G.R. No.

101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

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

Gonzales, Sinense, Jimenez & Associates for petitioner.

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

BELLOSILLO, J.:

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

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

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

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

16. . . . At loading port, notice of readiness to be accomplished by certificate from

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

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

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

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

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

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

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

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common
carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the case at bar. Thus
—

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee

to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).

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

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

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

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

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

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

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

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

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

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —
 As a matter of principle, it is difficult to find a valid distinction between cases in which
a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .

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

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

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

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and
a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of
the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus —

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

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

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

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

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

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

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

The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.

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

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

Costs against petitioner.

SO ORDERED.

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

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner,

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

DECISION
CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision of the Court of Appeals, as well
[1]

as its Resolution dated September 28, 2001 denying the motion for reconsideration,
[2]

which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case
No. 92-63132 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz
[3]
Transport), together with Black Sea Shipping Corporation (Black Sea), represented by its
ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily
liable for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of
Ilyichevsk, Russia on board M/V Alexander Saveliev (a vessel of Russian registry and
owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured against all
[4]

risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy
No. M-91-3747-TIS. [5]

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South
Harbor.[6]

Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignees) warehouse at Cainta, Rizal, in turn engaged the services of TVI to send a
[7]

barge and tugboat at shipside.

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

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge
alongside the vessel, left and returned to the port terminal. At 9:00 p.m., arrastre
[9]

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. No tugboat pulled the barge back to the pier, however.
[10]

At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the barge
[11]

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. At 7:00 a.m., a tugboat finally
[12]

arrived to pull the already empty and damaged barge back to the pier. [13]

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

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

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

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

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

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

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

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

All the defendants appealed to the Court of Appeals which, by decision of June 27,
2001, affirmed in toto the decision of the trial court, it finding that all the defendants were
[22]

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, and Schmitz
[23]

Transport for entering into a contract with Little Giant to transport the cargoes from ship
to port for a fee.
[24]

In holding all the defendants solidarily liable, the appellate court ruled that each one
was essential such that without each others contributory negligence the incident would
not have happened and so much so that the person principally liable cannot be
distinguished with sufficient accuracy. [25]

In discrediting the defense of fortuitous event, the appellate court held that although
defendants obviously had nothing to do with the force of nature, they however had control
of where to anchor the vessel, where discharge will take place and even when the
discharging will commence. [26]
 The defendants respective motions for reconsideration having been denied by
Resolution of September 28, 2001, Schmitz Transport (hereinafter referred to as
[27]

petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its
principal, consignee Little Giant, hence, the transportation contract was by and between
Little Giant and TVI.[28]

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black

Sea, and TVI were required to file their respective Comments. [29]

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

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

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any
act of negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from
any and all liability arising therefrom:

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

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

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

The appellate court, in affirming the finding of the trial court that human intervention
in the form of contributory negligence by all the defendants resulted to the loss of the
cargoes, held that unloading outside the breakwater, instead of inside the breakwater,
[34]

while a storm signal was up constitutes negligence. It thus concluded that the proximate
[35]

cause of the loss was Black Seas negligence in deciding to unload the cargoes at an
unsafe place and while a typhoon was approaching. [36]

From a review of the records of the case, there is no indication that there was greater
risk in loading the cargoes outside the breakwater. As the defendants proffered, the
weather on October 26, 1991 remained normal with moderate sea condition such that
port operations continued and proceeded normally. [37]

The weather data report, furnished and verified by the Chief of the Climate Data
[38]

Section of PAG-ASA and marked as a common exhibit of the parties, states that while
typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea
condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was
moderate. It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely
loaded by 12:30 in the morning is, however, a material fact which the appellate court
[39]

failed to properly consider and appreciate the proximate cause of the loss of the
[40]

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. The loss thus falls outside the act of God doctrine.
[41]

The proximate cause of the loss having been determined, who among the parties
is/are responsible therefor?
Contrary to petitioners insistence, this Court, as did the appellate court, finds that
petitioner is a common carrier. For it undertook to transport the cargoes from the shipside
of M/V Alexander Saveliev to the consignees warehouse at Cainta, Rizal. As the appellate
court put it, as long as a person or corporation holds [itself] to the public for the purpose
of transporting goods as [a] business, [it] is already considered a common carrier
regardless if [it] owns the vehicle to be used or has to hire one. That petitioner is a
[42]

common carrier, the testimony of its own Vice-President and General Manager Noel Aro
that part of the services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive
Vice-President and General Manager of said Company?
 Mr. Aro: Well, I oversee the entire operation of the brokerage and transport
business of the company. I also handle the various division heads of the
company for operation matters, and all other related functions that the
President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you
please tell the Honorable Court if you came to know the company by the name
Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can
recall?

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or
duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of
Customs. We [are] also in-charged of the delivery of the goods to their
warehouses. We also handled the clearances of their shipment at the Bureau
of Customs, Sir.

xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe
Corporation with regards to this shipment? What work did you do with this
shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the
delivery of [the] cargo[es] from lighter to BASECO then to the truck and to the
warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are
supposed to perform, what equipment do (sic) you require or did you use in
order to effect this unloading, transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from]
vessel to lighter, and on this we hired or we sub-contracted with [T]ransport
Ventures, Inc. which [was] in-charged (sic) of the barges. Also, in BASECO
compound we are leasing cranes to have the cargo unloaded from the barge
to trucks, [and] then we used trucks to deliver [the cargoes] to the consignees
warehouse, Sir.
 Q: And whose trucks do you use from BASECO compound to the consignees
warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks,
Sir.

xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you
have to contract for the barges of Transport Ventures Incorporated in this
particular operation?
A: Firstly, we dont own any barges. That is why we hired the services of another
firm whom we know [al]ready for quite sometime, which is Transport Ventures,
Inc. (Emphasis supplied) [43]

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

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

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

xxx

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

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the
[46]

transportation of goods is an integral part of a customs broker, the customs broker is also
a common carrier. For to declare otherwise would be to deprive those with whom [it]
contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of petitioners business.
[47]

As for petitioners argument that being the agent of Little Giant, any negligence it
committed was deemed the negligence of its principal, it does not persuade.
 True, petitioner was the broker-agent of Little Giant in securing the release of the
cargoes. In effecting the transportation of the cargoes from the shipside and into Little
Giants warehouse, however, petitioner was discharging its own personal obligation under
a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler to provide the barge and the tugboat. In their Service Contract, while Little
[48] [49]

Giant was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant. Little Giant did not thus
[50]

automatically become a party to the Service Contract and was not, therefore, bound by
the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based
thereon but it can maintain a cause of action for negligence. [51]

In the case of TVI, while it acted as a private carrier for which it was under no duty to
observe extraordinary diligence, it was still required to observe ordinary diligence to
ensure the proper and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:

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

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

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

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

This Court holds not.

TVIs failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was the proximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open
sea, knowing that the barge does not have any power of its own and is totally defenseless
from the ravages of the sea. That it was nighttime and, therefore, the members of the
crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one
such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 of the
[53]

Civil Code, prove that it exercised due diligence to prevent or minimize the loss, before,
during and after the occurrence of the storm in order that it may be exempted from liability
for the loss of the goods.
While petitioner sent checkers and a supervisor on board the vessel to counter-
[54] [55]

check the operations of TVI, it failed to take all available and reasonable precautions to
avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge
despite the deteriorating sea conditions, it should have summoned the same or another
tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for the loss of the
[56]

cargoes. The following pronouncement of the Supreme Court is instructive:

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

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

As for Black Sea, its duty as a common carrier extended only from the time the goods
were surrendered or unconditionally placed in its possession and received for
transportation until they were delivered actually or constructively to consignee Little
Giant.[58]
 Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2
covering the shipment provides that delivery be made to the port of discharge or so near
thereto as she may safely get, always afloat. The delivery of the goods to the consignee
[59]

was not from pier to pier but from the shipside of M/V Alexander Saveliev and into barges,
for which reason the consignee contracted the services of petitioner. Since Black Sea
had constructively delivered the cargoes to Little Giant, through petitioner, it had
discharged its duty.[60]

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

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

because the judgment is rendered in its favor would be tantamount to imposing a

premium on ones right to litigate or seek judicial redress of legitimate grievances. [62]

On the award of adjustment fees: The adjustment fees and expense of divers were
incurred by Industrial Insurance in its voluntary but unsuccessful efforts to locate and
retrieve the lost cargo. They do not constitute actual damages. [63]

As for the court a quos award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that
[64]

when the demand cannot be reasonably established at the time the demand is made, the
interest shall begin to run not from the time the claim is made judicially or extrajudicially
but from the date the judgment of the court is made (at which the time the quantification
of damages may be deemed to have been reasonably ascertained). [65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &

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

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

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

DECISION
CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts

Decision of August 10, 2000 reversing and setting aside the judgment of
[1]

Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B which
dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM
Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives consisting of
86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000
Blisters Trinordiol tablets for delivery to Manila in favor of the consignee, Wyeth-
Suaco Laboratories, Inc. The Femenal tablets were placed in 124 cartons and
[2]

the Nordiol tablets were placed in 20 cartons which were packed together in
one (1) LD3 aluminum container, while the Trinordial tablets were packed in two
pallets, each of which contained 30 cartons. [3]

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

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA), it was discharged without exception and
[5] [6]

delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) located also
at the NAIA for safekeeping. [7]

In order to secure the release of the cargoes from the PSI and the Bureau
of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage which
had been its licensed broker since 1984. As its customs broker, Sanchez
[8]

Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco. [9]

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of

Sanchez Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for
which, Official Receipt No. 016992, was issued. On the receipt, another
[10]

representative of Sanchez Brokerage, M. Sison, acknowledged that he

[11]

received the cargoes consisting of three pieces in good condition. [12]

 Wyeth-Suaco being a regular importer, the customs examiner did not
inspect the cargoes which were thereupon stripped from the aluminum
[13]

containers and loaded inside two transport vehicles hired by Sanchez

[14]

Brokerage. [15]

Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas, employees of Elite Adjusters
[16]

and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and
insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon
Laboratories Inc. in Antipolo City for quality control check. The delivery receipt,
[17]

bearing No. 07037 dated July 29, 1992, indicated that the delivery consisted of
one container with 144 cartons of Femenal and Nordiol and 1 pallet containing
Trinordiol. [18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,

acknowledged the delivery of the cargoes by affixing his signature on the
delivery receipt. Upon inspection, however, he, together with Ruben Alonzo of
[19]

Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol

tablets were in bad order. He thus placed a note above his signature on the
[20]

delivery receipt stating that 44 cartons of oral contraceptives were in bad order.
The remaining 160 cartons of oral contraceptives were accepted as complete
and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey
report dated July 31, 1992 stating that 41 cartons of Femenal tablets and 3
[21]

cartons of Nordiol tablets were wetted (sic). [22]

The Elite Surveyors later issued Certificate No. CS-0731-

1538/92 attached to which was an Annexed Schedule whereon it was
[23]

indicated that prior to the loading of the cargoes to the brokers trucks at the
NAIA, they were inspected and found to be in apparent good condition. Also [24]

noted was that at the time of delivery to the warehouse of Hizon Laboratories
Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets. [25]

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction

Report confirming that 38 x 700 blister packs of Femenal tablets, 3 x 700
[26]

blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets
were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection of [27]

