Transpo

LAWS ON TRANSPORTATION 2017
I. Concept of Common Carriers; Distinction from Private Carriers; Liability of Registered Owner; Kabit System;
Nature of Business and Degree of Diligence Required;
SECTION 4
Common Carriers (n)
SUBSECTION 1. General Provisions
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.
Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos.
5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and
1756.
G.R. No. 138334 August 25, 2003
ESTELA L. CRISOSTOMO, Petitioner,
vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC., Respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed "Jewels of
Europe". The package tour included the countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland
and France at a total cost of P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare,
and the booking fee was also waived because petitioner’s niece, Meriam Menor, was respondent company’s ticketing
manager.
Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a Wednesday – to deliver petitioner’s
travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the package tour. Menor then
told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British
Airways.
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FCTalonMD Notes ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the flight for the
first leg of her journey from Manila to Hongkong. To petitioner’s dismay, she discovered that the flight she was supposed
to take had already departed the previous day. She learned that her plane ticket was for the flight scheduled on June
14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour – the "British Pageant" – which included England,
Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00
(at the then prevailing exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and
commenced the trip in July 1991.
Upon petitioner’s return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing
the difference between the sum she paid for "Jewels of Europe" and the amount she owed respondent for the "British
Pageant" tour. Despite several demands, respondent company refused to reimburse the amount, contending that the
same was non-refundable.1 Petitioner was thus constrained to file a complaint against respondent for breach of
contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the
Regional Trial Court of Makati City.
In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondent’s fault since it did
not clearly indicate the departure date on the plane ticket. Respondent was also negligent in informing her of the wrong
flight schedule through its employee Menor. She insisted that the "British Pageant" was merely a substitute for the
"Jewels of Europe" tour, such that the cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied responsibility for
petitioner’s failure to join the first tour. Chipeco insisted that petitioner was informed of the correct departure date, which
was clearly and legibly printed on the plane ticket. The travel documents were given to petitioner two days ahead of
the scheduled trip. Petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm
her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe", considering that the
same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already billed the same even
if petitioner did not join the tour. Lotus’ European tour organizer, Insight International Tours Ltd., determines the cost
of a package tour based on a minimum number of projected participants. For this reason, it is accepted industry practice
to disallow refund for individuals who failed to take a booked tour.3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that petitioner missed.
This tour was independently procured by petitioner after realizing that she made a mistake in missing her flight for
"Jewels of Europe". Petitioner was allowed to make a partial payment of only US$300.00 for the second tour because
her niece was then an employee of the travel agency. Consequently, respondent prayed that petitioner be ordered to
pay the balance of P12,901.00 for the "British Pageant" package tour.
After due proceedings, the trial court rendered a decision,4 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred
Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve percent
(12%) per annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for reasonable
attorney’s fees;
3. Dismissing the defendant’s counterclaim, for lack of merit; and

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4. With costs against the defendant.
SO ORDERED.5
The trial court held that respondent was negligent in erroneously advising petitioner of her departure date through its
employee, Menor, who was not presented as witness to rebut petitioner’s testimony. However, petitioner should have
verified the exact date and time of departure by looking at her ticket and should have simply not relied on Menor’s
verbal representation. The trial court thus declared that petitioner was guilty of contributory negligence and accordingly,
deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However, the appellate
court held that petitioner is more negligent than respondent because as a lawyer and well-traveled person, she should
have known better than to simply rely on what was told to her. This being so, she is not entitled to any form of damages.
Petitioner also forfeited her right to the "Jewels of Europe" tour and must therefore pay respondent the balance of the
price for the "British Pageant" tour. The dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant Package
Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed from the time the
counterclaim was filed until the finality of this decision. After this decision becomes final and executory, the rate of
TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the total obligation until payment
thereof is satisfied. The award of attorney’s fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.6
Upon denial of her motion for reconsideration,7 petitioner filed the instant petition under Rule 45 on the following
grounds:
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and setting
aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of unavailed "Jewels
of Europe" tour she being equally, if not more, negligent than the private respondent, for in the contract of carriage the
common carrier is obliged to observe utmost care and extra-ordinary diligence which is higher in degree than the
ordinary diligence required of the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the private respondent. At best, petitioner’s
negligence is only contributory while the private respondent [is guilty] of gross negligence making the principle of pari
delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not indivisible and the
amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of breach
of contract of carriage.8
Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed
her wrongly of the flight schedule. She could not be deemed more negligent than respondent since the latter is required
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by law to exercise extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the same is
merely contributory and not the proximate cause of the damage she suffered. Her loss could only be attributed to
respondent as it was the direct consequence of its employee’s gross negligence.
Petitioner’s contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to another for a fixed price.9 Such person or
association of persons are regarded as carriers and are classified as private or special carriers and common or public
carriers.10 A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to
transport petitioner from one place to another since its covenant with its customers is simply to make travel
arrangements in their behalf. Respondent’s services as a travel agency include procuring tickets and facilitating travel
permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this does not mean
that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the airline, with whom
petitioner ultimately contracted for her carriage to Europe. Respondent’s obligation to petitioner in this regard was
simply to see to it that petitioner was properly booked with the airline for the appointed date and time. Her transport to
the place of destination, meanwhile, pertained directly to the airline.
The object of petitioner’s contractual relation with respondent is the latter’s service of arranging and facilitating
petitioner’s booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage
is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was
an ordinary one for services and not one of carriage. Petitioner’s submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree of care required
in the performance of the latter’s obligation under the contract. For reasons of public policy, a common carrier in a
contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the
utmost diligence of very cautious persons and with due regard for all the circumstances.11 As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary
diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is
that of a good father of a family under Article 1173 of the Civil Code.12 This connotes reasonable care consistent with
that which an ordinarily prudent person would have observed when confronted with a similar situation. The test to
determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.13
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the wrong day of
departure. Petitioner’s testimony was accepted as indubitable evidence of Menor’s alleged negligent act since
respondent did not call Menor to the witness stand to refute the allegation. The lower court applied the presumption
under Rule 131, Section 3 (e)14 of the Rules of Court that evidence willfully suppressed would be adverse if produced
and thus considered petitioner’s uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that petitioner’s
assertion is belied by the evidence on record. The date and time of departure was legibly written on the plane ticket
4
and the travel papers were delivered two days in advance precisely so that petitioner could prepare for the trip. It
performed all its obligations to enable petitioner to join the tour and exercised due diligence in its dealings with the
latter.
We agree with respondent.
Respondent’s failure to present Menor as witness to rebut petitioner’s testimony could not give rise to an inference
unfavorable to the former. Menor was already working in France at the time of the filing of the complaint,15 thereby
making it physically impossible for respondent to present her as a witness. Then too, even if it were possible for
respondent to secure Menor’s testimony, the presumption under Rule 131, Section 3(e) would still not apply. The
opportunity and possibility for obtaining Menor’s testimony belonged to both parties, considering that Menor was not
just respondent’s employee, but also petitioner’s niece. It was thus error for the lower court to invoke the presumption
that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would logically be
inoperative if the evidence is not intentionally omitted but is simply unavailable, or when the same could have been
obtained by both parties.16
In sum, we do not agree with the finding of the lower court that Menor’s negligence concurred with the negligence of
petitioner and resultantly caused damage to the latter. Menor’s negligence was not sufficiently proved, considering that
the only evidence presented on this score was petitioner’s uncorroborated narration of the events. It is well-settled that
the party alleging a fact has the burden of proving it and a mere allegation cannot take the place of evidence.17 If the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no obligation to prove his exception or defense.18
Contrary to petitioner’s claim, the evidence on record shows that respondent exercised due diligence in performing its
obligations under the contract and followed standard procedure in rendering its services to petitioner. As correctly
observed by the lower court, the plane ticket19 issued to petitioner clearly reflected the departure date and time,
contrary to petitioner’s contention. The travel documents, consisting of the tour itinerary, vouchers and instructions,
were likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It arranged petitioner’s hotel accommodation as
well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything else that was
essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would
have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioner, it
became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at least
read the documents in order to assure herself of the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in
the performance of the obligation as the nature of the obligation so demands.20 There is no fixed standard of diligence
applicable to each and every contractual obligation and each case must be determined upon its particular facts. The
degree of diligence required depends on the circumstances of the specific obligation and whether one has been
negligent is a question of fact that is to be determined after taking into account the particulars of each case.21 1âwphi1
The lower court declared that respondent’s employee was negligent. This factual finding, however, is not supported by
the evidence on record. While factual findings below are generally conclusive upon this court, the rule is subject to
certain exceptions, as when the trial court overlooked, misunderstood, or misapplied some facts or circumstances of
weight and substance which will affect the result of the case.22
In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not
commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
5
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R. CV
No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00 representing
the balance of the price of the British Pageant Package Tour, with legal interest thereon at the rate of 6% per annum,
to be computed from the time the counterclaim was filed until the finality of this Decision. After this Decision becomes
final and executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim period
being deemed to be by then an equivalent to a forbearance of credit.23
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than
regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company
(Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled
milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks:
150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other
truck which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since
the truck which carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by
armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of
Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods.
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In his Answer, private respondent denied that he was a common carrier and argued that he could not be held
responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and
holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in
transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way
of a Petition for Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth,
be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes,
any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
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ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private respondent's principal
occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers
a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of
care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration
of the goods which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common
carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)
8
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case —
the hijacking of the carrier's truck — does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions
of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part
of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the
instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with
the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the
vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional
specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in
relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers who donot act with grave or irresistible
threat, violence or force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on account of the
defective condition of the car vehicle, ship, airplane or other equipment used in the contract of carriage. (Emphasis
supplied)
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish
such responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact
acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.
The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina,
Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away
with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined
for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted
with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5) hold-uppers were armed with firearms.
The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found
by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4
9
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the
control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous
standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for
the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's
control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated
3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in
her official capacity as City Treasurer of Batangas, respondents.
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R.
SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293,
which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate
oil pipelines. The original pipeline concession was granted in 19671 and renewed by the Energy Regulatory Board in
1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City.
However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local
tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code3. The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on
the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order
not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion
of which reads:
10
Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts under Section 133
of the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131, Paragraph
(h) of the Local Government Code. Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code does not include the power to levy on
transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for
the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The
fee is already a revenue raising measure, and not a mere regulatory imposition.4
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered
engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government
Code.5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint6 for tax refund with prayer
for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include
the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the
said tax, thus meriting the immediate refund of the tax paid.7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of
the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included
in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like.
Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by which
a product is delivered to its destination.8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only
by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A) whose concession was
lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any
tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such
being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
11
1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to overburden the
riding public or commuters with taxes. Plaintiff is not a common carrier, but a special carrier extending its services and
facilities to a single specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local governments
than the previous enactments, to make them economically and financially viable to serve the people and discharge
their functions with a concomitant obligation to accept certain devolution of powers, . . . So, consistent with this policy
even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code.9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred
the case to the respondent Court of Appeals for consideration and adjudication. 10 On November 29, 1995, the
respondent court rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. 13Petitioner
moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition
was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier
or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of
transporting persons or property from place to place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself
out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged
in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes
to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods
by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of
a common carrier. In De Guzman vs. Court of Appeals 16we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a
"sideline"). Article 1732 . . . 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
12
or population, and one who offers services or solicits business only from a narrow segment of the general population.
We think that Article 1877 deliberately refrained from making such distinctions.
every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes,
any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system
gas, electric light heat and power, water supply andpower petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code
refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land,
sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to
the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus,
Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize installations
for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro
rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without
discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public
utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it
declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
13
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxx xxx xxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land or water, except as provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the local government units. May we know the reason why the
transportation business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It
states that local government units may not impose taxes on the business of transportation, except as otherwise
provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the
power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross
annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province.
That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just
provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of
business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National
Internal Revenue Code. 19 To tax petitioner again on its gross receipts in its transportation of petroleum business
would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November
29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, Puno and Mendoza, JJ., concur.
14
G.R. No. 148496 March 19, 2002
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL SERVICES,
INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming the decision2 of
the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay respondent, as subrogee, the amount
of P93,112.00 with legal interest, representing the value of damaged cargo handled by petitioner, 25% thereof as
attorney's fees, and the cost of the suit.1âwphi1.nêt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole proprietorship
customs broker. At the time material to this case, petitioner entered into a contract with San Miguel Corporation (SMC)
for the transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila
to SMC's warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by
respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board "M/V Hayakawa
Maru" and, after 24 hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port Services,
Inc. From July 23 to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre
operator and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine
Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and 3 reels of
kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn,
respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City,
which, on December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the
shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of defendants. Evidence such
as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh. "F") with entries appearing therein, classified as
"TED" and "TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage
at the middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh. "H" -
"H-4-A") confirms the fact of the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-A") in
particular, which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to improper handling in transit presumably whilst in
the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
15
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not liable. Defendant
by reason of the nature of [her] business should have devised ways and means in order to prevent the damage to the
cargoes which it is under obligation to take custody of and to forthwith deliver to the consignee. Defendant did not
present any evidence on what precaution [she] performed to prevent [the] said incident, hence the presumption is that
the moment the defendant accepts the cargo [she] shall perform such extraordinary diligence because of the nature of
the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that
they have observed the extraordinary diligence required by law. The burden of the plaintiff, therefore, is to prove merely
that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier
to prove that he has exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof
of delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad order, makes out a
prima facie case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be
held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability." (cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV,
1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is supposed [to] exercise
[the] extraordinary diligence required by law, hence the extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right to receive the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts --
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN] DECIDING THE CASE NOT
ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE
PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a common carrier, although
both the trial court and the Court of Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence
in the vigilance over the goods transported by her, would require.6 Consequently, any damage to the cargo she agrees
to transport cannot be presumed to have been due to her fault or negligence.
16
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common carrier
but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her services
out to the public but only offers the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar contention and held
the party to be a common carrier, thus -
"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."
goods or both, and one who does such carrying only as an ancillary activity . . . Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions.
" x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service
of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. x x
x" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an integral
part of her business. To uphold petitioner's contention would be to deprive those with whom she contracts the protection
which the law affords them notwithstanding the fact that the obligation to carry goods for her customers, as already
noted, is part and parcel of petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance over goods" was
explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know
and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage
17
and delivery. It requires common carriers to render service with the greatest skill and foresight and "to use all
reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care
in the handling and stowage, including such methods as their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the "spoilage or wettage" took
place while the goods were in the custody of either the carrying vessel "M/V Hayakawa Maru," which transported the
cargo to Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly kept them in open air
for nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed, cracked,
or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has no personal knowledge
on whether the container vans were first stored in petitioner's warehouse prior to their delivery to the consignee. She
likewise claims that after withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro,
immediately delivered the cargo to SMC's warehouse in Ermita, Manila, which is a mere thirty-minute drive from the
Port Area where the cargo came from. Thus, the damage to the cargo could not have taken place while these were in
her custody.11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors indicates that when the
shipper transferred the cargo in question to the arrastre operator, these were covered by clean Equipment Interchange
Report (EIR) and, when petitioner's employees withdrew the cargo from the arrastre operator, they did so without
exception or protest either with regard to the condition of container vans or their contents. The Survey Report pertinently
reads --
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier #13 South Harbor,
Manila on 14 July 1990, containerized onto 30' x 20' secure metal vans, covered by clean EIRs. Except for slight dents
and paint scratches on side and roof panels, these containers were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by Transorient Container Services,
Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera Compound, Romualdez
Street, Ermita, Manila from July 23/25, 1990.12
As found by the Court of Appeals:
18
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port
Services Inc., in good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there
been any damage to the shipment, there would have been a report to that effect made by the arrastre operator. The
cargoes were withdrawn by the defendant-appellant from the arrastre still in good order and condition as the same
were received by the former without exception, that is, without any report of damage or loss. Surely, if the container
vans were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately to the consignee
or make an exception on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order and condition and delivered the
same to the consignee damaged. We can only conclude that the damages to the cargo occurred while it was in the
possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No
proof was proffered to rebut this legal presumption and the presumption of negligence attached to a common carrier in
case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as she immediately
delivered the containers to SMC's compound, suffice it to say that to prove the exercise of extraordinary diligence,
petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It
must prove that it used "all reasonable means to ascertain the nature and characteristic of goods tendered for [transport]
and that [it] exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any
of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are
known to the carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom.14 In this case, petitioner accepted the cargo without exception despite the apparent defects in some of the
container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in the carriage of
goods in this case or that she is exempt from liability, the presumption of negligence as provided under Art. 173515
holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.1âwphi1.nêt
SO ORDERED.
Bellosillo, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, petitioner,
vs.
19
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's responsibility for damage
to the cargo and its liability for demurrage and attorney's fees. The Court also reiterates the well-known rule that findings
of facts of trial courts, when affirmed by the Court of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, Inc.
(VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals.1 The Court of Appeals modified the
decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed
as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the complaint
with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on both
amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED.2
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for demurrage to
P44,000.00 and deleting the award for attorney's fees and expenses of litigation. Except as thus modified, the decision
is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.3
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment for
the general public. Its services are available only to specific persons who enter into a special contract of charter party
with its owner. It is undisputed that the ship is a private carrier. And it is in the capacity that its owner, Vlasons Shipping,
Inc., entered into a contract of affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

20
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc.
(VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's
vessel, the MV "VLASONS I" to make one (1) voyage to load steel products at Iligan City and discharge them at North
Harbor, Manila, under the following terms and conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen (15)
days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours, Sundays
and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party
Agreement shall form part of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the NANYOZAI Charter Party
which stands for "Freight In and Out including Stevedoring and Trading", which means that the handling, loading and
unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it
states, "Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . . (Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of the voyage, exercise due
diligence to make the vessel seaworthy and properly manned, equipped and supplied and to make the holds and all
other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation. Owners shall
not be liable for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by want of
due diligence on the part of the owners to make the vessel seaworthy, and to secure that the vessel is properly manned,
equipped and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for
its reception, carriage and preservation; . . . ; perils, dangers and accidents of the sea or other navigable waters; . . . ;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the cargo;
insufficiency of packing; . . . ; latent defects not discoverable by due diligence; any other cause arising without the
actual fault or privity of Owners or without the fault of the agents or servants of owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be responsible for split, chafing
and/or any damage unless caused by the negligence or default of the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV "VLASONS I" loaded
at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a
21
total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment was
placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged
receipt of the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8,
1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August
13, 1974, when the vessel's three (3) hatches containing the shipment were opened by plaintiff's agents, nearly all the
skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and
unloaded by stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after incurring a
delay of eleven (11) days due to the heavy rain which interrupted the unloading operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the Manila
Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit "G"), MASCO made
a report of its ocular inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found
wetting and rusting of the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers
were noted torn at various extents; that container/metal casings of the skids were rusting all over. MASCO ventured
the opinion that "rusting of the tinplates was caused by contact with SEA WATER sustained while still on board the
vessel as a consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit "F").
It was also reported that MASCO's surveyors drew at random samples of bad order packing materials of the tinplates
and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad order samples of packing
materials . . . shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for
damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on October
3, 1974, plaintiff formally demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed
its complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of the
act, neglect and default of the master and crew in the management of the vessel as well as the want of due diligence
on the part of the defendant to make the vessel seaworthy and to make the holds and all other parts of the vessel in
which the cargo was carried, fit and safe for its reception, carriage and preservation — all in violation of defendant's
undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV "VLASONS I" was seaworthy
in all respects for the carriage of plaintiff's cargo; that said vessel was not a "common carrier" inasmuch as she was
under voyage charter contract with the plaintiff as charterer under the charter party; that in the course of the voyage
from Iligan City to Manila, the MV "VLASONS I" encountered very rough seas, strong winds and adverse weather
condition, causing strong winds and big waves to continuously pound against the vessel and seawater to overflow on
its deck and hatch covers, that under the Contract of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the officers of the vessel, that the officers of said MV "VLASONS
I" exercised due diligence and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter
Party provides that loading and discharging of the cargo was on FIOST terms which means that the vessel was free of
risk and expense in connection with the loading and discharging of the cargo; that the damage, if any, was due to the
inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not
discoverable by due diligence or to any other cause arising without the actual fault or privity of defendant and without
the fault of the agents or servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff
who discharged the cargo in Manila were negligent and did not exercise due care in the discharge of the cargo; land
that the cargo was exposed to rain and seawater spray while on the pier or in transit from the pier to plaintiff's warehouse
after discharge from the vessel; and that plaintiff's claim was highly speculative and grossly exaggerated and that the
22
small stain marks or sweat marks on the edges of the tinplates were magnified and considered total loss of the cargo.
Finally, defendant claimed that it had complied with all its duties and obligations under the Voyage Charter Hire Contract
and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire Contract,
plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per day
for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo
from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant attorney's
fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings which were set
forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping service and is available for hire
only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. "1"), the MV VLASONS I"
was covered by the required seaworthiness certificates including the Certification of Classification issued by an
international classification society, the NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board of
Transportation (Exh. "5"); International Loadline Certificate from the Philippine Coast Guard (Exh. "6"); Cargo Ship
Safety Equipment Certificate also from the Philippine Coast Guard (Exh. "7"); Ship Radio Station License (Exh. "8");
Certificate of Inspection by the Philippine Coast Guard (Exh. "12"); and Certificate of Approval for Conversion issued
by the Bureau of Customs (Exh. "9"). That being a vessel engaged in both overseas and coastwise trade, the MV
"VLASONS I" has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the MV
"VLASONS I" underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact,
subject voyage was the vessel's first voyage after the drydocking. The evidence shows that the MV "VLASONS I" was
seaworthy and properly manned, equipped and supplied when it undertook the voyage. It has all the required
certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered by
hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water tight. Furthermore,
under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The provisions
of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in case of loss or
damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly due to the wetting and
rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates "sweat" by themselves when
packed even without being in contract (sic) with water from outside especially when the weather is bad or raining. The
trust caused by sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot
be held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the "character of the goods . . ." All the 1,769 skids of the tinplates could not have been damaged
by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft
paper lining and corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch
openings of the MV "VLASONS I" when rains occurred during the discharging of the cargo thus allowing rainwater to
23
enter the hatches. It was proven that the stevedores merely set up temporary tents to cover the hatch openings in case
of rain so that it would be easy for them to resume work when the rains stopped by just removing the tent or canvas.
Because of this improper covering of the hatches by the stevedores during the discharging and unloading operations
which were interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5
of the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the
loading, stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant carrier
has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan City to
Manila causing sea water to splash on the ship's deck on account of which the master of the vessel (Mr. Antonio C.
Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh. "15"); which can be invoked by defendant as a force majeure
that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract that it
was to insure the cargo because it did not. Had plaintiff complied with the requirement, then it could have recovered its
loss or damage from the insurer. Plaintiff also violated the charter party contract when it loaded not only "steel products",
i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high grade cargo commanding
a higher freight. Thus plaintiff was able to ship grade cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter hire under Paragraph 4 thereof, fixed the freight
at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen (15) days.
Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also showed that the plaintiff
was required and bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00
per day of delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable
to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned, equipped and supplied, and
that there is no proof of willful negligence of the vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent nature or character of the
goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC's shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
24
The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI.4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from
P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI filed
separate motions for reconsideration. In a Resolution5 dated October 20, 1993, the appellate court denied both
motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On motion of VSI, the
Court ordered on February 14, 1994 the consolidation of these petitions.6
The Issues
In its petition7 and memorandum,8 NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by weather
interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9", "11" and "12") were
admissible in evidence and constituted evidence of the vessel's seaworthiness at the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's tinplates.
In its separate petition,9 VSI submits for the consideration of this Court the following alleged errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from P88,000.00
to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorney's fees
and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum:10
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist[s]
a presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a
private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai Charter, are
valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
25
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier.
The resolution of this preliminary question determines the law, standard of diligence and burden of proof applicable to
the present case.
Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public." It has been held that the true test of a common carrier is the carriage of passengers or
goods, provided it has space, for all who opt to avail themselves of its transportation service for a fee.11 A carrier which
does not qualify under the above test is deemed a private carrier. "Generally, private carriage is undertaken by special
agreement and the carrier does not hold himself out to carry goods for the general public. The most typical, although
not the only form of private carriage, is the charter party, a maritime contract by which the charterer, a party other than
the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages."12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional
Trial Court, it carried passengers or goods only for those it chose under a "special contract of charter party." 13 As
correctly concluded by the Court of Appeals, the MV Vlasons I "was not a common but a private
carrier."14Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage to
the cargo, are determined primarily by stipulations in their contract of private carriage or charter party.15 Recently, in
Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation,16
the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would
be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy
embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by
law in contracts involving common carriers.17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not be responsible for
losses except on proven willful negligence of the officers of the vessel." The NANYOZAI Charter Party, which was
incorporated in the parties' contract of transportation further provided that the shipowner shall not be liable for loss of
or a damage to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of due
diligence to make the vessel seaworthy or to ensure that the same was "properly manned, equipped and supplied,"
and to "make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation."18 The NANYOZAI Charter Party also provided that "[o]wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master or crew."19
26
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused
by VSI's willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly
stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event, force
majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding article if
proofs against him show that they occurred on account of his negligence or his omission to take the precautions usually
adopted by careful persons, unless the shipper committed fraud in the bill of lading, making him to believe that the
goods were of a class or quality different from what they really were.
Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the foregoing provisions
of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima faciepresumption of
negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier
was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carrier's custody does not
put the burden of proof on the carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the protection of the goods
committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof of loss of,
or damage to, cargo while in the carrier's possession does not cast on it the burden of proving proper care and diligence
on its part or that the loss occurred from an excepted cause in the contract or bill of lading. However, in discharging
the burden of proof, plaintiff is entitled to the benefit of the presumptions and inferences by which the law aids the bailor
in an action against a bailee, and since the carrier is in a better position to know the cause of the loss and that it was
not one involving its liability, the law requires that it come forward with the information available to it, and its failure to
do so warrants an inference or presumption of its liability. However, such inferences and presumptions, while they may
affect the burden of coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and,
where the carrier comes forward with evidence explaining the loss or damage, the burden of going forward with the
evidence is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a breach thereof and
that such breach was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost or
damaged while in the carrier's possession does not cast on it the burden of proving seaworthiness. . . . Where the
contract of carriage exempts the carrier from liability for unseaworthiness not discoverable by due diligence, the carrier
has the preliminary burden of proving the exercise of due diligence to make the vessel seaworthy.20
In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position in relation to the
question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not even correct), it
argues that 'a careful examination of the evidence will show that VSI miserably failed to comply with any of these
obligation's as if defendant-appellee [VSI] had the burden of
27
proof."21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether VSI
exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party; (2) whether
the damage to the cargo should be attributed to the willful negligence of the officers and crew of the vessel or of the
stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own "sweat" or by contact with
seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear
the parties' conflicting claims and to carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the Court of
Appeals coincide, the same are binding on this Court.22 We stress that, subject to some exceptional instances,23only
questions of law — not questions of fact — may be raised before this Court in a petition for review under Rule 45 of
the Rules of Court. After a thorough review of the case at bar, we find no reason to disturb the lower court's factual
findings, as indeed NSC has not successfully proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the carriage of
NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked and inspected by the Philippine Coast
Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage charter hire.24The vessel's
voyage from Iligan to Manila was the vessel's first voyage after drydocking. The Philippine Coast Guard Station in Cebu
cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel.25 The Court of Appeals
itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or
reverse this finding of both the trial and the appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence of
the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates. NSC
failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover the
hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for failing to
consider such claim as an "uncontroverted fact"26 and denies that MV Vlasons I "was equipped with new canvas
covers in tandem with the old ones as indicated in the Marine Protest . . ."27 We disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition to the new one
used primarily to make the ship's hatches watertight. The foregoing are clear from the marine protest of the master of
the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship's boatswain, Jose Pascua. The salient portions of
said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, loaded with approximately
2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before departure, the vessel
was rigged, fully equipped and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of the
western part of Negros and Panay, we encountered very rough seas and strong winds and Manila office was advised
by telegram of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the vessel at her port side causing
28
sea water to overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give
way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-secured the
canvass covering back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage, we
were again exposed to moderate seas and heavy rains; that while approaching Fortune Island, we encountered again
rough seas, strong winds and big waves which caused the same canvass to give way and leaving the new canvass
holding on;
xxx xxx xxx 28
And the relevant portions of Jose Pascua's deposition are as follows:
q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat bar over
the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the whole hatch opening?
a No, sir.
29
q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many pieces of wood are put on top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the canvass cover. How many canvas covers?
a Two, sir.29
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by the
fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ship's hatches and
cargo holds remained waterproof. As aptly stated by the Court of Appeals, ". . . we find no reason not to sustain the
conclusion of the lower court based on overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City arriving safely
at North Harbor, Port Area, Manila, on August 12, 1974; . . .30
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV Vlasons
I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading the cargo from
the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a passing
typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keeping rain
and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel upon
notice from the National Steel Corporation in order to conduct the inspection of the cargo. During the course of the
investigation, did you chance to see the discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but majority of the
tinplates were inside the hall, all the hatches were opened.
30
Q In connection with these cargoes which were unloaded, where is the place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript of stenographic notes
shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the hatches.
Q You also stated that the hatches were already opened and that there were tents constructed at the opening of the
hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents constructed.
A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with the whole
side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle because of those weather and
this can be used only to temporarily protect the cargo from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents proper?
A No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was not good
enough to hold all of it to prevent the water soaking through the canvass and enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the canvass
and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its stevedores
in discharging the cargo particularly in this tent covering of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind at all, so,
called the attention of the representative of the National Steel but nothing was done, just the same. Finally, I wrote a
letter to them.31
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the
stevedores' negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven days
later.32 The Court is not persuaded. Angliongto's candid answer in his aforequoted testimony satisfactorily explained
the delay. Seven days lapsed because he first called the attention of the stevedores, then the NSC's representative,
31
about the negligent and defective procedure adopted in unloading the cargo. This series of actions constitutes a
reasonable response in accord with common sense and ordinary human experience. Vicente Angliongto could not be
blamed for calling the stevedores' attention first and then the NSC's representative on location before formally informing
NSC of the negligence he had observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the stevedores it
had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSC's shipment. We do not think so. Such negligence according to the trial court is evident
in the stevedores hired by [NSC], not closing the hatch of MV 'VLASONS I' when rains occurred during the discharging
of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It
was proven that the stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained
during the unloading operations so that it would be easier for them to resume work after the rains stopped by just
removing said tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto
wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days
and the improper closing of the hatches which allowed continuous heavy rain water to leak through and drip to the
tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with strong winds
that the hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh. "13"). This letter
was received by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit "13-A").33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable weather will
not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may seek indemnification,
subject to the laws on prescription, from the stevedoring company at fault in the discharge operations. "A stevedore
company engaged in discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence . . . and where the officers and members and crew of the vessel do
nothing and have no responsibility in the discharge of cargo by stevedores . . . the vessel is not liable for loss of, or
damage to, the cargo caused by the negligence of the
stevedores . . ."34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by themselves when
packed even without being in contact with water from outside especially when the weather is bad or
raining . . ."35 The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the
tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and
distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo caused by
the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore, NSC's failure to insure the cargo
will not affect its right, as owner and real party in interest, to file an action against VSI for damages caused by the
32
latter's willful negligence. We do not find anything in the charter party that would make the liability of VSI for damage
to the cargo contingent on or affected in any manner by NSC's obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the certificates of
seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs36
NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of Court. It
points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of public officers"; while Exhibits 5, 6, 7,
8, 9, 11 and 12 are not "evidenced by official publications or certified true copies" as required by Sections 25 and 26,
Rule 132, of the Rules of Court.37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for
they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they
have not been proven by one who saw the writing executed, or by evidence of the genuineness of the handwriting of
the maker, or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the
best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44 of
Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made in the performance of a duty by
a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie
evidence of the facts therein stated."38 Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued
by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG
Inspectors were sent on board for inspection . . . After completion of drydocking and duly inspected by PCG Inspectors,
the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for
trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974." (sic)
NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not seaworthy. As observed
earlier, the vessel was a private carrier and, as such, it did not have the obligation of a common carrier to show that it
was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI in making the
ship seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not
sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
33
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.39
The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of cargo.40It
is given to compensate the shipowner for the nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in "running days," this
means days when the ship would be run continuously, and holidays are not excepted. A qualification of "weather
permitting" excepts only those days when bad weather reasonably prevents the work contemplated.41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as WWDSHINC
or weather working days Sundays and holidays included.42 The running of laytime was thus made subject to the
weather, and would cease to run in the event unfavorable weather interfered with the unloading of cargo.43
Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not lapse, having been
tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it
was error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC incurred eleven
days of delay in unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve
days, specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable weather
or rain, which was August 22, 1974. Based on our previous discussion, such finding is a reversible error. As mentioned,
the respondent appellate court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the
amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We disagree. While VSI was
compelled to litigate to protect its rights, such fact by itself will not justify an award of attorney's fees under Article 2208
of the Civil Code when ". . . no sufficient showing of bad faith would be reflected in a party's persistence in a case other
than an erroneous conviction of the righteousness of his cause . . ."44 Moreover, attorney's fees may not be awarded
to a party for the reason alone that the judgment rendered was favorable to the latter, as this is tantamount to imposing
a premium on one's right to litigate or seek judicial redress of legitimate grievances.45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo? Ranged
against NSC are two formidable truths. First, both lower courts found that such damage was brought about during the
unloading process when rain and seawater seeped through the cargo due to the fault or negligence of the stevedores
employed by it. Basic is the rule that factual findings of the trial court, when affirmed by the Court of Appeals, are
binding on the Supreme Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case
is one of them. Second, the agreement between the parties — the Contract of Voyage Charter Hire — placed the
burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation, while
disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not one of common
carriage. Basic too is the doctrine that courts cannot relieve a parry from the effects of a private contract freely entered
into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial
contract and its stipulations are agreed upon in consideration of many factors, not the least of which is the transport
price which is determined not only by the actual costs but also by the risks and burdens assumed by the shipper in
regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated that the
34
shipper should insure the cargo to protect itself from the risks it undertook under the charter party. That NSC failed or
neglected to protect itself with such insurance should not adversely affect VSI, which had nothing to do with such failure
or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned Decision
of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is deleted. No
pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Romero, Melo and Francisco, JJ., concur.
G.R. No. 131621 September 28, 1999
LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997 decision 1 of
the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 2 of the Regional Trial
Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila
Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the compliant until fully
paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying
LOADSTAR's motion for reconsideration of said decision.
The facts are undisputed.1âwphi1.nêt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the following goods
for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including
"TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee &
Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit,
Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment,
the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000
to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.
35
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was
due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the
insurance proceeds from the loss the vessel directly to MIC, said amount to be deducted from MIC's claim from
LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that sinking of its vessel
was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR
being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds
to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter
to the court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that fateful
voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained control over its
crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the
rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been seaworthy, it
could have withstood the "natural and inevitable action of the sea" on 20 November 1984, when the condition of the
sea was moderate. The vessel sank, not because of force majeure, but because it was not seaworthy. LOADSTAR'S
allegation that the sinking was probably due to the "convergence of the winds," as stated by a PAGASA expert, was
not duly proven at the trial. The "limited liability" rule, therefore, is not applicable considering that, in this case, there
was an actual finding of negligence on the part of the carrier.5
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind only
the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated to the
latter's rights as against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the shipper's goods never reached their destination.
LOADSTAR's defense of "diligence of a good father of a family" in the training and selection of its crew is unavailing
because this is not a proper or complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on board
a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and condition, it then
devolves upon the shipowner to both allege and prove that the goods were damaged by reason of some fact which
legally exempts him from liability." Transportation of the merchandise at the risk and venture of the shipper means that
the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force majeure, or the inherent
nature and defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless
otherwise proved. 7
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises.
36
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued certificate
of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only "one shipper, one
consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely raised below;
hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for delivery
to one consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading in this
case made no mention of any charter party but only a statement that the vessel was a "general cargo carrier." Neither
was there any "special arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert the vessel
into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been
negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the vessel
was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of
the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was
experienced, licensed and unquestionably competent. With all these precautions, there could be no other conclusion
except that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel's seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure.
It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the
next day when the vessel sank due to strong waves. MCI's witness, Gracelia Tapel, fully established the existence of
two typhoons, "WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984,
signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the
convergence of winds brought about by these two typhoons strengthened wind velocity in the area, naturally producing
strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired
in this case, is valid. Since the cargo was being shipped at "owner's risk," LOADSTAR was not liable for any loss or
damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply
only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme
Court's ruling in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted beyond the period
stated in the bills of lading for instituting the same — suits based upon claims arising from shortage, damage, or non-
delivery of shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank on 20
November 1984; yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due toforce
majeure, because the same concurred with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed
waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at fault or negligent,
and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a
typhoon is tantamount to negligence.
We find no merit in this petition.

