery of
goods to the warehouse of the consignee or importer.

ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and those upon approval of the importer, we prepare the entry together for
processing and claims from customs and finally deliver the goods to the warehouse of the importer.[43]

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as an
ancillary activity.[44] The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the
goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under Article 1733[45] of the Civil Code, extraordinary diligence in the vigilance over
the goods it transports according to all the circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to
have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence.[46]

The concept of extra-ordinary diligence was explained in Compania Maritima v. Court of Appeals:[47]

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristics of goods tendered for shipment,
and to exercise due care in the handling and stowage, including such methods as their nature requires.[48]
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in NAIA in good order and condition;[49] and that upon
delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the Delivery Receipt[50] issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors[51]and the Destruction Report of Hizon Laboratories, Inc.[52]

In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they were damaged due to the fault or negligence of
the shipper for failing to properly pack them and to the inherent characteristics of the goods[53]; and that it should not be faulted for following the
instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed to the latter that some of the cartons, on
examination outside the PSI warehouse, were found to be wet.[54]
While paragraph No. 4 of Article 1734[55] of the Civil Code exempts a common carrier from liability if the loss or damage is due to the character of the
goods or defects in the packing or in the containers, the rule is that if the improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is not relieved of liability for
the resulting damage.[56]

If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true, then it should naturally have received the cargo
under protest or with reservations duly noted on the receipt issued by PSI. But it made no such protest or reservation.[57]

Moreover, as observed by the appellate court, if indeed petitioners employees only examined the cargoes outside the PSI warehouse and found some
to be wet, they would certainly have gone back to PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.[58] Or, petitioner would have presented, as witness, the employees of the PSI from whom Morales
and Domingo took delivery of the cargo to prove that, indeed, part of the cargoes was already damaged when the container was allegedly opened
outside the warehouse.[59]

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead, it asserts that some of the cargoes were already wet
on delivery by PSI outside the PSI warehouse but such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon Laboratories, Inc.

While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he failed to specifically declare what time he
received the call. As to whether the call was made at the PSI warehouse when the shipment was stripped from the airport containers, or when the
cargoes were already in transit to Antipolo, it is not determinable. Aside from that phone call, petitioner admitted that it had no documentary evidence
to prove that at the time it received the cargoes, a part of it was wet, damaged or in bad condition.[60]

The 4-page weather data furnished by PAGASA[61] on request of Sanchez Brokerage hardly impresses, no witness having identified it and interpreted the
technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives were damaged by rainwater while in transit to
Antipolo City is more likely then. Sanchez himself testified that in the past, there was a similar instance when the shipment of Wyeth-Suaco was also found
to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at the NAIA were damaged and claimed by the Wyeth-
Suaco without any question?

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did not claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?
WITNESS:

A: We experienced, there was a time that we experienced that there was a cartoon (sic) wetted (sic) up to the bottom are wet specially during rainy
season.[62]

Since petitioner received all the cargoes in good order and condition at the time they were turned over by the PSI warehouseman, and upon their
delivery to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it was incumbent on petitioner to prove that it exercised extraordinary
diligence in the carriage of the goods. It did not, however. Hence, its presumed negligence under Article 1735 of the Civil Code remains unrebutted.

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
 LOADSTAR SHIPPING CO., INC., G.R. No. 157481
Petitioner,

Present:

Quisumbing, J.,

- versus - (Chairman),
Carpio,

Carpio Morales, and

Tinga, JJ.

PIONEER ASIA INSURANCE CORP., Promulgated:

Respondent.

January 24, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

For review on certiorari are (1) the Decision[1] dated October 15, 2002 and (2) the Resolution[2] dated February 27, 2003, of the Court of Appeals in CA-
G.R. CV No. 40999, which affirmed with modification the Decision[3] dated February 15, 1993 of the Regional Trial Court of Manila, Branch 8 in Civil Case
No. 86-37957.

The pertinent facts are as follows:

Petitioner Loadstar Shipping Co., Inc. (Loadstar for brevity) is the registered owner and operator of the vessel M/V Weasel. It holds office at 1294
Romualdez St., Paco, Manila.

On June 6, 1984, Loadstar entered into a voyage-charter with Northern Mindanao Transport Company, Inc. for the carriage of 65,000 bags of cement
from Iligan City to Manila. The shipper was Iligan Cement Corporation, while the consignee in Manila was Market Developers, Inc.

On June 24, 1984, 67,500 bags of cement were loaded on board M/V Weasel and stowed in the cargo holds for delivery to the consignee. The shipment
was covered by petitioners Bill of Lading[4] dated June 23, 1984.

Prior to the voyage, the consignee insured the shipment of cement with respondent Pioneer Asia Insurance Corporation for P1,400,000, for which
respondent issued Marine Open Policy No. MOP-006 dated September 17, 1980, covering all shipments made on or after September 30, 1980.[5]

At 12:50 in the afternoon of June 24, 1984, M/V Weasel left Iligan City for Manila in good weather. However, at 4:31 in the morning of June 25, 1984,
Captain Vicente C. Montera, master of M/V Weasel, ordered the vessel to be forced aground. Consequently, the entire shipment of cement was good
as gone due to exposure to sea water. Petitioner thus failed to deliver the goods to the consignee in Manila.

The consignee demanded from petitioner full reimbursement of the cost of the lost shipment. Petitioner, however, refused to reimburse the consignee
despite repeated demands.
Nonetheless, on March 11, 1985, respondent insurance company paid the consignee P1,400,000 plus an additional amount of P500,000, the value of the
lost shipment of cement. In return, the consignee executed a Loss and Subrogation Receipt in favor of respondent concerning the latters subrogation
rights against petitioner.

Hence, on October 15, 1986, respondent filed a complaint docketed as Civil Case No. 86-37957, against petitioner with the Regional Trial Court of
Manila, Branch 8. It alleged that: (1) the M/V Weasel was not seaworthy at the commencement of the voyage; (2) the weather and sea conditions then
prevailing were usual and expected for that time of the year and as such, was an ordinary peril of the voyage for which the M/V Weasel should have
been normally able to cope with; and (3) petitioner was negligent in the selection and supervision of its agents and employees then manning the M/V
Weasel.