38 cartons of Femenal and 3 cartons of Nordiol on the ground that they were
delivered to Hizon Laboratories with heavy water damaged (sic) causing the
cartons to sagged (sic) emitting a foul order and easily attracted flies. [28]

Wyeth-Suaco later demanded, by letter of August 25, 1992, from Sanchez

[29]

Brokerage the payment of P191,384.25 representing the value of its loss arising
from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed
an insurance claim against FGU Insurance which paid Wyeth-Suaco the
amount of P181,431.49 in settlement of its claim under Marine Risk Note
Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt in favor of FGU Insurance.
[30]

On demand by FGU Insurance for payment of the amount of P181,431.49

it paid Wyeth-Suaco, Sanchez Brokerage, by letter of January 7, 1993,
[31]

disclaimed liability for the damaged goods, positing that the damage was due
to improper and insufficient export packaging; that when the sealed containers
were opened outside the PSI warehouse, it was discovered that some of the
loose cartons were wet, prompting its (Sanchez Brokerages) representative
[32]

Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan,

about the condition of the cargoes but that the latter advised to still deliver them
to Hizon Laboratories where an adjuster would assess the damage. [33]

Hence, the filing by FGU Insurance of a complaint for damages before the
Regional Trial Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision of July 29, 1996, dismissed the complaint,
[34]

holding that the Survey Report prepared by the Elite Surveyors is bereft of any
evidentiary support and a mere product of pure guesswork. [35]

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

Noting that Wyeth-Suaco adduced evidence that the cargoes were

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

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is
GRANTED. The Decision of the Court a quo is REVERSED. Another Decision
is hereby rendered in favor of the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal

amount of P181, 431.49, with interest thereupon at the rate of
6% per annum, from the date of the Decision of the Court, until
the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount

of P20,000.00 as and by way of attorneys fees; and

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

Sanchez Brokerages Motion for Reconsideration having been denied by the

appellate courts Resolution of December 8, 2000 which was received by
petitioner on January 5, 2001, it comes to this Court on petition for certiorari
filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and
reversible error tantamount to abuse of discretion when it found petitioner a
common carrier within the context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of
action which petitioner should have taken was to file a petition for review on
certiorari since the sole office of a writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion amounting to
lack or excess of jurisdiction and does not include correction of the appellate
courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a
common carrier, failed to overcome the presumption of negligence, it being
documented that petitioner withdrew from the warehouse of PSI the subject
shipment entirely in good order and condition. [39]

The petition fails.

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

The Resolution of the Court of Appeals dated December 8, 2000 denying

the motion for reconsideration of its Decision of August 10, 2000 was received
by petitioner on January 5, 2001. Since petitioner failed to appeal within 15 days
or on or before January 20, 2001, the appellate courts decision had become
final and executory. The filing by petitioner of a petition for certiorari on March
6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the
petitioner must prove not merely reversible error but also grave abuse of
discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting
aside the decision of the trial court based on its finding that petitioner is liable
for the damage to the cargo as a common carrier. What petitioner is ascribing
is an error of judgment, not of jurisdiction, which is properly the subject of an
ordinary appeal.
Where the issue or question involves or affects the wisdom or legal
soundness of the decision not the jurisdiction of the court to render said decision
the same is beyond the province of a petition for certiorari. The supervisory
[41]

jurisdiction of this Court to issue a cert writ cannot be exercised in order to

review the judgment of lower courts as to its intrinsic correctness, either upon
the law or the facts of the case. [42]

Procedural technicalities aside, the petition still fails.

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

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the
public.

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez

Brokerage, himself testified that the services the firm offers include the delivery
of goods to the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those
upon approval of the importer, we prepare the entry together for processing and
claims from customs and finally deliver the goods to the warehouse of the
importer.[43]
Article 1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not a
[44]

common carrier but a customs broker whose principal function is to prepare the
correct customs declaration and proper shipping documents as required by law
is bereft of merit. It suffices that petitioner undertakes to deliver the goods for
pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under
Article 1733 of the Civil Code, extraordinary diligence in the vigilance over the
[45]

goods it transports according to all the circumstances of each case. In the event
that the goods are lost, destroyed or deteriorated, it is presumed to have been
at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence. [46]

The concept of extra-ordinary diligence was explained in Compania

Maritima v. Court of Appeals: [47]

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it
for sale, carriage and delivery. It requires common carriers to render service
with the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristics of goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as their nature
requires.[48]

In the case at bar, it was established that petitioner received the cargoes
from the PSI warehouse in NAIA in good order and condition; and that upon
[49]

delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were

found to be in bad order, as noted in the Delivery Receipt issued by petitioner,
[50]

and as indicated in the Survey Report of Elite Surveyors and the Destruction
[51]

Report of Hizon Laboratories, Inc. [52]

In an attempt to free itself from responsibility for the damage to the goods,
petitioner posits that they were damaged due to the fault or negligence of the
shipper for failing to properly pack them and to the inherent characteristics of
the goods ; and that it should not be faulted for following the instructions of
[53]

Calicdan of Wyeth-Suaco to proceed with the delivery despite information

conveyed to the latter that some of the cartons, on examination outside the PSI
warehouse, were found to be wet. [54]

While paragraph No. 4 of Article 1734 of the Civil Code exempts a

[55]

common carrier from liability if the loss or damage is due to the character of the
goods or defects in the packing or in the containers, the rule is that if the
improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the
resulting damage. [56]

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

Moreover, as observed by the appellate court, if indeed petitioners

employees only examined the cargoes outside the PSI warehouse and found
some to be wet, they would certainly have gone back to PSI, showed to the
warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage. Or, petitioner would have
[58]

presented, as witness, the employees of the PSI from whom Morales and
Domingo took delivery of the cargo to prove that, indeed, part of the cargoes
was already damaged when the container was allegedly opened outside the
warehouse. [59]

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no

rain fell that day. Instead, it asserts that some of the cargoes were already wet
on delivery by PSI outside the PSI warehouse but such notwithstanding
Calicdan directed Morales to proceed with the delivery to Hizon Laboratories,
Inc.
While Calicdan testified that he received the purported telephone call of
Morales on July 29, 1992, he failed to specifically declare what time he received
the call. As to whether the call was made at the PSI warehouse when the
shipment was stripped from the airport containers, or when the cargoes were
already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time
it received the cargoes, a part of it was wet, damaged or in bad condition. [60]

The 4-page weather data furnished by PAGASA on request of Sanchez

[61]

Brokerage hardly impresses, no witness having identified it and interpreted the

technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc.,
the oral contraceptives were damaged by rainwater while in transit to Antipolo
City is more likely then. Sanchez himself testified that in the past, there was a
similar instance when the shipment of Wyeth-Suaco was also found to be wet
by rain.
ATTY. FLORES:
 Q: Was there any instance that a shipment of this nature, oral contraceptives, that
arrived at the NAIA were damaged and claimed by the Wyeth-Suaco without any
question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-
Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.[62]

Since petitioner received all the cargoes in good order and condition at the
time they were turned over by the PSI warehouseman, and upon their delivery
to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it was
incumbent on petitioner to prove that it exercised extraordinary diligence in the
carriage of the goods. It did not, however. Hence, its presumed negligence
under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

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

SABENA BELGIAN WORLD AIRLINES, petitioner, vs. HON. COURT OF

APPEALS and MA. PAULA SAN AGUSTIN, respondents.

DECISION
VITUG, J.:

The appeal before the Court involves the issue of an airlines liability for lost
luggage. The petition for review assails the decision of the Court
Appeals, dated 27 February 1992, affirming an award of damages made by
[1]

the trial court in a complaint filed by private respondent against petitioner.

 The factual background of the case, narrated by the trial court and
reproduced at length by the appellate court, is hereunder quoted:

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

Plaintiff arrived at Manila International Airport on September 2, 1987 and

immediately submitted her Tag No. 71423 to facilitate the release of her luggage hut
the luggage was missing. She was advised to accomplish and submit a property
Irregularity Report which she submitted and filed on the same day.

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

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

On September 30, 1987, on the occasion of plaintiffs following up of her luggage

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

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

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

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

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

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

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

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

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

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

Sabena appealed the decision of the Regional Trial Court to the Court of
Appeals. The appellate court, in its decision of 27 February 1992, affirmed in
toto the trial courts judgment.
Petitioner airline company, in contending that the alleged negligence of
private respondent should be considered the primary cause for the loss of her
luggage, avers that, despite her awareness that the flight ticket had been
confirmed only for Casablanca and Brussels, and that her flight from Brussels
to Manila had yet to be confirmed, she did not retrieve the luggage upon arrival
in Brussels. Petitioner insists that private respondent, being a seasoned
international traveler, must have likewise been familiar with the standard
provisions contained in her flight ticket that items of value are required to be
hand-carried by the passenger and that the liability of the airline or loss, delay
or damage to baggage would be limited, in any event, to only US$20.00 per kilo
unless a higher value is declared in advance and corresponding additional
charges are paid thereon. At the Casablanca International Airport, private
respondent, in checking in her luggage, evidently did not declare its contents or
value. Petitioner cites Section 5(c), Article IX, of the General Conditions of
Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the
Hague Protocol of 1955, generally observed by International carriers, stating,
among other things, that:

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

Fault or negligence consists in the omission of that diligence which is

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

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

The only exceptions to the foregoing extraordinary responsibility of the common

carrier is when the loss, destruction, or deterioration of the goods is due to any of the
following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

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

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

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

(5) Order or act of competent public authority.

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

The above rules remain basically unchanged even when the contract is
breached by tort although noncontradictory principles on quasi-delict may then
[6]

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

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

It remained undisputed that private respondents luggage was lost while it

was in the custody of petitioner. It was supposed to arrive on the same flight
that private respondent took in returning to Manila on 02 September
1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She followed up her claim
on 14 September 1987, and filed, on the following day, a formal letter-complaint
with petitioner. She felt relieved when, on 23 October 1987, she was advised
that her luggage had finally been found, with its contents intact when examined,
and that she could expect it to arrive on 27 October 1987. She then waited
anxiously only to be told later that her luggage had been lost for the second
time. Thus, the appellate court, given all the facts before it, sustained the trial
court in finding petitioner ultimately guilty of gross negligence in the handling of
private respondents luggage. The loss of said baggage not only once by twice,
said the appellate court, underscores the wanton negligence and lack of care
on the part of the carrier.

The above findings, which certainly cannot be said to be without basis, foreclose
whatever rights petitioner might have had to the possible limitation of liabilities
enjoyed by international air carriers under the Warsaw Convention (Convention for
the Unification of Certain Rules Relating to International Carriage by Air, as amended
by the Hague Protocol of 1955, the Montreal Agreement of 1966, the Guatemala
Protocol of 1971 and the Montreal Protocols of 1975). In Alitalia vs. Intermediate
Appellate Court, now Chief Justice Andres R. Narvasa, speaking for the Court, has
[8]

explained it well; he said:

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

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

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

WHEREFORE, the decision appealed from is AFFIRMED. Costs against

petitioner.
SO ORDERED.