37
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be
issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the
goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies,
Inc., 11 where this Court held that a common carrier transporting special cargo or chartering the vessel to a special
person becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court
of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that the factual settings
are different. The records do not disclose that the M/V "Cherokee," on the date in question, undertook to carry a special
cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any
special arrangement, but only a general provision to the effect that the M/V"Cherokee" was a "general cargo carrier."
14 Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be
purely coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where,
as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under
Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the Court juxtaposed the statutory
definition of "common carriers" with the peculiar circumstances of that case, viz.:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
goods or both, and one who does such carrying only as ancillary activity (in local idiom, as "a sideline". Article 1732
Article 1733 deliberately refrained from making such distinctions.
xxx xxx xxx
"back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled manner, and eventhough private respondent's principal
occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers
a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that
38
would be to reward private respondent precisely for failing to comply with applicable statutory requirements The
business of a common carrier impinges directly and intimately upon the safety and well being and property of those
members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it embarked on its
voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. "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 its vessel involved in a contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this case. The
doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. 17
LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail
despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed
as force majeure, inasmuch as the wind condition in the performance of its duties, LOADSTAR cannot hide behind the
"limited liability" doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard
of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire
Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after paying the claim of the insured for
damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover
only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or damage
to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily
subject to the same limitations and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR
involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in
the case at bar effectively reduces the common carrier's liability for the loss or destruction of the goods to a degree
less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments
made at "owner's risk." Such stipulation is obviously null and void for being contrary to public policy." 20 It has been
said:
Three kinds of stipulations have often been made in a bill of lading. The first one exempting the carrier from any and
all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation
of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of. freight. According to an almost uniform weight of
authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid
and enforceable. 21
Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the
rights which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's cause of action had
not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states
a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) — which provides for a one-
year period of limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied
suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the goods. 22In this case,
the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is
null and void; 23 it must, accordingly, be struck down.
39
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals
in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February 21, 2001
Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial Court of Manila which found
petitioner liable to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at US$423,192.354 was shipped
by Marubeni American Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery
to the consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4.5The shipment
was insured by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage for
P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the petitioner
Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to deliver the cargo to
consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by Lighterage Receipt
No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an incoming typhoon.
On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off Baseco to seek shelter from
the approaching typhoon. PSTSI III was tied down to other barges which arrived ahead of it while weathering out the
storm that night. A few days after, the barge developed a list because of a hole it sustained after hitting an unseen
protuberance underneath the water. The petitioner filed a Marine Protest on August 28, 1990.8 It likewise secured the
services of Gaspar Salvaging Corporation which refloated the barge.9 The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on September 5,
1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong current. To avoid the complete
sinking of the barge, a portion of the goods was transferred to three other barges.10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the total loss of
the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12
40
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded on the three
other barges.13 The total proceeds from the sale of the salvaged cargo was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter dated
September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount of P4,104,654.22.15Thereafter,
as subrogee, it sought recovery of said amount from the petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount of indemnity,
attorney's fees and cost of suit.16 Petitioner filed its answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage & Shipping,
Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the
date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded as and for attorney's fees.
Defendant's counterclaim is hereby DISMISSED. With costs against defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court affirmed the
decision of the trial court with modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the salvage value
of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a Resolution
promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN
THE FIVE (5) CASES ENUMERATED."
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT
PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY
OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
41
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care and custody of
the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and publicly known
route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry indiscriminately for any
person. It is not bound to carry goods unless it consents. In short, it does not hold out its services to the general
public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732 of the Civil Code
makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity. We also did not distinguish between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to
the general public, and one who offers services or solicits business only from a narrow segment of the general
population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage22 and it offers its barges to
the public for carrying or transporting goods by water for compensation. Petitioner is clearly a common carrier. In De
Guzman, supra,23 we considered private respondent Ernesto Cendaña to be a common carrier even if his principal
occupation was not the carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and
selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular rather than
scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly known routes.
Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of Appeals.24 The test to
determine a common carrier is "whether the given undertaking is a part of the business engaged in by the carrier which
he has held out to the general public as his occupation rather than the quantity or extent of the business transacted."25
In the case at bar, the petitioner admitted that it is engaged in the business of shipping and lighterage,26 offering its
barges to the public, despite its limited clientele for carrying or transporting goods by water for compensation.27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise extraordinary diligence
in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them.28
They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated.29
To overcome the presumption of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of
the Civil Code enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
42
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(4) The character of the goods or defects in the packing or in the containers;
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its cargo. Petitioner
claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the cargo. However,
petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the typhoon to prevent or minimize the loss.30 The
evidence show that, even before the towing bits of the barge broke, it had already previously sustained damage when
it hit a sunken object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched with only clay and
cement. The patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus, when petitioner
persisted to proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the cross-
examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
xxx xxx xxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull out the barge from the place
of the accident, and bring it to the anchor terminal for safety, then after deciding if the vessel is stabilized, they tried to
pull it to the consignee's warehouse, now while on route another accident occurred, now this time the barge totally
hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on the bottom part of the
barge.
xxx xxx xxx
This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming typhoon. During the
time that the barge was heading towards the consignee's wharf on September 5, 1990, typhoon "Loleng" has already
entered the Philippine area of responsibility.32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor
of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
xxx xxx xxx
43
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie where she was instead
of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the consignee) as I have said
was in a hurry for their goods to be delivered at their Wharf since they needed badly the wheat that was loaded in
PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxx xxx xxx
CROSS-EXAMINATION BY ATTY. IGNACIO:34
xxx xxx xxx
q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.
q - Despite of the threats of an incoming typhoon as you testified a while ago?
a - It is already in an inner portion of Pasig River. The typhoon would be coming and it would be dangerous if we
are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.
q - And yet as a standard operating procedure of your Company, you have to secure a sort of Certification to
determine the weather condition, am I correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are already inside the vicinity
or inside Pasig entrance, it is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability for the loss
sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due diligence required from a
common carrier. More importantly, the officers/employees themselves of petitioner admitted that when the towing bits
of the vessel broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was no
longer affected by the typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor,
i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 49195 dated
May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
44
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.
G.R. No. 149038 April 9, 2003
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,
vs.
PKS SHIPPING COMPANY, respondent.
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 o’clock, while Limar Iwas
being towed by respondent’s 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 company’s 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 respondent’s 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
45
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.1The
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.
"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.2Applying 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
1732 distinguish between a carrier offering its services to the `general public,’ i.e., the general community or population,
46
"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 voyages4
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:
(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 barge’s or the tugboat’s 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 barge’s 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.
47
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.
Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
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. CAÑEZAL, AND SOTERA E.
CAÑEZAL, respondents.
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 Doña Paz, killing almost
all the passengers and crew members of both ships, and thus resulting in one of the country's 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 Doña 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 Doña 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 Doña 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.
48
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 Doña Paz died, while the two survivors from
MT Vector claimed that they were sleeping at the time of the incident.1âwphi1.nêt
The MV Doña 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 Cañezal (47 years old) and his daughter Corazon
Cañezal (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. 659-87 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 Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal's 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 Doña Paz in the open sea setting MT Vector's 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, judgment 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. Cañezal and his 11-year old daughter Corazon G. Cañezal, including loss of future
earnings of said Sebastian, moral and exemplary damages, attorney's 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 court's 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. Cañezal and Corazon
Cañezal:
49
1. Compensatory damages for the death of Sebastian E. Cañezal and Corazon Cañezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Cañezal, 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 (P300,000.00);
4. Attorney's fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P50,000.00);
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, attorney's 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
WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIÑO 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 ship's 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.
50
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 portion of
a vessel of one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or the
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 . . .
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:
transporting passengers for passengers or goods or both, by land, water, or air for compensation, offering their services
to the public.
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732
or scheduled basis and one offering such services on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1733 deliberately refrained from making such distinctions.
"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 respondent's principal occupation was
not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling
their goods; that the fee frequently fell below commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :

51
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 Vector's 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 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 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:
Art. 20. — Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the
latter for the same.
52
Art. 2176. — Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
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 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, liability as found by the Court of Appeals is without basis.1âwphi1.nêt
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
vessel's 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 carrier's 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 "VESSEL'S
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?
Apolinario 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.
53
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. . . .
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. Ng's 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: . . .
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.
54
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. Cañezal and Corazon Cañezal 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.1âwphi1.nêt
No costs in this instance.
SO ORDERED.
Davide, Jr., C.J., Kapunan and Ynares-Santiago, JJ., concur.
Puno, J., no part due to close relation with a party.
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
55
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.
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.
56
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
57
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.
Feliciano, Romero, Melo and Vitug, JJ., concur.
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.
58
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
59
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
60
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
61
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
62
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
63
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.
Davide, Jr. and Quiason, JJ., concur.
Cruz, J., took no part.
Griño-Aquino, J., is on leave.
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
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 Decision1 of the Court of Appeals, as well as its Resolution2 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. 92-631323 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.
64
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 consignee’s) 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., TVI’s 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 ₱5,246,113.11. Little Giant
thereupon executed a subrogation receipt15 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, attorney’s 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 ₱5,246,113.11 with interest from the date the complaint was filed until fully
satisfied, as well as the sum of ₱5,000.00 representing the adjustment fee plus the sum of 20% of the amount
recoverable from the defendants as attorney’s fees plus the costs of suit. The counterclaims and cross claims of
defendants are hereby DISMISSED for lack of [m]erit.19
65
To the trial court’s 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 attorney’s fees of more than ₱1,000,000. 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 other’s 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 Resolution27 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
66
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 Sea’s 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 morning39
is, however, a material fact which the appellate court failed to properly consider and appreciate40 — 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 petitioner’s 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 consignee’s 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.

67
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 consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignee’s 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 don’t 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,
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
68
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 petitioner’s business."47
As for petitioner’s 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 Giant’s 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 handler48 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.
TVI’s 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.
69
As for petitioner, for it to be relieved of liability, it should, following Article 173953 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 checkers54 and a supervisor55 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 liable56 for the loss of the cargoes. The following
pronouncement of the Supreme Court is instructive:
The foundation of LRTA’s 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 attorney’s fees in an amount over ₱1,000,000.00 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 attorney’s fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith
would be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his
cause.61 To award attorney’s fees to a party just because the judgment is rendered in its favor would be tantamount
to imposing a premium on one’s 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
70
As for the court a quo’s award of interest on the amount claimed, the same calls for modification following the ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals64 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 ₱5,246,113.11 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.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.
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 court’s Decision1 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.2The 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
71
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 cargoes13 which were thereupon
stripped from the aluminum containers14 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 report21 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-0731-1538/9223 attached to which was an "Annexed Schedule"
whereon it was indicated that prior to the loading of the cargoes to the broker’s 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 Report26 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 Rejection27 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 letter29 of August 25, 1992, from Sanchez Brokerage the payment of P191,384.25
representing the value of its loss arising from the damaged tablets.
72
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 Receipt30 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 letter31 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 Brokerage’s) 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 Decision34 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 attorney’s fees;
and
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s 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 court’s evaluation of the evidence and factual findings thereon.
73
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 court’s 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:
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
74
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 173345 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
and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage
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 Receipt50 issued by petitioner, and as indicated in the Survey Report of
Elite Surveyors51 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
goods53 ; 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 173455 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 petitioner’s 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
75
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 PAGASA61 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.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.
Corona, J., on leave.
G.R. No. 157481 January 24, 2006
LOADSTAR SHIPPING CO., INC., Petitioner,
vs.
PIONEER ASIA INSURANCE CORP., Respondent.

76
DECISION
QUISUMBING, J.:
For review on certiorari are (1) the Decision1 dated October 15, 2002 and (2) the Resolution2 dated February 27, 2003,
of the Court of Appeals in CA-G.R. CV No. 40999, which affirmed with modification the Decision3 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 petitioner’s Bill of Lading4 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 latter’s 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:
77
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 attorney’s 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.
Petitioner’s 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 attorney’s 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 attorney’s fees and litigation expenses.
Costs against the appellant.
SO ORDERED.7
Petitioner’s 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
ATTORNEY’S FEES AND LITIGATION EXPENSES IN FAVOR OF HEREIN RESPONDENT.9
78
On the first and second issues, petitioner contends that at the time of the voyage the carrier’s 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 attorney’s 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 petitioner’s failure to exercise extraordinary diligence; and (2) whether respondent is entitled to
recover attorney’s 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:
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 Appeals11 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
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.
79
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.
...
and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for safe carriage
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:
(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
attorney’s 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, attorney’s 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.
80
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.
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
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
81
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
82
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
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
83
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:
84
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).
85
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.

86
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:
87
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.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
G.R. No. 104685 March 14, 1996
SABENA BELGIAN WORLD AIRLINES, petitioner,
vs.
HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.
VITUG, J.:p
The appeal before the Court involves the issue of an airline's liability for lost luggage. The petition for review assails
the decision of the Court of 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 but 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, defendant's Local Manager,
demanding immediate attention (Exh. "A").
88
On September 30, 1987, on the occasion of plaintiffs following up of her luggage claim, she was furnished copies of
defendant's telexes with an information that the Burssel's 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 filing 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 plaintiff's 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 stop over, 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 be 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) . . . US $4,265.00 or its legal exchange in Philippine pesos;
(b) . . . P30,000.00 as moral damages;
(c) . . . P10,000.00 as exemplary damages;
(d) . . . P10,000.00 as attorney's 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 court's 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 for 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
89
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 valuable.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 no 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:
. . . 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 carrier's 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:
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 tort6 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 case7 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.
90
It remained undisputed that private respondent's 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 respondent's
luggage. The "loss of said baggage not only once but 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 . . . 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 airline's liability, or as an
absolute limit of the extent of that liability. Such a proposition is not borne out by the language of the Convention, as
this Court has now, and at an earlier time, pointed out. Moreover, slight reflection readily leads to the conclusion that it
should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible,
and there is otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not
regulate or exclude liability for other breaches of contract by the carrier 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 latter's property, the Convention might successfully be pleaded as
the sole gauge to determine the carrier's liability to the passenger. Neither may the Convention be invoked to justify
the disregard of some extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond
the limits set by said Convention. It is in this sense that the Convention has been applied, or ignored, depending on the
peculiar facts presented by each case.
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
91
WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.
SO ORDERED.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.
G.R. No. 125817 January 16, 2002
ABELARDO LIM and ESMADITO GUNNABAN, petitioners,
vs.
COURT OF APPEALS and DONATO H. GONZALES, respondents.
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.1âwphi1.nêt
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 ₱20,000.00, 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 ₱236,000.00. Lim increased
his bid to ₱40,000.00 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 Vallarta’s 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
92
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
₱236,000.00 to restore his jeepney to its original condition.4 On the other hand, petitioners insisted that they could
have the vehicle repaired for ₱20,000.00.5
On 1 October 1993 the trial court upheld private respondent's claim and awarded him ₱236,000.00 with legal interest
from 22 July 1990 as compensatory damages and ₱30,000.00 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 ₱30,000.00, an award
of ₱236,000.00 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 quoare
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. Octavio10 the Court explained that one of the primary factors considered in the granting
of a certificate of public convenience for the business of public transportation is the financial capacity of the holder of
the license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such
purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle
owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who
the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses
no property with which to respond financially for the damage done. Thus, for the safety of passengers and the public
93
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 ₱30,000.00 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
₱300.00 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 ₱236,000.00 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
94
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 ₱236,000.00 being refuted by petitioners who argue
that they could have the vehicle repaired easily for ₱20,000.00. 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 ₱236,000.00 with legal interest
from 22 July 1990 as compensatory damages and ₱30,000.00 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.1âwphi1.nêt
Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
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.:ñé+.£ªwph!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.