In its Answer, petitioner alleged that no fault nor negligence could be attributed to it because it exercised due diligence to make the ship seaworthy, as
well as properly manned and equipped. Petitioner insisted that the failure to deliver the subject cargo to the consignee was due to force majeure.
Petitioner claimed it could not be held liable for an act or omission not directly attributable to it.
On February 15, 1993, the RTC rendered a Decision in favor of respondent, to wit:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff and against defendant Loadstar Shipping Co., Inc. ordering the
latter to pay as follows:

1. To pay plaintiff the sum of P1,900,000.00 with legal rate of interest per annum from date of complaint until fully paid;

2. To pay the sum equal to 25% of the claim as and for attorneys fees and litigation expenses; and,

3. To pay the costs of suit.

IT IS SO ORDERED.[6]

The RTC reasoned that petitioner, as a common carrier, bears the burden of proving that it exercised extraordinary diligence in its vigilance over the
goods it transported. The trial court explained that in case of loss or destruction of the goods, a statutory presumption arises that the common carrier was
negligent unless it could prove that it had observed extraordinary diligence.

Petitioners defense of force majeure was found bereft of factual basis. The RTC called attention to the PAG-ASA report that at the time of the incident,
tropical storm Asiang had moved away from the Philippines. Further, records showed that the sea and weather conditions in the area of Hinubaan,
Negros Occidental from 8:00 p.m. of June 24, 1984 to 8:00 a.m. the next day were slight and smooth. Thus, the trial court concluded that the cause of
the loss was not tropical storm Asiang or any other force majeure, but gross negligence of petitioner.
Petitioner appealed to the Court of Appeals.

In its Decision dated October 15, 2002, the Court of Appeals affirmed the RTC Decision with modification that Loadstar shall only pay the sum of 10% of
the total claim for attorneys fees and litigation expenses. It ruled,

WHEREFORE, premises considered, the Decision dated February 15, 1993, of the Regional Trial Court of Manila, National Capital Judicial Region, Branch
8, in Civil Case No. 86-37957 is hereby AFFIRMED with the MODIFICATION that the appellant shall only pay the sum of 10% of the total claim as and for
attorneys fees and litigation expenses. Costs against the appellant.

SO ORDERED.[7]

Petitioners Motion for Reconsideration was denied.[8]

The instant petition is anchored now on the following assignments of error:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS A COMMON CARRIER UNDER ARTICLE 1732 OF THE CIVIL CODE.

II

ASSUMING ARGUENDO THAT PETITIONER IS A COMMON CARRIER, THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE
OF THE LOSS OF CARGO WAS NOT A FORTUITOUS EVENT BUT WAS ALLEGEDLY DUE TO THE FAILURE OF PETITIONER TO EXERCISE EXTRAORDINARY DILIGENCE.

III

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD BY THE TRIAL COURT OF ATTORNEYS FEES AND LITIGATION EXPENSES IN FAVOR OF
HEREIN RESPONDENT.[9]

On the first and second issues, petitioner contends that at the time of the voyage the carriers voyage-charter with the shipper converted it into a private
carrier. Thus, the presumption of negligence against common carriers could not apply. Petitioner further avers that the stipulation in the voyage-charter
holding it free from liability is valid and binds the respondent. In any event, petitioner insists that it had exercised extraordinary diligence and that the
proximate cause of the loss of the cargo was a fortuitous event.

With regard to the third issue, petitioner points out that the award of attorneys fees and litigation expenses appeared only in the dispositive portion of the
RTC Decision with nary a justification. Petitioner maintains that the Court of Appeals thus erred in affirming the award.

For its part, respondent dismisses as factual issues the inquiry on (1) whether the loss of the cargo was due to force majeure or due to petitioners failure to
exercise extraordinary diligence; and (2) whether respondent is entitled to recover attorneys fees and expenses of litigation.

Respondent further counters that the Court of Appeals was correct when it held that petitioner was a common carrier despite the charter of the whole
vessel, since the charter was limited to the ship only.
Prefatorily, we stress that the finding of fact by the trial court, when affirmed by the Court of Appeals, is not reviewable by this Court in a petition for
review on certiorari. However, the conclusions derived from such factual finding are not necessarily pure issues of fact when they are inextricably
intertwined with the determination of a legal issue. In such instances, the conclusions made may be raised in a petition for review before this Court.[10]

The threshold issues in this case are: (1) Given the circumstances of this case, is petitioner a common or a private carrier? and (2) In either case, did
petitioner exercise the required diligence i.e., the extraordinary diligence of a common carrier or the ordinary diligence of a private carrier?
Article 1732 of the Civil Code defines a common carrier as follows:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public.

Petitioner is a corporation engaged in the business of transporting cargo by water and for compensation, offering its services indiscriminately to the
public. Thus, without doubt, it is a common carrier. However, petitioner entered into a voyage-charter with the Northern Mindanao Transport Company,
Inc. Now, had the voyage-charter converted petitioner into a private carrier?
We think not. The voyage-charter agreement between petitioner and Northern Mindanao Transport Company, Inc. did not in any way convert the
common carrier into a private carrier. We have already resolved this issue with finality in Planters Products, Inc. v. Court of Appeals[11] where we ruled
that:

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-
party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer.[12]

Conformably, petitioner remains a common carrier notwithstanding the existence of the charter agreement with the Northern Mindanao Transport
Company, Inc. since the said charter is limited to the ship only and does not involve both the vessel and its crew. As elucidated in Planters Products, its
charter is only a voyage-charter, not a bareboat charter.

As a common carrier, petitioner is required to observe extraordinary diligence in the vigilance over the goods it transports.[13] When the goods placed in
its care are lost, petitioner is presumed to have been at fault or to have acted negligently. Petitioner therefore has the burden of proving that it observed
extraordinary diligence in order to avoid responsibility for the lost cargo.[14]

In Compania Maritima v. Court of Appeals,[15] we said:

it is incumbent upon the common carrier to prove that the loss, deterioration or destruction was due to accident or some other circumstances
inconsistent with its liability.