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.
The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for
US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship
and cargo. The respective respondent Insurers paid the corresponding marine insurance values to
the consignees concerned and were thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the
ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
(COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-
numbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest
on the trial of another action to which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were
transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by
the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8Common carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of the following causes only:
 (1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man or
by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the
rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases
than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in

hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea
water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of fire
at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount
of diligence made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was made as
to their condition during the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to
the consignees for said lack of deligence required of it under Article 1733 of the Civil
Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot
escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the circumstances under which the
fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent
in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
results from fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided
in section 4(5) of the COGSA, which reads:

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

By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration
of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it
and as much a part thereof as though placed therein by agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss
or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed
US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of
damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container

supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
 as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there

is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of
transport equipment qualify as COGSA packages — at least where,
as here, they were carrier owned and supplied — would amount to
just such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper

and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into

cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
 units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package

Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of
the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill
of Lading in this case, which is draw. up by the carrier. 21

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

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

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

xxx xxx xxx

 Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.

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

SO ORDERED.

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

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT

OF APPEALS and DONATO H. GONZALES, respondents.
 DECISION
BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience

is sold to another who continues to operate it under the same certificate of public
convenience under the so-called kabit system, and in the course thereof the
vehicle meets an accident through the fault of another vehicle, may the new
owner sue for damages against the erring vehicle? Otherwise stated, does the
new owner have any legal personality to bring the action, or is he the real party
in interest in the suit, despite the fact that he is not the registered owner under
the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu
passenger jeepney from Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles plying the Monumento-
Bulacan route. While private respondent Gonzales continued offering the
jeepney for public transport services he did not have the registration of the
vehicle transferred in his name nor did he secure for himself a certificate of
public convenience for its operation. Thus Vallarta remained on record as its
registered owner and operator.
On 22 July 1990, while the jeepney was running northbound along the North
Diversion Road somewhere in Meycauayan, Bulacan, it collided with a ten-
wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner
Esmadito Gunnaban.Gunnaban owned responsibility for the accident,
explaining that while he was traveling towards Manila the truck suddenly lost its
brakes. To avoid colliding with another vehicle, he swerved to the left until he
reached the center island. However, as the center island eventually came to an
end, he veered farther to the left until he smashed into a Ferroza automobile,
and later, into private respondent's passenger jeepney driven by one Virgilio
Gonzales. The impact caused severe damage to both the Ferroza and the
passenger jeepney and left one (1) passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded,
compensated the heirs of the deceased passenger, and had the Ferroza
restored to good condition. He also negotiated with private respondent and
offered to have the passenger jeepney repaired at his shop. Private respondent
however did not accept the offer so Lim offered him P20,000.00, the
assessment of the damage as estimated by his chief mechanic. Again,
petitioner Lim's proposition was rejected; instead, private respondent
demanded a brand-new jeep or the amount of P236,000.00. Lim increased his
bid to P40,000.00 but private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned; hence, the filing of the
complaint for damages by private respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due
diligence in the selection and supervision of his employees. He further asserted
that as the jeepney was registered in Vallartas name, it was Vallarta and not
private respondent who was the real party in interest. For his part, petitioner
[1]

Gunnaban averred that the accident was a fortuitous event which was beyond
his control.
[2]

Meanwhile, the damaged passenger jeepney was left by the roadside to

corrode and decay. Private respondent explained that although he wanted to
take his jeepney home he had no capability, financial or otherwise, to tow the
damaged vehicle. [3]

The main point of contention between the parties related to the amount of
damages due private respondent. Private respondent Gonzales averred that
per estimate made by an automobile repair shop he would have to
spend P236,000.00 to restore his jeepney to its original condition. On the other
[4]

hand, petitioners insisted that they could have the vehicle repaired
for P20,000.00. [5]

On 1 October 1993 the trial court upheld private respondent's claim and
awarded him P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees. In support of its
decision, the trial court ratiocinated that as vendee and current owner of the
passenger jeepney private respondent stood for all intents and purposes as the
real party in interest. Even Vallarta himself supported private respondent's
assertion of interest over the jeepney for, when he was called to testify, he
dispossessed himself of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident since he panicked in
the face of an emergency which was rather palpable from his act of directing
his vehicle to a perilous streak down the fast lane of the superhighway then
across the island and ultimately to the opposite lane where it collided with the
jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was
premised on his want of diligence in supervising his employees. It was admitted
during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the
fact that he was neither tutored nor trained to handle such task.[6]

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July

1996, affirmed the decision of the trial court. In upholding the decision of the
court a quo the appeals court concluded that while an operator under
the kabit system could not sue without joining the registered owner of the
vehicle as his principal, equity demanded that the present case be made an
exception. Hence this petition.
[7]

It is petitioners' contention that the Court of Appeals erred in sustaining the

decision of the trial court despite their opposition to the well-established doctrine
that an operator of a vehicle continues to be its operator as long as he remains
the operator of record.According to petitioners, to recognize an operator under
the kabit system as the real party in interest and to countenance his claim for
damages is utterly subversive of public policy. Petitioners further contend that
inasmuch as the passenger jeepney was purchased by private respondent for
only P30,000.00, an award of P236,000.00 is inconceivably large and would
amount to unjust enrichment. [8]

Petitioners' attempt to illustrate that an affirmance of the appealed decision

could be supportive of the pernicious kabit system does not persuade. Their
labored efforts to demonstrate how the questioned rulings of the courts a
quo are diametrically opposed to the policy of the law requiring operators of
public utility vehicles to secure a certificate of public convenience for their
operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been
granted a certificate of public convenience allows other persons who own motor
vehicles to operate them under his license, sometimes for a fee or percentage
of the earnings. Although the parties to such an agreement are not outrightly
[9]

penalized by law, the kabit system is invariably recognized as being contrary to

public policy and therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio the Court explained that one of the
[10]

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 who may have
been wronged and deceived through the baneful kabit system, the registered
owner of the vehicle is not allowed to prove that another person has become
the owner so that he may be thereby relieved of responsibility. Subsequent
cases affirm such basic doctrine. [11]
 It would seem then that the thrust of the law in enjoining the kabit system is
not so much as to penalize the parties but to identify the person upon whom
responsibility may be fixed in case of an accident with the end view of protecting
the riding public. The policy therefore loses its force if the public at large is not
deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented
in enjoining the kabit system does not exist. First, neither of the parties to the
pernicious kabit system is being held liable for damages. Second, the case
arose from the negligence of another vehicle in using the public road to whom
no representation, or misrepresentation, as regards the ownership and
operation of the passenger jeepney was made and to whom no such
representation, or misrepresentation, was necessary. Thus it cannot be said
that private respondent Gonzales and the registered owner of the jeepney were
in estoppel for leading the public to believe that the jeepney belonged to the
registered owner. Third, the riding public was not bothered nor inconvenienced
at the very least by the illegal arrangement. On the contrary, it was private
respondent himself who had been wronged and was seeking compensation for
the damage done to him. Certainly, it would be the height of inequity to deny
him his right.
In light of the foregoing, it is evident that private respondent has the right to
proceed against petitioners for the damage caused on his passenger jeepney
as well as on his business. Any effort then to frustrate his claim of damages by
the ingenuity with which petitioners framed the issue should be discouraged, if
not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the
courts to provide for adequate compensation by putting the plaintiff in the same
financial position he was in prior to the tort. It is a fundamental principle in the
law on damages that a defendant cannot be held liable in damages for more
than the actual loss which he has inflicted and that a plaintiff is entitled to no
more than the just and adequate compensation for the injury suffered. His
recovery is, in the absence of circumstances giving rise to an allowance of
punitive damages, limited to a fair compensation for the harm done. The law
will not put him in a position better than where he should be in had not the wrong
happened. [12]

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

Had private respondent's jeepney not met an accident it could reasonably

be expected that it would have continued earning from the business in which it
was engaged. Private respondent avers that he derives an average income
of P300.00 per day from his passenger jeepney and this earning was included
in the award of damages made by the trial court and upheld by the appeals
court. The award therefore of P236,000.00 as compensatory damages is not
beyond reason nor speculative as it is based on a reasonable estimate of the
total damage suffered by private respondent, i.e. damage wrought upon his
jeepney and the income lost from his transportation business. Petitioners for
their part did not offer any substantive evidence to refute the estimate made by
the courts a quo.
However, we are constrained to depart from the conclusion of the lower
courts that upon the award of compensatory damages legal interest should be
imposed beginning 22 July 1990, i.e. the date of the accident. Upon the
provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established
with reasonable certainty." It is axiomatic that if the suit were for damages,
unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, interest at the rate of six percent (6%) per
annum should be from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to be reasonably ascertained). [14]

In this case, the matter was not a liquidated obligation as the assessment
of the damage on the vehicle was heavily debated upon by the parties with
private respondent's demand for P236,000.00 being refuted by petitioners who
argue that they could have the vehicle repaired easily for P20,000.00. In fine,
the amount due private respondent was not a liquidated account that was
already demandable and payable.
One last word. We have observed that private respondent left his passenger
jeepney by the roadside at the mercy of the elements. Article 2203 of the Civil
Code exhorts parties suffering from loss or injury to exercise the diligence of a
good father of a family to minimize the damages resulting from the act or
omission in question. One who is injured then by the wrongful or negligent act
of another should exercise reasonable care and diligence to minimize the
resulting damage. Anyway, he can recover from the wrongdoermoney lost in
reasonable efforts to preserve the property injured and for injuries incurred in
attempting to prevent damage to it. [15]
 However we sadly note that in the present case petitioners failed to offer in
evidence the estimated amount of the damage caused by private respondent's
unconcern towards the damaged vehicle. It is the burden of petitioners to show
satisfactorily not only that the injured party could have mitigated his damages
but also the amount thereof; failing in this regard, the amount of damages
awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent
Donato Gonzales P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees is
MODIFIED. Interest at the rate of six percent (6%) per annum shall be
computed from the time the judgment of the lower court is made until the finality
of this Decision. If the adjudged principal and interest remain unpaid thereafter,
the interest shall be twelve percent (12%) per annum computed from the time
judgment becomes final and executory until it is fully satisfied.
Costs against petitioners.
SO ORDERED.

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

LITA ENTERPRISES, INC., petitioner,

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

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: ñé+.£ª wph!1

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

The factual background of this case is undisputed.

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

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

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

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

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. ...

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.£îhqw â£

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. 1äw phï1.ñët

[G.R. No. 144274. September 20, 2004]

NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO

and LEANDRO LUIS R. DOMINGO, respondents.

DECISION
CORONA, J.:

This is a petition to review the decision of the Court of Appeals in CA-G.R.

[1]

CV No. 52203 affirming in turn the decision of the trial court finding petitioner
liable to respondent for damages. The dispositive portion read:

WHEREFORE, the appealed decision is hereby AFFIRMED except the award of

attorneys fees including appearance fees which is DELETED.

SO ORDERED. [2]

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

follows:

[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi

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

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

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

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

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

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

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus

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

SO ORDERED. [4]
 The CA upheld the trial courts decision but deleted the award for
appearance and attorneys fees because the justification for the grant was not
stated in the body of the decision. Thus, this petition for review which raises a
singular issue:

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE

FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS
MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS
BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE? [5]

Yes.