95
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: têñ.£îhqwâ£
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: têñ.£îhqwâ£
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: têñ.£îhqwâ£
1. ...
96
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:têñ.£îhqwâ£
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.1äwphï1.ñët
Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana,
Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
97
Aquino, J., took no part.
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 decision1 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 attorney’s 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 Domingo’s 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
98
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 attorney’s fees:
WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount of
₱99,580 as actual damages, ₱25,000.00 as moral damages, ₱25,000.00 as exemplary damages and attorney’s fees
in the amount of ₱10,000.00 plus appearance fees of ₱500.00 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 court’s decision but deleted the award for appearance and attorney’s 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 LATTER’S 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. Jepte7:
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-appellant’s) 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
99
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 manufacturer’s 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.
100
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. CA9 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. CA10 wherein the court absolved the registered
owner from liability after finding that the vehicle was virtually stolen from the owner’s 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.
Petitioner’s 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 actual owner 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 petitioner’s 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 (Sabiano’s) parents apologized to Duavit on his behalf.12
As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioner’s 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
101
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. CA13 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 lessee’s 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.
Panganiban, Sandoval-Gutierrez, and Carpio Morales*, JJ., concur.
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.
102
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]
103
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:
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
104
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]
105
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
106
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.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on leave.
II. Vigilance over the goods; Presumption of Negligence; Defenses Available; Diligence in Selection of
Employees;
SUBSECTION 2. Vigilance Over Goods
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same
is due to any of the following causes only:
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in article 1733.
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to
the provisions of article 1738.
107
Article 1737. The common carrier's duty to observe extraordinary diligence over the goods remains in full force and
effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the
right of stoppage in transitu.
Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods
are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival
of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them.
Article 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent
or minimize loss before, during and after the occurrence of flood, storm or other natural disaster in order that the
common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods. The same duty
is incumbent upon the common carrier in case of an act of the public enemy referred to in article 1734, No. 2.
Article 1740. If the common carrier negligently incurs in delay in transporting the goods, a natural disaster shall not free
such carrier from responsibility.
Article 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods, the
proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages, which
however, shall be equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods,
or the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or
lessen the loss.
Article 1743. If through the order of public authority the goods are seized or destroyed, the common carrier is not
responsible, provided said public authority had power to issue the order.
G.R. No. 159636 November 25, 2004
VICTORY LINER, INC., petitioner,
vs.
ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P.
GAMMAD, respondents.
DECISION
YNARES-SANTIAGO, J.:
108
Assailed in this petition for review on certiorari is the April 11, 2003 decision1 of the Court of Appeals in CA-G.R. CV
No. 63290 which affirmed with modification the November 6, 1998 decision2 of the Regional Trial Court of Tuguegarao,
Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of contract of carriage in Civil Case No. 5023.
The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie Grace Pagulayan-
Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about
3:00 a.m., the bus while running at a high speed fell on a ravine somewhere in Barangay Baliling, Sta. Fe, Nueva
Vizcaya, which resulted in the death of Marie Grace and physical injuries to other passengers.4
On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa contractual
against petitioner. In its answer,6 the petitioner claimed that the incident was purely accidental and that it has always
exercised extraordinary diligence in its 50 years of operation.
After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date, petitioner was
declared as in default.9 However, on petitioner’s motion10 to lift the order of default, the same was granted by the trial
court.11
At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the deceased was a
passenger of the Victory Liner Bus which fell on the ravine and that she was issued Passenger Ticket No. 977785.
Respondents, for their part, did not accept petitioner’s proposal to pay P50,000.00.12
After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for November
17, 199713 but moved to December 8, 1997,14 because the parties and the counsel failed to appear. On December
8, 1997, counsel of petitioner was absent despite due notice and was deemed to have waived right to cross-examine
respondent Rosalito.15
Petitioner’s motion to reset the presentation of its evidence to March 25, 199816 was granted. However, on March 24,
1998, the counsel of petitioner sent the court a telegram17 requesting postponement but the telegram was received by
the trial court on March 25, 1998, after it had issued an order considering the case submitted for decision for failure of
petitioner and counsel to appear.18
On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive portion of which
reads:
WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of the plaintiffs
and against the defendant Victory Liner, Incorporated, ordering the latter to pay the following:
1. Actual Damages -------------------- P 122,000.00
2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorney’s Fees --------------------- 10% of the total amount granted
6. Cost of the Suit.
SO ORDERED.19
On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as follows:
109
[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby adjudged in favor
of plaintiffs-appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorney’s fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary damages herein
adjudged.
The court a quo’s judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.
SO ORDERED.20
Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying that the case be
remanded to the trial court for cross- examination of respondents’ witness and for the presentation of its evidence; or
in the alternative, dismiss the respondents’ complaint.21 Invoking APEX Mining, Inc. v. Court of Appeals,22 petitioner
argues, inter alia, that the decision of the trial court should be set aside because the negligence of its former counsel,
Atty. Antonio B. Paguirigan, in failing to appear at the scheduled hearings and move for reconsideration of the orders
declaring petitioner to have waived the right to cross-examine respondents’ witness and right to present evidence,
deprived petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioner’s motion for reconsideration.23
Hence, this petition for review principally based on the fact that the mistake or gross negligence of its counsel deprived
petitioner of due process of law. Petitioner also argues that the trial court’s award of damages were without basis and
should be deleted.
The issues for resolution are: (1) whether petitioner’s counsel was guilty of gross negligence; (2) whether petitioner
should be held liable for breach of contract of carriage; and (3) whether the award of damages was proper.
It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed by a counsel
within the scope of his general or implied authority is regarded as an act of his client. Consequently, the mistake or
negligence of counsel may result in the rendition of an unfavorable judgment against the client. However, the application
of the general rule to a given case should be looked into and adopted according to the surrounding circumstances
obtaining. Thus, exceptions to the foregoing have been recognized by the court in cases where reckless or gross
negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation
of the client’s liberty or property or where the interests of justice so require, and accord relief to the client who suffered
by reason of the lawyer’s gross or palpable mistake or negligence.24
The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an Answer and
Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan successfully moved for the setting
aside of the order of default. In fact, petitioner was represented by Atty. Paguirigan at the pre-trial who proposed
settlement for P50,000.00. Although Atty. Paguirigan failed to file motions for reconsideration of the orders declaring
petitioner to have waived the right to cross-examine respondents’ witness and to present evidence, he nevertheless,
filed a timely appeal with the Court of Appeals assailing the decision of the trial court. Hence, petitioner’s claim that it
was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not appearing at
the pre-trial, three notices (dated October 23, 1996,25 January 30, 1997,26 and March 26, 1997,27 ) requiring
110
attendance at the pre-trial were sent and duly received by petitioner. However, it was only on April 27, 1997, after the
issuance of the April 10, 1997 order of default for failure to appear at the pre-trial when petitioner, through its finance
and administrative manager, executed a special power of attorney28 authorizing Atty. Paguirigan or any member of his
law firm to represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault
cannot be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the negligent
counsel not only allowed the adverse decision against his client to become final and executory, but deliberately
misrepresented in the progress report that the case was still pending with the Court of Appeals when the same was
dismissed 16 months ago.29 These circumstances are absent in this case because Atty. Paguirigan timely filed an
appeal from the decision of the trial court with the Court of Appeals.
In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not the client
should bear the adverse consequences of its counsel’s negligence. In that case, Gold Line Transit, Inc. (Gold Line)
and its lawyer failed to appear at the pre-trial despite notice and was declared as in default. After the plaintiff’s
presentation of evidence ex parte, the trial court rendered decision ordering Gold Line to pay damages to the heirs of
its deceased passenger. The decision became final and executory because counsel of Gold Line did not file any appeal.
Finding that Goldline was not denied due process of law and is thus bound by the negligence of its lawyer, the Court
held as follows –
This leads us to the question of whether the negligence of counsel was so gross and reckless that petitioner was
deprived of its right to due process of law. We do not believe so. It cannot be denied that the requirements of due
process were observed in the instant case. Petitioner was never deprived of its day in court, as in fact it was afforded
every opportunity to be heard. Thus, it is of record that notices were sent to petitioner and that its counsel was able to
file a motion to dismiss the complaint, an answer to the complaint, and even a pre-trial brief. What was irretrievably lost
by petitioner was its opportunity to participate in the trial of the case and to adduce evidence in its behalf because of
negligence.
In the application of the principle of due process, what is sought to be safeguarded against is not the lack of previous
notice but the denial of the opportunity to be heard. The question is not whether petitioner succeeded in defending its
rights and interests, but simply, whether it had the opportunity to present its side of the controversy. Verily, as petitioner
retained the services of counsel of its choice, it should, as far as this suit is concerned, bear the consequences of its
choice of a faulty option. Its plea that it was deprived of due process echoes on hollow ground and certainly cannot
elicit approval nor sympathy.
To cater to petitioner’s arguments and reinstate its petition for relief from judgment would put a premium on the
negligence of its former counsel and encourage the non-termination of this case by reason thereof. This is one case
where petitioner has to bear the adverse consequences of its counsel’s act, for a client is bound by the action of his
counsel in the conduct of a case and he cannot thereafter be heard to complain that the result might have been different
had his counsel proceeded differently. The rationale for the rule is easily discernible. If the negligence of counsel be
admitted as a reason for opening cases, there would never be an end to a suit so long as a new counsel could be hired
every time it is shown that the prior counsel had not been sufficiently diligent, experienced or learned.31
Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with dishonesty was not
able to file an answer and position paper. He was found guilty solely on the basis of complainant’s evidence and was
dismissed with forfeiture of all benefits and disqualification from government service. Challenging the decision of the
Ombudsman, the employee contended that the gross negligence of his counsel deprived him of due process of law. In
debunking his contention, the Court said –
Neither can he claim that he is not bound by his lawyer’s actions; it is only in case of gross or palpable negligence of
counsel when the courts can step in and accord relief to a client who would have suffered thereby. If every perceived
111
mistake, failure of diligence, lack of experience or insufficient legal knowledge of the lawyer would be admitted as a
reason for the reopening of a case, there would be no end to controversy. Fundamental to our judicial system is the
principle that every litigation must come to an end. It would be a clear mockery if it were otherwise. Access to the courts
is guaranteed, but there must be a limit to it.
Viewed vis-à-vis the foregoing jurisprudence, to sustain petitioner’s argument that it was denied due process of law
due to negligence of its counsel would set a dangerous precedent. It would enable every party to render inutile any
adverse order or decision through the simple expedient of alleging gross negligence on the part of its counsel. The
Court will not countenance such a farce which contradicts long-settled doctrines of trial and procedure.33
Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A common carrier is
bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common
carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court
need not even make an express finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised extraordinary diligence.34
In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s
death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of
contract of carriage.
Nevertheless, the award of damages should be modified.
Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its contract of
carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for
loss of earning capacity, and (3) moral damages.
In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie Grace which
under current jurisprudence is fixed at P50,000.00.37
The award of compensatory damages for the loss of the deceased’s earning capacity should be deleted for lack of
basis. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning
capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when (1) the deceased is self-employed earning less than the minimum wage under current
labor laws, and judicial notice may be taken of the fact that in the deceased’s line of work no documentary evidence is
available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current
labor laws.38
In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning capacity was
the bare testimony of the deceased’s wife that her husband was earning P8,000.00 monthly as a legal researcher of a
private corporation. Finding that the deceased was neither self-employed nor employed as a daily-wage worker earning
less than the minimum wage under the labor laws existing at the time of his death, the Court held that testimonial
evidence alone is insufficient to justify an award for loss of earning capacity.
Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the circumstances of
the 3 deceased did not fall within the recognized exceptions, and except for the testimony of their wives, no
documentary proof about their income was presented by the prosecution. Thus –
The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not self-employed
or employed as daily-wage workers earning less than the minimum wage under the labor laws existing at the time of
their death. Placido Agustin was a Social Security System employee who received a monthly salary of P5,000. Roberto
Raagas was the President of Sinclair Security and Allied Services, a family owned corporation, with a monthly
112
compensation of P30,000. Melencio Castro Jr. was a taxi driver of New Rocalex with an average daily earning of P500
or a monthly earning of P7,500. Clearly, these cases do not fall under the exceptions where indemnity for loss of
earning capacity can be given despite lack of documentary evidence. Therefore, for lack of documentary proof, no
indemnity for loss of earning capacity can be given in these cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of earning
capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39 years of age and a Section
Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a salary of P83,088.00 per annum when she
died.41 No other evidence was presented. The award is clearly erroneous because the deceased’s earnings does not
fall within the exceptions.
However, the fact of loss having been established, temperate damages in the amount of P500,000.00 should be
awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate damages, which are more than
nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has
been suffered but its amount can not, from the nature of the case, be proved with certainty.
In Pleno v. Court of Appeals,42 the Court sustained the trial court’s award of P200,000.00 as temperate damages in
lieu of actual damages for loss of earning capacity because the income of the victim was not sufficiently proven, thus
–
The trial court based the amounts of damages awarded to the petitioner on the following circumstances:
...
"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and the founder of
his own corporation, the Mayon Ceramics Corporation. It appears also that he is an industrious and resourceful person
with several projects in line, and were it not for the incident, might have pushed them through. On the day of the incident,
Pleno was driving homeward with geologist Longley after an ocular inspection of the site of the Mayon Ceramics
Corporation. His actual income however has not been sufficiently established so that this Court cannot award actual
damages, but, an award of temperate or moderate damages may still be made on loss or impairment of earning
capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from double
vision in his left eye is also established. Because of this, he suffers from some inferiority complex and is no longer
active in business as well as in social life. In similar cases as in Borromeo v. Manila Electric Railroad Co., 44 Phil 165;
Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9,
1958, the proper award of damages were given."
...
We rule that the lower court’s awards of damages are more consonant with the factual circumstances of the instant
case. The trial court’s findings of facts are clear and well-developed. Each item of damages is adequately supported
by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v. Almedilla,44
to justify the award of temperate damages in lieu of damages for loss of earning capacity which was not substantiated
by the required documentary proof.
Anent the award of moral damages, the same cannot be lumped with exemplary damages because they are based on
different jural foundations.45 These damages are different in nature and require separate determination.46 In culpa
contractual or breach of contract, moral damages may be recovered when the defendant acted in bad faith or was
guilty of gross negligence (amounting to bad faith) or in wanton disregard of contractual obligations and, as in this case,
when the act of breach of contract itself constitutes the tort that results in physical injuries. By special rule in Article
1764 in relation to Article 2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger
113
results from a breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of example
or correction for the public good may be recovered in contractual obligations if the defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner.48
Respondents in the instant case should be awarded moral damages to compensate for the grief caused by the death
of the deceased resulting from the petitioner’s breach of contract of carriage. Furthermore, the petitioner failed to prove
that it exercised the extraordinary diligence required for common carriers, it is presumed to have acted recklessly.49
Thus, the award of exemplary damages is proper. Under the circumstances, we find it reasonable to award respondents
the amount of P100,000.00 as moral damages and P100,000.00 as exemplary damages. These amounts are not
excessive.50
The actual damages awarded by the trial court reduced by the Court of Appeals should be further reduced. In People
v. Duban,51 it was held that only substantiated and proven expenses or those that appear to have been genuinely
incurred in connection with the death, wake or burial of the victim will be recognized. A list of expenses (Exhibit "J"),52
and the contract/receipt for the construction of the tomb (Exhibit "F")53 in this case, cannot be considered competent
proof and cannot replace the official receipts necessary to justify the award. Hence, actual damages should be further
reduced to P78,160.00,54 which was the amount supported by official receipts.
Pursuant to Article 220855 of the Civil Code, attorney’s fees may also be recovered in the case at bar where exemplary
damages are awarded. The Court finds the award of attorney’s fees equivalent to 10% of the total amount adjudged
against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that when an obligation, regardless of its
source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
payment of interest in the concept of actual and compensatory damages, subject to the following rules, to wit –
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis
supplied).
In the instant case, petitioner should be held liable for payment of interest as damages for breach of contract of carriage.
Considering that the amounts payable by petitioner has been determined with certainty only in the instant petition, the
interest due shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, per
paragraph 3 of the aforecited rule.57
114
WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of the Court of
Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of Tuguegarao, Cagayan
in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to
pay respondents the following: (1) P50,000.00 as indemnity for the death of Marie Grace Pagulayan-Gammad; (2)
P100,000.00 as moral damages; (3) P100,000.00 as exemplary damages; (4) P78,160.00 as actual damages; (5)
P500,000.00 as temperate damages; (6) 10% of the total amount as attorneys fees; and the costs of suit.
Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per annum computed
from the finality of this decision until fully paid.
SO ORDERED.
Quisumbing, Carpio, and Azcuna, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave.
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.
DECISION
PANGANIBAN, J.:
ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted to them, as
required by the nature of their business and for reasons of public policy. Consequently, the law presumes that common
carriers are at fault or negligent for any loss or damage to the goods that they transport. In the present case, the
evidence submitted by petitioner to overcome this presumption was sorely insufficient.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision2 and
the December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66028. The challenged Decision
disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of Manila, Branch
42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein
respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs against the [herein petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900 metric tons
of silica sand valued at ₱565,000.5 Consigned to Vulcan Industrial and Mining Corporation, the cargo was to be
transported from Palawan to Manila. On October 25, 1991, the silica sand was placed on board Judy VII, a barge
leased by Lea Mer.6 During the voyage, the vessel sank, resulting in the loss of the cargo.7
115
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount paid and in
the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply.
Consequently, Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992,
for the collection of ₱565,000 representing the amount that respondent had paid Vulcan.9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a fortuitous
event.10 The RTC noted that the vessel had sunk because of the bad weather condition brought about by Typhoon
Trining. The court ruled that petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
been cleared by the Philippine Coast Guard to travel from Palawan to Manila.11
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the loss of the
cargo was occasioned by petitioner’s fault, not by a fortuitous event.12
Hence, this recourse.13
The Issues
Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a witness of
the said report during the trial of this case before the lower court can be admitted in evidence to prove the alleged facts
cited in the said report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the Regional
Trial Court which clearly and unequivocally held that the loss of the cargo subject of this case was caused by fortuitous
event for which herein petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of discretion in
disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel
‘Judy VII’ was seaworthy at the time of incident and further in disregarding the testimony of the PAG-ASA weather
specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon ‘Trining’ did not hit Metro Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2) whether the
survey report of Jesus Cortez is admissible in evidence.
The Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous event. This issue
involves primarily a question of fact, notwithstanding petitioner’s claim that it pertains only to a question of law. As a
general rule, questions of fact may not be raised in a petition for review.15 The present case serves as an exception
to this rule, because the factual findings of the appellate and the trial courts vary.16 This Court meticulously reviewed
the records, but found no reason to reverse the CA.
116
Rule on Common Carriers
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 -- when this service is offered to the public for compensation.17
Petitioner is clearly a common carrier, because it offers to the public its business of transporting goods through its
vessels.18
Thus, the Court corrects the trial court’s finding that petitioner became a private carrier when Vulcan chartered
it.19Charter parties are classified as contracts of demise (or bareboat) and affreightment, which are distinguished as
follows:
"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage
or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, 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."20
The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is privatein
character. 21 Consequently, the rights and obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers.22
The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner’s crew that
manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was a common carrier, and
the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the
passengers they transport, as required by the nature of their business and for reasons of public policy.24Extraordinary
diligence requires rendering service with the greatest skill and foresight to avoid damage and destruction to the goods
entrusted for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that
they have transported.26 This presumption can be rebutted only by proof that they observed extraordinary diligence,
or that the loss or damage was occasioned by any of the following causes:27
"(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."28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable." Thus, if the loss or damage was due to such an event, a common
carrier is exempted from liability.
117
Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been independent of human will;
(b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a
normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury
to the creditor.29
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and only cause
of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and after
the occurrence of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common carrier, petitioner bore the
burden of proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had been occasioned
by a fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of the cargo
was due to the bad weather condition brought about by Typhoon Trining.32 Evidence was presented to show that
petitioner had not been informed of the incoming typhoon, and that the Philippine Coast Guard had given it clearance
to begin the voyage.33 On October 25, 1991, the date on which the voyage commenced and the barge sank, Typhoon
Trining was allegedly far from Palawan, where the storm warning was only "Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As required
by the pertinent law, it was not enough for the common carrier to show that there was an unforeseen or unexpected
occurrence. It had to show that it was free from any fault -- a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during or after the
alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer remember whether anything
had been done to minimize loss when water started entering the barge.36 This fact was confirmed during his cross-
examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by you and the crew of
Judy VII so as to prevent the los[s] or sinking of barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and barge Judy VII
x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?
Joey Draper:
118
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a preponderance of
evidence that the barge was not seaworthy when it sailed for Manila.38 Respondent was able to prove that, in the hull
of the barge, there were holes that might have caused or aggravated the sinking.39 Because the presumption of
negligence or fault applied to petitioner, it was incumbent upon it to show that there were no holes; or, if there were,
that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified that the barge
was in "tip-top" or excellent condition,40 but that he had not personally inspected it when it left Palawan.41
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII, dated July 31, 1991, did not
conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the Certificate is disputably
presumed.43 It could be contradicted by competent evidence, which respondent offered. Moreover, this evidence did
not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor, should not have been
admitted in evidence. The Court partly agrees. Because he did not testify during the trial,46 then the Report that he
had prepared was hearsay and therefore inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez’s Survey Report was used in the testimonies of respondent’s witnesses -- Charlie M.
Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis and Harding Company.47
Soriano testified that the Survey Report had been used in preparing the final Adjustment Report conducted by their
company.48 The final Report showed that the barge was not seaworthy because of the existence of the holes. Manlapig
testified that he had prepared that Report after taking into account the findings of the surveyor, as well as the pictures
and the sketches of the place where the sinking occurred.49 Evidently, the existence of the holes was proved by the
testimonies of the witnesses, not merely by Cortez’ Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,50 and that their testimonies must be confined to
personal knowledge is required by the rules on evidence, from which we quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. –A witness can testify only to
those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as
otherwise provided in these rules."51
On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which respondent had offered as
evidence.52 Well-settled is the rule that, unless the affiant is presented as a witness, an affidavit is considered
hearsay.53
119
An exception to the foregoing rule is that on "independently relevant statements." A report made by a person is
admissible if it is intended to prove the tenor, not the truth, of the statements.54 Independent of the truth or the falsity
of the statement given in the report, the fact that it has been made is relevant. Here, the hearsay rule does not apply.55
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the testimonies of
respondent’s witnesses. The referral to Cortez’s Report was in relation to Manlapig’s final Adjustment Report. Evidently,
it was the existence of the Survey Report that was testified to. The admissibility of that Report as part of the testimonies
of the witnesses was correctly ruled upon by the trial court.
At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of fault that
applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 135645 March 8, 2002
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,
vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.
KAPUNAN, J.:
This petition for review seeks the reversal of the Decision, dated September 23, 1998, of the Court of Appeals in CA-
G.R. CV No. 43915,1 which absolved private respondents MCG Marine Services, Inc. and Doroteo Gaerlan of any
liability regarding the loss of the cargo belonging to San Miguel Corporation due to the sinking of the M/V Peatheray
Patrick-G owned by Gaerlan with MCG Marine Services, Inc. as agent.
On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate value of P5,836,222.80
with petitioner Philippine American General Insurance Company.2 The cargo were loaded on board the M/V Peatheray
Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur.
After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue
City for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes,
Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost.
Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.
Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the Manila Adjusters and Surveyors
Co., went to Taganauan Island, Cortes, Surigao del Sur where the vessel was cast ashore, to investigate the
circumstances surrounding the loss of the cargo. In his report, Mr. Sayo stated that the vessel was structurally sound
and that he did not see any damage or crack thereon. He concluded that the proximate cause of the listing and
subsequent sinking of the vessel was the shifting of ballast water from starboard to portside. The said shifting of ballast
water allegedly affected the stability of the M/V Peatheray Patrick-G.
120
Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80 pursuant to the terms of their
insurance contract.1âwphi1.nêt
On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the Regional Trial Court (RTC) of
Makati City a case for collection against private respondents to recover the amount it paid to San Miguel Corporation
for the loss of the latter's cargo.
Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking of the M/V Peatheray Patrick-G
to determine whether or not the captain and crew of the vessel should be held responsible for the incident.3 On May
11, 1989, the Board rendered its decision exonerating the captain and crew of the ill-fated vessel for any administrative
liability. It found that the cause of the sinking of the vessel was the existence of strong winds and enormous waves in
Surigao del Sur, a fortuitous event that could not have been for seen at the time the M/V Peatheray Patrick-G left the
port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate and only cause of
the vessel's sinking.
On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision finding private respondents solidarily
liable for the loss of San Miguel Corporation's cargo and ordering them to pay petitioner the full amount of the lost cargo
plus legal interest, attorney's fees and costs of suit.4
Private respondents appealed the trial court's decision to the Court of Appeals. On September 23, 1998, the appellate
court issued the assailed Decision, which reversed the ruling of the RTC. It held that private respondents could not be
held liable for the loss of San Miguel Corporation's cargo because said loss occurred as a consequence of a fortuitous
event, and that such fortuitous event was the proximate and only cause of the loss.5
Petitioner thus filed the present petition, contending that:
(A)
IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF MAKATI CITY ON THE BASIS OF THE
FINDINGS OF THE BOARD OF MARINE INQUIRY, APPELLATE COURT DECIDED THE CASE AT BAR NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE HONORABLE COURT;
(B)
IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE COURT GRAVELY ERRED IN
CONTRADICTING AND IN DISTURBING THE FINDINGS OF THE FORMER;
(C)
THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN
DISMISSING THE COMPLAINT.6
Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them.7Owing
to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at
fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated.8
However, this presumption of fault or negligence does not arise in the cases enumerated under Article 1734 of the Civil
Code:
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any
121
In order that a common carrier may be absolved from liability where the loss, destruction or deterioration of the goods
is due to a natural disaster or calamity, it must further be shown that the such natural disaster or calamity was the
proximate and only cause of the loss;9 there must be "an entire exclusion of human agency from the cause of the injury
of the loss."10
Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a common carrier is still
required to exercise due diligence to prevent or minimize loss before, during and after the occurrence of the natural
disaster, for it to be exempt from liability under the law for the loss of the goods.11 If a common carrier fails to exercise
due diligence--or that ordinary care which the circumstances of the particular case demand12 -- to preserve and protect
the goods carried by it on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will
not be considered as having been due to a natural disaster under Article 1734 (1).
In the case at bar, the issues may be narrowed down to whether the loss of the cargo was due to the occurrence of a
natural disaster, and if so, whether such natural disaster was the sole and proximate cause of the loss or whether
private respondents were partly to blame for failing to exercise due diligence to prevent the loss of the cargo.
The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel encountered strong winds
and huge waves ranging from six to ten feet in height. The vessel listed at the port side and eventually sunk at Cawit
Point, Cortes, Surigao del Sur.
The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case against the vessel's
crew (BMI--646-87), found that the loss of the cargo was due solely to the existence of a fortuitous event, particularly
the presence of strong winds and huge waves at Cortes, Surigao del Sur on March 3, 1987:
xxx
III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?
Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe, Cebu for Bislig, Surigao del Sur on
March 2, 1987 the Captain had observed the fair atmospheric condition of the area of the pier and confirmed this good
weather condition with the Coast Guard Detachment of Mandawe City. However, on March 3, 1987 at about 10:00
o'clock in the evening, when the vessel had already passed Surigao Strait. the vessel started to experience waves as
high as 6 to 7 feet and that the Northeasterly wind was blowing at about five (5) knot velocity. At about 11:00 o'clock
P.M. when the vessel was already about 4.5 miles off Cawit Point, Cortes, Surigao del Sur, the vessel was discovered
to be listing 15 degrees to port side and that the strength of the wind had increased to 15 knots and the waves were
about ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately thereafter, emergency measures were taken by the
crew. The officers had suspected that a leak or crack might had developed at the bottom hull particularly below one or
two of the empty wing tanks at port side serving as buoyancy tanks resulting in ingress of sea water in the tanks was
confirmed when the Captain ordered to use the cargo pump. The suction valves to the said tanks of port side were
opened in order to suck or draw out any amount of water that entered into the tanks. The suction pressure of the pump
had drawn out sea water in large quantity indicating therefore, that a leak or crack had developed in the hull as the
vessel was continuously batted and pounded by the huge waves. Bailing out of the water through the pump was done
122
continuously in an effort of the crew to prevent the vessel from sinking. but then efforts were in vain. The vessel still
continued to list even more despite the continuous pumping and discharging of sea water from the wing tanks indicating
that the amount of the ingress of sea water was greater in volume that that was being discharged by the pump.
Considering therefore, the location of the suspected source of the ingress of sea water which was a crack or hole at
the bottom hull below the buoyancy tank's port side which was not accessible (sic) for the crew to check or control the
flow of sea water into the said tank. The accumulation of sea water aggravated by the continuous pounding, rolling and
pitching of the vessel against huge waves and strong northeasterly wind, the Captain then had no other recourse except
to order abandonship to save their lives.13
The presence of a crack in the ill-fated vessel through which water seeped in was confirmed by the Greutzman Divers
who were commissioned by the private respondents to conduct an underwater survey and inspection of the vessel to
determine the cause and circumstances of its sinking. In its report, Greutzman Divers stated that "along the port side
platings, a small hole and two separate cracks were found at about midship."14
The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge waves while the M/V
Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed fortuitous. A fortuitous
event has been defined as one which could not be foreseen, or which though foreseen, is inevitable.15 An event is
considered fortuitous if the following elements concur:
xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the
caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor. xxx16
In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of Mandaue City, the
Captain confirmed with the Coast Guard that the weather condition would permit the safe travel of the vessel to Bislig,
Surigao del Sur. Thus, he could not be expected to have foreseen the unfavorable weather condition that awaited the
vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the
vessel to list, keel over, and consequently lose the cargo contained therein. The appellate court likewise found that
there was no negligence on the part of the crew of the M/V Peatheray Patrick-G, citing the following portion of the
decision of the Board of Marine Inquiry:
I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE PORT OF MANDAWE, CEBU AND AT
THE TIME OF SINKING?
Evidence clearly shows that the vessel was propelled with three (3) diesel engines of 250 BHP each or a total of 750
BHP. It had three (3) propellers which were operating satisfactorily from the time the vessel left the port of Mandawe
up to the time when the hull on the double bottom tank was heavily floaded (sic) by uncontrollable entry of sea water
resulting in the stoppage of engines. The vessel was also equipped with operating generator pumps for emergency
cases. This equipment was also operating satisfactorily up to the time when the engine room was heavily floaded (sic)
with sea water. Further, the vessel had undergone emergency drydocking and repair before the accident occurred (sic)
on November 9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by the billing for the Drydocking and Repair
and certificate of Inspection No. 2588-86 issued by the Philippine coast Guard on December 5, 1986 which expired on
November 8, 1987.
LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and experienced licensed Major Patron
who had been in command of the vessel for more than three (3) years from July 1984 up to the time of sinking March
3, 1987. His Chief Mate Mr. Mariano Alalin also a licensed Major Patron had been the Chief Mate of " LCT Peatheray
Patrick-G" for one year and three months at the time of the accident. Further Chief Mate Alalin had commanded a
123
tanker vessel named M/T Mercedes of MGM Corporation for almost two (2) years from 1983-1985 (Alalin TSN-4-13-
88 pp. 32-33).
That the vessel was granted SOLAS clearance by the Philippine Coast Guard on March 1, 1987 to depart from
Mandawe City for Bislig, Surigao del Sur as evidenced by a certification issued to D.C. Gaerlan Oil Products by Coast
Guard Station Cebu dated December 23, 1987.1âwphi1.nêt
Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be considered seaworthy vessel at the time
she undertook that fateful voyage on March 2, 1987.
To be seaworthy, a vessel must not only be staunch and fit in the hull for the voyage to be undertaken but also must
be properly equipped and for that purpose there is a duty upon the owner to provide a competent master and a crew
adequate in number and competent for their duty and equals in disposition and seamanship to the ordinary in that
calling. (Ralph 299 F-52, 1924 AMC 942). American President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9 CAL 1924).17
Overloading was also eliminated as a possible cause of the sinking of the vessel, as the evidence showed that its
freeboard clearance was substantially greater than the authorized freeboard clearance.18
Although the Board of Marine Inquiry ruled only on the administrative liability of the captain and crew of the M/V
Peatheray Patrick-G, it had to conduct a thorough investigation of the circumstances surrounding the sinking of the
vessel and the loss of its cargo in order to determine their responsibility, if any. The results of its investigation as
embodied in its decision on the administrative case clearly indicate that the loss of the cargo was due solely to the
attendance of strong winds and huge waves which caused the vessel accumulate water, tilt to the port side and to
eventually keel over. There was thus no error on the part of the Court of Appeals in relying on the factual findings of
the Board of Marine Inquiry, for such factual findings, being supported by substantial evidence are persuasive,
considering that said administrative body is an expert in matters concerning marine casualties.19
Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to
be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and the loss of the cargo belonging to
San Miguel Corporation, private respondents cannot be held liable for the said loss.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED and the petition is hereby DENIED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Ynares-Santiago, JJ., concur.
G.R. No. 111127 July 26, 1996
MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE ANTONIO, JOHN
RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI CORDOVA, ARLENE GOJOCCO, ALBERTO
ROXAS CORDERO, RICHARD BAUTISTA, JOCELYN GARCIA, YOLANDA CORDOVA, NOEL ROQUE, EDWARD
TAN, ERNESTO NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPES, JULIUS CAESAR, GARCIA,
ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA, TERESITA REGALA,
MELINDA TORRES, MARELLA MIJARES, JOSEFA CABATINGAN, MARA NADOC, DIANE MAYO, TESS PLATA,
124
MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA MAYO, CARLOS RANARIO, ROSAMARIA T. RADOC and
BERNADETTE FERRER, respondents.
MENDOZA, J.:p
This is a petition for review on certiorari of the decision of the Court of Appeals1 in CA-GR No. 28245, dated September
30, 1992, which affirmed with modification the decision of the Regional Trial Court of Makati, Branch 58, ordering
petitioners jointly and severally to pay damages to private respondent Amyline Antonio, and its resolution which denied
petitioners' motion for reconsideration for lack of merit.
Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the bus principally
in connection with a bus service for school children which they operated in Manila. The couple had a driver, Porfirio J.
Cabil, whom they hired in 1981, after trying him out for two weeks, His job was to take school children to and from the
St. Scholastica's College in Malate, Manila.
On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF) arranged with
petitioners for the transportation of 33 members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of P3,000.00.
The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon. However, as several
members of the party were late, the bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA until
8:00 o'clock in the evening. Petitioner Porfirio Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was under
repair, sot hat petitioner Cabil, who was unfamiliar with the area (it being his first trip to La Union), was forced to take
a detour through the town of Baay in Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp
curve on the highway, running on a south to east direction, which he described as "siete." The road was slippery
because it was raining, causing the bus, which was running at the speed of 50 kilometers per hour, to skid to the left
road shoulder. The bus hit the left traffic steel brace and sign along the road and rammed the fence of one Jesus
Escano, then turned over and landed on its left side, coming to a full stop only after a series of impacts. The bus came
to rest off the road. A coconut tree which it had hit fell on it and smashed its front portion.
Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus and pinned
down by a wooden seat which came down by a wooden seat which came off after being unscrewed. It took three
persons to safely remove her from this portion. She was in great pain and could not move.
The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he was not familiar with the
area and he could not have seen the curve despite the care he took in driving the bus, because it was dark and there
was no sign on the road. He said that he saw the curve when he was already within 15 to 30 meters of it. He allegedly
slowed down to 30 kilometers per hour, but it was too late.
The Lingayen police investigated the incident the next day, November 3, 1984. On the basis of their finding they filed
a criminal complaint against the driver, Porfirio Cabil. The case was later filed with the Lingayen Regional Trial Court.
Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the latter's fence. On the basis of Escano's affidavit
of desistance the case against petitioners Fabre was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila. As a result of the
accident, she is now suffering from paraplegia and is permanently paralyzed from the waist down. During the trial she
described the operations she underwent and adduced evidence regarding the cost of her treatment and therapy.
Immediately after the accident, she was taken to the Nazareth Hospital in Baay, Lingayen. As this hospital was not
125
adequately equipped, she was transferred to the Sto. Niño Hospital, also in the town of Ba-ay, where she was given
sedatives. An x-ray was taken and the damage to her spine was determined to be too severe to be treated there. She
was therefore brought to Manila, first to the Philippine General Hospital and later to the Makati Medical Center where
she underwent an operation to correct the dislocation of her spine.
In its decision dated April 17, 1989, the trial court found that:
No convincing evidence was shown that the minibus was properly checked for travel to a long distance trip and that
the driver was properly screened and tested before being admitted for employment. Indeed, all the evidence presented
have shown the negligent act of the defendants which ultimately resulted to the accident subject of this case.
Accordingly, it gave judgment for private respondents holding:
Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio were the only ones
who adduced evidence in support of their claim for damages, the Court is therefore not in a position to award damages
to the other plaintiffs.
WHEREFORE, premises considered, the Court hereby renders judgment against defendants Mr. & Mrs. Engracio
Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil Code of the Philippines and said
defendants are ordered to pay jointly and severally to the plaintiffs the following amount:
1) P93,657.11 as compensatory and actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages; and
5) 25% of the recoverable amount as attorney's fees;
6) Costs of suit.
SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but dismissed it with respect
to the other plaintiffs on the ground that they failed to prove their respective claims. The Court of Appeals modified the
award of damages as follows:
1) P93,657.11 as actual damages;
2) P600,000.00 as compensatory damages;
4) P20,000.00 as exemplary damages;
5) P10,000.00 as attorney's fees; and
6) Costs of suit.
126
The Court of Appeals sustained the trial court's finding that petitioner Cabil failed to exercise due care and precaution
in the operation of his vehicle considering the time and the place of the accident. The Court of Appeals held that the
Fabres were themselves presumptively negligent. Hence, this petition. Petitioners raise the following issues:
I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.
II. WHETHER OF NOT PETITIONERS WERE LIABLE FOR THE INJURIES SUFFERED BY PRIVATE
RESPONDENTS.
III WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP TO WHAT EXTENT.
Petitioners challenge the propriety of the award of compensatory damages in the amount of P600,000.00. It is insisted
that, on the assumption that petitioners are liable an award of P600,000.00 is unconscionable and highly speculative.
Amyline Antonio testified that she was a casual employee of a company called "Suaco," earning P1,650.00 a month,
and a dealer of Avon products, earning an average of P1,000.00 monthly. Petitioners contend that as casual employees
do not have security of tenure, the award of P600,000.00, considering Amyline Antonio's earnings, is without factual
basis as there is no assurance that she would be regularly earning these amounts.
With the exception of the award of damages, the petition is devoid of merit.
First, it is unnecessary for our purpose to determine whether to decide this case on the theory that petitioners are liable
for breach of contract of carriage or culpa contractual or on the theory of quasi delict or culpa aquiliana as both the
Regional Trial Court and the Court of Appeals held, for although the relation of passenger and carrier is "contractual
both in origin and nature," nevertheless "the act that breaks the contract may be also a tort." 2 In either case, the
question is whether the bus driver, petitioner Porfirio Cabil, was negligent.
The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned the bus, failed to exercise
the diligence of a good father of the family in the selection and supervision of their employee is fully supported by the
evidence on record. These factual findings of the two courts we regard as final and conclusive, supported as they are
by the evidence. Indeed, it was admitted by Cabil that on the night in question, it was raining, and as a consequence,
the road was slippery, and it was dark. He averred these facts to justify his failure to see that there lay a sharp curve
ahead. However, it is undisputed that Cabil drove his bus at the speed of 50 kilometers per hour and only slowed down
when he noticed the curve some 15 to 30 meters ahead. 3 By then it was too late for him to avoid falling off the road.
Given the conditions of the road and considering that the trip was Cabil's first one outside of Manila, Cabil should have
driven his vehicle at a moderate speed. There is testimony 4 that the vehicles passing on that portion of the road should
only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a very high speed.
Considering the foregoing — the fact that it was raining and the road was slippery, that it was dark, that he drove his
bus at 50 kilometers an hour when even on a good day the normal speed was only 20 kilometers an hour, and that he
was unfamiliar with the terrain, Cabil was grossly negligent and should be held liable for the injuries suffered by private
respondent Amyline Antonio.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his employers, the
Fabres, were themselves negligent in the selection and supervisions of their employee.
Due diligence in selection of employees is not satisfied by finding that the applicant possessed a professional driver's
license. The employer should also examine the applicant for his qualifications, experience and record of service. 5 Due
diligence in supervision, on the other hand, requires the formulation of rules and regulations for the guidance of
employees and issuance of proper instructions as well as actual implementation and monitoring of consistent
compliance with the rules.6
127
In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did not consider the fact that
Cabil had been driving for school children only, from their homes to the St. Scholastica's College in Metro Manila. 7They
had hired him only after a two-week apprenticeship. They had hired him only after a two-week apprenticeship. They
had tested him for certain matters, such as whether he could remember the names of the children he would be taking
to school, which were irrelevant to his qualification to drive on a long distance travel, especially considering that the trip
to La Union was his first. The existence of hiring procedures and supervisory policies cannot be casually invoked to
overturn the presumption of negligence on the part of an employer. 8
Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the congregation's
delayed meeting) could have a averted the mishap and (2) under the contract, the WWCF was directly responsible for
the conduct of the trip. Neither of these contentions hold water. The hour of departure had not been fixed. Even if it had
been, the delay did not bear directly on the cause of the accident. With respect to the second contention, it was held in
an early case that:
[A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to be
conveyed, but exercises no other control over the conduct of the driver, is not responsible for acts of negligence of the
latter or prevented from recovering for injuries suffered from a collision between the automobile and a train, caused by
the negligence or the automobile driver. 9
As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be engaged
in the business of public transportation for the provisions of the Civil Code on common carriers to apply to them. As
this Court has held: 10
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732
As common carriers, the Fabres were found to exercise "extraordinary diligence" for the safe transportation of the
passengers to their destination. This duty of care is not excused by proof that they exercise the diligence of a good
father of the family in the selection and supervision of their employee. As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former's
employees although such employees may have acted beyond the scope of their authority or in violation of the orders
of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of
a family in the selection and supervision of their employees.
The same circumstances detailed above, supporting the finding of the trial court and of the appellate court that
petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify findings them guilty of breach of contract of
carriage under Arts. 1733, 1755 and 1759 of the Civil Code.
Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think the Court of Appeals erred
in increasing the amount of compensatory damages because private respondents did not question this award as
inadequate. 11 To the contrary, the award of P500,000.00 for compensatory damages which the Regional Trial Court
128
made is reasonable considering the contingent nature of her income as a casual employee of a company and as
distributor of beauty products and the fact that the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had expressed willingness to employ her again.
With respect to the other awards, while the decisions of the trial court and the Court of Appeals do not sufficiently
indicate the factual and legal basis for them, we find that they are nevertheless supported by evidence in the records
of this case. Viewed as an action for quasi delict, this case falls squarely within the purview of Art. 2219(2) providing
for the payment of moral damages in cases of quasi delict. On the theory that petitioners are liable for breach of contract
of carriage, the award of moral damages is authorized by Art. 1764, in relation to Art. 2220, since Cabil's gross
negligence amounted to bad faith.12 Amyline Antonio's testimony, as well as the testimonies of her father and
copassengers, fully establish the physical suffering and mental anguish she endured as a result of the injuries caused
by petitioners' negligence.
The award of exemplary damages and attorney's fees was also properly made. However, for the same reason that it
was error for the appellate court to increase the award of compensatory damages, we hold that it was also error for it
to increase the award of moral damages and reduce the award of attorney's fees, inasmuch as private respondents, in
whose favor the awards were made, have not appealed. 13
As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict or on that of
breach of contract. The question is whether, as the two courts below held, petitioners, who are the owners and driver
of the bus, may be made to respond jointly and severally to private respondent. We hold that they may be. In Dangwa
Trans. Co. Inc. v. Court of Appeals, 14 on facts similar to those in this case, this Court held the bus company and the
driver jointly and severally liable for damages for injuries suffered by a passenger. Again, in Bachelor Express, Inc. v.
Court of
Appeals 15 a driver found negligent in failing to stop the bus in order to let off passengers when a fellow passenger ran
amuck, as a result of which the passengers jumped out of the speeding bus and suffered injuries, was held also jointly
and severally liable with the bus company to the injured passengers.
The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was
riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident.
In Anuran v. Buño, 16 Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, 17 and Metro Manila Transit
Corporation v. Court of Appeals, 18 the bus company, its driver, the operator of the other vehicle and the driver of the
vehicle were jointly and severally held liable to the injured passenger or the latters' heirs. The basis of this allocation of
liability was explained in Viluan v. Court of Appeals, 19 thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in Gutierrez
vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the bus on which
he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and
severally liable for damages. Some members of the Court, though, are of the view that under the circumstances they
are liable on quasi-delict. 20
It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals 21 this Court exonerated the jeepney driver from
liability to the injured passengers and their families while holding the owners of the jeepney jointly and severally liable,
but that is because that case was expressly tried and decided exclusively on the theory of culpa contractual. As this
Court there explained:
The trial court was therefore right in finding that Manalo (the driver) and spouses Mangune and Carreon (the jeepney
owners) were negligent. However, its ruling that spouses Mangune and Carreon are jointly and severally liable with
Manalo is erroneous. The driver cannot be held jointly and severally liable with carrier in case of breach of the contract
129
of carriage. The rationale behind this is readily discernible. Firstly, the contract of carriage is between the carrier is
exclusively responsible therefore to the passenger, even if such breach be due to the negligence of his driver (see
Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA 742). 22
As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake out their claim against the
carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was permitted
for them to allege alternative causes of action and join as many parties as may be liable on such causes of action 23
so long as private respondent and her coplaintiffs do not recover twice for the same injury. What is clear from the cases
is the intent of the plaintiff there to recover from both the carrier and the driver, thus, justifying the holding that the
carrier and the driver were jointly and severally liable because their separate and distinct acts concurred to produce
the same injury.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to award of damages.
Petitioners are ORDERED to PAY jointly and severally the private respondent Amyline Antonio the following amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorney's fees; and
6) costs of suit.
SO ORDERED.
Regalado, Romero, Puno and Torres, Jr., JJ., concur.
G.R. No. 116940 June 11, 1997
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary
diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the
insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.1 The
130
shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under
Marine Open Policy No. 100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day. At around eight
forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her
entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN
for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent
denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of
P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any
liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due to the vessel's
unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was improperly
manned and that its officers were grossly negligent in failing to take appropriate measures to proceed to a nearby port
or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation
in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights,
interests and ownership over "MV Asilda" together with her freight and appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of Commerce.2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside
the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition for certiorari with
this Court but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN.3 It ruled that "MV Asilda" was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the
shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be
attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the
contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should
apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessel's
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring
an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast
Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with
respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured's
implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to
the rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonment had
absolved the shipowner/agent from liability under the limited liability rule.
131
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the port of Zamboanga;
(b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and, (c) whether PHILAMGEN
was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief
mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the
vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2
cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and
about 500 cases of Coca-Cola bottles on deck.4 The ship captain stated that around four o'clock in the morning of 7
July 1983 he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he
noticed that the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and
pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At about
seven o'clock in the morning, the master of the vessel stopped the engine because the vessel was listing dangerously
to portside. He ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich
he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move,
some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the
vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda"
capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessel's
collision with a partially submerged log.5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by
the Court of Appeals, reads —
We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the
vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while
the vessel may not have been overloaded, yet the distribution or stowage of the cargo on board was done in such a
manner that the vessel was in top-heavy condition at the time of her departure and which condition rendered her
unstable and unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . . . and it was
not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly that had her
cargo been confined to those that could have been accommodated under deck, her stability would not have been
affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions
at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy
for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessel's
metacentric height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are
precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking
of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable
and unseaworthy . . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her condition of
unseaworthiness arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having
132
capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence
(emphasis supplied).6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the
sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after "MV Asilda" sank, an estimated
2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ship's
hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel's deck
cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that
the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that
"MV Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck
resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong winds and waves
encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its
already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.8 Simply put, the ship
agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can
be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there
are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as
where the loss or injury was due to the fault of the shipowner and the captain.9 The international rule is to the effect
that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where
the injury or average was occasioned by the shipowner's own fault. 10 It must be stressed at this point that Art. 587
speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on
common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness even at the time
of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck.
Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was
equally negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the
vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case . . ." In the event of loss of goods, common
carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy with reference to
the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled
to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in
effect a "voluntary payment" and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid
it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel
is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. 12
Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or freightage,
or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec.
114, a ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage,
contemplated by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full
133
control in the selection of the common carrier that will transport his goods. He also has full discretion in the choice of
assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by
FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty
of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. 13 And where the
policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question
of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured.
14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed
with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)he liberties
as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of
Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not
prejudice the insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby
admitted."15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states "(t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company. 17 The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this
case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action against FELMAN
is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured 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 payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought
to pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of
FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and
Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial demand,
pursuant to Arts. 2212 and 2213 of the Civil Code. 20
134
SO ORDERED.
Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., is on leave.
G.R. No. 108897 October 2, 1997
SARKIES TOURS PHILIPPINES, INC., petitioner,
vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL A. FORTADES and
FATIMA MINERVA A. FORTADES, respondents.
ROMERO, J.:
This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 18979
promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying petitioner's motion for
reconsideration for being a mere rehash of the arguments raised in the appellant's brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all surnamed
Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on her way to Legazpi City. Her brother
Raul helped her load three pieces of luggage containing all of her optometry review books, materials and equipment,
trial lenses, trial contact lenses, passport and visa, as well as her mother Marisol's U.S. immigration (green) card,
among other important documents and personal belongings. Her belongings were kept in the baggage compartment
of the bus, but during a stopover at Daet, it was discovered that only one bag remained in the open compartment. The
others, including Fatima's things, were missing and might have dropped along the way. Some of the passengers
suggested retracing the route of the bus to try to recover the lost items, but the driver ignored them and proceeded to
Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioner's office in Legazpi City and later at
its head office in Manila. Petitioner, however, merely offered her P1,000.00 for each piece of luggage lost, which she
turned down. After returning to Bicol, disappointed but not defeated, mother and daughter asked assistance from the
radio stations and even from Philtranco bus drivers who plied the same route on August 31st. The effort paid off when
one of Fatima's bags was recovered. Marisol further reported the incident to the National Bureau of Investigation's field
office in Legazpi City and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint from
petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that "(a) team has been sent
out to Bicol for the purpose of recovering or at least getting the full detail"1 of the incident.
After more than nine months of fruitless waiting, respondents decided to file the case below to recover the value of the
remaining lost items, as well as moral and exemplary damages, attorney's fees and expenses of litigation. They claimed
that the loss was due to petitioner's failure to observe extraordinary diligence in the care of Fatima's luggage and that
135
petitioner dealt with them in bad faith from the start. Petitioner, on the other hand, disowned any liability for the loss on
the ground that Fatima allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of respondents, viz.:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and against the
herein defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the following sums of money,
to wit:
1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva Fortades, etc.
less the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorney's fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00) Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from receipt of this
Decision.
SO ORDERED.
On appeal, the appellate court affirmed the trial court's judgment, but deleted the award of moral and exemplary
damages. Thus,
WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses at
P30,000.00 and the deletion of the award for moral and exemplary damages, the decision appealed from is AFFIRMED,
with costs against defendant-appellant.
SO ORDERED.
Its motion for reconsideration was likewise rejected by the Court of Appeals, so petitioner elevated its case to this Court
for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts resolved the
issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was declared at the
start of the trip. The documentary and testimonial evidence presented at the trial, however, established that Fatima
indeed boarded petitioner's De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought three pieces of
luggage with her, as testified by her brother Raul,2 who helped her pack her things and load them on said bus. One of
the bags was even recovered by a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted
its liability by apologizing to respondents and assuring them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The incident was reported to
the police, the NBI, and the regional and head offices of petitioner. Marisol even sought the assistance of Philtranco
bus drivers and the radio stations. To expedite the replacement of her mother's lost U.S. immigration documents,
Fatima also had to execute an affidavit of loss.3 Clearly, they would not have gone through all that trouble in pursuit of
a fancied loss.
136
Fatima was not the only one who lost her luggage. Apparently, other passengers had suffered a similar fate: Dr. Lita
Samarista testified that petitioner offered her P1,000.00 for her lost baggage and she accepted it;4 Carleen Carullo-
Magno lost her chemical engineering review materials, while her brother lost abaca products he was transporting to
Bicol.5
Petitioner's receipt of Fatima's personal luggage having been thus established, it must now be determined if, as a
common carrier, it is responsible for their loss. Under the Civil Code, "(c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods
. . . transported by them,"6 and this liability "lasts from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier
to . . . the person who has a right to receive them,"7 unless the loss is due to any of the excepted causes under Article
1734 thereof.8
The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the baggage
compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage was lost, to
the prejudice of the paying passengers. As the Court of Appeals correctly observed:
. . . . Where the common carrier accepted its passenger's baggage for transportation and even had it placed in the
vehicle by its own employee, its failure to collect the freight charge is the common carrier's own lookout. It is responsible
for the consequent loss of the baggage. In the instant case, defendant appellant's employee even helped Fatima
Minerva Fortades and her brother load the luggages/baggages in the bus' baggage compartment, without asking that
they be weighed, declared, receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December 23, 1987, p.
35). Neither was this required of the other passengers (TSN, August 4, 1986, p. 104; February 5, 1988; p. 13).
Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree with the trial
and appellate courts' conclusions. There is no dispute that of the three pieces of luggage of Fatima, only one was
recovered. The other two contained optometry books, materials, equipment, as well as vital documents and personal
belongings. Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During
the trial, Fatima and Marisol had to travel from the United States just to be able to testify. Expenses were also incurred
in reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in
awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees with the deletion
of the award of moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad
faith on the fault of petitioner having been duly established, should be granted to respondents in the amount of
P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution dated February
19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to pay respondents an additional
P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
G.R. No. L-16629 January 31, 1962
SOUTHERN LINES, INC., petitioner,
vs.
COURT OF APPEALS and CITY OF ILOILO, respondents.