...

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it for safe carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and characteristics of goods tendered for shipment,
and to exercise due care in the handling and stowage, including such methods as their nature requires.[16]
Article 1734 enumerates the instances when a carrier might be exempt from liability for the loss of the goods. These are:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers; and

(5) Order or act of competent public authority.[17]

Petitioner claims that the loss of the goods was due to a fortuitous event under paragraph 1. Yet, its claim is not substantiated. On the contrary, we find
supported by evidence on record the conclusion of the trial court and the Court of Appeals that the loss of the entire shipment of cement was due to
the gross negligence of petitioner.

Records show that in the evening of June 24, 1984, the sea and weather conditions in the vicinity of Negros Occidental were calm. The records reveal
that petitioner took a shortcut route, instead of the usual route, which exposed the voyage to unexpected hazard. Petitioner has only itself to blame for
its misjudgment.

Petitioner heavily relies on Home Insurance Co. v. American Steamship Agencies, Inc.[18] and Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals.[19]The said cases involved a private carrier, not a common carrier. Moreover, the issue in both cases is not the effect of a voyage-charter on a
common carrier, but the validity of a stipulation absolving the private carrier from liability in case of loss of the cargo attributable to the negligence of
the private carrier.

Lastly, on the third issue, we find consistent with law and prevailing jurisprudence the Court of Appeals award of attorneys fees and expenses of litigation
equivalent to ten percent (10%) of the total claim. The contract between the parties in this case contained a stipulation that in case of suit, attorneys
fees and expenses of litigation shall be limited to only ten percent (10%) of the total monetary award. Given the circumstances of this case, we deem
the said amount just and equitable.WHEREFORE, the petition is DENIED. The assailed Decision dated October 15, 2002 and the Resolution dated February
27, 2003, of the Court of Appeals in CA-G.R. CV No. 40999, are AFFIRMED.Costs against petitioner.SO ORDERED

G.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.

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.

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.
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

(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.

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).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods could probably fit in two
(2) containers only. It cannot mean that 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 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 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

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.

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.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.
[G.R. No. 104685. March 14, 1996]

SABENA BELGIAN WORLD AIRLINES, petitioner, vs. HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.

DECISION

VITUG, J.:

The appeal before the Court involves the issue of an airlines liability for lost luggage. The petition for review assails the decision of the Court
Appeals,[1] dated 27 February 1992, affirming an award of damages made by the trial court in a complaint filed by private respondent against
petitioner.
The factual background of the case, narrated by the trial court and reproduced at length by the appellate court, is hereunder quoted:

On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant airline originating from Casablanca to Brussels, Belgium on her way
back to Manila. Plaintiff checked in her luggage which contained her valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00; shoes/bag
$150; accessories $75; luggage itself $10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She stayed overnight in Brussels and her
luggage was left on board Flight SN 284.

Plaintiff arrived at Manila International Airport on September 2, 1987 and immediately submitted her Tag No. 71423 to facilitate the release of her
luggage hut the luggage was missing. She was advised to accomplish and submit a property Irregularity Report which she submitted and filed on the
same day.

She followed up her claim on September 14, 1987 but the luggage remained to be missing.

On September 15, 1987, she filed her formal complaint with the office of Ferge Massed, defendants Local Manager, demanding immediate attention
(Exh. A).

On September 30, 1987, on the occasion of plaintiffs following up of her luggage claim, she was furnished copies of defendants telexes with an
information that the Brussels Office of defendant found the luggage and that they have broken the locks for identification (Exhibit B). Plaintiff was
assured by the defendant that it has notified its Manila Office that the luggage will be shipped to Manila on October 27, 1987. But unfortunately plaintiff
was informed that the luggage was lost for the second time (Exhibits C and C-1).

At the time of the filling of the complaint, the luggage with its content has not been found.

Plaintiff demanded from the defendant the money value of the luggage and its contents amounting to $4,265.00 or its exchange value, but defendant
refused to settle the claim.

Defendant asserts in its Answer and its evidence tend to show that while it admits that the plaintiff was a passenger on board Flight No. SN 284 with a
piece of checked in luggage bearing Tag No. 71423, the loss of the luggage was due to plaintiffs sole if not contributory negligence; that she did not
declare the valuable items in her checked-in luggage at the flight counter when she checked in for her flight from Casablanca to Brussels so that either
the representative of the defendant at the counter would have advised her to secure an insurance on the alleged valuable items and required her to
pay additional charges, or would have refused acceptance of her baggage as required by the generally accepted practices of international carriers;
that Section 9(a), Article IX of General Conditions of carriage requiring passengers to collect their checked baggage at the place of stopover, plaintiff
neglected to claim her baggage at the Brussels Airport; that plaintiff should have retrieved her undeclared valuables from her baggage at the Brussels
Airport since her flight from Brussels to Manila will still have to visit for confirmation inasmuch as only her flight from Casablanca to Brussels was confirmed;
that defendant incorporated in all Sabena Plane Tickets, including Sabena Ticket No. 082422-72502241 issued to plaintiff in Manila on August 21, 1987, a
warning that Items of value should be carried on your person and that some carriers assume no liability for fragile, valuable or perishable articles and
that further information may he obtained from the carrier for guidance; that granting without conceding that defendant is liable, its liability is limited only
to US $20.00 per kilo due to plaintiffs failure to declare a higher value on the contents of her checked in luggage and pay additional charges thereon.[2]

The trial court rendered judgment ordering petitioner Sabena Belgian World Airlines to pay private respondent Ma. Paula San Agustin

(a) x x x US$4,265.00 or its legal exchange in Philippine pesos;

(b) x x x P30,000.00 as moral damages;

(c) x x x P10,000.00 as exemplary damages;

(d) x x x P10,000.00 attorneys fees; and

(e) (t)he costs of the suit.[3]

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate court, in its decision of 27 February 1992, affirmed in
toto the trial courts judgment.