We have consistently ruled that the registered owner of any vehicle is

directly and primarily responsible to the public and third persons while it is being
operated. The rationale behind such doctrine was explained way back in 1957
[6]

in Erezo vs. Jepte : [7]

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

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

There is a presumption that the owner of the guilty vehicle is the defendant-appellant
as he is the registered owner in the Motor Vehicles Office. Should he not be allowed
to prove the truth, that he had sold it to another and thus shift the responsibility for the
injury to the real and actual owner? The defendant holds the affirmative of this
proposition; the trial court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle
may be used or operated upon any public highway unless the same is property
registered. It has been stated that the system of licensing and the requirement that each
machine must carry a registration number, conspicuously displayed, is one of the
precautions taken to reduce the danger of injury to pedestrians and other travelers
from the careless management of automobiles. And to furnish a means of ascertaining
the identity of persons violating the laws and ordinances, regulating the speed and
operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be
registered and that no motor vehicles are to be used or operated without being
properly registered for the current year, but that dealers in motor vehicles shall furnish
thee Motor Vehicles Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturers serial number and
motor number. (Section 5(c), Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil.
888), but to permit the use and operation of the vehicle upon any public highway
(section 5 [a], Act No. 3992, as amended). The main aim of motor vehicle registration
is to identify the owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefore can be fixed on
a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very scant
means of identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily ordained, in
the interest of the determination of persons responsible for damages or injuries caused
on public highways:

One of the principal purposes of motor vehicles legislation is identification of the

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

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

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

In synthesis, we hold that the registered owner, the defendant-appellant herein, is

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

Petitioner insists that he is not liable for damages since the driver of the
vehicle at the time of the accident was not an authorized driver of the new
(actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing
and Finance Corporation vs. CA implies that to hold the registered owner liable
[9]
for damages, the driver of the vehicle must have been authorized, allowed and
permitted by its actual owner to operate and drive it. Thus, if the vehicle is driven
without the knowledge and consent of the actual owner, then the registered
owner cannot be held liable for damages.
He further argues that this was the underlying theory behind Duavit vs.
CA wherein the court absolved the registered owner from liability after finding
[10]

that the vehicle was virtually stolen from the owners garage by a person who
was neither authorized nor employed by the owner. Petitioner concludes that
the ruling in Duavit and not the one in First Malayan should be applicable to
him.
Petitioners argument lacks merit. Whether the driver is authorized or not by
the actual owner is irrelevant to determining the liability of the registered owner
who the law holds primarily and directly responsible for any accident, injury or
death caused by the operation of the vehicle in the streets and highways. To
require the driver of the vehicle to be authorized by the 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 petitioners position, the First Malayan ruling is applicable to him

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

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

As correctly pointed out by the CA, the Duavit ruling is not applicable to
petitioners case since the circumstance of unauthorized use was not present.
He in fact voluntarily delivered his car to Albert Jaucian as part of the
downpayment for a vehicle he purchased from Jaucian. Thus, he could not
claim that the vehicle was stolen from him since he voluntarily ceded
possession thereof to Jaucian. It was the latter, as the new (actual) owner, who
could have raised the defense of theft to prove that he was not liable for the
acts of his employee Ocfemia. Thus, there is no reason to apply
the Duavit ruling to this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation
vs. CA and more recently in Aguilar, Sr. vs. Commercial Savings
[13]

Bank. In BA Finance, we held the registered owner liable even if, at the time
[14]

of the accident, the vehicle was leased by another party and was driven by the
lessees employee. In Aguilar, the registered owner-bank answered for
damages for the accident even if the vehicle was being driven by the Vice-
President of the Bank in his private capacity and not as an officer of the Bank,
as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the
owner who can be held responsible for any accident, damage or injury caused
by the vehicle. Easy identification prevents inconvenience and prejudice to a
third party injured by one who is unknown or unidentified. To allow a registered
owner to escape liability by claiming that the driver was not authorized by the
new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the
accident was authorized is not at all relevant to determining the liability of the
registered owner. This must be so if we are to comply with the rationale and
principle behind the registration requirement under the motor vehicle law.
WHEREFORE, the petition is hereby DENIED. The January 26, 2000
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

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

EQUITABLE LEASING CORPORATION, petitioner, vs. LUCITA SUYOM,

MARISSA ENANO, MYRNA TAMAYO and FELIX
OLEDAN, respondents.

DECISION
PANGANIBAN, J.:

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

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
May 12, 2000 Decision[1] of the Court of Appeals[2] (CA) in CA-GR CV No. 55474. The
decretal portion of the Decision reads as follows:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for
lack of merit. The assailed decision, dated May 5, 1997, of the Regional Trial Court of
Manila, Branch 14, in Civil Case No. 95-73522, is
hereby AFFIRMED with MODIFICATION that the award of attorneys fees
is DELETED. [3]

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

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

A. TO MYRNA TAMAYO

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

2. P50,000.00 as moral damages; and

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

B. TO FELIX OLEDAN

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

2. P50,000.00 as moral damages; and

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

C. TO MARISSA ENANO

1. P7,000.00 as actual damages

D. TO LUCITA SUYOM

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

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

The Facts
 On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house
cum store of Myrna Tamayo located at Pier 18, Vitas, Tondo, Manila. A portion of the
house was destroyed. Pinned to death under the engine of the tractor were Respondent
Myrna Tamayos son, Reniel Tamayo, and Respondent Felix Oledans daughter, Felmarie
Oledan. Injured were Respondent Oledan himself, Respondent Marissa Enano, and two
sons of Respondent Lucita Suyom.
Tutor was charged with and later convicted of reckless imprudence resulting in
multiple homicide and multiple physical injuries in Criminal Case No. 296094-SA,
Metropolitan Trial Court of Manila, Branch 12.[5]
Upon verification with the Land Transportation Office, respondents were furnished a
copy of Official Receipt No. 62204139[6] and Certificate of Registration No.
08262797,[7] showing that the registered owner of the tractor was Equitable Leasing
Corporation/leased to Edwin Lim. On April 15, 1995, respondents filed against Raul Tutor,
Ecatine Corporation (Ecatine) and Equitable Leasing Corporation (Equitable) a
Complaint[8] for damages docketed as Civil Case No. 95-73522 in the RTC of Manila,
Branch 14.
The trial court, upon motion of plaintiffs counsel, issued an Order dropping Raul Tutor,
Ecatine and Edwin Lim from the Complaint, because they could not be located and served
with summonses.[9] On the other hand, in its Answer with Counterclaim,[10] petitioner
alleged that the vehicle had already been sold to Ecatine and that the former was no
longer in possession and control thereof at the time of the incident. It also claimed that
Tutor was an employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision ordering petitioner to pay
actual and moral damages and attorneys fees to respondents. It held that since the Deed
of Sale between petitioner and Ecatine had not been registered with the Land
Transportation Office (LTO), the legal owner was still Equitable. [11] Thus, petitioner was
liable to respondents.[12]

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner was still to be legally deemed the
owner/operator of the tractor, even if that vehicle had been the subject of a Deed of Sale
in favor of Ecatine on December 9, 1992. The reason cited by the CA was that the
Certificate of Registration on file with the LTO still remained in petitioners name.[13] In order
that a transfer of ownership of a motor vehicle can bind third persons, it must be duly
recorded in the LTO.[14]
The CA likewise upheld respondents claim for moral damages against petitioner
because the appellate court considered Tutor, the driver of the tractor, to be an agent of
the registered owner/operator.[15]
Hence, this Petition.[16]
 Issues

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

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

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

This Courts Ruling

The Petition has no merit.

First Issue:
Liability for Wrongful Acts

Petitioner contends that it should not be held liable for the damages sustained by
respondents and that arose from the negligence of the driver of the Fuso Road Tractor,
which it had already sold to Ecatine at the time of the accident. Not having employed Raul
Tutor, the driver of the vehicle, it could not have controlled or supervised him.[18]
We are not persuaded. In negligence cases, the aggrieved party may sue the
negligent party under (1) Article 100[19] of the Revised Penal Code, for civil liability ex
delicto; or (2) under Article 2176[20] of the Civil Code, for civil liability ex quasi delicto.[21]
Furthermore, under Article 103 of the Revised Penal Code, employers may be
held subsidiarily liable for felonies committed by their employees in the discharge of the
latters duties.[22] This liability attaches when the employees who are convicted of crimes
committed in the performance of their work are found to be insolvent and are thus unable
to satisfy the civil liability adjudged.[23]
On the other hand, under Article 2176 in relation to Article 2180[24] of the Civil Code,
an action predicated on quasi delict may be instituted against the employer for an
employees act or omission. The liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of due diligence in the selection and
supervision of the employee.[25] The enforcement of the judgment against the employer for
an action based on Article 2176 does not require the employee to be insolvent, since the
liability of the former is solidary -- the latter being statutorily considered a joint
tortfeasor.[26] To sustain a claim based on quasi delict, the following requisites must be
proven: (a) damage suffered by the plaintiff, (b) fault or negligence of the defendant, and
(c) connection of cause and effect between the fault or negligence of the defendant and
the damage incurred by the plaintiff.[27]
These two causes of action (ex delicto or ex quasi delicto) may be availed of, subject
to the caveat[28] that the offended party cannot recover damages twice for the same act or
omission or under both causes.[29] Since these two civil liabilities are distinct and
independent of each other, the failure to recover in one will not necessarily preclude
recovery in the other.[30]
In the instant case, respondents -- having failed to recover anything in the criminal
case -- elected to file a separate civil action for damages, based on quasi delict under
Article 2176 of the Civil Code.[31] The evidence is clear that the deaths and the injuries
suffered by respondents and their kins were due to the fault of the driver of the Fuso
tractor.
Dated June 4, 1991, the Lease Agreement[32] between petitioner and Edwin Lim
stipulated that it is the intention of the parties to enter into a FINANCE LEASE
AGREEMENT.[33] Under such scheme, ownership of the subject tractor was to be
registered in the name of petitioner, until the value of the vehicle has been fully paid by
Edwin Lim.[34] Further, in the Lease Schedule,[35] the monthly rental for the tractor was
stipulated, and the term of the Lease was scheduled to expire on December 4, 1992. After
a few months, Lim completed the payments to cover the full price of the tractor. [36] Thus,
on December 9, 1992, a Deed of Sale[37] over the tractor was executed by petitioner in
favor of Ecatine represented by Edwin Lim. However, the Deed was not registered with
the LTO.
We hold petitioner liable for the deaths and the injuries complained of, because it was
the registered owner of the tractor at the time of the accident on July 17, 1994. [38] The
Court has consistently ruled that, regardless of sales made of a motor vehicle, the
registered owner is the lawful operator insofar as the public and third persons are
concerned; consequently, it is directly and primarily responsible for the consequences of
its operation.[39] In contemplation of law, the owner/operator of record is the employer of
the driver, the actual operator and employer being considered as merely its agent.[40] The
same principle applies even if the registered owner of any vehicle does not use it for
public service.[41]
Since Equitable remained the registered owner of the tractor, it could not escape
primary liability for the deaths and the injuries arising from the negligence of the driver.[42]
The finance-lease agreement between Equitable on the one hand and Lim or Ecatine
on the other has already been superseded by the sale. In any event, it does not bind third
persons. The rationale for this rule has been aptly explained in Erezo v. Jepte,[43] which
we quote hereunder:
x x x. The main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the vehicle on the
public highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public highways
caused accidents or injuries to pedestrians or other vehicles without positive
identification of the owner or drivers, or with very scant means of identification. It is
to forestall these circumstances, so inconvenient or prejudicial to the public, that the
motor vehicle registration is primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public highways. [44]