137
Jose Ma. Lopez Vito, Jr. for petitioner.
The City Fiscal for respondents.
DE LEON, J.:
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 15579-R affirming that of
the Court of First Instance of Iloilo which sentenced petitioner Southern Lines, Inc. to pay respondent City of Iloilo the
amount of P4,931.41.
Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn Corporation (hereafter referred
to as NARIC) in Manila. On August 24 of the same year, NARIC, pursuant to the order, shipped 1,726 sacks of rice
consigned to the City of Iloilo on board the SS "General Wright" belonging to the Southern Lines, Inc. Each sack of rice
weighed 75 kilos and the entire shipment as indicated in the bill of lading had a total weight of 129,450 kilos. According
to the bill of lading, the cost of the shipment was P63,115.50 itemized and computed as follows: .
Unit Price per bag P36.25 P62,567.50
Handling at P0.13 per bag 224.38
Trucking at P2.50 per bag 323.62
T o t a l . . . . . .. . . . . ________________________________________63,115.50
On September 3, 1948, the City of Iloilo received the shipment and paid the amount of P63,115.50. However, it was
noted that the foot of the bill of lading that the City of Iloilo 'Received the above mentioned merchandise apparently in
same condition as when shipped, save as noted below: actually received 1685 sacks with a gross weight of 116,131
kilos upon actual weighing. Total shortage ascertained 13,319 kilos." The shortage was equivalent to 41 sacks of rice
with a net weight of 13,319 kilos, the proportionate value of which was P6,486.35.
On February 14, 1951 the City of Iloilo filed a complaint in the Court of First Instance of Iloilo against NARIC and the
Southern Lines, Inc. for the recovery of the amount of P6,486.35 representing the value of the shortage of the shipment
of rice. After trial, the lower court absolved NARIC from the complaint, but sentenced the Southern Lines, Inc. to pay
the amount of P4,931.41 which is the difference between the sum of P6,486.35 and P1,554.94 representing the latter's
counterclaim for handling and freight.
The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the judgment of the trial court. Hence, this
petition for review.
The only question to be determined in this petition is whether or not the defendant-carrier, the herein petitioner, is liable
for the loss or shortage of the rice shipped.
Article 361 of the Code of Commerce provides: .
ART. 361. — The merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been
expressly stipulated.
As a consequence, all the losses and deteriorations which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent nature and defect of the goods, shall be for the account and risk of the
shipper.1äwphï1.ñët
Proof of these accidents is incumbent upon the carrier.
138
Article 362 of the same Code provides: .
ART. 362. — Nevertheless, the carrier shall be liable for the losses and damages resulting from the causes mentioned
in the preceding article if it is proved, as against him, that they arose through his negligence or by reason of his having
failed to take the precautions which usage his establisbed among careful persons, unless the shipper has committed
fraud in the bill of lading, representing the goods to be of a kind or quality different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods transported run the risk of being lost, on account
of their nature or by reason of unavoidable accident, there being no time for their owners to dispose of them, the carrier
may proceed to sell them, placing them for this purpose at the disposal of the judicial authority or of the officials
designated by special provisions.
Under the provisions of Article 361, the defendant-carrier in order to free itself from liability, was only obliged to prove
that the damages suffered by the goods were "by virtue of the nature or defect of the articles." Under the provisions of
Article 362, the plaintiff, in order to hold the defendant liable, was obliged to prove that the damages to the goods by
virtue of their nature, occurred on account of its negligence or because the defendant did not take the precaution
adopted by careful persons. (Government v. Ynchausti & Co., 40 Phil. 219, 223).
Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was due to such factors
as the shrinkage, leakage or spillage of the rice on account of the bad condition of the sacks at the time it received the
same and the negligence of the agents of respondent City of Iloilo in receiving the shipment. The contention is
untenable, for, if the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary
observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or injury
resulting thereform. (9 Am Jur. 869.) Furthermore, according to the Court of Appeals, "appellant (petitioner) itself frankly
admitted that the strings that tied the bags of rice were broken; some bags were with holes and plenty of rice were
spilled inside the hull of the boat, and that the personnel of the boat collected no less than 26 sacks of rice which they
had distributed among themselves." This finding, which is binding upon this Court, shows that the shortage resulted
from the negligence of petitioner.
Invoking the provisions of Article 366 of the Code of Commerce and those of the bill of lading, petitioner further contends
that respondent is precluded from filing an action for damages on account of its failure to present a claim within 24
hours from receipt of the shipment. It also cites the cases of Government v. Ynchausti & Co., 24 Phil. 315 and Triton
Insurance Co. v. Jose, 33 Phil. 194, ruling to the effect that the requirement that the claim for damages must be made
within 24 hours from delivery is a condition precedent to the accrual of the right of action to recover damages. These
two cases above-cited are not applicable to the case at bar. In the first cited case, the plaintiff never presented any
claim at all before filing the action. In the second case, there was payment of the transportation charges which precludes
the presentation of any claim against the carrier. (See Article 366, Code of Commerce.) It is significant to note that in
the American case of Hoye v. Pennsylvania Railroad Co., 13 Ann. Case. 414, it has been said: .
... "It has been held that a stipulation in the contract of shipment requiring the owner of the goods to present a notice
of his claim to the carrier within a specified time after the goods have arrived at their destination is in the nature of a
condition precedent to the owner's right to enforce a recovery, that he must show in the first instance that be has
complied with the condition, or that the circumstances were such that to have complied with it would have required him
to do an unreasonable thing. The weight of authority, however, sustains the view that such a stipulation is more in the
nature of a limitation upon the owner's right to recovery, and that the burden of proof is accordingly on the carrier to
show that the limitation was reasonable and in proper form or within the time stated." (Hutchinson on Carrier, 3d ed.,
par. 44) Emphasis supplied.
In the case at bar, the record shows that petitioner failed to plead this defense in its answer to respondent's complaint
and, therefore, the same is deemed waived (Section 10, Rule 9, Rules of Court), and cannot be raised for the first time
at the trial or on appeal. (Maxilom v. Tabotabo, 9 Phil. 390.) Moreover, as the Court of Appeals has said: .
139
... the records reveal that the appellee (respondent) filed the present action, within a reasonable time after the short
delivery in the shipment of the rice was made. It should be recalled that the present action is one for the refund of the
amount paid in excess, and not for damages or the recovery of the shortage; for admittedly the appellee (respondent)
had paid the entire value of the 1726 sacks of rice, subject to subsequent adjustment, as to shortages or losses. The
bill of lading does not at all limit the time for filing an action for the refund of money paid in excess.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all respects and the petition for
certioraridenied.
With costs against the petitioner.
Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Dizon, JJ., concur.
Bengzon, C.J., Bautista Angelo and Paredes, JJ., took no part.
G.R. No. L-69044 May 29, 1987
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.
No. 71478 May 29, 1987
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
140
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.
141
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
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
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:
142
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:
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.
143
By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that
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
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
144
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:
145
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