Petitioner airline company, in contending that the alleged negligence of private respondent should be considered the primary cause for the loss of her
luggage, avers that, despite her awareness that the flight ticket had been confirmed only for Casablanca and Brussels, and that her flight from Brussels
to Manila had yet to be confirmed, she did not retrieve the luggage upon arrival in Brussels. Petitioner insists that private respondent, being a seasoned
international traveler, must have likewise been familiar with the standard provisions contained in her flight ticket that items of value are required to be
hand-carried by the passenger and that the liability of the airline or loss, delay or damage to baggage would be limited, in any event, to only US$20.00
per kilo unless a higher value is declared in advance and corresponding additional charges are paid thereon. At the Casablanca International Airport,
private respondent, in checking in her luggage, evidently did not declare its contents or value. Petitioner cites Section 5(c), Article IX, of the General
Conditions of Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955, generally observed by International
carriers, stating, among other things, that:

Passengers shall not include in his checked baggage, and the carrier may refuse to carry as checked baggage, fragile or perishable articles, money,
jewelry, precious metals, negotiable papers, securities or other valuables.[4]

Fault or negligence consists in the omission of that diligence which is demanded by the nature of an obligation and corresponds with the circumstances
of the person, of the time, and of the place. When the source of an obligation is derived from a contract, the mere breach or non-fulfillment of the
prestation gives rise to the presumption of fault on the part of the obligor.This rule is not different in the case of common carriers in the carriage of goods
which, indeed, are bound to observe not just the due diligence of a good father of a family but that of extraordinary care in the vigilance over the
goods. The appellate court has aptly observed:

x x x Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods transported by them. This extraordinary responsibility, according to Art. 1736, lasts from
the time the goods are unconditionally placed in the possession of and received by the carrier until they are delivered actually or constructively to the
consignee or person who has the right to receive them. Art. 1737 states that the common carriers duty to observe extraordinary diligence in the vigilance
over the goods transported by them remains in full force and effect even when they are temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that 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 had observed extraordinary diligence as required in Article 1733.

The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the loss, destruction, or deterioration of the goods is due
to any of the following causes:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Not one of the above excepted causes obtains in this case.[5]

The above rules remain basically unchanged even when the contract is breached by tort[6] although noncontradictory principles on quasi-delict may
then be assimilated as also forming part of the governing law. Petitioner is not thus entirely off track when it has likewise raised in its defense the tort
doctrine of proximate cause. Unfortunately for petitioner, however, the doctrine cannot, in this particular instance, support its case. Proximate cause is
that which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not
have occurred. The exemplification by the Court in one case[7] is simple and explicit; viz:

(T)he proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural
and Continuous chain of events, each having a close causal Connection with its immediate predecessor, the final event in the chain immediately
affecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first
event should, as an ordinarily prudent, and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to
some person might probably result therefrom.

It remained undisputed that private respondents luggage was lost while it was in the custody of petitioner. It was supposed to arrive on the same flight
that private respondent took in returning to Manila on 02 September 1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She followed up her claim on 14 September 1987, and filed, on the following day, a formal letter-
complaint with petitioner. She felt relieved when, on 23 October 1987, she was advised that her luggage had finally been found, with its contents intact
when examined, and that she could expect it to arrive on 27 October 1987. She then waited anxiously only to be told later that her luggage had been
lost for the second time. Thus, the appellate court, given all the facts before it, sustained the trial court in finding petitioner ultimately guilty of gross
negligence in the handling of private respondents luggage. The loss of said baggage not only once by twice, said the appellate court, underscores the
wanton negligence and lack of care on the part of the carrier.
The above findings, which certainly cannot be said to be without basis, foreclose whatever rights petitioner might have had to the possible limitation of
liabilities enjoyed by international air carriers under the Warsaw Convention (Convention for the Unification of Certain Rules Relating to International
Carriage by Air, as amended by the Hague Protocol of 1955, the Montreal Agreement of 1966, the Guatemala Protocol of 1971 and the Montreal
Protocols of 1975). In Alitalia vs. Intermediate Appellate Court,[8] now Chief Justice Andres R. Narvasa, speaking for the Court, has explained it well; he
said:

The Warsaw Convention however denies to the carrier availment of the provisions which exclude or limit his liability, if the damage is caused by his wilful
misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct, or if the damage is (similarly) caused x x x by any agent of the carrier acting within the scope of his employment. The Hague Protocol
amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, and declaring the stated limits of liability not applicable if it is proved that the damage resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result. The same deletion was
effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful misconduct.

The Convention does not thus operate as an exclusive enumeration of the instances of an airlines liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the Convention, as this Court has now, and at an earlier time, pointed out. Moreover,
slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the cause of the death or injury to
person, or destruction, loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise no special
or extraordinary form of resulting injury. The Contentions provisions, in short, do not regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some particular or exceptional type of damage. Otherwise, an air carrier would be exempt
from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd. Nor may it for a
moment be supposed that if a member of the aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage
the latters property, the Convention might successfully be pleaded as the sole gauge to determine the carriers liability to the passenger. Neither may the
Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond
the limits set by said Convention. It is in this sense that the Convention has been applied, or ignored, depending on the peculiar facts presented by each
case.

The Court thus sees no error in the preponderant application to the instant case by the appellate court, as well as by the trial court, of the usual rules on
the extent of recoverable damages beyond the Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country of
destination), the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages which can
be reasonably attributed, although unforeseen, to the non-performance of the obligation,[9] including moral and exemplary damages.[10]

WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.

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

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT OF APPEALS and DONATO H. GONZALES, respondents.

DECISION

BELLOSILLO, J.:

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

Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying the Monumento-Bulacan route. While private respondent Gonzales continued offering the
jeepney for public transport services he did not have the registration of the vehicle transferred in his name nor did he secure for himself a certificate of
public convenience for its operation. Thus Vallarta remained on record as its registered owner and operator.

On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan, Bulacan, it collided with a ten-
wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned responsibility for the accident,
explaining that while he was traveling towards Manila the truck suddenly lost its brakes. To avoid colliding with another vehicle, he swerved to the left
until he reached the center island. However, as the center island eventually came to an end, he veered farther to the left until he smashed into a
Ferroza automobile, and later, into private respondent's passenger jeepney driven by one Virgilio Gonzales. The impact caused severe damage to both
the Ferroza and the passenger jeepney and left one (1) passenger dead and many others wounded.