Further, petitioners insistence on FGU Insurance Corp. v. Court of Appeals is

misplaced.[45] First, in FGU Insurance, the registered vehicle owner, which was engaged
in a rent-a-car business, rented out the car. In this case, the registered owner of the truck,
which is engaged in the business of financing motor vehicle acquisitions, has actually
sold the truck to Ecatine, which in turn employed Tutor. Second, in FGU Insurance, the
registered owner of the vehicle was not held responsible for the negligent acts of the
person who rented one of its cars, because Article 2180 of the Civil Code was not
applicable. We held that no vinculum juris as employer and employee existed between
the owner and the driver.[46] In this case, the registered owner of the tractor is considered
under the law to be the employer of the driver, while the actual operator is deemed to be
its agent.[47] Thus, Equitable, the registered owner of the tractor, is -- for purposes of the
law on quasi delict -- the employer of Raul Tutor, the driver of the tractor. Ecatine, Tutors
actual employer, is deemed as merely an agent of Equitable.[48]
True, the LTO Certificate of Registration, dated 5/31/91, qualifies the name of the
registered owner as EQUITABLE LEASING CORPORATION/Leased to Edwin Lim. But
the lease agreement between Equitable and Lim has been overtaken by the Deed of Sale
on December 9, 1992, between petitioner and Ecatine. While this Deed does not affect
respondents in this quasi delict suit, it definitely binds petitioner because, unlike them, it
is a party to it.
We must stress that the failure of Equitable and/or Ecatine to register the sale with
the LTO should not prejudice respondents, who have the legal right to rely on the legal
principle that the registered vehicle owner is liable for the damages caused by the
negligence of the driver. Petitioner cannot hide behind its allegation that Tutor was the
employee of Ecatine. This will effectively prevent respondents from recovering their
losses on the basis of the inaction or fault of petitioner in failing to register the sale. The
non-registration is the fault of petitioner, which should thus face the legal consequences
thereof.

Second Issue:
Moral Damages
 Petitioner further claims that it is not liable for moral damages, because respondents
failed to establish or show the causal connection or relation between the factual basis of
their claim and their wrongful act or omission, if any. [49]
Moral damages are not punitive in nature, but are designed to compensate[50] and
alleviate in some way the physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury unjustly caused a person.[51] Although incapable of pecuniary computation, moral
damages must nevertheless be somehow proportional to and in approximation of the
suffering inflicted.[52] This is so because moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered, not to impose a penalty
on the wrongdoer.[53]
Viewed as an action for quasi delict, the present case falls squarely within the purview
of Article 2219 (2),[54] which provides for the payment of moral damages in cases of quasi
delict.[55] Having established the liability of petitioner as the registered owner of the
vehicle,[56] respondents have satisfactorily shown the existence of the factual basis for the
award[57] and its causal connection to the acts of Raul Tutor, who is deemed as petitioners
employee.[58] Indeed, the damages and injuries suffered by respondents were the
proximate result of petitioners tortious act or omission.[59]
Further, no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court.[60] The evidence
gives no ground for doubt that such discretion was properly and judiciously exercised by
the trial court.[61] The award is in fact consistent with the rule that moral damages are not
intended to enrich the injured party, but to alleviate the moral suffering undergone by that
party by reason of the defendants culpable action.[62]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.

[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 petitioners niece, Meriam
Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12,
1991 a Wednesday to deliver petitioners travel documents and plane
tickets. Petitioner, in turn, gave Menor the full payment for the package
tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA)
on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hongkong. To petitioners dismay, she discovered that the flight she
was supposed to take had already departed the previous day. She learned that
her plane ticket was for the flight scheduled on June 14, 1991. She thus called
up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the
British Pageant which included England, Scotland and Wales in its itinerary. For
this tour package, petitioner was asked anew to pay US$785.00 or P20,881.00
(at the then prevailing exchange rate of P26.60). She gave respondent US$300
or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the
reimbursement of P61,421.70, representing the difference between the sum
she paid for Jewels of Europe and the amount she owed respondent for the
British Pageant tour. Despite several demands, respondent company refused
to reimburse the amount, contending that the same was non-
refundable. Petitioner was thus constrained to file a complaint against
[1]

respondent for breach of contract of carriage and damages, which was

docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional
Trial Court of Makati City.
In her complaint, petitioner alleged that her failure to join Jewels of Europe
[2]

was due to respondents fault since it did not clearly indicate the departure date
on the plane ticket. Respondent was also negligent in informing her of the
wrong flight schedule through its employee Menor. She insisted that the British
Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
 For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioners failure to join the first
tour. Chipeco insisted that petitioner was informed of the correct departure date,
which was clearly and legibly printed on the plane ticket. The travel documents
were given to petitioner two days ahead of the scheduled trip. Petitioner had
only herself to blame for missing the flight, as she did not bother to read or
confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for
Jewels of Europe, considering that the same had already been remitted to its
principal in Singapore, Lotus Travel Ltd., which had already billed the same
even if petitioner did not join the tour. Lotus European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted
industry practice to disallow refund for individuals who failed to take a booked
tour.
[3]

Lastly, respondent maintained that the British Pageant was not a substitute
for the package tour that petitioner missed. This tour was independently
procured by petitioner after realizing that she made a mistake in missing her
flight for Jewels of Europe. Petitioner was allowed to make a partial payment of
only US$300.00 for the second tour because her niece was then an employee
of the travel agency. Consequently, respondent prayed that petitioner be
ordered to pay the balance of P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision, the dispositive
[4]

part of which reads:

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

1. Ordering the defendant to return and/or refund to the plaintiff the amount of
Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three
Centavos (P53,989.43) with legal interest thereon at the rate of twelve
percent (12%) per annum starting January 16, 1992, the date when the
complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED. [5]

The trial court held that respondent was negligent in erroneously advising
petitioner of her departure date through its employee, Menor, who was not
presented as witness to rebut petitioners testimony. However, petitioner should
have verified the exact date and time of departure by looking at her ticket and
should have simply not relied on Menors verbal representation. The trial court
thus declared that petitioner was guilty of contributory negligence and
accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both
parties to be at fault. However, the appellate court held that petitioner is more
negligent than respondent because as a lawyer and well-traveled person, she
should have known better than to simply rely on what was told to her. This being
so, she is not entitled to any form of damages. Petitioner also forfeited her right
to the Jewels of Europe tour and must therefore pay respondent the balance of
the price for the British Pageant tour. The dispositive portion of the judgment
appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated
October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby
ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the
amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per
annum, to be computed from the time the counterclaim was filed until the finality of
this decision. After this decision becomes final and executory, the rate of TWELVE
PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is
DELETED. Costs against the plaintiff-appellee.

SO ORDERED. [6]

Upon denial of her motion for reconsideration, petitioner filed the instant
[7]

petition under Rule 45 on the following grounds:

I

It is respectfully submitted that the Honorable Court of Appeals committed a

reversible error in reversing and setting aside the decision of the trial court by ruling
that the petitioner is not entitled to a refund of the cost of unavailed Jewels of Europe
tour she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-
ordinary diligence which is higher in degree than the ordinary diligence required of
the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is only contributory while the
private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe
tour was not indivisible and the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential damages
due her as a result of breach of contract of carriage.
[8]

Petitioner contends that respondent did not observe the standard of care
required of a common carrier when it informed her wrongly of the flight
schedule. She could not be deemed more negligent than respondent since the
latter is required by law to exercise extraordinary diligence in the fulfillment of
its obligation. If she were negligent at all, the same is merely contributory and
not the proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its employees
gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such [9]

person or association of persons are regarded as carriers and are classified as

private or special carriers and common or public carriers. A common carrier is
[10]

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.
Respondents services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
 While petitioner concededly bought her plane ticket through the efforts of
respondent company, this does not mean that the latter ipso facto is a common
carrier. At most, respondent acted merely as an agent of the airline, with whom
petitioner ultimately contracted for her carriage to Europe. Respondents
obligation to petitioner in this regard was simply to see to it that petitioner was
properly booked with the airline for the appointed date and time. Her transport
to the place of destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters
service of arranging and facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of
carriage is the transportation of passengers or goods. It is in this sense that
the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong
assumption.
The nature of the contractual relation between petitioner and respondent is
determinative of the degree of care required in the performance of the latters
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human care
and foresight can provide using the utmost diligence of very cautious persons
and with due regard for all the circumstances. As earlier stated, however,
[11]

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. This connotes reasonable care consistent with
[12]

that which an ordinarily prudent person would have observed when confronted
with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. [13]

In the case at bar, the lower court found Menor negligent when she allegedly
informed petitioner of the wrong day of departure. Petitioners testimony was
accepted as indubitable evidence of Menors alleged negligent act since
respondent did not call Menor to the witness stand to refute the allegation. The
lower court applied the presumption under Rule 131, Section 3 (e) of the Rules
[14]

of Court that evidence willfully suppressed would be adverse if produced and

thus considered petitioners uncontradicted testimony to be sufficient proof of
her claim.
 On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioners assertion is belied by the evidence on
record. The date and time of departure was legibly written on the plane ticket
and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the
latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former. Menor
was already working in France at the time of the filing of the complaint, thereby
[15]

making it physically impossible for respondent to present her as a witness. Then

too, even if it were possible for respondent to secure Menors testimony, the
presumption under Rule 131, Section 3(e) would still not apply. The opportunity
and possibility for obtaining Menors testimony belonged to both parties,
considering that Menor was not just respondents employee, but also petitioners
niece. It was thus error for the lower court to invoke the presumption that
respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally
omitted but is simply unavailable, or when the same could have been obtained
by both parties. [16]

In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging
a fact has the burden of proving it and a mere allegation cannot take the place
of evidence. If the plaintiff, upon whom rests the burden of proving his cause
[17]

of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense. [18]

Contrary to petitioners claim, the evidence on record shows that respondent

exercised due diligence in performing its obligations under the contract and
followed standard procedure in rendering its services to petitioner. As correctly
observed by the lower court, the plane ticket issued to petitioner clearly
[19]

reflected the departure date and time, contrary to petitioners contention. The
travel documents, consisting of the tour itinerary, vouchers and instructions,
were likewise delivered to petitioner two days prior to the trip. Respondent also
properly booked petitioner for the tour, prepared the necessary documents and
procured the plane tickets. It arranged petitioners hotel accommodation as well
as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for the
tour. Had petitioner exercised due diligence in the conduct of her affairs, there
would have been no reason for her to miss the flight. Needless to say, after the
travel papers were delivered to petitioner, it became incumbent upon her to take
ordinary care of her concerns. This undoubtedly would require that she at least
read the documents in order to assure herself of the important details regarding
the trip.
The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or
negligence of the obligor consists in his failure to exercise due care and
prudence in the performance of the obligation as the nature of the obligation so
demands. There is no fixed standard of diligence applicable to each and every
[20]

contractual obligation and each case must be determined upon its particular
facts. The degree of diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is a question of fact that
is to be determined after taking into account the particulars of each case. [21]

The lower court declared that respondents employee was negligent. This
factual finding, however, is not supported by the evidence on record. While
factual findings below are generally conclusive upon this court, the rule is
subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case.[22]

In the case at bar, the evidence on record shows that respondent company
performed its duty diligently and did not commit any contractual breach. Hence,
petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision
of the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly,
petitioner is ordered to pay respondent the amount of P12,901.00 representing
the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the
counterclaim was filed until the finality of this Decision. After this Decision
becomes final and executory, the rate of 12% per annum shall be imposed until
the obligation is fully settled, this interim period being deemed to be by then an
equivalent to a forbearance of credit.[23]

SO ORDERED.
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.