146
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.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
G.R. No. 119756 March 18, 1999
FORTUNE EXPRESS, INC., petitioner,
vs.
COURT OF APPEALS, PAULIE U.CAORONG, and minor childrenYASSER KING CAORONG, ROSE HEINNI and
PRINCE ALEXANDER, all surnamed CAORONG, and represented by their mother PAULIE U. CAORONG,
respondents.
MENDOZA, J.:
This is an appeal by petition for review on certiorari of the decision, dated July 29, 1994, of the Court of Appeals, which
reversed the decision of the Regional Trial Court, Branch VI, Iligan City. The aforesaid decision of the trial court
dismissed the complaint of public respondents against petitioner for damages for breach of contract of carriage filed on
the ground that petitioner had not exercised the required degree of diligence in the operation of one of its buses. Atty.
Talib Caorong, whose heirs are private respondents herein, was a passenger of the bus and was killed in the ambush
involving said bus.
The facts of the instant case are as follows:
Petitioner is a bus company in northern Mindanao. Private respondent Paulie Caorong is the widow of Atty. Caorong,
while private respondents Yasser King, Rose Heinni, and Prince Alexander are their minor children.
147
On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in Kauswagan, Lanao del Norte,
resulting in the death of several passengers of the jeepney, including two Maranaos. Crisanto Generalao, a volunteer
field agent of the Constabulary Regional Security Unit No. X, conducted an investigation of the accident. He found that
the owner of the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain Maranaos were
planning to take revenge on the petitioner by burning some of its buses. Generalao rendered a report on his findings
to Sgt. Reynaldo Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro. Upon the
instruction of Sgt. Bastasa, he went to see Diosdado Bravo, operations manager of petitioner, its main office in Cagayan
de Oro City. Bravo assured him that the necessary precautions to insure the safety of lives and property would be
taken.1
At about 6:45 P.M. on November 22, 1989, three armed Maranaos who pretended to be passengers, seized a bus of
petitioner at Linamon, Lanao del Norte while on its way to Iligan City. Among the passengers of the bus was Atty.
Caorong. The leader of the Maranaos, identified as one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan,
to stop the bus on the side of the highway. Mananggolo then shot Cabatuan on the arm, which caused him to slump
on the steering wheel. The one of the companions of Mananggolo started pouring gasoline inside the bus, as the other
held the passenger at bay with a handgun. Mananggolo then ordered the passenger to get off the bus. The passengers,
including Atty. Caorong, stepped out of the bus and went behind the bushes in a field some distance from the highway.2
However, Atty. Caorong returned to the bus to retrieve something from the overhead rack. at that time, one of the
armed men was pouring gasoline on the head of the driver. Cabatuan, who had meantime regained consciousness,
heard Atty. Caorong pleading with the armed men to spare the driver as he was innocent of any wrong doing and was
only trying to make a living. The armed men were, however, adamant as they repeated the warning that they were
going to burn the bus along with its driver. During this exchange between Atty. Caorong and the assailants, Cabatuan
climbed out of the left window of the bus and crawled to the canal on the opposite side of the highway. He heard shots
from inside the bus. Larry de la Cruz, one of the passengers, saw that Atty. Caorong was hit. Then the bus was set on
fire. Some of the passengers were able to pull Atty. Caorong out of the burning bus and rush him to the Mercy
Community Hospital in Iligan City, but he died while undergoing operation.3
The private respondents brought this suit for breach of contract of carriage in the Regional Trial Court, Branch VI, Iligan
City. In its decision, dated December 28, 1990, the trial court dismissed the complaint, holding as follows:
The fact that defendant, through Operations Manager Diosdado Bravo, was informed of the "rumors" that the Moslems
intended to take revenge by burning five buses of defendant is established since the latter also utilized Crisanto
Generalao as a witness. Yet despite this information, the plaintiffs charge, defendant did not take proper precautions.
. . . Consequently, plaintiffs now fault the defendant for ignoring the report. Their position is that the defendant should
have provided its buses with security guards. Does the law require common carriers to install security guards in its
buses for the protection and safety of its passengers? Is the failure to post guards on omission of the duty to "exercise
the diligence of a good father of the family" which could have prevented the killing of Atty. Caorong? To our mind, the
diligence demanded by law does not include the posting of security guard in buses. It is an obligation that properly
belongs to the State. Besides, will the presence of one or two security guards suffice to deter a determined assault of
the lawless and thus prevent the injury complained of? Maybe so, but again, perhaps not. In other words, the presence
of a security guard is not a guarantee that the killing of Atty. Caorong would have been definitely avoided.
xxx xxx xxx
Accordingly, the failure of defendant to accord faith and credit to the report of Mr. Generalao and the fact that it did not
provide security to its buses cannot, in the light of the circumstances, be characterized as negligence.
Finally, the evidence clearly shows that the assalants did not have the least intention of the harming any of the
passengers. They ordered all the passengers to alight and set fire on the bus only after all the passengers were out of
danger. The death of Atty. Caorong was an unexpected and unforseen occurrense over which defendant had no
148
control. Atty. Caorong performed an act of charity and heroism in coming to the succor of the driver even in the face of
danger. He deserves the undying gratitude of the driver whose life he saved. No one should blame him for an act of
extraordinary charity and altruism which cost his life. But neither should any blame be laid on the doorstep of defendant.
His death was solely due to the willfull acts of the lawless which defendant could neither prevent nor to stop.
WHEREFORE, in view of the foregoing, the complaint is hereby dismissed. For lack of merit, the counter-claim is
likewise dismissed. No costs.4
On appeal, however, the Court of Appeals reversed. It held:
In the case at bench, how did defendant-appellee react to the tip or information that certain Maranao hotheads were
planning to burn five of its buses out of revenge for the deaths of two Maranaos in an earlier collision involving appellee's
bus? Except for the remarks of appellee's operations manager that "we will have our action . . . . and I'll be the one to
settle it personally," nothing concrete whatsoever was taken by appellee or its employees to prevent the execution of
the threat. Defendant-appellee never adopted even a single safety measure for the protection of its paying passengers.
Were there available safeguards? Of course, there were: one was frisking passengers particularly those en route to
the area where the threats were likely to be carried out such as where the earlier accident occurred or the place of
influence of the victims or their locality. If frisking was resorted to, even temporarily, . . . . appellee might be legally
excused from liabilty. Frisking of passengers picked up along the route could have been implemented by the bus
conductor; for those boarding at the bus terminal, frisking could have been conducted by him and perhaps by additional
personnel of defendant-appellee. On hindsight, the handguns and especially the gallon of gasoline used by the felons
all of which were brought inside the bus would have been discovered, thus preventing the burning of the bus and the
fatal shooting of the victim.
Appellee's argument that there is no law requiring it to provide guards on its buses and that the safety of citizens is the
duty of the government, is not well taken. To be sure, appellee is not expected to assign security guards on all its
buses; if at all, it has the duty to post guards only on its buses plying predominantly Maranaos areas. As discussed in
the next preceding paragraph, least appellee could have done in response to the report was to adopt a system of
verification such as the frisking of passengers boarding at its buses. Nothing, and no repeat, nothing at all, was done
by defendant-appellee to protect its innocent passengers from the danger arising from the "Maranao threats." It must
be observed that frisking is not a novelty as a safety measure in our society. Sensitive places — in fact, nearly all
important places — have applied this method of security enhancement. Gadgets and devices are avilable in the market
for this purpose. It would not have weighed much against the budget of the bus company if such items were made
available to its personnel to cope up with situations such as the "Maranaos threats."
In view of the constitutional right to personal privacy, our pronouncement in this decision should not be construed as
an advocacy of mandatory frisking in all public conveyances. What we are saying is that given the circumstances
obtaining in the case at bench that: (a) two Maranaos died because of a vehicular collision involving one of appellee's
vehicles; (b) appellee received a written report from a member of the Regional Security Unit, Constabulary Security
Group, that the tribal/ethnic group of the two deceased were planning to burn five buses of appellee out of revenge;
and (c) appelle did nothing — absolutely nothing — for the safety of its passengers travelling in the area of influence
of the victims, appellee has failed to exercise the degree of dilegence required of common carriers. Hence, appellee
must be adjudge liable.
xxx xxx xxx
WHEREFORE the decision appealed from is hereby REVERSED and another rendered ordering defendant-appellee
to pay plaintiffs-appellants the following:
1) P3,399,649.20 as death indemnity;
2) P50,000.00 and P500.00 per appearance as attorney's fee and

149
Costs against defendant-appellee.5
Hence, this appeal. Petitioner contends:
(A) THAT PUBLIC RESPONDENT ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT
DATED DECEMBER 28, 1990 DISMISSING THE COMPLAINT AS WELL AS THE COUNTERCLAIM, AND FINDING
FOR PRIVATE RESPONDENTS BY ORDERING PETITIONER TO PAY THE GARGANTUAN SUM OF P3,449,649.20
PLUS P500.00 PER APPEARANCE AS ATTORNEY'S FEES, AS WELL AS DENYING PETITIONERS MOTION FRO
RECONSIDERATION AND THE SUPPLEMENT TO SAID MOTION, WHILE HOLDING, AMONG OTHERS, THAT
THE PETITIONER BREACHED THE CONTRACT OF THE CARRIAGE BY ITS FAILURE TO EXCERCISE THE
REQUIRED DEGREE OF DILIGENCE;
(B) THAT THE ACTS OF THE MARANAO OUTLAWS WERE SO GRAVE, IRRESISTABLE, VIOLENT, AND
FORCEFULL, AS TO BE REGARDED AS CASO FORTUITO; AND
(C) THAT PUBLIC RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT PETITIONER
COULD HAVE PROVIDED ADEQUATE SECURITY IN PREDOMINANTLY MUSLIM AREAS AS PART OF ITS DUTY
TO OBSERVE EXTRA-ORDINARY DILIGENCE AS A COMMON CARRIER.
The instant has no merit.
First. Petitioner's Breach of the Contract of Carriage.
Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a passenger on account
of wilfull acts of other passengers, if the employees of the common carrier could have prevented the act through the
exercise of the diligence of a good father of a family. In the present case, it is clear that because of the negligence of
petitioner's employees, the seizure of the bus by Mananggolo and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning to take revenge
on the petitioner by burning some of its buses and the assurance of petitioner's operation manager, Diosdado Bravo,
that the necessary precautions would be taken, petitioner did nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed to see that the malefactors had a large
quantity of gasoline with them. Under the circumstances, simple precautionary measures to protect the safety of
passengers, such as frisking passengers and inspecting their baggages, preferably with non-intrusive gadgets such as
metal detectors, before allowing them on board could have been employed without violating the passenger's
constitutional rights. As this Court amended in Gacal v. Philippine Air Lines, Inc., 6 a common carrier can be held liable
for failing to prevent a hijacking by frisking passengers and inspecting their baggages.
From the foregoing, it is evident that petitioner's employees failed to prevent the attack on one of petitioner's buses
because they did not exercise the diligence of a good father of a family. Hence, petitioner should be held liable for the
death of Atty. Caorong.
Second. Seizure of Petitioner's Bus not a Case of Force Majeure
The petitioner contends that the seizure of its bus by the armed assailants was a fortuitous event for which it could not
be held liable.
Art. 1174 of the Civil Code defines a fortuitous event as an occurence which could not be foreseen, is inevitable. In
Yobido v. Court of Appeals, 7 we held that to considered as force majeure, it is necessary that (1) the cause of the
breach of the obligation must be independent of the human will; (2) the event must be either unforeseeable or
unavoidable; (3) the occurence must be render it impossible for the debtor to fulfill the obligation in a normal manner;
150
and (4) the obligor must be free of participation in, or aggravation of, the injury to the creditor. The absence of any of
the requisites mentioned above would prevent the obligor from being excused from liability.
Thus, in Vasquez v. Court of Appeals, 8 it was held that the common carrier was liable for its failure to take the
necessary precautions against an approaching typhoon, of which it was warned, resulting in the loss of the lives of
several passengers. The event was forseeable, and, thus, the second requisite mentioned above was not fulfilled. This
ruling applies by analogy to the present case. Despite the report of PC agent Generalao that the Maranaos were going
to attack its buses, petitioner took no steps to safeguard the lives and properties of its passengers. The seizure of the
bus of the petitioner was foreseeable and, therefore, was not a fortuitous event which would exempt petitioner from
liabilty.
Petitioner invokes the ruling in Pilapil v. Court of Appeals, 9 and De Guzman v. Court of Appeals, 10 in support of its
contention that the seizure of its bus by the assailants constitutes force majeure. In Pilapil v. Court of Appeals, 11 it
was held that a common carrier is not liable for failing to install window grills on its buses to protect the passengers
from injuries cause by rocks hurled at the bus by lawless elements. On the other hand, in De Guzman v. Court of
Appeals, 12 it was ruled that a common carriers is not responsible for goods lost as a result of a robbery which is
attended by grave or irresistable threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply to the prensent case. Art. 1755 of the Civil Code
provides that "a common carrier is bound to carry the passengers as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all the circumstances." Thus, we held in Pilapil
and De Guzman that the respondents therein were not negligent in failing to take special precautions against threats
to the safety of passengers which could not be foreseen, such as tortious or criminal acts of third persons. In the present
case, this factor of unforeseeability (the second requisite for an event to be considered force majeure) is lacking. As
already stated, despite the report of PC agent Generalao that the Maranaos were planning to burn some of petitioner's
buses and the assurance of petitioner's operation manager (Diosdado Bravo) that the necessary precautions would be
taken, nothing was really done by petitioner to protect the safety of passengers.
Third. Deceased not Guilty of Contributory Negligence
The petitioner contends that Atty. Caorong was guilty of contributory negligence in returning to the bus to retrieve
something. But Atty. Caorong did not act recklessly. It should be pointed out that the intended targets of the violence
were petitioners and its employees, not its passengers. The assailant's motive was to retaliate for the loss of life of two
Maranaos as a result of the collision between petitioner's bus and the jeepney in which the two Maranaos were riding.
Mananggolo, the leader of the group which had hijacked the bus, ordered the passengers to get off the bus as they
intended to burn it and its driver. The armed men actually allowed Atty. Caorong to retrieve something from the bus.
What apparently angered them was his attempt to help the driver of the bus by pleading for his life. He was playing the
role of the good Samaritan. Certainly, this act cannot considered an act of negligence, let alone recklessness.
Fourth. Petitioner Liable to Private Respaondents for Damages
We now consider the question of damages that the heirs of Atty. Caorong, private respondents herein, are entitled to
recover from the petitioner.
Indemnity for Death. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides for the payment of indemnity
for the death of passengers caused by the breach of contract of carriage by a common carrier. Initially fixed in Art. 2206
at P3,000.00, the amount of the said indemnity for death has through the years been gradually increased in view of the
declining value of the peso. It is presently fixed at P50,000.00. 13 Private respondents are entitled to this amount.
Actual Damages. Art. 2199 provides that "except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as has duly proved." The trial court found that the private
151
respondents spent P30,000.00 for the wake and burial of Atty. Caorong. 14 Since petitioner does not question this
finding of the trial court, it is liable to private respondent in the said amount as actual damages.
Moral Damages. Under Art. 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish by reason of the death of the deceased." The trial court found that
private respondent Paulie Caorong suffered pain from the death of her husband and worry on how to provide support
for their minor children, private respondents Yasser King, Rose Heinni, and Prince Alexander. 15 The petitioner likewise
does not question this finding of the trial court. Thus, in accordance with recent decisions of this Court, 16 we hold that
the petitioner is liable to the private respondents in the amount of P100,000.00 as moral damages for the death of Atty.
Caorong.
Exemplary Damages. Art. 2232 provides that "in contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent reckless manner." In the
present case, the petitioner acted in a wanton and reckless manner. Despite warning that the Maranaos were planning
to take revenge against the petitioner by burning some of its buses, and contary to the assurance made by its operations
manager that the necessary precautions would be take, the petitioner and its employees did nothing to protect the
safety of passengers. Under the circumtances, we deem it reasonable to award private respondents exemplary
damages in the amount of P100,000.00.17
Attorney's Fees. Pursuant to Art. 2208, attorney's fees may be recovered when, as in the instant case, exemplary
damages are awarded. In the recent case of Sulpicio Lines, Inc. v. Court of Appeals, 18 we held an award of P50,000.00
as attorney's fees to be reasonable. Hence, the private respondents are entitled to attorney's fees in that amount.
Compensation for Loss of Earning Capacity. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides that
in addition to the indemnity for death arising from the breach of contrtact of carriage by a common carrier, the "defendant
shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the
latter." The formula established in decided cases for computing net earning capacity is as follows:19
Gross Necessary
Net Earning = Life x Annual — Living
Capacity Expectancy Income Expenses
Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80) and the age of the deceased.
20 Since Atty. Caorong was 37 years old at that time of his death, 21 he had a life expectancy of 28 2/3 more years.22
His projected gross annual income, computed based on his monthly salary of P11,385.00. 23 as a lawyer in the
Department of Agrarian Reform at the time of his death, was P148,005.00. 24 Allowing for necessary living expenses
of fifty percent (50%) 25 of his projected gross annual income, his total earning capacity amounts to P2,121,404.90. 26
Hence, the petitioner is liable to the private respondents in the said amount as a compensation for loss of earning
capacity.
WHEREFORE, the decision, dated July 29, 1994, of the Court of Appeals is hereby AFFIRMED with the
MODIFICATION that petitioner Fortune Express, Inc. is ordered to pay the following amounts to private respondents
Paulie, Yasser King, Rose Heinni, and Prince Alexander Caorong:
1. death indemnity in the amount of fifty thousand pesos (P50,000.00);
2. actual damages in the amount of thirty thousand pesos (P30,000.00);
3. moral damages in the amount of one hundred thousand pesos (P100,000.00);
152
4. exemplary damages in the amount of one hundred thousand pesos (P100,000.00);
5. attorney's fees in the amount of fifty thousand pesos (P50,000.00);
6. compensation for loss of earning capacity in the amount of two million one hundred twenty-one thousand four
hundred four pesos and ninety centavos (P2,121,404.90); and
7. cost of suits.
SO ORDERED.
Bellosillo, Puno and Buena, JJ., concur.
Quisumbing, J., abroad on official business.
III. Duration of Obligation; Stipulations Limiting Liability;
xxx
Article 1737. The common carrier's duty to observe extraordinary diligence over the goods remains in full force and
effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner has made use of the
right of stoppage in transitu.
xxx
Article 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the former for
the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid, provided
it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.

153
xxx
G.R. No. 92288 February 9, 1993
BRITISH AIRWAYS, INC., petitioner,
vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST INTERNATIONAL TRADING AND GENERAL
SERVICES, respondents.
Quasha, Asperilla, Ancheta, Peña & Nolasco for petitioner.
Monina P. Lee for private respondent.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision dated November 15, 1989 of the Court of
Appeals1 affirming the decision of the trial court2 in ordering petitioner British Airways, Inc. to pay private respondent
First International Trading and General Services actual damages, moral damages, corrective or exemplary damages,
attorney's fees and the costs as well as the Resolution dated February 15, 19903 denying petitioner's Motion for
Reconsideration in the appealed decision.
It appears on record that on February 15, 1981, private respondent First International Trading and General Services
Co., a duly licensed domestic recruitment and placement agency, received a telex message from its principal ROLACO
Engineering and Contracting Services in Jeddah, Saudi Arabia to recruit Filipino contract workers in behalf of said
principal.4
During the early part of March 1981, said principal paid to the Jeddah branch of petitioner British Airways, Inc. airfare
tickets for 93 contract workers with specific instruction to transport said workers to Jeddah on or before March 30, 1981.
As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the 93 workers, private
respondent was immediately informed by petitioner that its principal had forwarded 93 prepaid tickets. Thereafter,
private respondent instructed its travel agent, ADB Travel and Tours. Inc., to book the 93 workers with petitioner but
the latter failed to fly said workers, thereby compelling private respondent to borrow money in the amount of
P304,416.00 in order to purchase airline tickets from the other airlines as evidenced by the cash vouchers (Exhibits
"B", "C" and "C-1 to C-7") for the 93 workers it had recruited who must leave immediately since the visas of said workers
are valid only for 45 days and the Bureau of Employment Services mandates that contract workers must be sent to the
job site within a period of 30 days.
Sometime in the first week of June, 1981, private respondent was again informed by the petitioner that it had received
a prepaid ticket advice from its Jeddah branch for the transportation of 27 contract workers. Immediatety, private
respondent instructed its travel agent to book the 27 contract workers with the petitioner but the latter was only able to
book and confirm 16 seats on its June 9, 1981 flight. However, on the date of the scheduled flight only 9 workers were
able to board said flight while the remaining 7 workers were rebooked to June 30, 1981 which bookings were again
cancelled by the petitioner without any prior notice to either private respondent or the workers. Thereafter, the 7 workers
154
were rebooked to the July 4,1981 flight of petitioner with 6 more workers booked for said flight. Unfortunately, the
confirmed bookings of the 13 workers were again cancelled and rebooked to July 7, 1981.
On July 6, 1981, private respondent paid the travel tax of the said workers as required by the petitioner but when the
receipt of the tax payments was submitted, the latter informed private respondent that it can only confirm the seats of
the 12 workers on its July 7, 1981 flight. However, the confirmed seats of said workers were again cancelled without
any prior notice either to the private respondent or said workers. The 12 workers were finally able to leave for Jeddah
after private respondent had bought tickets from the other airlines.
As a result of these incidents, private respondent sent a letter to petitioner demanding compensation for the damages
it had incurred by the latter's repeated failure to transport its contract workers despite confirmed bookings and payment
of the corresponding travel taxes.
On July 23, 1981, the counsel of private respondent sent another letter to the petitioner demanding the latter to pay the
amount of P350,000.00 representing damages and unrealized profit or income which was denied by the petitioner.
On August 8, 1981, private respondent received a telex message from its principal cancelling the hiring of the remaining
recruited workers due to the delay in transporting the workers to Jeddah.5
On January 27, 1982, private respondent filed a complaint for damages against petitioner with the Regional Trial Court
of Manila, Branch 1 in Civil Case No. 82-4653.
On the other hand, petitioner, alleged in its Answer with counterclaims that it received a telex message from Jeddah
on March 20, 1981 advising that the principal of private respondent had prepaid the airfares of 100 persons to transport
private respondent's contract workers from Manila to Jeddah on or before March 30, 1981. However, due to the
unavailability of space and limited time, petitioner had to return to its sponsor in Jeddah the prepaid ticket advice
consequently not even one of the alleged 93 contract workers were booked in any of its flights.
On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract workers of private
respondent to Jeddah but the travel agent of the private respondent booked only 10 contract workers for petitioner's
June 9, 1981 flight. However, only 9 contract workers boarded the scheduled flight with 1 passenger not showing up
as evidenced by the Philippine Airlines' passenger manifest for Flight BA-020 (Exhibit "7", "7-A", "7-B" and "7-C").6
Thereafter, private respondent's travel agent booked seats for 5 contract workers on petitioner's July 4, 1981 flight but
said travel agent cancelled the booking of 2 passengers while the other 3 passengers did not show up on said flight.
Sometime in July 1981, the travel agent of the private respondent booked 7 more contract workers in addition to the
previous 5 contract workers who were not able to board the July 4, 1981 flight with the petitioner's July 7, 1981 flight
which was accepted by petitioner subject to reconfirmation.
However on July 6, 1981, petitioner's computer system broke down which resulted to petitioner's failure to get a
reconfirmation from Saudi Arabia Airlines causing the automatic cancellation of the bookings of private respondent's
12 contract workers. In the morning of July 7, 1981, the computer system of the petitioner was reinstalled and
immediately petitioner tried to reinstate the bookings of the 12 workers with either Gulf Air or Saudi Arabia Airlines but
both airlines replied that no seat was available on that date and had to place the 12 workers on the wait list. Said
information was duly relayed to the private respondent and the 12 workers before the scheduled flight.
After due trial on or on August 27, 1985, the trial court rendered its decision, the dispositive portion of which reads as
follows:
WHEREFORE, in view of all the foregoing, this Court renders judgment:
155
1. Ordering the defendant to pay the plaintiff actual damages in the sum of P308,016.00;
2. Ordering defendant to pay moral damages to the plaintiff in the amount of P20,000.00;
3. Ordering the defendant to pay the plaintiff P10,000.00 by way of corrective or exemplary damages;
4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as attorney's fees; and
5. To pay the costs.7
On March 13, 1986, petitioner appealed said decision to respondent appellate court after the trial court denied its
Motion for Reconsideration on February 28, 1986.
On November 15, 1989, respondent appellate court affirmed the decision of the trial court, the dispositive portion of
which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against the appellant.8
On December 9, 1989, petitioner filed a Motion for Reconsideration which was also denied.
It is the contention of petitioner that private respondent has no cause of action against it there being no perfected
contract of carriage existing between them as no ticket was ever issued to private respondent's contract workers and,
therefore, the obligation of the petitioner to transport said contract workers did not arise. Furthermore, private
respondent's failure to attach any ticket in the complaint further proved that it was never a party to the alleged
transaction.
Petitioner's contention is untenable.
Private respondent had a valid cause of action for damages against petitioner. A cause of action is an act or omission
of one party in violation of the legal right or rights of the other.9 Petitioner's repeated failures to transport private
respondent's workers in its flight despite confirmed booking of said workers clearly constitutes breach of contract and
bad faith on its part. In resolving petitioner's theory that private respondent has no cause of action in the instant case,
the appellate court correctly held that:
In dealing with the contract of common carriage of passengers for purpose of accuracy, there are two (2) aspects of
the same, namely: (a) the contract "to carry (at some future time)," which contract is consensual and is necessarily
perfected by mere consent (See Article 1356, Civil Code of the Philippines), and (b) the contract "of carriage" or "of
common carriage" itself which should be considered as a real contract for not until the carrier is actually used can the
carrier be said to have already assumed the obligation of a carrier. (Paras, Civil Code Annotated, Vol. V, p. 429,
Eleventh Ed.)
In the instant case, the contract "to carry" is the one involved which is consensual and is perfected by the mere consent
of the parties.
There is no dispute as to the appellee's consent to the said contract "to carry" its contract workers from Manila to
Jeddah. The appellant's consent thereto, on the other hand, was manifested by its acceptance of the PTA or prepaid
ticket advice that ROLACO Engineering has prepaid the airfares of the appellee's contract workers advising the
appellant that it must transport the contract workers on or before the end of March, 1981 and the other batch in June,
1981.
156
Even if a PTA is merely an advice from the sponsors that an airline is authorized to issue a ticket and thus no ticket
was yet issued, the fact remains that the passage had already been paid for by the principal of the appellee, and the
appellant had accepted such payment. The existence of this payment was never objected to nor questioned by the
appellant in the lower court. Thus, the cause or consideration which is the fare paid for the passengers exists in this
case.
The third essential requisite of a contract is an object certain. In this contract "to carry", such an object is the transport
of the passengers from the place of departure to the place of destination as stated in the telex.
Accordingly, there could be no more pretensions as to the existence of an oral contract of carriage imposing reciprocal
obligations on both parties.
In the case of appellee, it has fully complied with the obligation, namely, the payment of the fare and its willingness for
its contract workers to leave for their place of destination.
On the other hand, the facts clearly show that appellant was remiss in its obligation to transport the contract workers
on their flight despite confirmation and bookings made by appellee's travelling agent.
xxx xxx xxx
Besides, appellant knew very well that time was of the essence as the prepaid ticket advice had specified the period of
compliance therewith, and with emphasis that it could only be used if the passengers fly on BA. Under the
circumstances, the appellant should have refused acceptance of the PTA from appellee's principal or to at least inform
appellee that it could not accommodate the contract workers.
xxx xxx xxx
While there is no dispute that ROLACO Engineering advanced the payment for the airfares of the appellee's contract
workers who were recruited for ROLACO Engineering and the said contract workers were the intended passengers in
the aircraft of the appellant, the said contract "to carry" also involved the appellee for as recruiter he had to see to it
that the contract workers should be transported to ROLACO Engineering in Jeddah thru the appellant's transportation.
For that matter, the involvement of the appellee in the said contract "to carry" was well demonstrated when
the appellant upon receiving the PTA immediately advised the appellee thereof. 10
Petitioner also contends that the appellate court erred in awarding actual damages in the amount of P308,016.00 to
private respondent since all expenses had already been subsequently reimbursed by the latter's principal.
In awarding actual damages to private respondent, the appellate court held that the amount of P308,016.00
representing actual damages refers to private respondent's second cause of action involving the expenses incurred by
the latter which were not reimbursed by ROLACO Engineering. However, in the Complaint 11 filed by private
respondent, it was alleged that private respondent suffered actual damages in the amount of P308,016.00 representing
the money it borrowed from friends and financiers which is P304,416.00 for the 93 airline tickets and P3,600.00 for the
travel tax of the 12 workers. It is clear therefore that the actual damages private respondent seeks to recover are the
airline tickets and travel taxes it spent for its workers which were already reimbursed by its principal and not for any
other expenses it had incurred in the process of recruiting said contract workers. Inasmuch as all expenses including
the processing fees incurred by private respondent had already been paid for by the latter's principal on a staggered
basis as admitted in open court by its managing director, Mrs. Bienvenida Brusellas. 12 We do not find anymore
justification in the appellate court's decision in granting actual damages to private respondent.
Thus, while it may be true that private respondent was compelled to borrow money for the airfare tickets of its contract
workers when petitioner failed to transport said workers, the reimbursements made by its principal to private respondent
157
failed to support the latter's claim that it suffered actual damages as a result of petitioner's failure to transport said
workers. It is undisputed that private respondent had consistently admitted that its principal had reimbursed all its
expenses.
Article 2199 of the Civil Code provides that:
Except as provided by law or by stipulations, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.
Furthermore, actual or compensatory damages cannot be presumed, but must be duly proved, and proved with
reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount
of damages, but must depend upon competent proof that they have suffered and on evidence of the actual amount
thereof. 13
However, private respondent is entitled to an award of moral and exemplary damages for the injury suffered as a result
of petitioner's failure to transport the former's workers because of the latter's patent bad faith in the performance of its
obligation. As correctly pointed out by the appellate court:
As evidence had proved, there was complete failure on the part of the appellant to transport the 93 contract workers of
the appellee on or before March 30, 1981 despite receipt of the payment for their airfares, and acceptance of the same
by the appellant, with specific instructions from the appellee's principal to transport the contract workers on or before
March 30, 1981. No previous notice was ever registered by the appellant that it could not comply with the same. And
then followed the detestable act of appellant in unilaterally cancelling, booking and rebooking unreasonably the flight
of appellee's contract workers in June to July, 1981 without prior notice. And all of these actuations of the appellant
indeed constitute malice and evident bad faith which had caused damage and besmirched the reputation and business
image of the appellee. 14
As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record shows that no claim for
said damages was ever made by the petitioner immediately after their alleged occurrence therefore said counterclaims
were mere afterthoughts when private respondent filed the present case.
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the award of actual damages
be deleted from said decision.
SO ORDERED.
Narvasa, C.J., Feliciano, Regalado and Campos, Jr., JJ., concur.
G.R. No. 125524 August 25, 1999
BENITO MACAM doing business under the name and style BEN-MAC ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES SHIPPING, INC.,respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac Enterprises, shipped on
board the vessel Nen Jiang, owned and operated by respondent China Ocean Shipping Co., through local agent
158
respondent Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of watermelons valued at
US$5,950.00 covered by Bill of Lading No. HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued
by National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a
value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No. HK 1032/30
also issued by PAKISTAN BANK. The Bills of Lading contained the following pertinent provision: "One of the Bills of
Lading must be surrendered duly endorsed in exchange for the goods or delivery order.1 The shipment was bound for
Hongkong with PAKISTAN BANK as consignee and Great Prospect Company of Kowloon, Hongkong (hereinafter
GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were submitted
to petitioner's depository bank, Consolidated Banking Corporation (hereinafter SOLIDBANK), which paid petitioner in
advance the total value of the shipment of US$20,223.46.1âwphi1.nêt
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN
BANK, and without the required bill of lading having been surrendered. Subsequently, GPC failed to pay PAKISTAN
BANK such that the latter, still in possession of the original bills of lading, refused to pay petitioner through SOLIDBANK.
Since SOLIDBANK already pre-paid petitioner the value of the shipment, it demanded payment from respondent
WALLEM through five (5) letters but was refused. Petitioner was thus allegedly constrained to return the amount
involved to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or its equivalent of
P546,033.42 from respondents before the Regional Trial Court of Manila, based on delivery of the shipment to GPC
without presentation of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the bills of lading and bank
guarantee per request of petitioner himself because the shipment consisted of perishable goods. The telex dated 5
April 1989 conveying such request read —
AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE CNEES WITHOUT
PRESENTATION OF OB/L2 and bank guarantee since for prepaid shipt ofrt charges already fully paid our end . . . .3
Respondents explained that it is a standard maritime practice, when immediate delivery is of the essence, for the
shipper to request or instruct the carrier to deliver the goods to the buyer upon arrival at the port of destination without
requiring presentation of the bill of lading as that usually takes time. As proof thereof, respondents apprised the trial
court that for the duration of their two-year business relationship with petitioner concerning similar shipments to GPC
deliveries were effected without presentation of the bills of lading.4 Respondents advanced next that the refusal of
PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the latter's failure to submit a Certificate of
Quantity and Quality. Respondents counterclaimed for attorney's fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following amounts: (1)
P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as attorney's fees; and, (3) the
costs. The counterclaims were dismissed for lack of merit.5 The trial court opined that respondents breached the
provision in the bill of lading requiring that "one of the Bills of Lading must be surrendered duly endorsed in exchange
for the goods or delivery order," when they released the shipment to GPC without presentation of the bills of lading and
the bank guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial court added
that the shipment should not have been released to GPC at all since the instruction contained in the telex was to
arrange delivery to the respective consignees and not to any party. The trial court observed that the only role of GPC
in the transaction as notify party was precisely to be notified of the arrival of the cargoes in Hongkong so it could in turn
duly advise the consignee.
159
Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as established by
previous similar transactions between the parties, shipped cargoes were sometimes actually delivered not to the
consignee but to notify party GPC without need of the bills of lading or bank guarantee.6 Moreover, the bills of lading
were viewed by respondent court to have been properly superseded by the telex instruction and to implement the
instruction, the delivery of the shipment must be to GPC, the real importer/buyer of the goods as shown by the export
invoices,7 and not to PAKISTAN BANK since the latter could very well present the bills of lading in its possession;
likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly delivered it would no longer be proper
to require a bank guarantee. Respondent court noted that besides, GPC was listed as a consignee in the telex. It
observed further that the demand letter of petitioner to respondents never complained of misdelivery of goods. Lastly,
respondent court found that petitioner's claim of having reimbursed the amount involved to SOLIDBANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial court and dismissed the
complaint together with the counterclaims.8 On 5 July 1996 reconsideration was denied.9
Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the bill of lading or to
a party designated or named by the consignee constitutes a misdelivery thereof. Moreover, petitioner argues that from
the text of the telex, assuming there was such an instruction, the delivery of the shipment without the required bill of
lading or bank guarantee should be made only to the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that "the fact that the shipment was not delivered to the consignee
as stated in the Bill of Lading or to a party designated or named by the consignee constitutes a misdelivery thereof" is
a deviation from his cause of action before the trial court. It is clear from the allegation in his complaint that it does not
deal with misdelivery of the cargoes but of delivery to GPC without the required bills of lading and bank guarantee —
6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the buyer/notify party, Great
Prospect Company and not to the consignee, the National Bank of Pakistan, Hongkong, without the required bills of
lading and bank guarantee for the release of the shipment issued by the consignee of the goods . . . .10
Even going back to an event that transpired prior to the filing of the present case or when petitioner wrote respondent
WALLEM demanding payment of the value of the cargoes, misdelivery of the cargoes did not come into the picture —
We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of Lading No. 99012 and
99013 with a total value of US$20,223.46 were released to Great Prospect, Hongkong without the necessary bank
guarantee. We were further informed that the consignee of the goods, National Bank of Pakistan, Hongkong, did not
release or endorse the original bills of lading. As a result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our client for the goods . . . .11
At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion on the imputed liability of
respondents concerning the shipped goods. Article 1736 of the Civil Code provides —
Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods are unconditionally
the provisions of article 1738.12
We emphasize that the extraordinary responsibility of the common carriers lasts until actual or constructive delivery of
the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK was indicated in the
bills of lading as consignee whereas GPC was the notify party. However, in the export invoices GPC was clearly named
as buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his
complaint before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive them14 was proper.
160
The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without the bills of lading
or bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to GPC without the
bills of lading and bank guarantee. The telex instructed delivery of various shipments to the respective consignees
without need of presenting the bill of lading and bank guarantee per the respective shipper's request since "for prepaid
shipt ofrt charges already fully paid." Petitioner was named therein as shipper and GPC as consignee with respect to
Bill of Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims that
this evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for around two
(2) or three (3) years already. When mangoes and watermelons are in season, his shipment to GPC using the facilities
of respondents is twice or thrice a week. The goods are released to GPC. It has been the practice of petitioner to
request the shipping lines to immediately release perishable cargoes such as watermelons and fresh mangoes through
telephone calls by himself or his "people." In transactions covered by a letter of credit, bank guarantee is normally
required by the shipping lines prior to releasing the goods. But for buyers using telegraphic transfers, petitioner
dispenses with the bank guarantee because the goods are already fully paid. In his several years of business
relationship with GPC and respondents, there was not a single instance when the bill of lading was first presented
before the release of the cargoes. He admitted the existence of the telex of 3 July 1989 containing his request to deliver
the shipment to the consignee without presentation of the bill of lading15 but not the telex of 5 April 1989 because he
could not remember having made such request.
Consider pertinent portions of petitioner's testimony —
Q: Are you aware of any document which would indicate or show that your request to the defendant Wallem for the
immediate release of your fresh fruits, perishable goods, to Great Prospect without the presentation of the original Bill
of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested immediate release of the cargo
because there was immediate payment.
Q: And you are referring, therefore, to this copy Telex release that you mentioned where your Company's name appears
Ben-Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading referring to SKG (sic) 93023
and 93026 with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate release of the goods when they are perishable. I
thought Wallem Shipping Lines is not neophyte in the business. As far as LC is concerned, Bank guarantee is needed
for the immediate release of the goods . . . .15
Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable goods to ask the shipping lines to
release immediately the shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable goods to the importer
of goods without a Bill of Lading or Bank guarantee?
161
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the perishable goods by the shipping lines to the
importer without the Bank guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully paid . . . .
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall that any of your
shipment was released to Great Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods through Wallem, you
requested Wallem to release immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods . . . .16
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately even without the
presentation of OBL, how do you course it?
A: Usually, I call up the Shipping Lines, sir . . . .17
Q: You also testified you made this request through phone calls. Who of you talked whenever you made such phone
call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem . . . .18
Against petitioner's claim of "not remembering" having made a request for delivery of subject cargoes to GPC without
presentation of the bills of lading and bank guarantee as reflected in the telex of 5 April 1989 are damaging disclosures
in his testimony. He declared that it was his practice to ask the shipping lines to immediately release shipment of
perishable goods through telephone calls by himself or his "people." He no longer required presentation of a bill of
lading nor of a bank guarantee as a condition to releasing the goods in case he was already fully paid. Thus, taking
into account that subject shipment consisted of perishable goods and SOLIDBANK pre-paid the full amount of the value
thereof, it is not hard to believe the claim of respondent WALLEM that petitioner indeed requested the release of the
goods to GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective consignees." And so petitioner
argues that, assuming there was such an instruction, the consignee referred to was PAKISTAN BANK. We find the
162
argument too simplistic. Respondent court analyzed the telex in its entirety and correctly arrived at the conclusion that
the consignee referred to was not PAKISTAN BANK but GPC —
There is no mistake that the originals of the two (2) subject Bills of Lading are still in the possession of the Pakistani
Bank. The appealed decision affirms this fact. Conformably, to implement the said telex instruction, the delivery of the
shipment must be to GPC, the notify party or real importer/buyer of the goods and not the Pakistani Bank since the
latter can very well present the original Bills of Lading in its possession. Likewise, if it were the Pakistani Bank to whom
the cargoes were to be strictly delivered, it will no longer be proper to require a bank guarantee as a substitute for the
Bill of Lading. To construe otherwise will render meaningless the telex instruction. After all, the cargoes consist of
perishable fresh fruits and immediate delivery thereof to the buyer/importer is essentially a factor to reckon with.
Besides, GPC is listed as one among the several consignees in the telex (Exhibit 5-B) and the instruction in the telex
was to arrange delivery of A/M shipment (not any party) to respective consignees without presentation of OB/L and
bank guarantee . . . .20
Apart from the foregoing obstacles to the success of petitioner's cause, petitioner failed to substantiate his claim that
he returned to SOLIDBANK the full amount of the value of the cargoes. It is not far-fetched to entertain the notion, as
did respondent court, that he merely accommodated SOLIDBANK in order to recover the cost of the shipped cargoes
from respondents. We note that it was SOLIDBANK which initially demanded payment from respondents through five
(5) letters. SOLIDBANK must have realized the absence of privity of contract between itself and respondents. That is
why petitioner conveniently took the cudgels for the bank.
In view of petitioner's utter failure to establish the liability of respondents over the cargoes, no reversible error was
committed by respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March 1996 dismissing the
complaint of petitioner Benito Macam and the counterclaims of respondents China Ocean Shipping Co. and/or Wallem
Philippines Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is AFFIRMED.1âwphi1.nêt
SO ORDERED.
Mendoza, Quisumbing and Buena, JJ., concur.
G.R. No. L-18965 October 30, 1964
COMPAÑIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the
Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private
pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S.
Steel Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch
163
office in Sasa and handcarried to Compañia Maritima's branch office in Davao in compliance with which the latter sent
to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29,
1952. These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued
the corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF
PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal
wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compañia Maritima on which the
hemp was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank,
resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified
the carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to
Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from
November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs
of the reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of
116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value
of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking, grading,
rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to
P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the
Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss
it suffered as above stated with said insurance company, and after the same had been processed, the sum of
P64,018.55 was paid, which was noted down in a document which aside from being a receipt of the amount paid, was
a subrogation agreement between Macleod and the insurance company wherein the former assigned to the latter its
rights over the insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is
the only amount supported by receipts, the insurance company instituted the present action on October 28, 1953. After
trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with
legal interest thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was
affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the
loss occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was
not actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued
therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous
event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company
sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as
insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an
implied admission by the carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to
the burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do
so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company
contracted by telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa,
Davao City, to Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later
confirmed by a formal and written booking issued by the shipper's branch office, Davao City, in virtue of which the
carrier sent two of its lighters to undertake the service. It also appears that the patrons of said lighters were employees
of the carrier with due authority to undertake the transportation and to sign the documents that may be necessary
164
therefor so much so that the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as
follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF
PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to
its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between
the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters
were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the
carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and
usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which
has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it
on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him
by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the
voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if
actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a
contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent.
... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that
way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the
lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded
directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its
substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S.,
p. 901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession
of the cotton been completely surrendered by the shipper to the railroad company? Whenever the control and
possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with
certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W.
419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v.
St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200
S.W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that
was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's
lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that
he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the
authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. — As to the issuance of a bill of lading, although article 350 of
the Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly demand
that a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that provided that
there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to
form." The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations
of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill
of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso,
pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in
165
the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the
shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin,
Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not
merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete
delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of
lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim of force
majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the
Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-
19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes",
according to the patron of LCT No. 1023 (exh. JJJ-4) — conclusively showing that the barge was not seaworthy — it
should be noted that on the night of the nautical accident there was no storm, flood, or other natural disaster or calamity.
Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao
on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm has wind
velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity
of from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore
Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of
LCT No. 1025 to the 'non-water-tight conditions of various buoyancy compartments' (exh. JJJ); and this report finds
confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's
bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of
Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of
the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the
cargo that was damaged was insured with respondent company and the latter paid the amount represented by the
loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore,
is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the
carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed
of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the
insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under
the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find
fitting the following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca
cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor
privy to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid
reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy
contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee. Besides,
appellant is herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the shipper
pursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines
166
for the los or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron
of appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as assignee of
Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the payment for the
loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to
order the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the
damaged hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their production
no longer necessary. This desistance notwithstanding, the shipper however pre-sented other documents to prove the
damage it suffered in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay
the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the desistance of the
carrier from producing the books of accounts of Odell Plantation implies an admission of the correctness of the
statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in basing the
affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation
presented in court is tantamount to an admission that the statements contained therein are correct and their verification
not necessary because its main defense here, as well as below, was that it is not liable for the loss because there was
no contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence,
under the carrier's theory, the correctness of the account representing the loss was not so material as would necessitate
the presentation of the books in question. At any rate, even if the books of accounts were not produced, the correctness
of the accounts cannot now be disputed for the same is supported by the original documents on which the entries in
said books were based which were presented by the shipper as part of its evidence. And according to the Court of
Appeals, these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we
find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign
corporation doing business in the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P. and Zaldivar
JJ., concur.
G.R. No. 95582 October 7, 1991
DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY, FERNANDO CUDLAMAT,

MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA CUDIAMAT,
all Heirs of the late Pedrito Cudiamat represented by Inocencia Cudiamat, respondents.
Francisco S. Reyes Law Office for petitioners.
Antonio C. de Guzman for private respondents.
167
REGALADO, J.:
On May 13, 1985, private respondents filed a complaint 1 for damages against petitioners for the death of Pedrito
Cudiamat as a result of a vehicular accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet.
Among others, it was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a passenger bus
belonging to petitioner corporation in a reckless and imprudent manner and without due regard to traffic rules and
regulations and safety to persons and property, it ran over its passenger, Pedrito Cudiamat. However, instead of
bringing Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and without regard to the welfare
of the victim, first brought his other passengers and cargo to their respective destinations before banging said victim to
the Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and continued to observe the extraordinary diligence
required in the operation of the transportation company and the supervision of the employees, even as they add that
they are not absolute insurers of the safety of the public at large. Further, it was alleged that it was the victim's own
carelessness and negligence which gave rise to the subject incident, hence they prayed for the dismissal of the
complaint plus an award of damages in their favor by way of a counterclaim.
On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners, with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat was negligent, which
negligence was the proximate cause of his death. Nonetheless, defendants in equity, are hereby ordered to pay the
heirs of Pedrito Cudiamat the sum of P10,000.00 which approximates the amount defendants initially offered said heirs
for the amicable settlement of the case. No costs.
SO ORDERED. 2
Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a decision 3 in CA-G.R. CV No.
19504 promulgated on August 14, 1990, set aside the decision of the lower court, and ordered petitioners to pay private
respondents:
1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of the victim Pedrito Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;
3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and compensatory damages;
4. The costs of this suit. 4
Petitioners' motion for reconsideration was denied by the Court of Appeals in its resolution dated October 4, 1990, 5
hence this petition with the central issue herein being whether respondent court erred in reversing the decision of the
trial court and in finding petitioners negligent and liable for the damages claimed.
It is an established principle that the factual findings of the Court of Appeals as a rule are final and may not be reviewed
by this Court on appeal. However, this is subject to settled exceptions, one of which is when the findings of the appellate
court are contrary to those of the trial court, in which case a reexamination of the facts and evidence may be undertaken.
6
168
In the case at bar, the trial court and the Court of Appeal have discordant positions as to who between the petitioners
an the victim is guilty of negligence. Perforce, we have had to conduct an evaluation of the evidence in this case for
the prope calibration of their conflicting factual findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following findings:
This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a moving vehicle, especially with one of
his hands holding an umbrella. And, without having given the driver or the conductor any indication that he wishes to
board the bus. But defendants can also be found wanting of the necessary diligence. In this connection, it is safe to
assume that when the deceased Cudiamat attempted to board defendants' bus, the vehicle's door was open instead
of being closed. This should be so, for it is hard to believe that one would even attempt to board a vehicle (i)n motion
if the door of said vehicle is closed. Here lies the defendant's lack of diligence. Under such circumstances, equity
demands that there must be something given to the heirs of the victim to assuage their feelings. This, also considering
that initially, defendant common carrier had made overtures to amicably settle the case. It did offer a certain monetary
consideration to the victim's heirs. 7
However, respondent court, in arriving at a different opinion, declares that:
From the testimony of appellees'own witness in the person of Vitaliano Safarita, it is evident that the subject bus was
at full stop when the victim Pedrito Cudiamat boarded the same as it was precisely on this instance where a certain
Miss Abenoja alighted from the bus. Moreover, contrary to the assertion of the appellees, the victim did indicate his
intention to board the bus as can be seen from the testimony of the said witness when he declared that Pedrito
Cudiamat was no longer walking and made a sign to board the bus when the latter was still at a distance from him. It
was at the instance when Pedrito Cudiamat was closing his umbrella at the platform of the bus when the latter made a
sudden jerk movement (as) the driver commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the appellee-driver in prematurely stepping on the
accelerator and in not waiting for the passenger to first secure his seat especially so when we take into account that
the platform of the bus was at the time slippery and wet because of a drizzle. The defendants-appellees utterly failed
to observe their duty and obligation as common carrier to the end that they should observe extra-ordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by them according to the circumstances
of each case (Article 1733, New Civil Code). 8
After a careful review of the evidence on record, we find no reason to disturb the above holding of the Court of Appeals.
Its aforesaid findings are supported by the testimony of petitioners' own witnesses. One of them, Virginia Abalos,
testified on cross-examination as follows:
169
Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the incident, there is a crossing?
A The way going to the mines but it is not being pass(ed) by the bus.
Q And the incident happened before bunkhouse 56, is that not correct?
A It happened between 54 and 53 bunkhouses. 9
The bus conductor, Martin Anglog, also declared:
Q When you arrived at Lepanto on March 25, 1985, will you please inform this Honorable Court if there was anv unusual
incident that occurred?
A When we delivered a baggage at Marivic because a person alighted there between Bunkhouse 53 and 54.
Q What happened when you delivered this passenger at this particular place in Lepanto?
A When we reached the place, a passenger alighted and I signalled my driver. When we stopped we went out because
I saw an umbrella about a split second and I signalled again the driver, so the driver stopped and we went down and
we saw Pedrito Cudiamat asking for help because he was lying down.
Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying down — from the bus how far was
he?
A It is about two to three meters.
Q On what direction of the bus was he found about three meters from the bus, was it at the front or at the back?
A At the back, sir. 10 (Emphasis supplied.)
The foregoing testimonies show that the place of the accident and the place where one of the passengers alighted
were both between Bunkhouses 53 and 54, hence the finding of the Court of Appeals that the bus was at full stop when
the victim boarded the same is correct. They further confirm the conclusion that the victim fell from the platform of the
bus when it suddenly accelerated forward and was run over by the rear right tires of the vehicle, as shown by the
physical evidence on where he was thereafter found in relation to the bus when it stopped. Under such circumstances,
it cannot be said that the deceased was guilty of negligence.
The contention of petitioners that the driver and the conductor had no knowledge that the victim would ride on the bus,
since the latter had supposedly not manifested his intention to board the same, does not merit consideration. When
170
the bus is not in motion there is no necessity for a person who wants to ride the same to signal his intention to board.
A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the duty of the
driver and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a
passenger while he was attempting to board the same. The premature acceleration of the bus in this case was a breach
of such duty. 11
It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus, to
stop their conveyances a reasonable length of time in order to afford passengers an opportunity to board and enter,
and they are liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their
conveyances while they are doing so. 12
Further, even assuming that the bus was moving, the act of the victim in boarding the same cannot be considered
negligent under the circumstances. As clearly explained in the testimony of the aforestated witness for petitioners,
Virginia Abalos, th bus had "just started" and "was still in slow motion" at the point where the victim had boarded and
was on its platform. 13
It is not negligence per se, or as a matter of law, for one attempt to board a train or streetcar which is moving slowly.
14 An ordinarily prudent person would have made the attempt board the moving conveyance under the same or similar
circumstances. The fact that passengers board and alight from slowly moving vehicle is a matter of common experience
both the driver and conductor in this case could not have been unaware of such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled
all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty which the
carrier passengers owes to its patrons extends to persons boarding cars as well as to those alighting therefrom. 15
Common carriers, from the nature of their business and reasons of public policy, are bound to observe extraordina
diligence for the safety of the passengers transported by the according to all the circumstances of each case. 16 A
common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence very cautious persons, with a due regard for all the circumstances. 17
It has also been repeatedly held that in an action based on a contract of carriage, the court need not make an express
finding of fault or negligence on the part of the carrier in order to hold it responsible to pay the damages sought by the
passenger. By contract of carriage, the carrier assumes the express obligation to transport the passenger to his
destination safely and observe extraordinary diligence with a due regard for all the circumstances, and any injury that
might be suffered by the passenger is right away attributable to the fault or negligence of the carrier. This is an exception
to the general rule that negligence must be proved, and it is therefore incumbent upon the carrier to prove that it has
exercised extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. 18
Moreover, the circumstances under which the driver and the conductor failed to bring the gravely injured victim
immediately to the hospital for medical treatment is a patent and incontrovertible proof of their negligence. It defies
understanding and can even be stigmatized as callous indifference. The evidence shows that after the accident the
bus could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted to first proceed to
Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the serious condition of the victim. The
vacuous reason given by petitioners that it was the wife of the deceased who caused the delay was tersely and correctly
confuted by respondent court:
... The pretension of the appellees that the delay was due to the fact that they had to wait for about twenty minutes for
Inocencia Cudiamat to get dressed deserves scant consideration. It is rather scandalous and deplorable for a wife
171
whose husband is at the verge of dying to have the luxury of dressing herself up for about twenty minutes before
attending to help her distressed and helpless husband. 19
Further, it cannot be said that the main intention of petitioner Lardizabal in going to Bunk 70 was to inform the victim's
family of the mishap, since it was not said bus driver nor the conductor but the companion of the victim who informed
his family thereof. 20 In fact, it was only after the refrigerator was unloaded that one of the passengers thought of
sending somebody to the house of the victim, as shown by the testimony of Virginia Abalos again, to wit:
Q Why, what happened to your refrigerator at that particular time?
A I asked them to bring it down because that is the nearest place to our house and when I went down and asked
somebody to bring down the refrigerator, I also asked somebody to call the family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?
A Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of Mr. Cudiamat.
Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A No sir. 21
With respect to the award of damages, an oversight was, however, committed by respondent Court of Appeals in
computing the actual damages based on the gross income of the victim. The rule is that the amount recoverable by the
heirs of a victim of a tort is not the loss of the entire earnings, but rather the loss of that portion of the earnings which
the beneficiary would have received. In other words, only net earnings, not gross earnings, are to be considered, that
is, the total of the earnings less expenses necessary in the creation of such earnings or income and minus living and
other incidental expenses. 22
We are of the opinion that the deductible living and other expense of the deceased may fairly and reasonably be fixed
at P500.00 a month or P6,000.00 a year. In adjudicating the actual or compensatory damages, respondent court found
that the deceased was 48 years old, in good health with a remaining productive life expectancy of 12 years, and then
earning P24,000.00 a year. Using the gross annual income as the basis, and multiplying the same by 12 years, it
accordingly awarded P288,000. Applying the aforestated rule on computation based on the net earnings, said award
must be, as it hereby is, rectified and reduced to P216,000.00. However, in accordance with prevailing jurisprudence,
the death indemnity is hereby increased to P50,000.00. 23
WHEREFORE, subject to the above modifications, the challenged judgment and resolution of respondent Court of
Appeals are hereby AFFIRMED in all other respects.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.
G.R. No. L-20761 July 27, 1966
LA MALLORCA, petitioner,
172
vs.
HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents.
G. E. Yabut, R. Monterey and M.C. Lagman for petitioner.
Ahmed Garcia for respondents.
BARRERA, J.:
La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No. 23267-R, holding it liable for quasi-
delict and ordering it to pay to respondents Mariano Beltran, et al., P6,000.00 for the death of his minor daughter Raquel
Beltran, plus P400.00 as actual damages.
The facts of the case as found by the Court of Appeals, briefly are:
On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their minor daughters, namely,
Milagros, 13 years old, Raquel, about 4½ years old, and Fe, over 2 years old, boarded the Pambusco Bus No. 352,
bearing plate TPU No. 757 (1953 Pampanga), owned and operated by the defendant, at San Fernando, Pampanga,
bound for Anao, Mexico, Pampanga. At the time, they were carrying with them four pieces of baggages containing their
personal belonging. The conductor of the bus, who happened to be a half-brother of plaintiff Mariano Beltran, issued
three tickets (Exhs. A, B, & C) covering the full fares of the plaintiff and their eldest child, Milagros. No fare was charged
on Raquel and Fe, since both were below the height at which fare is charged in accordance with the appellant's rules
and regulations.
After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers bound therefor, among
whom were the plaintiffs and their children to get off. With respect to the group of the plaintiffs, Mariano Beltran, then
carrying some of their baggages, was the first to get down the bus, followed by his wife and his children. Mariano led
his companions to a shaded spot on the left pedestrians side of the road about four or five meters away from the
vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which he had left behind, but in so
doing, his daughter Raquel followed him, unnoticed by her father. While said Mariano Beltran was on the running board
of the bus waiting for the conductor to hand him his bayong which he left under one of its seats near the door, the bus,
whose motor was not shut off while unloading, suddenly started moving forward, evidently to resume its trip,
notwithstanding the fact that the conductor has not given the driver the customary signal to start, since said conductor
was still attending to the baggage left behind by Mariano Beltran. Incidentally, when the bus was again placed into a
complete stop, it had travelled about ten meters from the point where the plaintiffs had gotten off.
Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the running board without getting
his bayong from the conductor. He landed on the side of the road almost in front of the shaded place where he left his
wife and children. At that precise time, he saw people beginning to gather around the body of a child lying prostrate on
the ground, her skull crushed, and without life. The child was none other than his daughter Raquel, who was run over
by the bus in which she rode earlier together with her parents.
For the death of their said child, the plaintiffs commenced the present suit against the defendant seeking to recover
from the latter an aggregate amount of P16,000 to cover moral damages and actual damages sustained as a result
thereof and attorney's fees. After trial on the merits, the court below rendered the judgment in question.
On the basis of these facts, the trial court found defendant liable for breach of contract of carriage and sentenced it to
pay P3,000.00 for the death of the child and P400.00 as compensatory damages representing burial expenses and
costs.
173
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract in the case, for the
reason that when the child met her death, she was no longer a passenger of the bus involved in the incident and,
therefore, the contract of carriage had already terminated. Although the Court of Appeals sustained this theory, it
nevertheless found the defendant-appellant guilty of quasi-delict and held the latter liable for damages, for the
negligence of its driver, in accordance with Article 2180 of the Civil Code. And, the Court of Appeals did not only find
the petitioner liable, but increased the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00
granted by the trial court.
In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable for quasi-delict,
considering that respondents complaint was one for breach of contract, and (2) in raising the award of damages from
P3,000.00 to P6,000.00 although respondents did not appeal from the decision of the lower court.
Under the facts as found by the Court of Appeals, we have to sustain the judgement holding petitioner liable for
damages for the death of the child, Raquel Beltran. It may be pointed out that although it is true that respondent Mariano
Beltran, his wife, and their children (including the deceased child) had alighted from the bus at a place designated for
disembarking or unloading of passengers, it was also established that the father had to return to the vehicle (which was
still at a stop) to get one of his bags or bayong that was left under one of the seats of the bus. There can be no
controversy that as far as the father is concerned, when he returned to the bus for his bayongwhich was not unloaded,
the relation of passenger and carrier between him and the petitioner remained subsisting. For, the relation of carrier
and passenger does not necessarily cease where the latter, after alighting from the car, aids the carrier's servant or
employee in removing his baggage from the car.1 The issue to be determined here is whether as to the child, who was
already led by the father to a place about 5 meters away from the bus, the liability of the carrier for her safety under the
contract of carriage also persisted.
It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger
alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a
reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. Thus, a person
who, after alighting from a train, walks along the station platform is considered still a passenger.2 So also, where a
passenger has alighted at his destination and is proceeding by the usual way to leave the company's premises, but
before actually doing so is halted by the report that his brother, a fellow passenger, has been shot, and he in good faith
and without intent of engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily
delayed and thus continues to be a passenger entitled as such to the protection of the railroad and company and its
agents.3
In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they
alighted from the bus. Raquel, the child that she was, must have followed the father. However, although the father was
still on the running board of the bus awaiting for the conductor to hand him the bag or bayong, the bus started to run,
so that even he (the father) had to jump down from the moving vehicle. It was at this instance that the child, who must
be near the bus, was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had
exercised the "utmost diligence" of a "very cautions person" required by Article 1755 of the Civil Code to be observed
by a common carrier in the discharge of its obligation to transport safely its passengers. In the first place, the driver,
although stopping the bus, nevertheless did not put off the engine. Secondly, he started to run the bus even before the
bus conductor gave him the signal to go and while the latter was still unloading part of the baggages of the passengers
Mariano Beltran and family. The presence of said passengers near the bus was not unreasonable and they are,
therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract of carriage.
But even assuming arguendo that the contract of carriage has already terminated, herein petitioner can be held liable
for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article 2180 of the Civil Code. Paragraph
7 of the complaint, which reads —
174
That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiffs' daughter, was caused by the
negligence and want of exercise of the utmost diligence of a very cautious person on the part of the defendants and
their agent, necessary to transport plaintiffs and their daughter safely as far as human care and foresight can provide
in the operation of their vehicle.
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while incompatible with the other
claim under the contract of carriage, is permissible under Section 2 of Rule 8 of the New Rules of Court, which allows
a plaintiff to allege causes of action in the alternative, be they compatible with each other or not, to the end that the real
matter in controversy may be resolved and determined.4
The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when it was alleged in
the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by the negligence and want of exercise
of the utmost diligence of a very cautious person on the part of the defendants and their agent." This allegation was
also proved when it was established during the trial that the driver, even before receiving the proper signal from the
conductor, and while there were still persons on the running board of the bus and near it, started to run off the vehicle.
The presentation of proof of the negligence of its employee gave rise to the presumption that the defendant employer
did not exercise the diligence of a good father of the family in the selection and supervision of its employees. And this
presumption, as the Court of Appeals found, petitioner had failed to overcome. Consequently, petitioner must be
adjudged peculiarily liable for the death of the child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals, however, cannot be
sustained. Generally, the appellate court can only pass upon and consider questions or issues raised and argued in
appellant's brief. Plaintiffs did not appeal from that portion of the judgment of the trial court awarding them on P3,000.00
damages for the death of their daughter. Neither does it appear that, as appellees in the Court of Appeals, plaintiffs
have pointed out in their brief the inadequacy of the award, or that the inclusion of the figure P3,000.00 was merely a
clerical error, in order that the matter may be treated as an exception to the general rule.5Herein petitioner's contention,
therefore, that the Court of Appeals committed error in raising the amount of the award for damages is, evidently,
meritorious.1äwphï1.ñët
Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the petitioner to pay to the
respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child, Raquel Beltran, and the amount
of P400.00 as actual damages. No costs in this instance. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Makalintal, J., concurs in the result.
G.R. No. 84458 November 6, 1989
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, ELEVENTH DIVISION, LUCILA C. VIANA, SPS. ANTONIO VIANA and GORGONIA
VIANA, and PIONEER STEVEDORING CORPORATION, respondents.
Herenio E. Martinez for petitioner.
M.R. Villaluz Law Office for private respondent.
175
REGALADO, J.:
In this appeal by certiorari, petitioner Aboitiz Shipping Corporation seeks a review of the decision 1 of respondent Court
of Appeals, dated July 29, 1988, the decretal portion of which reads:
WHEREFORE, the judgment appealed from as modified by the order of October 27, 1982, is hereby affirmed with the
modification that appellant Aboitiz Shipping is hereby ordered to pay plaintiff-appellees the amount of P30,000.00 for
the death of Anacleto Viana; actual damages of P9,800.00; P150,000.00 for unearned income; P7,200.00 as support
for deceased's parents; P20,000.00 as moral damages; P10,000.00 as attorney's fees; and to pay the costs.
The undisputed facts of the case, as found by the court a quo and adopted by respondent court, are as follows: .
The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by defendant,
at the port at San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket (No. 117392) in the sum of
P23.10 (Exh. 'B'). On May 12, 1975, said vessel arrived at Pier 4, North Harbor, Manila, and the passengers therein
disembarked, a gangplank having been provided connecting the side of the vessel to the pier. Instead of using said
gangplank Anacleto Viana disembarked on the third deck which was on the level with the pier. After said vessel had
landed, the Pioneer Stevedoring Corporation took over the exclusive control of the cargoes loaded on said vessel
pursuant to the Memorandum of Agreement dated July 26, 1975 (Exh. '2') between the third party defendant Pioneer
Stevedoring Corporation and defendant Aboitiz Shipping Corporation.
The crane owned by the third party defendant and operated by its crane operator Alejo Figueroa was placed alongside
the vessel and one (1) hour after the passengers of said vessel had disembarked, it started operation by unloading the
cargoes from said vessel. While the crane was being operated, Anacleto Viana who had already disembarked from
said vessel obviously remembering that some of his cargoes were still loaded in the vessel, went back to the vessel,
and it was while he was pointing to the crew of the said vessel to the place where his cargoes were loaded that the
crane hit him, pinning him between the side of the vessel and the crane. He was thereafter brought to the hospital
where he later expired three (3) days thereafter, on May 15, 1975, the cause of his death according to the Death
Certificate (Exh. "C") being "hypostatic pneumonia secondary to traumatic fracture of the pubic bone lacerating the
urinary bladder" (See also Exh. "B"). For his hospitalization, medical, burial and other miscellaneous expenses,
Anacleto's wife, herein plaintiff, spent a total of P9,800.00 (Exhibits "E", "E-1", to "E-5"). Anacleto Viana who was only
forty (40) years old when he met said fateful accident (Exh. 'E') was in good health. His average annual income as a
farmer or a farm supervisor was 400 cavans of palay annually. His parents, herein plaintiffs Antonio and Gorgonia
Viana, prior to his death had been recipient of twenty (20) cavans of palay as support or P120.00 monthly. Because of
Anacleto's death, plaintiffs suffered mental anguish and extreme worry or moral damages. For the filing of the instant
case, they had to hire a lawyer for an agreed fee of ten thousand (P10,000.00) pesos. 2
Private respondents Vianas filed a complaint 3 for damages against petitioner corporation (Aboitiz, for brevity) for
breach of contract of carriage.
In its answer. 4 Aboitiz denied responsibility contending that at the time of the accident, the vessel was completely
under the control of respondent Pioneer Stevedoring Corporation (Pioneer, for short) as the exclusive stevedoring
contractor of Aboitiz, which handled the unloading of cargoes from the vessel of Aboitiz. It is also averred that since
the crane operator was not an employee of Aboitiz, the latter cannot be held liable under the fellow-servant rule.
Thereafter, Aboitiz, as third-party plaintiff, filed a third-party complaint 5 against Pioneer imputing liability thereto for
Anacleto Viana's death as having been allegedly caused by the negligence of the crane operator who was an employee
of Pioneer under its exclusive control and supervision.
176
Pioneer, in its answer to the third-party complaint, 6 raised the defenses that Aboitiz had no cause of action against
Pioneer considering that Aboitiz is being sued by the Vianas for breach of contract of carriage to which Pioneer is not
a party; that Pioneer had observed the diligence of a good father of a family both in the selection and supervision of its
employees as well as in the prevention of damage or injury to anyone including the victim Anacleto Viana; that Anacleto
Viana's gross negligence was the direct and proximate cause of his death; and that the filing of the third-party complaint
was premature by reason of the pendency of the criminal case for homicide through reckless imprudence filed against
the crane operator, Alejo Figueroa.
In a decision rendered on April 17, 1980 by the trial court, 7 Aboitiz was ordered to pay the Vianas for damages incurred,
and Pioneer was ordered to reimburse Aboitiz for whatever amount the latter paid the Vianas. The dispositive portion
of said decision provides:
WHEREFORE, judgment is hereby rendered in favor of the plantiffs:
(1) ordering defendant Aboitiz Shipping Corporation to pay to plaintiffs the sum of P12,000.00 for the death of Anacleto
Viana P9,800.00 as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at P50.00 per cavan;
P10,000.00 as attorney's fees; F 5,000.00, value of the 100 cavans of palay as support for five (5) years for deceased
(sic) parents, herein plaintiffs Antonio and Gorgonia Viana computed at P50.00 per cavan; P7,200.00 as support for
deceased's parents computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the Civil Code;
P20,000.00 as moral damages, and costs; and
(2) ordering the third party defendant Pioneer Stevedoring Corporation to reimburse defendant and third party plaintiff
Aboitiz Shipping Corporation the said amounts that it is ordered to pay to herein plaintiffs.
Both Aboitiz and Pioneer filed separate motions for reconsideration wherein they similarly raised the trial court's failure
to declare that Anacleto Viana acted with gross negligence despite the overwhelming evidence presented in support
thereof. In addition, Aboitiz alleged, in opposition to Pioneer's motion, that under the memorandum of agreement the
liability of Pioneer as contractor is automatic for any damages or losses whatsoever occasioned by and arising from
the operation of its arrastre and stevedoring service.
In an order dated October 27, 1982, 8 the trial court absolved Pioneer from liability for failure of the Vianas and Aboitiz
to preponderantly establish a case of negligence against the crane operator which the court a quo ruled is never
presumed, aside from the fact that the memorandum of agreement supposedly refers only to Pioneer's liability in case
of loss or damage to goods handled by it but not in the case of personal injuries, and, finally that Aboitiz cannot properly
invoke the fellow-servant rule simply because its liability stems from a breach of contract of carriage. The dispositive
portion of said order reads:
WHEREFORE, judgment is hereby modified insofar as third party defendant Pioneer Stevedoring Corporation is
concerned rendered in favor of the plaintiffs-,:
(1) Ordering defendant Aboitiz Shipping Corporation to pay the plaintiffs the sum of P12,000.00 for the death of
Anacleto Viana; P9,000.00 (sic) as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at
P50.00 per cavan; P10,000.00 as attorney's fees; P5,000.00 value of the 100 cavans of palay as support for five (5)
years for deceased's parents, herein plaintiffs Antonio and Gorgonia Viana,computed at P50.00 per cavan; P7,200.00
as support for deceased's parents computed at P120.00 a month for five years pursuant to Art. 2206, Par. 2, of the
Civil Code; P20,000.00 as moral damages, and costs; and
(2) Absolving third-party defendant Pioneer Stevedoring Corporation for (sic) any liability for the death of Anacleto
Viana the passenger of M/V Antonia owned by defendant third party plaintiff Aboitiz Shipping Corporation it appearing
that the negligence of its crane operator has not been established therein.
177
Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to respondent Court of Appeals
which affirmed the findings of of the trial court except as to the amount of damages awarded to the Vianas.
Hence, this petition wherein petitioner Aboitiz postulates that respondent court erred:
(A) In holding that the doctrine laid down by this honorable Court in La Mallorca vs. Court of Appeals, et al. (17 SCRA
739, July 27, 1966) is applicable to the case in the face of the undisputable fact that the factual situation under the La
Mallorca case is radically different from the facts obtaining in this case;
(B) In holding petitioner liable for damages in the face of the finding of the court a quo and confirmed by the Honorable
respondent court of Appeals that the deceased, Anacleto Viana was guilty of contributory negligence, which, We
respectfully submit contributory negligence was the proximate cause of his death; specifically the honorable respondent
Court of Appeals failed to apply Art. 1762 of the New Civil Code;
(C) In the alternative assuming the holding of the Honorable respondent Court of Appears that petitioner may be legally
condemned to pay damages to the private respondents we respectfully submit that it committed a reversible error when
it dismissed petitioner's third party complaint against private respondent Pioneer Stevedoring Corporation instead of
compelling the latter to reimburse the petitioner for whatever damages it may be compelled to pay to the private
respondents Vianas. 9
At threshold, it is to be observed that both the trial court and respondent Court of Appeals found the victim Anacleto
Viana guilty of contributory negligence, but holding that it was the negligence of Aboitiz in prematurely turning over the
vessel to the arrastre operator for the unloading of cargoes which was the direct, immediate and proximate cause of
the victim's death.
I. Petitioner contends that since one (1) hour had already elapsed from the time Anacleto Viana disembarked from the
vessel and that he was given more than ample opportunity to unload his cargoes prior to the operation of the crane,
his presence on the vessel was no longer reasonable e and he consequently ceased to be a passenger. Corollarily, it
insists that the doctrine in La Mallorca vs. Court of Appeals, et al. 10 is not applicable to the case at bar.
The rule is that the relation of carrier and passenger continues until the passenger has been landed at the port of
destination and has left the vessel owner's dock or premises. 11 Once created, the relationship will not ordinarily
terminate until the passenger has, after reaching his destination, safely alighted from the carrier's conveyance or had
a reasonable opportunity to leave the carrier's premises. All persons who remain on the premises a reasonable time
after leaving the conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within
this rule is to be determined from all the circumstances, and includes a reasonable time to see after his baggage and
prepare for his departure.12 The carrier-passenger relationship is not terminated merely by the fact that the person
transported has been carried to his destination if, for example, such person remains in the carrier's premises to claim
his baggage.13
It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was enunciated, to wit:
It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment the passenger
alights from the carrier's vehicle at a place selected by the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is a
reasonable time or a reasonable delay within this rule is to be determined from all the circumstances. Thus, a person
who, after alighting from a train, walks along the station platform is considered still a passenger. So also, where a
passenger has alighted at his destination and is proceeding by the usual way to leave the company's premises, but
before actually doing so is halted by the report that his brother, a fellow passenger, has been shot, and he in good faith
and without intent of engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily
delayed and thus continues to be a passenger entitled as such to the protection of the railroad company and its agents.
178
In the present case, the father returned to the bus to get one of his baggages which was not unloaded when they
alighted from the bus. Racquel, the child that she was, must have followed the father. However, although the father
was still on the running board of the bus waiting for the conductor to hand him the bag or bayong, the bus started to
run, so that even he (the father) had to jump down from the moving vehicle. It was at this instance that the child, who
must be near the bus, was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had
exercised the 'utmost diligence' of a 'very cautious person' required by Article 1755 of the Civil Code to be observed by
a common carrier in the discharge of its obligation to transport safely its passengers. ... The presence of said
passengers near the bus was not unreasonable and they are, therefore, to be considered still as passengers of the
carrier, entitled to the protection under their contract of carriage. 14
It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact of the passenger's
reasonable presence within the carrier's premises. That reasonableness of time should be made to depend on the
attending circumstances of the case, such as the kind of common carrier, the nature of its business, the customs of the
place, and so forth, and therefore precludes a consideration of the time element per se without taking into account such
other factors. It is thus of no moment whether in the cited case of La Mallorca there was no appreciable interregnum
for the passenger therein to leave the carrier's premises whereas in the case at bar, an interval of one (1) hour had
elapsed before the victim met the accident. The primary factor to be considered is the existence of a reasonable cause
as will justify the presence of the victim on or near the petitioner's vessel. We believe there exists such a justifiable
cause.
It is of common knowledge that, by the very nature of petitioner's business as a shipper, the passengers of vessels are
allotted a longer period of time to disembark from the ship than other common carriers such as a passenger bus. With
respect to the bulk of cargoes and the number of passengers it can load, such vessels are capable of accommodating
a bigger volume of both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger will
need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage whereas a bus
passenger can easily get off the bus and retrieve his luggage in a very short period of time. Verily, petitioner cannot
categorically claim, through the bare expedient of comparing the period of time entailed in getting the passenger's
cargoes, that the ruling in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the doctrine
enunciated therein to the instant petition, we cannot in reason doubt that the victim Anacleto Viana was still a passenger
at the time of the incident. When the accident occurred, the victim was in the act of unloading his cargoes, which he
had every right to do, from petitioner's vessel. As earlier stated, a carrier is duty bound not only to bring its passengers
safely to their destination but also to afford them a reasonable time to claim their baggage.
It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked from the vessel.
Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his cargoes, the vessel had
already docked an hour earlier. In consonance with common shipping procedure as to the minimum time of one (1)
hour allowed for the passengers to disembark, it may be presumed that the victim had just gotten off the vessel when
he went to retrieve his baggage. Yet, even if he had already disembarked an hour earlier, his presence in petitioner's
premises was not without cause. The victim had to claim his baggage which was possible only one (1) hour after the
vessel arrived since it was admittedly standard procedure in the case of petitioner's vessels that the unloading
operations shall start only after that time. Consequently, under the foregoing circumstances, the victim Anacleto Viana
is still deemed a passenger of said carrier at the time of his tragic death.
II. Under the law, common carriers are, from the nature of their business and for reasons of public policy, bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. 15 More particularly, a common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances. 16 Thus, where a passenger dies or is injured, the common carrier is
presumed to have been at fault or to have acted negligently. 17 This gives rise to an action for breach of contract of
carriage where all that is required of plaintiff is to prove the existence of the contract of carriage and its non-performance
by the carrier, that is, the failure of the carrier to carry the passenger safely to his destination, 18which, in the instant
179
case, necessarily includes its failure to safeguard its passenger with extraordinary diligence while such relation
subsists.
The presumption is, therefore, established by law that in case of a passenger's death or injury the operator of the vessel
was at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it to rebut the same.
This is in consonance with the avowed policy of the State to afford full protection to the passengers of common carriers
which can be carried out only by imposing a stringent statutory obligation upon the latter. Concomitantly, this Court has
likewise adopted a rigid posture in the application of the law by exacting the highest degree of care and diligence from
common carriers, bearing utmost in mind the welfare of the passengers who often become hapless victims of indifferent
and profit-oriented carriers. We cannot in reason deny that petitioner failed to rebut the presumption against it. Under
the facts obtaining in the present case, it cannot be gainsaid that petitioner had inadequately complied with the required
degree of diligence to prevent the accident from happening.
As found by the Court of Appeals, the evidence does not show that there was a cordon of drums around the perimeter
of the crane, as claimed by petitioner. It also adverted to the fact that the alleged presence of visible warning signs in
the vicinity was disputable and not indubitably established. Thus, we are not inclined to accept petitioner's explanation
that the victim and other passengers were sufficiently warned that merely venturing into the area in question was fraught
with serious peril. Definitely, even assuming the existence of the supposed cordon of drums loosely placed around the
unloading area and the guard's admonitions against entry therein, these were at most insufficient precautions which
pale into insignificance if considered vis-a-vis the gravity of the danger to which the deceased was exposed. There is
no showing that petitioner was extraordinarily diligent in requiring or seeing to it that said precautionary measures were
strictly and actually enforced to subserve their purpose of preventing entry into the forbidden area. By no stretch of
liberal evaluation can such perfunctory acts approximate the "utmost diligence of very cautious persons" to be exercised
"as far as human care and foresight can provide" which is required by law of common carriers with respect to their
passengers.
While the victim was admittedly contributorily negligent, still petitioner's aforesaid failure to exercise extraordinary
diligence was the proximate and direct cause of, because it could definitely have prevented, the former's death.
Moreover, in paragraph 5.6 of its petition, at bar, 19 petitioner has expressly conceded the factual finding of respondent
Court of Appeals that petitioner did not present sufficient evidence in support of its submission that the deceased
Anacleto Viana was guilty of gross negligence. Petitioner cannot now be heard to claim otherwise.
No excepting circumstance being present, we are likewise bound by respondent court's declaration that there was no
negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the trial court's finding to that effect, hence
our conformity to Pioneer's being absolved of any liability.
As correctly observed by both courts, Aboitiz joined Pioneer in proving the alleged gross negligence of the victim, hence
its present contention that the death of the passenger was due to the negligence of the crane operator cannot be
sustained both on grounds, of estoppel and for lack of evidence on its present theory. Even in its answer filed in the
court below it readily alleged that Pioneer had taken the necessary safeguards insofar as its unloading operations were
concerned, a fact which appears to have been accepted by the plaintiff therein by not impleading Pioneer as a
defendant, and likewise inceptively by Aboitiz by filing its third-party complaint only after ten (10) months from the
institution of the suit against it. Parenthetically, Pioneer is not within the ambit of the rule on extraordinary diligence
required of, and the corresponding presumption of negligence foisted on, common carriers like Aboitiz. This, of course,
does not detract from what we have said that no negligence can be imputed to Pioneer but, that on the contrary, the
failure of Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale for our finding on its
liability.
WHEREFORE, the petition is DENIED and the judgment appealed from is hereby AFFIRMED in toto.
SO ORDERED.
180
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.
G.R. No. L-36481-2 October 23, 1982
AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,
vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of First Instance of
Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine Steam Navigation liable for
damages for the loss of the appellees' cargoes as a result of a fire which gutted the Bureau of Customs' warehouse in
Pulupandan, Negros Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's vessel, FS-
176, for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to wit:
Clara Uy Bico —
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando —
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were discharged, complete
and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same day, said
warehouse was razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire, however, appellee Uy
Bico was able to take delivery of 907 cavans of rice 2 Appellees' claims for the value of said goods were rejected by
the appellant.
181
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the aggregate sum of
P1,070.50 with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate sum of P16,625.00
with legal interest thereon from the date of the filing of the complaint until fully paid, and to pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary diligence from the
moment the goods are unconditionally placed in their possession "until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has a right to receive them, without prejudice to the
provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not
the delivery contemplated by Article 1736; and since the burning of the warehouse occurred before actual or
constructive delivery of the goods to the appellees, the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the parties agreed to
limit the responsibility of the carrier for the loss or damage that may be caused to the shipment by inserting therein the
following stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk' unless such loss or
damage is due to negligence of carrier. Nor shall carrier be responsible for loss or damage caused by force majeure,
dangers or accidents of the sea or other waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the
back-of the bills of lading; and that they did not sign the same. This argument overlooks the pronouncement of this
Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 1979, 3 where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless bound by the provisions
thereof. 'Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or assent to the regulation'. It is what is known as a contract of
'adhesion', in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form
of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV,
1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle of law written
in Article 1 1 7 4 of the Civil Code:
Article 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.
Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt
from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito'
as 'an event that takes place by accident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers.'
182
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a legal sense and,
consequently, also in relation to contracts, a 'caso fortuito' presents the following essential characteristics: (1) the cause
of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to foresee the event which constitutes 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 a normal manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor." In the case at bar, the burning of the customs warehouse was an
extraordinary event which happened independently of the will of the appellant. The latter could not have foreseen the
event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of its obligation. It
appears that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same
be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the
burning of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs
warehouse pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent.
Since the warehouse belonged to and was maintained by the government, it would be unfair to impute negligence to
the appellant, the latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where this Court held the
defendant liable for damages arising from a fire caused by the negligence of the defendant's employees while loading
cases of gasoline and petroleon products. But unlike in the said case, there is not a shred of proof in the present case
that the cause of the fire that broke out in the Custom's warehouse was in any way attributable to the negligence of the
appellant or its employees. Under the circumstances, the appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro, JJ., concur.
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.:ñé+.£ªwph!1
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila,
finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue
raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering
the subject shipment.
183
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1)
crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant
NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the
aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and
condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the
consignee at the port of destination — Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed
a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the
former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in
AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by
enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only the
defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which
should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only
proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the goods;
and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the
law between the parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was received
by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight had been
prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to
transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter,
the goods were to be transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation
is plainly indicated on the face of the bill which contains the following phrase printed below the space provided for the
port of discharge from ship", thus: têñ.£îhqwâ£
if goods are to be transshipped at port of discharge, show destination under the column for "description of contents" 7
As instructed above, the following words appeared typewritten under the column for "description of contents":
têñ.£îhqwâ£
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the
custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations
contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the
goods from Manila to their port of destination-Davao. The word "transship" means: têñ.£îhqwâ£
to transfer for further transportation from one ship or conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled
out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£
184
The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods
enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ...
(Emphasis supplied)
and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£
Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's disposal
at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without
notice, forward the whole or any part of the goods before or after loading at the original port of shipment, ... This carrier,
in making arrangements for any transshipping or forwarding vessels or means of transportation not operated by this
carrier shall be considered solely the forwarding agent of the shipper and without any other responsibility whatsoever
even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or
transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense
of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act
of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental thereto
(Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the
same in full and good condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore,
pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss
or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE
CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as
to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to
underline their awesome likeness, the goods in question in both cases were destined for Davao, but were discharged
from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations
before Us, provides: têñ.£îhqwâ£
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not
in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding
of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall
be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the
cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained
their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded
that: têñ.£îhqwâ£
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but that
the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form
Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were unloaded in Manila
and in the matter of transshipment, appellee acted merely as an agent of the shipper and consignee. ... (Emphasis
supplied) 14
185
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with
the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1
thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to
the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country
to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights
and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16 A careful
perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention
to Article 1736 thereof, which reads: têñ.£îhqwâ£
Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation
where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The
subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third
party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the
carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the
same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has
been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession
by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody
or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when possession has
been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the
goods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the
carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied
and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the
moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent
of the consignee. Thus, the character of appellant's possession also changes, from possession in its own name as
carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in effect, actual
delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery,
the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that
point onwards. This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is
true that the transshipment of the goods, which was the object of the agency, was not fully performed. However,
appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control.
An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud,
186
cannot be held responsible for the failure of the principal to accomplish the object of the agency, 21This can be gleaned
from the following provisions of the New Civil Code on the obligations of the agent: têñ.£îhqwâ£
Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the
principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the person appointed was notoriously
incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or
less rigor by the courts, according to whether the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted
as appellant's substitute in storing the goods awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations
of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and
contracts, they incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.
No costs.
SO ORDERED.1äwphï1.ñët
Makasiar (Chairman), Guerrero, Abad Santos and Escolin, concur.
Aquino, J., concurs in the result.
Concepcion Jr., J., took no part.
G.R. No. 146018 June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC., Petitioner,
vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.