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

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

Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained that although he wanted
to take his jeepney home he had no capability, financial or otherwise, to tow the damaged vehicle.[3]
The main point of contention between the parties related to the amount of damages due private respondent. Private respondent Gonzales averred that
per estimate made by an automobile repair shop he would have to spend P236,000.00 to restore his jeepney to its original condition.[4] On the other
hand, petitioners insisted that they could have the vehicle repaired for P20,000.00.[5]

On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest from 22 July 1990 as compensatory
damages and P30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated that as vendee and current owner of the passenger
jeepney private respondent stood for all intents and purposes as the real party in interest. Even Vallarta himself supported private respondent's assertion
of interest over the jeepney for, when he was called to testify, he dispossessed himself of any claim or pretension on the property. Gunnaban was found
by the trial court to have caused the accident since he panicked in the face of an emergency which was rather palpable from his act of directing his
vehicle to a perilous streak down the fast lane of the superhighway then across the island and ultimately to the opposite lane where it collided with the
jeepney.

On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising his employees. It was
admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he was neither tutored nor trained to handle such
task.[6]
Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In upholding the decision of the
court a quo the appeals court concluded that while an operator under the kabit system could not sue without joining the registered owner of the
vehicle as his principal, equity demanded that the present case be made an exception.[7] Hence this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their opposition to the well-established
doctrine that an operator of a vehicle continues to be its operator as long as he remains the operator of record. According to petitioners, to recognize
an operator under the kabit system as the real party in interest and to countenance his claim for damages is utterly subversive of public
policy. Petitioners further contend that inasmuch as the passenger jeepney was purchased by private respondent for only P30,000.00, an award
of P236,000.00 is inconceivably large and would amount to unjust enrichment.[8]

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

The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who own motor
vehicles to operate them under his license, sometimes for a fee or percentage of the earnings.[9] Although the parties to such an agreement are not
outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and inexistent under Art. 1409
of the Civil Code.

In the early case of Dizon v. Octavio[10] the Court explained that one of the primary factors considered in the granting of a certificate of public
convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from accidents may be
duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a
negligent use of a vehicle owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no
property with which to respondfinancially for the damage done. Thus, for the safety of passengers and the public who may have been wronged and
deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person has become the owner so
that he may be thereby relieved of responsibility. Subsequent cases affirm such basic doctrine.[11]

It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person upon whom
responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force if the public at
large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not exist. First, neither of the parties to
the pernicious kabit system is being held liable for damages. Second, the case arose from the negligence of another vehicle in using the public road to
whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was made and to whom no such
representation, or misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney
were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the riding public was not bothered nor
inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent himself who had been wronged and was
seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny him his right.

In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his passenger
jeepney as well as on his business.Any effort then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue should be
discouraged, if not repelled.

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

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

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

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

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

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

However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage caused by private
respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only that the injured party could have
mitigated his damages but also the amount thereof; failing in this regard, the amount of damages awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as compensatory
damages and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum shall be computed from the time the
judgment of the lower court is made until the finality of this Decision.If the adjudged principal and interest remain unpaid thereafter, the interest shall be
twelve percent (12%) per annum computed from the time judgment becomes final and executory until it is fully satisfied.

Costs against petitioners.

SO ORDERED.
G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner,

vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents.

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.:+.wph!1

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties in the case at
bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.

The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor
Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with
petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration
of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the
name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the
name Acme Taxi, petitioner's trade name.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one
Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil
case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in
the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the
amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon
and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-915036 was likewise levied upon and
sold at public auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita
Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita
Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with
damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which reads: t.hqw

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the
Sheriff of Manila are concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-
688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up to May 1973 at the
rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p.
121, Ibid.)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive
portion another paragraph, to wit: t.hqw
In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of their deterioration, or
because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair
market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted;

(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable (in Civil Case No. 72067) of
the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross
negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has been granted a
certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit
system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of
Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the
government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void
and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but
will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the
parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:t.hqw

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed;

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio
v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."
The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American
jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or
delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari
delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain exceptions to the rule are provided by law, We see no
cogent reason why the full force of the rule should not be applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al.,
Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees,
versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled
and set aside. No costs.

SO ORDERED.1wph1.t
[G.R. No. 144274. September 20, 2004]

NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.

DECISION

CORONA, J.:

This is a petition to review the decision[1] of the Court of Appeals in CA-G.R. CV No. 52203 affirming in turn the decision of the trial court finding petitioner
liable to respondent for damages. The dispositive portion read:

WHEREFORE, the appealed decision is hereby AFFIRMED except the award of attorneys fees including appearance fees which is DELETED.
SO ORDERED.[2]

The facts of the case, as summarized by the Court of Appeals, are as follows:

[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No. NDW 781 91 with [co-respondent]
Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was then the registered owner of a green Mitsubishi Lancer bearing
Plate No. PHK 201 91.

On 22 October 1991 at about 9:45 in the evening, following a green traffic light, [respondent] Priscilla Domingos silver Lancer car with Plate No. NDW 781
91 then driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle lane of South Superhighway at moderate speed from north to
south. Suddenly, a green Mitsubishi Lancer with plate No. PHK 201 91 driven by Renato Dela Cruz Ocfemia darted from Vito Cruz Street towards the South
Superhighway directly into the path of NDW 781 91 thereby hitting and bumping its left front portion. As a result of the impact, NDW 781 91 hit two (2)
parked vehicles at the roadside, the second hitting another parked car in front of it.

Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving with expired license and
positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the filing of information for reckless imprudence
resulting to (sic) damage to property and physical injuries.

The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-seller and second,
impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace Car Exchange.