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:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

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

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

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

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

The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.

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

Common carriers, "by the nature of their business and for reasons of public policy" 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)
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

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.

[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.

DECISION
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
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code.[3] The respondent City Treasurer assessed a business tax
on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the amount
of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

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

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

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

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

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

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

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

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.

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

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

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

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

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

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

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

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

confined;

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

conducted and over his established roads; and

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

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

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.

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

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

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In fact,
in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources."

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

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

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

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

transporting petroleum products, it is considered a common carrier under Republic
Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed
by Revenue Regulations No. 13-78, as amended."

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:

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

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

xxxxxxxxx

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

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

The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

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

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

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

Still on page 95, subparagraph 5, on taxes on the business of transportation. This

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

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

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

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

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

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

DECISION
MENDOZA, J.:

This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148,
which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with
legal interest, representing the value of damaged cargo handled by petitioner, 25%
thereof as attorneys fees, and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,
Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this
case, petitioner entered into a contract with San Miguel Corporation (SMC) for the
transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board
from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound,
Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23
to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo
from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On
July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that
15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft
liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December
20, 1995, rendered judgment finding petitioner liable to respondent for the damage to
the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody
of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage
Report (Exh. F) with entries appearing therein, classified as TED and TSN, which the
claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and
tearrage at the middle of the subject damaged cargoes respectively, coupled with the
Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the damaged
condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular,
which provides among others that:

. . . we opine that damages sustained by shipment is attributable to improper handling

in transit presumably whilst in the custody of the broker . . . .

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that
[she is] are not liable. Defendant by reason of the nature of [her] business should have
devised ways and means in order to prevent the damage to the cargoes which it is
under obligation to take custody of and to forthwith deliver to the consignee.
Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the
nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they have observed the
extraordinary diligence required by law. The burden of the plaintiff, therefore, is to
prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to accident
or some other circumstances inconsistent with its liability. (cited in Commercial Laws
of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence
the extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of and received by the carrier for transportation until the
same are delivered actually or constructively by the carrier to the consignee or to the
person who has the right to receive the same.[3]

Accordingly, the trial court ordered petitioner to pay the following amounts

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyers fee;

3. Costs of suit.[4]

The decision was affirmed by the Court of Appeals on appeal. Hence this petition
for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE
OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]

It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of Appeals
held otherwise, then she is indeed not liable beyond what ordinary diligence in the
vigilance over the goods transported by her, would require.[6] Consequently, any damage
to the cargo she agrees to transport cannot be presumed to have been due to her fault or
negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs broker
and warehouseman, she does not indiscriminately hold her services out to the public
but only offers the same to select parties with whom she may contract in the conduct of
her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court
dismissed a similar contention and held the party to be a common carrier, thus

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

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

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

x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. x x x [8]

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners
contention would be to deprive those with whom she contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case. . . .
 In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary
diligence in the vigilance over goods was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.

In the case at bar, petitioner denies liability for the damage to the cargo. She claims
that the spoilage or wettage took place while the goods were in the custody of either the
carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the
arrastre operator, to whom the goods were unloaded and who allegedly kept them in
open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some
of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine
Survey Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

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

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

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

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

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

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino

testified that he has no personal knowledge on whether the container vans were first
stored in petitioners warehouse prior to their delivery to the consignee. She likewise
claims that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port Area where the cargo came
from. Thus, the damage to the cargo could not have taken place while these were in her
custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioners employees withdrew the cargo from the arrastre operator, they
did so without exception or protest either with regard to the condition of container vans
or their contents. The Survey Report pertinently reads

Details of Discharge:

Shipment, provided with our protective supervision was noted discharged ex vessel to
dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20
secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches
on side and roof panels, these containers were deemed to have [been] received in good
condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had 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 petitioners insistence that the cargo could not have been damaged while in
her custody as she immediately delivered the containers to SMCs compound, suffice it
to say that to prove the exercise of extraordinary diligence, petitioner must do more than
merely show the possibility that some other party could be responsible for the
damage. It must prove that it used all reasonable means to ascertain the nature and
characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]. Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides

Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

....

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

....

For this provision to apply, the rule is that if the improper packing or, in this case,
the defect/s in the container, is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods in
this case or that she is exempt from liability, the presumption of negligence as provided
under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
SO ORDERED.

[G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. 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.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of

a private carrier, its owners responsibility for damage to the cargo and its
liability for demurrage and attorneys fees. The Court also reiterates the well-
known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the
August 12, 1993 Decision of the Court of Appeals. The Court of Appeals
[1]

modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch
163 in Civil Case No. 23317. The RTC disposed as follows:

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

plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to
pay the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest
at the legal rate on both amounts from April 7, 1976 until the same shall have been
fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by
reducing the award for demurrage to P44,000.00 and deleting the award for attorneys
fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such,

does not transport cargo or shipment for the general public. Its services are
available only to specific persons who enter into a special contract of charter
party with its owner. It is undisputed that the ship is a private carrier. And it is in
this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of
affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV
VLASONS I to make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the following terms and
conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of

Bill of Lading within fifteen (15) days.

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

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of

24 consecutive hours, Sundays and Holidays Included).

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

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners
not responsible for losses/damages except on proven willful negligence of the officers
of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other

internationally recognized Charter Party Agreement shall form part of this Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including
Stevedoring and Trading, which means that the handling, loading and unloading of the
cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI
Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk
and expenses to owners. x x x (Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter
Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment
of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo
Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board
and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August
8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,
1974. The following day, August 13, 1974, when the vessels three (3) hatches
containing the shipment were opened by plaintiffs agents, nearly all the skids of
tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to
the heavy rain which interrupted the unloading operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a
survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a
report of its ocular inspection conducted on the cargo, both while it was still on board
the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the
cargo was taken and stored. MASCO reported that it found wetting and rusting of the
packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch
covers were noted torn at various extents; that container/metal casings of the skids
were rusting all over. MASCO ventured the opinion that rusting of the tinplates was
caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to
destination (Exhibit F). It was also reported that MASCOs surveyors drew at random
samples of bad order packing materials of the tinplates and delivered the same to the
M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The analysis of
bad order samples of packing materials xxx shows that wetting was caused by contact
with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff
filed with the defendant its claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to
pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking under their Contract of
Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the
MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the charter party; that in the course of the
voyage from Iligan City to Manila, the MV VLASONS I encountered very rough
seas, strong winds and adverse weather condition, causing strong winds and big waves
to continuously pound against the vessel and seawater to overflow on its deck and
hatch covers; that under the Contract of Voyage Charter Hire, defendant shall not be
responsible for losses/damages except on proven willful negligence of the officers of
the vessel, that the officers of said MV VLASONS I exercised due diligence and
proper seamanship and were not willfully negligent; that furthermore the Voyage
Charter Party provides that loading and discharging of the cargo was on FIOST terms
which means that the vessel was free of risk and expense in connection with the
loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent
defect of the cargo not discoverable by due diligence or to any other cause arising
without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of
plaintiff who discharged the cargo in Manila were negligent and did not exercise due
care in the discharge of the cargo; and that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to plaintiffs warehouse after
discharge from the vessel; and that plaintiffs claim was highly speculative and grossly
exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed
charter hire of P75,000.00 despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage
for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the
vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount
of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorneys fees and all expenses of litigation in the amount of
not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping

service and is available for hire only under special contracts of charter party as in this
particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire
(Exh. 1), the MV VLASONS I was covered by the required seaworthiness certificates
including the Certification of Classification issued by an international classification
society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of
Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast
Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection
by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both
overseas and coastwise trade, the MV VLASONS I has a higher degree of
seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract
of Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessels first voyage after the drydocking. The evidence shows that the MV
VLASONS I was seaworthy and properly manned, equipped and supplied when it
undertook the voyage. It had all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The
hatch openings were covered by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight. Furthermore, under the
hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers pursuant
to which there exists a presumption of negligence in case of loss or damage to the
cargo are not applicable. As to the damage to the tinplates which was allegedly due to
the wetting and rusting thereof, there is unrebutted testimony of witness Vicente
Angliongto that tinplates sweat by themselves when packed even without being in
contract (sic) with water from outside especially when the weather is bad or
raining.The rust caused by sweat or moisture on the tinplates may be considered as a
loss or damage but then, defendant cannot be held liable for it pursuant to Article
1734 of the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the character of the goods x x x.All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It was shown
as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining
and corrugated cardboards could not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rainwater to enter the
hatches. It was proven that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to resume work when
the rains stopped by just removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party
which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer
and defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ships
deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a
Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a
force majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the
Voyage Charter Hire contract that it was to insure the cargo because it did not. Had
plaintiff complied with the requirement, then it could have recovered its loss or
damage from the insurer. Plaintiff also violated the charter party contract when it
loaded not only steel products, i.e. steel bars, angular bars and the like but also
tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under
paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant
carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not
paid the total freight due of P75,000.00 despite demands. The evidence also showed
that the plaintiff was required and bound under paragraph 7 of the same Voyage
Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading
of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable
to pay defendant for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I

The trial court erred in finding that the MV VLASONS I was seaworthy, properly
manned, equipped and supplied, and that there is no proof of willful negligence
of the vessels officers.
II

The trial court erred in finding that the rusting of NSCs tinplates was due to the
inherent nature or character of the goods and not due to contact with seawater.
III

The trial court erred in finding that the stevedores hired by NSC were negligent
in the unloading of NSCs shipment.
IV

The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

The trial court erred in finding that NSC violated the contract of voyage charter
hire.
VI

The trial court erred in ordering NSC to pay freight, demurrage and attorneys
fees, to VSI.[4]

As earlier stated, the Court of Appeals modified the decision of the trial court
by reducing the demurrage from P88,000.00 to P44,000.00 and deleting the
award of attorneys fees and expenses of litigation. NSC and VSI filed separate
motions for reconsideration.In a Resolution dated October 20, 1993, the
[5]

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 petition and memorandum, NSC raises the following questions of

[7] [8]

law and fact:

 Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11
and 12) were admissible in evidence and constituted evidence of the vessels
seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from
liability for cargo damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for
NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence,
rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of
NSCs tinplates.
In its separate petition, VSI submits for the consideration of this Court the
[9]

following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award
of demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its

memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common
carriers pursuant to which there exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the cargo are applicable to a private
carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.
 The foregoing issues raised by the parties will be discussed under the
following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in
respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC

as a common carrier or as a private carrier. The resolution of this preliminary
question determines the law, standard of diligence and burden of proof
applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. It has been held that the true
test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a
fee. A carrier which does not qualify under the above test is deemed a private
[11]

carrier. Generally, private carriage is undertaken by special agreement and the

carrier does not hold himself out to carry goods for the general public. The most
typical, although not the only form of private carriage, is the charter party, a
maritime contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period of time or
a voyage or voyages. [12]

In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a special contract of charter party. As [13]

correctly concluded by the Court of Appeals, the MV Vlasons I was not a

common but a private carrier. Consequently, the rights and obligations of VSI
[14]

and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party. Recently, in Valenzuela Hardwood and Industrial Supply,
[15]

Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, the [16]

Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the
stringent provisions of the Civil Code on common carriers protecting the general
public cannot justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not contravened
by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers. [17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17,
1974, that VSI shall not be responsible for losses except on proven willful
negligence of the officers of the vessel. The NANYOZAI Charter Party, which
was incorporated in the parties contract of transportation, further provided that
the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of due
diligence to make the vessel seaworthy or to ensure that the same was properly
manned, equipped and supplied, and to make the holds and all other parts of
the vessel in which cargo [was] carried, fit and safe for its reception, carriage
and preservation. The NANYOZAI Charter Party also provided that [o]wners
[18]

shall not be responsible for split, chafing and/or any damage unless caused by
the negligence or default of the master or crew. [19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that

the damage to its shipment was caused by VSIs willful negligence or failure to
exercise due diligence in making MV Vlasons 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 shipowners obligations

are governed by the foregoing provisions of the Code of Commerce and not by
the Civil Code which, as a general rule, places the prima facie presumption of
negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on
the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that
the goods were lost or damaged while in the carriers custody does not put the burden
of proof on the carrier.