187
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value
declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the
insurance policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of
lading.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 31,
2000 Decision2 and the November 17, 2000 Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No. 62751. The
dispositive part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED.
[Petitioner] is hereby condemned to pay to [respondent] the total amount of ₱148,500.00, with interest thereon, at the
rate of 6% per annum, from date of this Decision of the Court. [Respondent’s] claim for attorney’s fees [is] DISMISSED.
[Petitioner’s] counterclaims are DISMISSED."5
The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s6 Decision,7 which was later reversed by the CA, states:
"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
"No cost."8
The Facts
The facts of the case are summarized by the appellate court in this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now
Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas décor and two (2)
sacks of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart from
Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid,
covering the cargo. Nestor Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the
amount of ₱6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic
toys and Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted goods for transportation
thereof from Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill
of Lading No. 59 covering the cargo which, on the face thereof, was valued in the amount of ₱14,000.00. Under the
Bill of Lading, Zosimo Mercado was both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount of ₱100,000.00 ‘against all risks’ under Open Policy No.
002/9 1/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She also insured
the cargo covered by Bill of Lading No. 58, with [respondent], for the amount of ₱50,000.00, under Open Policy No.
002/9 1/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.
"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of
Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite
188
earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel resulting in the
loss of the vessel and the cargoes therein. The Captain filed the required Marine Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured under Marine
Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt, dated
December 11, 1991, purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for the goods
he received from Feliciana Legaspi valued in the amount of ₱110,056.00. [Respondent] approved the claim of Feliciana
Legaspi and drew and issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of ₱99,000.00, in
settlement of her claim after which she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent].
She also filed a claim for the value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] a
Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received
from Feliciana Legaspi valued at ₱60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the
net amount of ₱49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount of ₱148,500.00,
which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and against
the [petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered ordering
[petitioner] to pay [respondent] the following.
1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the legal rate from the time of filing of this
complaint until fully paid;
2. Attorney’s fees in the amount of ₱10,000.00; and
3. Cost of suit.
‘[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and equitable
under the premises.’
"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and received
by, [petitioner] for transportation to Tandag, Surigao del Sur under ‘Bill of Ladings,’ Annexes ‘A’ and ‘B’ of the complaint;
that the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi had executed
Subrogation Receipts/Deeds in favor of [respondent] after paying to her the value of the cargo on account of the Marine
Risk Notes it issued in her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine Inquiry of
any negligence in the burning of the vessel; (b) the complaint stated no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the goods as stated in the Bill of Lading and, hence, [petitioner]
cannot be held liable for the loss of the cargo beyond the value thereof declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the depositions
of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident of Cebu City, and
of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City, to be given
before the Presiding Judge of Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu
did testify, by way of deposition, before the Court and declared inter alia, that: [petitioner] is a family corporation like
the Chester Marketing, Inc.; Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for
years, and incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did
issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor Angelia as
189
shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan
Bridge resulting in the total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine
Inquiry of the Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any
responsibility on account of the fire, which Report of the Board was approved by the District Commander of the
Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi Marketing filed
claims for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor
Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative
of the Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and
consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the
Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the value of the cargo under Bill of
Lading No. 59 and remitted to Legaspi Marketing the said amount under Equitable Banking Corporation Check No.
20230486 dated August 12, 1992, in the amount of ₱14,000.00 for which the representative of the Legaspi Marketing
signed Voucher No. 4379, dated August 12, 1992, for the said amount of ₱14,000.00 in full payment of claims under
Bill of Lading No. 59; that [petitioner] approved the claim of Nestor Angelia in the amount of ₱6,500.00 but that since
the latter owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off the amount due to Nestor
Angelia under Bill of Lading No. 58 against his account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the
original of the check after it was received by Legaspi Marketing, hence, the production of the microfilm copy by Noel
Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before settling with Legaspi Marketing and Nestor
Angelia that the cargo under both Bills of Lading were insured with [respondent], or that Feliciana Legaspi filed claims
for the value of the cargo with [respondent] and that the latter approved the claims of Feliciana Legaspi and paid the
total amount of ₱148,500.00 to her; [petitioner] came to know, for the first time, of the payments by [respondent] of the
claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after settling his
claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993
in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo covered by Bills of
Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of the cargo as stated in the Bills of
Lading.
"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x"9 (Citations omitted)
The CA held that petitioner had failed "to prove that the fire which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep, maintenance and operation of the vessel."10
Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however,
held that the payment did not extinguish petitioner’s obligation to respondent, because there was no evidence that
Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the impropriety
of treating the claim under Bill of Lading No. 58 -- covering cargo valued therein at ₱6,500 -- as a setoff against Nestor
Angelia’s account with Chester Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation of the cargo under the Bills of Lading, x x x nor is the
value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in the first place, the
goods were insured with the [respondent] for the total amount of ₱150,000.00, which amount may be considered as
the face value of the goods."11
Hence this Petition.12
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
"I
190
"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioner’s liability
should be based on the ‘actual insured value’ of the goods and not from actual valuation declared by the
shipper/consignee in the bill of lading.
"II
"The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial court
a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force
majeure and due diligence was [exercised] by petitioner prior to, during and immediately after the fire on [petitioner’s]
vessel.
"III
"The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action against
the petitioner."13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of its liability?
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its exercise
of due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag sank due
to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and
dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the
fuel oil tank, which had a mere two-inch gap from the engine room walling, thus precluding constant inspection and
care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning,
an earthquake, a tempest or a public enemy.14 Hence, fire is not considered a natural disaster or calamity. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,15 we explained:
"x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within
the category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused
by the actual fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands
considering that the law adopts a protective policy towards agriculture.
"As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code
provides that in all cases other than those mentioned 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 diligence required by
law."
191
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover
the existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials.16
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. Petitioner did not present sufficient evidence showing what measures or acts it had
undertaken to ensure the seaworthiness of the vessel. It failed to show when the last inspection and care of the auxiliary
engine fuel oil service tank was made, what the normal practice was for its maintenance, or some other evidence to
establish that it had exercised extraordinary diligence. It merely stated that constant inspection and care were not
possible, and that the last time the vessel was dry-docked was in November 1990. Necessarily, in accordance with
Article 173517 of the Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading
Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioner’s liability should be based on the actual insured value of the goods, subject of this
case. On the other hand, petitioner claims that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading.
The records18 show that the Bills of Lading covering the lost goods contain the stipulation that in case of claim for loss
or for damage to the shipped merchandise or property, "[t]he liability of the common carrier x x x shall not exceed the
value of the goods as appearing in the bill of lading."19 The attempt by respondent to make light of this stipulation is
unconvincing. As it had the consignees’ copies of the Bills of Lading,20 it could have easily produced those copies,
instead of relying on mere allegations and suppositions. However, it presented mere photocopies thereof to disprove
petitioner’s evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid21 as long as it is not against public policy. In Everett Steamship Corporation v.
Court of Appeals,22 the Court stated:
"A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.’
"Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-Land
Service, Inc. vs. Intermediate Appellate Court, we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding
effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of
the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art.
1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To
hold otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is
192
implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far
from onerous expedient of declaring the nature and value of the shipment in the bill of lading.’
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier’s liability
for loss must be ‘reasonable and just under the circumstances, and has been freely and fairly agreed upon.
"The bill of lading subject of the present controversy specifically provides, among others:
’18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper’s net invoice
cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible
profits or any consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding
One Hundred Thousand Yen in Japanese Currency (¥100,000.00) or its equivalent in any other currency per package
or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing
by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as
required.’
"The above stipulations are, to our mind, reasonable and just.1avvphi1 In the bill of lading, the carrier made it clear that
its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading,
had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier.
Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the
stipulations." (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public policy. In fact, its just and
reasonable character is evident. The shippers/consignees may recover the full value of the goods by the simple
expedient of declaring the true value of the shipment in the Bill of Lading. Other than the payment of a higher freight,
there was nothing to stop them from placing the actual value of the goods therein. In fact, they committed fraud against
the common carrier by deliberately undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper
and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier. Such stipulation
obliges the shipper/consignee to notify the common carrier of the amount that the latter may be liable for in case of loss
of the goods. The common carrier can then take appropriate measures -- getting insurance, if needed, to cover or
protect itself. This precaution on the part of the carrier is reasonable and prudent. Hence, a shipper/consignee that
undervalues the real worth of the goods it seeks to transport does not only violate a valid contractual stipulation, but
commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it declared in the
bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective Bills of
Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which it could not protect
itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance company was
paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than what it was entitled to
for transporting the goods that had been deliberately undervalued by the shippers in the Bill of Lading. Between the
two of them, the insurer should bear the loss in excess of the value declared in the Bills of Lading. This is the just and
equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,23 the description of the nature and the value of the goods shipped
were declared and reflected in the bill of lading, like in the present case. The Court therein considered this declaration
as the basis of the carrier’s liability and ordered payment based on such amount. Following this ruling, petitioner should
193
not be held liable for more than what was declared by the shippers/consignees as the value of the goods in the bills of
lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the owner of the goods covered by
Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and Zosimo Mercado,
respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of loss, to
compensation therefor. There is no evidence showing that petitioner paid her for the loss of those goods. It does not
even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No. 59, for
which the latter subsequently paid ₱14,000. But nothing in the records convincingly shows that the former was the
owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who owned those goods,
and who was thus entitled to payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59 cannot
be deemed to have been extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at ₱6,500, the parties
have not convinced us to disturb the findings of the CA that compensation could not validly take place. Thus, we uphold
the appellate court’s ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense that
petitioner is ORDERED to pay respondent the sums of ₱14,000 and ₱6,500, which represent the value of the goods
stated in Bills of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
G.R. No. 75118 August 31, 1987
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and style of "SEN HIAP
HING," respondents.
NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the covering bill of
lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo where its value is not declared
in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and forwarding company
licensed to do business in the Philippines, received from Seaborne Trading Company in Oakland, California a shipment
consigned to Sen Hiap Hing the business name used by Paulino Cue in the wholesale and retail trade which he
operated out of an establishment located on Borromeo and Plaridel Streets, Cebu City.
194
The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The bill described
the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements Sea-land charged the shipper
the total amount of US$209.28 2 for freight age and other charges. The shipment was loaded on board the MS Patriot,
a vessel owned and operated by Sea-Land, for discharge at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into the custody
of the arrastre contractor and the customs and port authorities. 3 Sometime between February 13 and 16, 1981, after
the shipment had been transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3 in
South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the lost shipment
allegedly amounting to P179,643.48. 5 Sea-Land offered to settle for US$4,000.00, or its then Philippine peso
equivalent of P30,600.00. asserting that said amount represented its maximum liability for the loss of the shipment
under the package limitation clause in the covering bill of lading.6 Cue rejected the offer and thereafter brought suit for
damages against Sea-Land in the then Court of First Instance of Cebu, Branch X.7 Said Court, after trial, rendered
judgment in favor of Cue, sentencing Sea-Land to pay him P186,048.00 representing the Philippine currency value of
the lost cargo, P55,814.00 for unrealized profit with one (1%) percent monthly interest from the filing of the complaint
until fully paid, P25,000.00 for attorney's fees and P2,000.00 as litigation expenses.8
Sea-Land appealed to the Intermediate Appellate Court.9 That Court however affirmed the decision of the Trial Court
xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as already stated, poses the
question of whether, upon the facts above set forth, it can be held liable for the loss of the shipment in any amount
beyond the limit of US$600.00 per package stipulated in the bill of lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the carrier
or shipper for loss of, or damage to, goods being transported under said bill ,although that document may have been
— as in practice it oftentimes is — drawn up only by the consignor and the carrier without the intervention of the
consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length into the reasons behind this
when, upon a claim made by the consignee of a motion picture film shipped by air that he was never a party to the
contract of transportation and was a complete stranger thereto, it said:
But appellant now contends that he is not suing on a breach of contract but on a tort as provided for in Art. 1902 of the
Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that the articles of the Code
of Commerce should be applied: that he invokes the provisions of aid Code governing the obligations of a common
carrier to make prompt delivery of goods given to it under a contract of transportation. Later, as already said, he says
that he was never a party to the contract of transportation and was a complete stranger to it, and that he is now suing
on a tort or a violation of his rights as a stranger (culpa aquiliana) If he does not invoke the contract of carriage entered
into with the defendant company, then he would hardly have any leg to stand on. His right to prompt delivery of the can
of film at the Phil. Air Port stems and is derived from the contract of carriage under which contract, the PAL undertook
to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and the obligation to
carry and to deliver and right to prompt delivery disappear. Common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation. Said rights and obligations are created by a specific contract entered into by the
parties. In the present case, the findings of the trial court which as already stated, are accepted by the parties and
which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant
company on the other, entered into a contract of transportation (p. 29, Rec. on Appeal). One interpretation of said
finding is that the LVN Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he
negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga town fiesta, he
most probably authorized and enjoined the Picture Company to ship the film for him on the PAL on September 17th.
Another interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently
of Mendoza for the time being, made Mendoza as consignee, a stranger to the contract if that is possible, nevertheless
195
when he, Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding the delivery
of the shipment to him, he thereby made himself a party to the contract of transportation. The very citation made by
appellant in his memorandum supports this view. Speaking of the possibility of a conflict between the order of the
shipper on the one hand and the order of the consignee on the other, as when the shipper orders the shipping company
to return or retain the goods shipped while the consignee demands their delivery, Malagarriga in his book Codigo de
Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of Appeals on commercial matters, cited
by Tolentino in Vol. II of his book entitled "Commentaries and Jurisprudence on the Commercial Laws of the Philippines"
p. 209, says that the right of the shipper to countermand the shipment terminates when the consignee or legitimate
holder of the bill of lading appears with such big of lading before the carrier and makes himself a party to the contract.
Prior to that time he is a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code (now
Art, 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment provided he has
given notice of his acceptance to the person bound before the stipulation has been revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of
delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Phil Air Port may be
regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of carriage
and delivery. In this case he also made himself a party to the contract, or at least has come to court to enforce it. His
cause of action must necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of carriage is
governed by the laws of the country of destination 12 and the goods in question were shipped from the United States
to the Philippines, the liability of petitioner Sea-Land to the respondent consignee is governed primarily by the Civil
Code, and as ordained by the said Code, suppletorily, in all matters not determined thereby, by the Code of Commerce
and special laws. 13 One of these suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act No.
521 which was made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign
trade by Commonwealth Act No. 65, approved on October 22, 1936. Sec. 4(5) of said Act in part reads:
unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill
of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive
on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum amount than that
In no event shall the carrier be liable for more than the amount of damage actually sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its shipping clients 14 is a
virtual copy of the first paragraph of the foregoing provision. It says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding in actual value
$500 per package, lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, the value of the goods shall be deemed to be $500 per package or per customary freight unit, as the case
may be, and the carrier's liability, if any, shall be determined on the basis of a value of $500 per package or customary
196
freight unit, unless the nature and a higher value shall be declared by the shipper in writing before shipment and inserted
in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon delivery to the carrier and inserted
in this bill of lading and extra freight paid, if required and in such case if the actual value of the goods per package or
per customary freight unit shall exceed such declared value, the value shall nevertheless be deemed to be declared
value and the carrier's liability, if any, shall not exceed the declared value and any partial loss or damage shall be
adjusted pro rata on the basis of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations of common
carriers to the provisions of the Code of Commerce and of special laws in matters not regulated by said (Civil) Code,
the Court fails to fathom the reason or justification for the Appellate Court's pronouncement in its appealed Decision
that the Carriage of Goods by Sea Act " ... has no application whatsoever in this case. 15 Not only is there nothing in
the Civil Code which absolutely prohibits agreements between shipper and carrier limiting the latter's liability for loss of
or damage to cargo shipped under contracts of carriage; it is also quite clear that said Code in fact has agreements of
such character in contemplation in providing, in its Articles 1749 and 1750, that:
ART. 1749 A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely
agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or inconsistent
with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh and greater specificity to
the rather general terms of Article 1749 (without doing any violence to the plain intent thereof) and of Article 1750, to
give effect to just agreements limiting carriers' liability for loss or damage which are freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and binding
the cited Civil Code provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art.
hold otherwise would amount to questioning the justice and fairness of that law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the lust and reasonable character of such stipulation is
implicit in it giving the shipper or owner the option of avoiding acrrual of liability limitation by the simple and surely far
from onerous expedient of declaring the nature and value of the shipment in the bill of lading. And since the shipper
here has not been heard to complaint of having been "rushed," imposed upon or deceived in any significant way into
agreeing to ship the cargo under a bill of lading carrying such a stipulation — in fact, it does not appear that said party
has been heard from at all insofar as this dispute is concerned — there is simply no ground for assuming that its
agreement thereto was not as the law would require, freely and fairly sought and given.
The private respondent had no direct part or intervention in the execution of the contract of carriage between the shipper
and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza vs. PAL, supra, the right of a
party in the same situation as respondent here, to recover for loss of a shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the carrier, springs from either a relation of agency that may exist
between him and the shipper or consignor, or his status as a stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case the delivery of
the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of lading,
197
the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to
be hardly readable. Parenthetically, it may be observed that in one comparatively recent case 16where this Court found
that a similar package limitation clause was "(printed in the smallest type on the back of the bill of lading, it nonetheless
ruled that the consignee was bound thereby on the strength of authority holding that such provisions on liability limitation
are as much a part of a bill of lading as though physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon stipulations
in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill. This pro position, moreover, rests upon an almost uniform
weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes trans-shipment
of the goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or his discretion and
although transshipment or forwarding of the goods may not have been contemplated or provided for herein, may at
port of discharge or any other place whatsoever transship or forward the goods or any part thereof by any means at
the risk and expense of the goods and at any time, whether before or after loading on the ship named herein and by
any route, whether within or outside the scope of the voyage or beyond the port of discharge or destination of the goods
and without notice to the shipper or consignee. The carrier or master may delay such transshipping or forwarding for
any reason, including but not limited to awaiting a vessel or other means of transportation whether by the carrier or
others.
Said provision obviates the necessity to offer any other justification for offloading the shipment in question in Manila for
transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless, the Court takes note of
Sea-Land's explanation that it only directly serves the Port of Manila from abroad in the usual course of voyage of its
carriers, hence its maintenance of arrangements with a local forwarder. Aboitiz and Company, for delivery of its
imported cargo to the agreed final point of destination within the Philippines, such arrangements not being prohibited,
but in fact recognized, by law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the final port of
destination and that the fact that transshipment was made on an interisland vessel did not remove the contract of
carriage of goods from the operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by petitioner
Sea Land form no part of the short-form bill of lading attached to his complaint before the Trial Court and appear only
in the long form of that document which, he claims. SeaLand offered (as its Exhibit 2) as an unused blank form with no
entries or signatures therein. He, however, admitted in the Trial Court that several times in the past shipments had
been delivered to him through Sea-Land, 20 from which the assumption may fairly follow that by the time of the
consignment now in question, he was already reasonably apprised of the usual terms covering contracts of carriage
with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by Sea Act on
package limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of lading as though actually
placed therein by agreement of the parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes accepted said
bill. Having done so, he —
... becomes bound by all stipulations contained therein whether on the front or the back thereof. Respondent cannot
elude its provisions simply because they prejudice him and take advantage of those that are beneficial. Secondly, the
fact that respondent shipped his goods on board the ship of petitioner and paid the corresponding freight thereon shows
198
that he impliedly accepted the bill of lading which was issued in connection with the shipment in question, and so it
may be said that the same is finding upon him as if it had been actually signed by him or by any other person in his
behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April 22, 1981, Sea-Land had
offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the shipment under the bill of
lading. This Court having reached the conclusion that said sum is all that is justly due said respondent, it does not
appear just or equitable that Sea-Land, which offered that amount in good faith as early as six years ago, should, by
being made to pay at the current conversion rate of the dollar to the peso, bear for its own account all of the increase
in said rate since the time of the offer of settlement. The decision of the Regional Trial Court awarding the private
respondent P186,048.00 as the peso value of the lost shipment is clearly based on a conversion rate of P8.00 to
US$1.00, said respondent having claimed a dollar value of $23,256.00 for said shipment.24 All circumstances
considered, it is just and fair that Sea-Land's dollar obligation be convertible at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set aside. The
stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage to the shipment covered by
said bill to US$500.00 per package is held valid and binding on private respondent. There being no question of the fact
that said shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is therefore liable in the
aggregate amount of US$4,000.00, it is the judgment of the Court that said petitioner discharge that obligation by
paying private respondent the sum of P32,000.00, the equivalent in Philippine currency of US$4,000.00 at the
conversion rate of P8.00 to $1.00. Costs against private respondent.
SO ORDERED.
Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.
G.R. No. 143133 June 5, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC.,
petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the
loss, the destruction or the deterioration of the goods happened, the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision1 and the
May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal portion of the Decision
reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET
ASIDE. Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:
199
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages,
representing the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint on
July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as
follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendant's
counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of
various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading
Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent days,
discharged the subject cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the
four (4) coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading
Corporation declared the same as total loss.1âwphi1.nêt
"Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's claim. Consequently,
plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was
subrogated to the latter's rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant
instituted this complaint for recovery of the amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due
to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the
sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives.
In addition thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of
liability provided for in the bill of lading and other pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to prevent any damage/loss to said shipment."6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required
by law.7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or primarily
intended to harass them.8
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped,
because they had failed to overcome the presumption of negligence imposed on common carriers.
200
The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods was due to
pre-shipment damage.9 It likewise opined that the notation "metal envelopes rust stained and slightly dented" placed
on the Bill of Lading had not been the proximate cause of the damage to the four (4) coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not applicable,
because the words "L/C No. 90/02447" indicated that a higher valuation of the cargo had been declared by the shipper.
The CA, however, affirmed the award of attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:
"Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose testimony
is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;
II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to
exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable to the case at
bar."12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of
the lone testimony offered by private respondent. The contention is untenable.
201
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they
transport.13 Thus, common carriers are required to render service with the greatest skill and foresight and "to use all
reason[a]ble means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as their nature requires."14 The extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or constructively, to the consignee or to the person who
has a right to receive them.15
This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the
riding public enters into a contract of transportation with common carriers.16 Even if it wants to, it cannot submit its
own stipulations for their approval.17 Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.18 That is, unless they
prove that they exercised extraordinary diligence in transporting the goods.19 In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they observed such diligence.20
However, the presumption of fault or negligence will not arise21 if the loss is due to any of the following causes: (1)
flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of the goods or
defects in the packing or the container; or (5) an order or act of competent public authority.22 This is a closed list. If
the cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is liable
therefor.23
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, the loss or the destruction of the goods happened, the transporter
shall be held responsible.24
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of
the records and more so by the evidence adduced by respondent.25
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg,
Germany.26
Second, prior to the unloading of the cargo, an Inspection Report27 prepared and signed by representatives of both
parties showed the steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof
exposed and rusty.
Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services, Inc., stated that the four coils
were in bad order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a
presumed loss or damage.29
Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested, the steel sheets found in
bad order were wet with fresh water.
Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 --
admitted that they were aware of the condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of
his testimony are reproduce hereunder:
202
"Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what
company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos checkers Agency related or connected with defendant Jardine Davies Transport Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.
xxx xxx xxx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in
coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
xxx xxx xxx
Q. Based on your inspection since you were also present at that time, will you inform this Honorable Court the
condition or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best evidence
is the document itself, Your Honor that shows the condition of the steel sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides."32
All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four
coils while in the possession of petitioner,33 who notably failed to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law requires
a common carrier to know and to follow to avoid damage to or destruction of the goods entrusted to it for safe carriage
and delivery.35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however, there is
no showing that petitioners exercised due diligence to forestall or lessen the loss.36 Having been in the service for
several years, the master of the vessel should have known at the outset that metal envelopes in the said state would
eventually deteriorate when not properly stored while in transit.37 Equipped with the proper knowledge of the nature of
steel sheets in coils and of the proper way of transporting them, the master of the vessel and his crew should have
203
undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these measures was
taken.38 Having failed to discharge the burden of proving that they have exercised the extraordinary diligence required
by law, petitioners cannot escape liability for the damage to the four coils.39
In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article 1734(4)
of the Civil Code. They cite the notation "metal envelopes rust stained and slightly dented" printed on the Bill of Lading
as evidence that the character of the goods or defect in the packing or the containers was the proximate cause of the
damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the
condition noted on the Bill of Lading.40 The aforecited exception refers to cases when goods are lost or damaged while
in transit as a result of the natural decay of perishable goods or the fermentation or evaporation of substances liable
therefor, the necessary and natural wear of goods in transport, defects in packages in which they are shipped, or the
natural propensities of animals.41 None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding
such condition.42 Thus, petitioners have not successfully proven the application of any of the aforecited exceptions in
the present case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act44 (COGSA), respondent
should have filed its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July
31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given
if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated
earlier, prior to unloading the cargo, an Inspection Report46 as to the condition of the goods was prepared and signed
by representatives of both parties.47
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is
nonetheless filed within one year.48 This one-year prescriptive period also applies to the shipper, the consignee, the
insurer of the goods or any legal holder of the bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription as long as the
one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter,
the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint51 was filed by respondent on
July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
204
Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be limited to
US$500 per package as provided in the Bill of Lading and by Section 4(5)52 of COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject
shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of
Credit or "L/C No. 90/02447" in the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a contract by which three
parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume
stipulated obligations.56 In a nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full
knowledge of its contents, gives rise to the presumption that it constituted a perfected and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or destruction of
a cargo -- unless the shipper or owner declares a greater value58 -- is sanctioned by law.59 There are, however, two
conditions to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has been fairly
and freely agreed upon by the parties.60 The rationale for this rule is to bind the shippers by their agreement to the
value (maximum valuation) of their goods.61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per
package.62 In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be
governed by the Code of Commerce and special laws.63 Thus, the COGSA, which is suppletory to the provisions of
the Civil Code, supplements the latter by establishing a statutory provision limiting the carrier's liability in the absence
of a shipper's declaration of a higher value in the bill of lading.64 The provisions on limited liability are as much a part
of the bill of lading as though physically in it and as though placed there by agreement of the parties.65
In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's liability. Neither did the shipper
declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No.
90/02447 cannot be the basis for petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the
importation of steel sheets did not effect a declaration of the value of the goods as required by the bill.67 That notation
was made only for the convenience of the shipper and the bank processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate from the Other
Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the
contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between the amount
of goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot
be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-
à-vis the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in
the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from
the contract of transportation."70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not on the per
metric ton price declared in the Letter of Credit.71 In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,72
we explained the meaning of packages:
205
"When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number
of such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package'
referred to in the liability limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the
contents of the containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should
be considered as the shipping unit subject to the US$500 limitation.1âwphi1.nêt
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is reduced to
US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until
the finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, and Carpio, JJ., concur.
Puno, J., abroad, on official leave.
G.R. No. 122494 October 8, 1998
EVERETT STEAMSHIP CORPORATION, petitioner,
vs.
COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents.
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the decision1 of the
Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the decision of the Regional Trial Court
of Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez
Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and
MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based
in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board "ADELFAEVERETTE," a
vessel owned by petitioner's principal, Everett Orient Lines. The said crates were covered by Bill of Lading No.
NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was
confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter
made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two
Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated November 14,
1991. However, petitioner offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount
stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-15532,
against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
206
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer and agreed instead
to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment 2 in favor of private respondent, ordering petitioner to pay: (a)
Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of the lost cargo and the material
and packaging cost; (c) 10% of the total amount as an award for and as contingent attorney's fees; and (d) to pay the
cost of the suit. The trial court ruled:
Considering defendant's categorical admission of loss and its failure to overcome the presumption of negligence and
fault, the Court conclusively finds defendant liable to the plaintiff. The next point of inquiry the Court wants to resolve
is the extent of the liability of the defendant. As stated earlier, plaintiff contends that defendant should be held liable for
the whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms appearing at the back of
the bill of lading was so written in fine prints and that the same was not signed by plaintiff or shipper thus, they are not
bound by clause stated in paragraph 18 of the bill of lading. On the other hand, defendant merely admitted that it lost
the shipment but shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code —
Art. 1750. "A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely
agreed upon."
It is required, however, that the contract must be reasonable and just under the circumstances and has been fairly and
freely agreed upon. The requirements provided in Art. 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods
it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have not been met. The fact that those
conditions are printed at the back of the bill of lading in letters so small that they are hard to read would not warrant the
presumption that the plaintiff or its supplier was aware of these conditions such that he had "fairly and freely agreed"
to these conditions. It can not be said that the plaintiff had actually entered into a contract with the defendant, embodying
the conditions as printed at the back of the bill of lading that was issued by the defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's findings with the
additional observation that private respondent can not be bound by the terms and conditions of the bill of lading because
it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee (Hernandez Trading Co.)
consented to the terms of the Bill of Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd.
whom the appellant (Everett Steamship Corp.) contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the bill of lading when it
delivered the cargo to the appellant, still it does not necessarily follow that appellee Hernandez Trading, Company as
consignee is bound thereby considering that the latter was never privy to the shipping contract.
xxx xxx xxx
Never having entered into a contract with the appellant, appellee should therefore not be bound by any of the terms
and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of which is not the breach
of contract as appellee was never a privy to the any contract with the appellant, but is based on Article 1735 of the New
207
Civil Code, there being no evidence to prove satisfactorily that the appellant has overcome the presumption of
negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of the consignee to
the terms and conditions of the bill of lading is necessary to make such stipulations binding upon it; (2) in holding that
the carrier's limited package liability as stipulated in the bill of lading does not apply in the instant case; and (3) in
allowing private respondent to fully recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provide:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of cases.3 Thus, inSea Land
Service, Inc. vs. Intermediate Appellate Court 4, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding
the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art.
hold otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is
implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far
from onerous expedient of declaring the nature and value of the shipment in the bill of lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier's liability
for loss must be "reasonable and just under the circumstances, and has been freely and fairly agreed upon."
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper's net invoice
cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible
profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding
One Hundred thousand Yen in Japanese Currency (Y100,000.00) or its equivalent in any other currency per package
or customary freight unit (whichever is least)unless the value of the goods higher than this amount is declared in writing
by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as
required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability
would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the
option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering
that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations.
208
The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the limited liability
clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading
invalid.
We ruled in PAL, Inc. vs. Court of Appeals5 that the "jurisprudence on the matter reveals the consistent holding of the
court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect
thereof." Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. 6 this Court, speaking through
the learned Justice Florenz D. Regalado, held:
. . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein one party imposes a ready-
made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if the adheres he gives his consent." In the present case, not even an allegation of
ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring full
comprehension of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or
consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion are valid and
binding.
While it may be true that petitioner had not signed the plane
ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent
to the regulation." It is what is known as a contract of "adhesion," in regards which it has been said that contracts of
adhesion wherein one party imposes a ready-made form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. . . ., a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said contracts
must be carefully scrutinized "in order to shield the unwary (or weaker party) from deceptive schemes contained in
ready-made covenants,"8 such as the bill of lading in question. The stringent requirement which the courts are enjoined
to observe is in recognition of Article 24 of the Civil Code which mandates that "(i)n all contractual, property or other
relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for his protection."
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said
to be ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The
shipper could not have known, or should know the stipulations in the bill of lading and there it should have declared a
higher valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain that it has been
deceived or rushed into agreeing to ship the cargo in petitioner's vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a signatory to the bill of
lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the consignee was not
a signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by the
contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the carrier
or shipper for loss of, or damage to goods being transported under said bill, although that document may have been-
as in practice it oftentimes is-drawn up only by the consignor and the carrier without the intervention of the
209
onsignee. . . . .
. . . the right of a party in the same situation as respondent here, to recover for loss of a shipment consigned to him
under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency
that may exist between him and the shipper or consignor, or his status as stranger in whose favor some stipulation is
made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case
the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the
bill of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such
fine print as to be hardly readable. Parenthetically, it may be observed that in one comparatively recent case (Phoenix
Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where this Court found that a similar package limitation
clause was "printed in the smallest type on the back of the bill of lading," it nonetheless ruled that the consignee was
bound thereby on the strength of authority holding that such provisions on liability limitation are as much a part of a bill
of lading as through physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon stipulations
in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill. This proposition, moreover, rests upon an almost uniform
weight of authority. (Emphasis supplied).
When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently filed
a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the
contract and thereby made itself a party thereto, or at least has come to court to enforce it.9 Thus, private respondent
cannot now reject or disregard the carrier's limited liability stipulation in the bill of lading. In other words, private
respondent is bound by the whole stipulations in the bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount of
Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared the shipment . . ., the contents of
each crate, the dimensions, weight and value of the contents," 10 as shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents, quantity and value of "the shipment
which consisted of three pre-packed crates described in Bill of Lading No. NGO-53MN merely as '3 CASES SPARE
PARTS.'" 11
The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability, the aforecited
Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its goods
before receipt thereof by the carrier and insert the said declaration in the bill of lading, with extra freight paid. These
requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier under the
limited liability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show
that petitioner has knowledge of the value of the cargo as contended by private respondent. No other evidence was
proffered by private respondent to support is contention. Thus, we are convinced that petitioner should be liable for the
full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen,
pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No. 42803 is hereby
REVERSED and SET ASIDE.
SO ORDERED.
Regalado, Melo, Puno and Mendoza, JJ., concur.
210
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LAWS ON TRANSPORTATION 2017