Except for Ocfemia, all the defendants filed separate answers to the complaint. [Petitioner] Nostradamus Villanueva claimed that he was no longer the
owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. For her part,
Linda Gonzales declared that her presence at the scene of the accident was upon the request of the actual owner of the Mitsubishi Lancer (PHK 201 91)
[Albert Jaucian] for whom she had been working as agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert Jaucian
claimed that he was not the registered owner of the car. Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was
off-duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his employment. [3]

After trial, the trial court found petitioner liable and ordered him to pay respondent actual, moral and exemplary damages plus appearance and
attorneys fees:

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount of P99,580 as actual
damages, P25,000.00 as moral damages, P25,000.00 as exemplary damages and attorneys fees in the amount of P10,000.00 plus appearance fees
of P500.00 per hearing with legal interest counted from the date of judgment. In conformity with the law on equity and in accordance with the ruling in
First Malayan Lending and Finance Corporation vs. Court of Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for
whatever amount the latter is hereby ordered to pay under the judgment.

SO ORDERED.[4]

The CA upheld the trial courts decision but deleted the award for appearance and attorneys fees because the justification for the grant was not stated
in the body of the decision. Thus, this petition for review which raises a singular issue:

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS MOTOR
VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE?[5]
Yes.

We have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being
operated.[6] The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte[7]:

The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume
or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may have for
injuries caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner is. How would the
public or third persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply by his doctrine,
however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to third persons from the person to whom he
had actually sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily be responsible to the public or to
third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of the Court are in agreement that
the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even
if the defendant-appellant was no longer the owner of the vehicle at the time of the damage because he had previously sold it to another. What is the
legal basis for his (defendant-appellants) liability?

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor Vehicles Office. Should
he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury to the real and actual owner? The
defendant holds the affirmative of this proposition; the trial court held the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any public highway unless the
same is property registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians and other travelers from the careless
management of automobiles. And to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed
and operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or
operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish thee Motor Vehicles Office a report
showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturers serial number and motor number.
(Section 5(c), Act No. 3992, as amended.)
Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because
the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and
Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended). The
main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on
the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running
on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant
means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily
ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways:

One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that
the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative
and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the
violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the
displayed number becomes a share and delusion, if courts would entertain such defenses as that put forward by appellee in this case. No responsible
person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to pace a middleman between them
and the public, and escape liability by the manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the
actual and real owner is, and in accordance with such proof escape or evade responsibility by and lay the same on the person actually owning the
vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the
responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade
responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said
responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or
injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or
damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that
the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If
the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person
injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured
person.

The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A
registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to
recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him
of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the
plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay
as damage for the injury caused to the plaintiff-appellant.[8]

Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the accident was not an authorized driver of the new
(actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing and Finance Corporation vs. CA[9] implies that to hold the registered
owner liable for damages, the driver of the vehicle must have been authorized, allowed and permitted by its actual owner to operate and drive it. Thus,
if the vehicle is driven without the knowledge and consent of the actual owner, then the registered owner cannot be held liable for damages.

He further argues that this was the underlying theory behind Duavit vs. CA[10] wherein the court absolved the registered owner from liability after finding
that the vehicle was virtually stolen from the owners garage by a person who was neither authorized nor employed by the owner. Petitioner concludes
that the ruling in Duavit and not the one in First Malayan should be applicable to him.

Petitioners argument lacks merit. Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered
owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and
highways. To require the driver of the vehicle to be authorized by the actualowner before the registered owner can be held accountable is to defeat
the very purpose why motor vehicle legislations are enacted in the first place.

Furthermore, there is nothing in First Malayan which even remotely suggests that the driver must be authorized before the registered owner can be held
accountable. In First Malayan, the registered owner, First Malayan Corporation, was held liable for damages arising from the accident even if the vehicle
involved was already owned by another party:
This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered owner is the operator of the same
with respect to the public and third persons, and as such, directly and primarily responsible for the consequences of its operation. In contemplation of
law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as his agent (MYC-Agro-
Industrial Corporation vs. Vda. de Caldo, 132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil. 949).

We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It is even not necessary to prove who the
actual owner of the vehicle and the employer of the driver is. Granting that, in this case, the father of the driver is the actual owner and that he is the
actual employer, following the well-settled principle that the operator of record continues to be the operator of the vehicle in contemplation of law, as
regards the public and third person, and as such is responsible for the consequences incident to its operation, we must hold and consider such owner-
operator of record as the employer, in contemplation of law, of the driver. And, to give effect to this policy of law as enunciated in the above cited
decisions of this Court, we must now extend the same and consider the actual operator and employer as the agent of the operator of record.[11]

Contrary to petitioners position, the First Malayan ruling is applicable to him since the case involves the same set of facts the registered owner had
previously sold the vehicle to someone else and was being driven by an employee of the new (actual) owner. Duavit is inapplicable since the vehicle
there was not transferred to another; the registered and the actual owner was one and the same person. Besides, in Duavit, the defense of the
registered owner, Gilberto Duavit, was that the vehicle was practically stolen from his garage by Oscar Sabiano, as affirmed by the latter:

Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from the garage of defendant Duavit without the consent and
authority of the latter. He testified further that Duavit even filed charges against him for the theft of the jeep but which Duavit did not push through as his
(Sabianos) parents apologized to Duavit on his behalf.[12]

As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioners case since the circumstance of unauthorized use was not present.
He in fact voluntarily delivered his car to Albert Jaucian as part of the downpayment for a vehicle he purchased from Jaucian. Thus, he could not claim
that the vehicle was stolen from him since he voluntarily ceded possession thereof to Jaucian. It was the latter, as the new (actual) owner, who could
have raised the defense of theft to prove that he was not liable for the acts of his employee Ocfemia. Thus, there is no reason to apply the Duavit ruling
to this case.

The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA[13] and more recently in Aguilar, Sr. vs. Commercial Savings Bank.[14] In BA
Finance, we held the registered owner liable even if, at the time of the accident, the vehicle was leased by another party and was driven by the lessees
employee. In Aguilar, the registered owner-bank answered for damages for the accident even if the vehicle was being driven by the Vice-President of
the Bank in his private capacity and not as an officer of the Bank, as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage or injury caused
by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a
registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks
to avoid.

Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the liability of the
registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement under the motor vehicle law.

WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
[G.R. No. 143360. September 5, 2002]

EQUITABLE LEASING CORPORATION, petitioner, vs. LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO and FELIX OLEDAN, respondents.

DECISION

PANGANIBAN, J.:

In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for the injuries and damages caused by the negligence of
the driver, in spite of the fact that the vehicle may have already been the subject of an unregistered Deed of Sale in favor of another person. Unless
registered with the Land Transportation Office, the sale -- while valid and binding between the parties -- does not affect third parties, especially the
victims of accidents involving the said transport equipment. Thus, in the present case, petitioner, which is the registered owner, is liable for the acts of the
driver employed by its former lessee who has become the owner of that vehicle by virtue of an unregistered Deed of Sale.

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the May 12, 2000 Decision[1] of the Court of Appeals[2] (CA) in CA-GR CV
No. 55474. The decretal portion of the Decision reads as follows:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed decision, dated May 5, 1997, of the Regional Trial
Court of Manila, Branch 14, in Civil Case No. 95-73522, is hereby AFFIRMED with MODIFICATION that the award of attorneys fees is DELETED.[3]

On the other hand, in Civil Case No. 95-73522, the Regional Trial Court (RTC) of Manila (Branch 14) had earlier disposed in this wise:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant Equitable Leasing Corporation ordering said defendant to
pay to the plaintiffs the following:

A. TO MYRNA TAMAYO

1. the sum of P50,000.00 for the death of Reniel Tamayo;

2. P50,000.00 as moral damages; and

3. P56,000.00 for the damage to the store and its contents, and funeral expenses.

B. TO FELIX OLEDAN

1. the sum of P50,000.00 for the death of Felmarie Oledan;

2. P50,000.00 as moral damages; and

3. P30,000.00 for medical expenses, and funeral expenses.

C. TO MARISSA ENANO

1. P7,000.00 as actual damages

D. TO LUCITA SUYOM

1. The sum of P5,000.00 for the medical treatment of her two sons.

The sum of P120,000.00 as and for attorneys fees.[4]

The Facts

On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house cum store of Myrna Tamayo located at Pier 18, Vitas, Tondo, Manila. A
portion of the house was destroyed. Pinned to death under the engine of the tractor were Respondent Myrna Tamayos son, Reniel Tamayo, and
Respondent Felix Oledans daughter, Felmarie Oledan. Injured were Respondent Oledan himself, Respondent Marissa Enano, and two sons of
Respondent Lucita Suyom.

Tutor was charged with and later convicted of reckless imprudence resulting in multiple homicide and multiple physical injuries in Criminal Case No.
296094-SA, Metropolitan Trial Court of Manila, Branch 12.[5]

Upon verification with the Land Transportation Office, respondents were furnished a copy of Official Receipt No. 62204139 [6] and Certificate of
Registration No. 08262797,[7] showing that the registered owner of the tractor was Equitable Leasing Corporation/leased to Edwin Lim. On April 15, 1995,
respondents filed against Raul Tutor, Ecatine Corporation (Ecatine) and Equitable Leasing Corporation (Equitable) a Complaint[8] for damages docketed
as Civil Case No. 95-73522 in the RTC of Manila, Branch 14.

The trial court, upon motion of plaintiffs counsel, issued an Order dropping Raul Tutor, Ecatine and Edwin Lim from the Complaint, because they could
not be located and served with summonses.[9] On the other hand, in its Answer with Counterclaim,[10] petitioner alleged that the vehicle had already
been sold to Ecatine and that the former was no longer in possession and control thereof at the time of the incident. It also claimed that Tutor was an
employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision ordering petitioner to pay actual and moral damages and attorneys fees to respondents. It held
that since the Deed of Sale between petitioner and Ecatine had not been registered with the Land Transportation Office (LTO), the legal owner was still
Equitable.[11] Thus, petitioner was liable to respondents.[12]

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner was still to be legally deemed the owner/operator of the tractor, even if that vehicle had been the
subject of a Deed of Sale in favor of Ecatine on December 9, 1992. The reason cited by the CA was that the Certificate of Registration on file with the
LTO still remained in petitioners name.[13] In order that a transfer of ownership of a motor vehicle can bind third persons, it must be duly recorded in the
LTO.[14]
The CA likewise upheld respondents claim for moral damages against petitioner because the appellate court considered Tutor, the driver of the tractor,
to be an agent of the registered owner/operator.[15]

Hence, this Petition.[16]

Issues

In its Memorandum, petitioner raises the following issues for the Courts consideration:
I

Whether or not the Court of Appeals and the trial court gravely erred when they decided and held that petitioner [was] liable for damages suffered by
private respondents in an action based on quasi delict for the negligent acts of a driver who [was] not the employee of the petitioner.

II

Whether or not the Court of Appeals and the trial court gravely erred when they awarded moral damages to private respondents despite their failure to
prove that the injuries they suffered were brought by petitioners wrongful act.[17]

This Courts Ruling

The Petition has no merit.

First Issue:

Liability for Wrongful Acts

Petitioner contends that it should not be held liable for the damages sustained by respondents and that arose from the negligence of the driver of the
Fuso Road Tractor, which it had already sold to Ecatine at the time of the accident. Not having employed Raul Tutor, the driver of the vehicle, it could
not have controlled or supervised him.[18]

We are not persuaded. In negligence cases, the aggrieved party may sue the negligent party under (1) Article 100[19] of the Revised Penal Code, for civil
liability ex delicto; or (2) under Article 2176[20] of the Civil Code, for civil liability ex quasi delicto.[21]

Furthermore, under Article 103 of the Revised Penal Code, employers may be held subsidiarily liable for felonies committed by their employees in the
discharge of the latters duties.[22]This liability attaches when the employees who are convicted of crimes committed in the performance of their work are
found to be insolvent and are thus unable to satisfy the civil liability adjudged.[23]