Since x x x a private carrier is not an insurer but undertakes only to exercise due care
in the protection of the goods committed to its care, the burden of proving negligence
or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo
while in the carriers possession does not cast on it the burden of proving proper care
and diligence on its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden of proof, plaintiff is
entitled to the benefit of the presumptions and inferences by which the law aids the
bailor in an action against a bailee, and since the carrier is in a better position to know
the cause of the loss and that it was not one involving its liability, the law requires that
it come forward with the information available to it, and its failure to do so warrants
an inference or presumption of its liability. However, such inferences and
presumptions, while they may affect the burden of coming forward with evidence, do
not alter the burden of proof which remains on plaintiff, and, where the carrier comes
forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage
rests on plaintiff, and proof that the goods were lost or damaged while in the carriers
possession does not cast on it the burden of proving seaworthiness. x x x Where the
contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not
taken the correct position in relation to the question of who has the burden of
proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation
of Clause 12 is not even correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply with any of these
obligations as if defendant-appellee [VSI] had the burden of proof. [21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions

is manifestly relevant: (1) whether VSI exercised due diligence in making MV
Vlasons I seaworthy for the intended purpose under the charter party; (2)
whether the damage to the cargo should be attributed to the willful negligence
of the officers and crew of the vessel or of the stevedores hired by NSC; and
(3) whether the rusting of the tinplates was caused by its own sweat or by
contact with seawater.
These questions of fact were threshed out and decided by the trial court,
which had the firsthand opportunity to hear the parties conflicting claims and to
carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of
both the trial court and the Court of Appeals coincide, the same are binding on
this Court. We stress that, subject to some exceptional instances, only
[22] [23]

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 courts factual findings,
as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.

Was MV Vlasons I Seaworthy?

 In any event, the records reveal that VSI exercised due diligence to make
the ship seaworthy and fit for the carriage of NSCs cargo of steel and
tinplates. This is shown by the fact that it was drydocked and inspected by the
Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila
under the contract of voyage charter hire. The vessels voyage from Iligan to
[24]

Manila was the vessels first voyage after drydocking. The Philippine Coast
Guard Station in Cebu cleared it as seaworthy, fitted andequipped; it met all
requirements for trading as cargo vessel. The Court of Appeals itself
[25]

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 and denies that MV
[26]

Vlasons I was equipped with new canvas covers in tandem with the old ones
as indicated in the Marine Protest xxx. We disagree.
[27]

The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships
hatches watertight. The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships
boatswain, Jose Pascua. The salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of
August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before departure, the vessel was rigged,
fully equipped and cleared by the authorities; that on or about August 9, 1974, while
in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the
vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new
canvass covering still holding on;

That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the
afternoon of August 10, 1974, while entering Maricaban Passage, we were again
exposed to moderate seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;

xxx xxx xxx [28]

And the relevant portions of Jose Pascuas deposition are as follows:

Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
 Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood
are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite encountering rough
weather twice, the new tarpaulin did not give way and the ships hatches and
cargo holds remained waterproof. As aptly stated by the Court of Appeals,
xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-
appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled
sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving safely
at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]

Indeed, NSC failed to discharge its burden to show negligence on the part
of the officers and the crew of MV Vlasons I. On the contrary, the records reveal
that it was the stevedores of NSC who were negligent in unloading the cargo
from the ship.
The stevedores employed only a tent-like material to cover the hatches
when strong rains occasioned by a passing typhoon disrupted the unloading of
the cargo. This tent-like covering, however, was clearly inadequate for keeping
rain and seawater away from the hatches of the ship. Vicente Angliongto, an
officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went
on board the vessel upon notice from the National Steel Corporation in order to
 conduct the inspection of the cargo. During the course of the investigation, did you
chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged
on the pier but majority of the tinplates were inside the hall, all the hatches were
opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at
the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now,
will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d]
high at the middle with the whole side separated down to the hatch, the size of the
hatch and it is soaks [sic] at the middle because of those weather and this can be
used only to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by
and the hatch tent was not good enough to hold all of it to prevent the water soaking
through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?
 A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning his

failure to complain immediately about the stevedores negligence on the first day
of unloading, pointing out that he wrote his letter to petitioner only seven days
later. The Court is not persuaded. Angliongtos candid answer in his
[32]

aforequoted testimony satisfactorily explained the delay. Seven days lapsed

because he first called the attention of the stevedores, then the NSCs
representative, about the negligent and defective procedure adopted in
unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and
then the NSCs representative on location before formally informing NSC of the
negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the stevedores it had
hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and
conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSCs shipment. We do
not think so. Such negligence according to the trial court is evident in the stevedores
hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred during
the discharging of the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the stevedores merely
set up temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August
20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo on rainy days and
the improper closing of the hatches which allowed continuous heavy rain water to
leak through and drip to the tinplates covers and [Vicente Angliongto] also suggesting
that due to four (4) days continuos rains with strong winds that the hatches be totally
closed down and covered with canvas and the hatch tents lowered. (Exh 13). This
letter was received by [NSC] on 22 August 1974 while discharging operations were
still going on (Exhibit 13-A). [33]
 The fact that NSC actually accepted and proceeded to remove the cargo
from the ship during unfavorable weather will not make VSI liable for any
damage caused thereby. In passing, it may be noted that the NSC may seek
indemnification, subject to the laws on prescription, from the stevedoring
company at fault in the discharge operations. A stevedore company engaged
in discharging cargo xxx has the duty to load the cargo xxx in a prudent manner,
and it is liable for injury to, or loss of, cargo caused by its negligence xxx and
where the officers and members and crew of the vessel do nothing and have
no responsibility in the discharge of cargo by stevedores xxx the vessel is not
liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx as in the instant case.
[34]

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that
xxx tinplates sweat by themselves when packed even without being in contact
with water from outside especially when the weather is bad or raining xxx. The[35]

Court of Appeals affirmed the trial courts 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 NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of

Voyage Charter Hire is totally separate and distinct from the contractual or
statutory responsibility that may be incurred by VSI for damage to the cargo
caused by the willful negligence of the officers and the crew of MV Vlasons
I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as
owner and real party in interest, to file an action against VSI for damages
caused by the latters willful negligence. We do not find anything in the charter
party that would make the liability of VSI for damage to the cargo contingent on
or affected in any manner by NSCs obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

 NSCs contention that MV Vlasons I was not seaworthy is anchored on the
alleged inadmissibility of the certificates of seaworthiness offered in evidence
by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been presented
in accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11
allegedly are not written records or acts of public officers; while Exhibits 5, 6, 7,
8, 9, 11 and 12 are not evidenced by official publications or certified true copies
as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]

After a careful examination of these exhibits, the Court rules that Exhibits 3,
4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly offered
as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they
have not been proven by one who saw the writing executed, or by evidence of
the genuineness of the handwriting of the maker, or by a subscribing witness.
Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best
evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of Court,
which provides that (e)ntries in official records made in the performance of a
duty by a public officer of the Philippines, or by a person in the performance of
a duty specially enjoined by law, are prima facie evidence of the facts therein
stated. Exhibit 11 is an original certificate of the Philippine Coast Guard in
[38]

Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that the
vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on
board for inspection x x x. After completion of drydocking and duly inspected by
PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy
condition, meets all requirements, fitted and equipped for trading as a cargo
vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on
July 10, 1974. (sic) NSCs claim, therefore, is obviously misleading and
erroneous.
At any rate, it should be stressed that that NSC has the burden of proving
that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a
private carrier and, as such, it did not have the obligation of a common carrier
to show that it was seaworthy.Indeed, NSC glaringly failed to discharge its duty
of proving the willful negligence of VSI in making the ship seaworthy resulting
in damage to its cargo. Assailing the genuineness of the certificate of
seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation

provided for in the contract of affreightment for the detention of the vessel
beyond the laytime or that period of time agreed on for loading and unloading
of cargo. It is given to compensate the shipowner for the nonuse of the
[40]

vessel. On the other hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is
expressed in running days, this means days when the ship would be run continuously,
and holidays are not excepted. A qualification of weather permitting excepts only
those days when bad weather reasonably prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day
laytime; it also qualified laytime as WWDSHINC or weather working days
Sundays and holidays included. The running of laytime was thus made
[42]

subject to the weather, and would cease to run in the event unfavorable weather
interfered with the unloading of cargo. Consequently, NSC may not be held
[43]

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.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of
attorneys fees. We disagree. While VSI was compelled to litigate to protect its
rights, such fact by itself will not justify an award of attorneys fees under Article
2208 of the Civil Code when x x x no sufficient showing of bad faith would be
reflected in a partys persistence in a case other than an erroneous conviction
of the righteousness of his cause x x x. Moreover, attorneys fees may not be
[44]

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 ones
right to litigate or seek judicial redress of legitimate grievances.[45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who
caused the damage to the cargo? Ranged against NSC are two formidable
truths. First, both lower courts found that such damage was brought about
during the unloading process when rain and seawater seeped through the cargo
due to the fault or negligence of the stevedores employed by it. Basic is the rule
that factual findings of the trial court, when affirmed by the Court of Appeals,
are binding on the Supreme Court. Although there are settled exceptions, NSC
has not satisfactorily shown that this case is one of them. Second, the
agreement between the parties -- the Contract of Voyage Charter Hire -- placed
the burden of proof for such loss or damage upon the shipper, not upon the
shipowner. Such stipulation, while disadvantageous to NSC, is valid because
the parties entered into a contract of private charter, not one of common
carriage. Basic too is the doctrine that courts cannot relieve a party from the
effects of a private contract freely entered into, on the ground that it is allegedly
one-sided or unfair to the plaintiff. The charter party is a normal commercial
contract and its stipulations are agreed upon in consideration of many factors,
not the least of which is the transport price which is determined not only by the
actual costs but also by the risks and burdens assumed by the shipper in regard
to possible loss or damage to the cargo. In recognition of such factors, the
parties even stipulated that the shipper should insure the cargo to protect itself
from the risks it undertook under the charter party. That NSC failed or neglected
to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are
hereby DENIED. The questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 131621. September 28, 1999]

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and

THE MANILA INSURANCE CO., INC., respondents.