Common Carriers (n)

SUBSECTION 1. General Provisions

G.R. No. 138334 August 25, 2003

ESTELA L. CRISOSTOMO, Petitioner,

WHEREFORE, premises considered, judgment is hereby rendered as follows:

3. Dismissing the defendant’s counterclaim, for lack of merit; and

4. With costs against the defendant.

Petitioner’s contention has no merit.

We agree with respondent.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

1. that private respondent was not a common carrier;

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

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

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

(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;

(5) Order or act of competent public authority.

xxx xxx xxx

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

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,

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

There is merit in the petition.

4. The transportation must be for hire. 15

xxx xxx xxx

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

Mr. Speaker, we would like to proceed to page 95, line

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

Bellosillo, Puno and Mendoza, JJ., concur.

G.R. No. 148496 March 19, 2002

The facts are as follows:

The trial court held:

is a finding which cannot be traversed and overturned.

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

Petitioner contends that:

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

Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.10

As found by the Court of Appeals:

Bellosillo, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

G.R. No. 112287 December 12, 1997

NATIONAL STEEL CORPORATION, petitioner,

COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

G.R. No. 112350 December 12, 1997

VLASONS SHIPPING, INC., petitioner,

COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and

On the other hand, the Court of Appeals ruled:

The facts as found by Respondent Court of Appeals are as follows:

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

xxx xxx xxx