On the other hand, under Article 2176 in relation to Article 2180[24] of the Civil Code, an action predicated on quasi delict may be instituted against the
employer for an employees act or omission. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense
of due diligence in the selection and supervision of the employee.[25]The enforcement of the judgment against the employer for an action based on
Article 2176 does not require the employee to be insolvent, since the liability of the former is solidary -- the latter being statutorily considered a joint
tortfeasor.[26] To sustain a claim based on quasi delict, the following requisites must be proven: (a) damage suffered by the plaintiff, (b) fault or
negligence of the defendant, and (c) connection of cause and effect between the fault or negligence of the defendant and the damage incurred by
the plaintiff.[27]

These two causes of action (ex delicto or ex quasi delicto) may be availed of, subject to the caveat[28] that the offended party cannot recover
damages twice for the same act or omission or under both causes.[29] Since these two civil liabilities are distinct and independent of each other, the
failure to recover in one will not necessarily preclude recovery in the other.[30]

In the instant case, respondents -- having failed to recover anything in the criminal case -- elected to file a separate civil action for damages, based on
quasi delict under Article 2176 of the Civil Code.[31] The evidence is clear that the deaths and the injuries suffered by respondents and their kins were due
to the fault of the driver of the Fuso tractor.

Dated June 4, 1991, the Lease Agreement[32] between petitioner and Edwin Lim stipulated that it is the intention of the parties to enter into a FINANCE
LEASE AGREEMENT.[33] Under such scheme, ownership of the subject tractor was to be registered in the name of petitioner, until the value of the vehicle
has been fully paid by Edwin Lim.[34] Further, in the Lease Schedule,[35] the monthly rental for the tractor was stipulated, and the term of the Lease was
scheduled to expire on December 4, 1992. After a few months, Lim completed the payments to cover the full price of the tractor.[36] Thus, on December
9, 1992, a Deed of Sale[37] over the tractor was executed by petitioner in favor of Ecatine represented by Edwin Lim. However, the Deed was not
registered with the LTO.

We hold petitioner liable for the deaths and the injuries complained of, because it was the registered owner of the tractor at the time of the accident on
July 17, 1994.[38] The Court has consistently ruled that, regardless of sales made of a motor vehicle, the registered owner is the lawful operator insofar as
the public and third persons are concerned; consequently, it is directly and primarily responsible for the consequences of its operation.[39] In
contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered as merely
its agent.[40] The same principle applies even if the registered owner of any vehicle does not use it for public service.[41]
Since Equitable remained the registered owner of the tractor, it could not escape primary liability for the deaths and the injuries arising from the
negligence of the driver.[42]

The finance-lease agreement between Equitable on the one hand and Lim or Ecatine on the other has already been superseded by the sale. In any
event, it does not bind third persons.The rationale for this rule has been aptly explained in Erezo v. Jepte,[43] which we quote hereunder:

x x x. The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the
vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very
scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.[44]

Further, petitioners insistence on FGU Insurance Corp. v. Court of Appeals is misplaced.[45] First, in FGU Insurance, the registered vehicle owner, which was
engaged in a rent-a-car business, rented out the car. In this case, the registered owner of the truck, which is engaged in the business of financing motor
vehicle acquisitions, has actually sold the truck to Ecatine, which in turn employed Tutor. Second, in FGU Insurance, the registered owner of the vehicle
was not held responsible for the negligent acts of the person who rented one of its cars, because Article 2180 of the Civil Code was not applicable. We
held that no vinculum juris as employer and employee existed between the owner and the driver.[46] In this case, the registered owner of the tractor is
considered under the law to be the employer of the driver, while the actual operator is deemed to be its agent.[47] Thus, Equitable, the registered owner
of the tractor, is -- for purposes of the law on quasi delict -- the employer of Raul Tutor, the driver of the tractor. Ecatine, Tutors actual employer, is
deemed as merely an agent of Equitable.[48]

True, the LTO Certificate of Registration, dated 5/31/91, qualifies the name of the registered owner as EQUITABLE LEASING CORPORATION/Leased to
Edwin Lim. But the lease agreement between Equitable and Lim has been overtaken by the Deed of Sale on December 9, 1992, between petitioner and
Ecatine. While this Deed does not affect respondents in this quasi delict suit, it definitely binds petitioner because, unlike them, it is a party to it.

We must stress that the failure of Equitable and/or Ecatine to register the sale with the LTO should not prejudice respondents, who have the legal right to
rely on the legal principle that the registered vehicle owner is liable for the damages caused by the negligence of the driver. Petitioner cannot hide
behind its allegation that Tutor was the employee of Ecatine. This will effectively prevent respondents from recovering their losses on the basis of the
inaction or fault of petitioner in failing to register the sale. The non-registration is the fault of petitioner, which should thus face the legal consequences
thereof.
Second Issue:

Moral Damages

Petitioner further claims that it is not liable for moral damages, because respondents failed to establish or show the causal connection or relation
between the factual basis of their claim and their wrongful act or omission, if any. [49]

Moral damages are not punitive in nature, but are designed to compensate[50] and alleviate in some way the physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a person.[51] Although
incapable of pecuniary computation, moral damages must nevertheless be somehow proportional to and in approximation of the suffering
inflicted.[52] This is so because moral damages are in the category of an award designed to compensate the claimant for actual injury suffered, not to
impose a penalty on the wrongdoer.[53]

Viewed as an action for quasi delict, the present case falls squarely within the purview of Article 2219 (2),[54] which provides for the payment of moral
damages in cases of quasi delict.[55] Having established the liability of petitioner as the registered owner of the vehicle,[56] respondents have satisfactorily
shown the existence of the factual basis for the award[57] and its causal connection to the acts of Raul Tutor, who is deemed as petitioners
employee.[58] Indeed, the damages and injuries suffered by respondents were the proximate result of petitioners tortious act or omission.[59]

Further, no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of
the court.[60] The evidence gives no ground for doubt that such discretion was properly and judiciously exercised by the trial court.[61] The award is in fact
consistent with the rule that moral damages are not intended to enrich the injured party, but to alleviate the moral suffering undergone by that party by
reason of the defendants culpable action.[62]

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.SO ORDERED.