DECISION
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
complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its resolution
of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
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 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 LOSS OF THE VESSEL. The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along
with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee
made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid
P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation
receipt therefor.
On 4 February 1985, MIC 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 of the vessel directly to
MIC, said amount to be deducted from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed
that the 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 LOADSTARs 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. LOADSTARS 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 latters rights as against the carrier, LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached
their destination. LOADSTARs defense of diligence of a good father of a family in the training
and selection of its crew is unavailing because this is not a proper or complete defense in culpa
contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods
are delivered on board a ship in good order and condition, and the shipowner delivers them to
the shipper in bad order and condition, it then devolves upon the shipowner to both allege and
prove that the goods were damaged by reason of some fact which legally exempts him from
liability. Transportation of the merchandise at the risk and venture of the shipper means that
the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force
 majeure, or the inherent nature and defects of the goods, but not those caused by the presumed
negligence or fault of the carrier, unless otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it
was not issued a 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 vessels
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.MICs 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 owners 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 Courts ruling in
the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc.,[9] and National Union
Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10]
 Finally, LOADSTAR avers that MICs 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 to force majeure, because the same concurred with LOADSTARs 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.
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 large 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 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.:

The Civil Code defines common carriers in the following terms:

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

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

xxx

It appears to the Court that private respondent is properly characterized as a common

carrier even though he merely back-hauled goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a periodic or occasional rather
than regular or scheduled manner, and even though private
respondents principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods;
that 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.

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 LOADSTARs 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 area where it sank was determined to be moderate. Since it
was remiss 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 Courts 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 carriers
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 carriers 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 owners 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 is one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier
to an agreed valuation unless the shipper declares a higher value and pays a higher
rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the
third is valid and enforceable.[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. MICs 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
good.[22] In 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.
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.
SO ORDERED.

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF

APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.

DECISION
PUNO, J.:

On appeal is the Court of Appeals May 11, 2000 Decision in CA-G.R. CV [1]

No. 49195 and February 21, 2001 Resolution affirming with modification the
[2]

April 6, 1994 Decision of the Regional Trial Court of Manila which found
[3]

petitioner liable to pay private respondent the amount of indemnity and

attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk,
valued at US$423,192.35 was shipped by Marubeni American Corporation of
[4]

Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery
to the consignee, General Milling Corporation in Manila, evidenced by Bill of
Lading No. PTD/Man-4. The shipment was insured by the private respondent
[5]

Prudential Guarantee and Assurance, Inc. against loss or damage

for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90. [6]

On July 25, 1990, the carrying vessel arrived in Manila and the cargo was
transferred to the custody of the petitioner Asia Lighterage and Shipping,
Inc. The petitioner was contracted by the consignee as carrier to deliver the
cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge
PSTSI III, evidenced by Lighterage Receipt No. 0364 for delivery to [7]

consignee. The cargo did not reach its destination.

It appears that on August 17, 1990, the transport of said cargo was
suspended due to a warning of an incoming typhoon. On August 22, 1990, the
petitioner proceeded to pull the barge to Engineering Island off Baseco to seek
shelter from the approaching typhoon. PSTSI III was tied down to other barges
which arrived ahead of it while weathering out the storm that night. A few days
after, the barge developed a list because of a hole it sustained after hitting an
unseen protuberance underneath the water. The petitioner filed a Marine
Protest on August 28, 1990. It likewise secured the services of Gaspar
[8]

Salvaging Corporation which refloated the barge. The hole was then patched
[9]

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. A second Marine
[11]

Protest was filed on September 7, 1990. [12]

On September 14, 1990, a bidding was conducted to dispose of the

damaged wheat retrieved and loaded on the three other barges. The total [13]

proceeds from the sale of the salvaged cargo was P201,379.75. [14]

On the same date, September 14, 1990, consignee sent a claim letter to the
petitioner, and another letter dated September 18, 1990 to the private
respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in
the amount of P4,104,654.22. Thereafter, as subrogee, it sought recovery of
[15]

said amount from the petitioner, but to no avail.

On July 3, 1991, the private respondent filed a complaint against the
petitioner for recovery of the amount of indemnity, attorney's fees and cost of
suit. Petitioner filed its answer with counterclaim.
[16] [17]

The Regional Trial Court ruled in favor of the private respondent. The
dispositive portion of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date
complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's counterclaim is hereby
DISMISSED. With costs against defendant. [18]

Petitioner appealed to the Court of Appeals insisting that it is not a common

carrier. The appellate court affirmed the decision of the trial court with
modification. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with modification

in the sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.

SO ORDERED.

Petitioners Motion for Reconsideration dated June 3, 2000 was likewise

denied by the appellate court in a Resolution promulgated on February 21,
2001.
Hence, this petition. Petitioner submits the following errors allegedly
committed by the appellate court, viz: [19]

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL
CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF THE CARGO IS,
THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE FIVE
(5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN
ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER
FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS
CARE AND CUSTODY OF THE CONSIGNEES CARGO.

The issues to be resolved are:

(1) Whether the petitioner is a common carrier; and,
 (2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private
carrier. Allegedly, it has no fixed and publicly known route, maintains no
terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it
consents. In short, it does not hold out its services to the general public. [20]

We disagree.
In De Guzman vs. Court of Appeals, we held that the definition
[21]

of common carriers in Article 1732 of the Civil Code makes no distinction

between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity. We
also did not distinguish between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Further, we ruled that Article 1732
does not distinguish between a carrier offering its services to the general public,
and one who offers services or solicits business only from a narrow segment of
the general population.
In the case at bar, the principal business of the petitioner is that of lighterage
and drayage and it offers its barges to the public for carrying or transporting
[22]

goods by water for compensation. Petitioner is clearly a common carrier. In De

Guzman, supra, we considered private respondent Ernesto Cendaa to be a
[23]

common carrier even if his principal occupation was not the carriage of goods
for others, but that of buying used bottles and scrap metal in Pangasinan and
selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of
goods is done on an irregular rather than scheduled manner, and with an only
limited clientele. A common carrier need not have fixed and publicly known
routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down
in Bascos vs. Court of Appeals. The test to determine a common carrier is
[24]

whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the
quantity or extent of the business transacted. In the case at bar, the petitioner
[25]

admitted that it is engaged in the business of shipping and lighterage, offering

[26]

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
consignees goods.
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. They are presumed to have
[28]

been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. To overcome the presumption of negligence in the case of loss,
[29]

destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to this
rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:

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

calamity;

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

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

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

containers;

(5) Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was caused by
a typhoon, hence, it should not be held liable for the loss of the cargo. However,
petitioner failed to prove that the typhoon is the proximate and only cause of the
loss of the goods, and that it has exercised due diligence before, during and
after the occurrence of the typhoon to prevent or minimize the loss. The [30]

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]

xxxxxxxxx
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull out
the barge from the place of the accident, and bring it to the anchor terminal for safety,
then after deciding if the vessel is stabilized, they tried to pull it to the consignees
warehouse, now while on route another accident occurred, now this time the barge
totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on
the bottom part of the barge.

xxxxxxxxx
This is not all. Petitioner still headed to the consignees wharf despite
knowledge of an incoming typhoon. During the time that the barge was heading
towards the consignee's wharf on September 5, 1990, typhoon Loleng has
already entered the Philippine area of responsibility. A part of the testimony of
[32]

Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE: [33]

xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to
lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf
since they needed badly the wheat that was loaded in PSTSI-3. It was needed badly
by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
 xxxxxxxxx

CROSS-EXAMINATION BY ATTY. IGNACIO: [34]

xxxxxxxxx

q - And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?

a - The next day, in the morning, we hired for additional two (2) tugboats as I
have stated.

q - Despite of the threats of an incoming typhoon as you testified a while ago?

a - It is already in an inner portion of Pasig River. The typhoon would be

coming and it would be dangerous if we are in the vicinity of Manila
Bay.

q - But the fact is, the typhoon was incoming? Yes or no?

a - Yes.

q - And yet as a standard operating procedure of your Company, you have to

secure a sort of Certification to determine the weather condition, am I
correct?

a - Yes, sir.

q - So, more or less, you had the knowledge of the incoming typhoon, right?

a - Yes, sir.

q - And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig entrance, it
is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as

force majeure to escape liability for the loss sustained by the private
respondent. Surely, meeting a typhoon head-on falls short of due diligence
required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke
that caused its sinking and the total loss of the cargo upon reaching the Pasig
River, it was no longer affected by the typhoon. The typhoon then is not the
proximate cause of the loss of the cargo; a human factor, i.e., negligence had
intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution dated
February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, petitioner, vs. PKS SHIPPING
COMPANY, respondent.

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC
insured the goods for its full value with petitioner Philippine American General
Insurance Company (Philamgen). The goods were loaded aboard the dumb
barge Limar I belonging to PKS Shipping. On the evening of 22 December
1988, about nine oclock, while Limar I was being towed by respondents
tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of
Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo
of 75,000 bags of cement.
 DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought reimbursement
from PKS Shipping of the sum paid to DUMC but the shipping company refused
to pay, prompting Philamgen to file suit against PKS Shipping with the Makati
RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo
could have been caused either by a fortuitous event, in which case the ship
owner was not liable, or through the negligence of the captain and crew of the
vessel and that, under Article 587 of the Code of Commerce adopting the
Limited Liability Rule, the ship owner could free itself of liability by abandoning,
as it apparently so did, the vessel with all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping, not
being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on the
part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo. The fact that respondent
has a limited clientele, petitioner argues, does not militate against respondents
being a common carrier and that the only way by which such carrier can be held
exempt for the loss of the cargo would be if the loss were caused by natural
disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered
the Philippine area of responsibility and that, even if it did, respondent would
not be exempt from liability because its employees, particularly the tugmaster,
have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate court. In
any event, PKS Shipping points out, the findings and conclusions of both courts
find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier and,
in either case, to the other question of whether or not it has observed the proper
diligence (ordinary, if a private carrier, or extraordinary, if a common carrier)
required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court. The conclusions derived from those factual findings, however, are not
[1]

necessarily just matters of fact as when they are so linked to, or inextricably
intertwined with, a requisite appreciation of the applicable law. In such
instances, the conclusions made could well be raised as being appropriate
issues in a petition for review before this Court. Thus, an issue whether a carrier
is private or common on the basis of the facts found by a trial court or the
appellate court can be a valid and reviewable question of law.
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

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

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

The prevailing doctrine on the question is that enunciated in the leading

case of De Guzman vs. Court of Appeals. Applying Article 1732 of the Code,
[2]

in conjunction with Section 13(b) of the Public Service Act, this Court has held:

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

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

Much of the distinction between a common or public carrier and a private or

special carrier lies in the character of the business, such that if the undertaking
is an isolated transaction, not a part of the business or occupation, and the
carrier does not hold itself out to carry the goods for the general public or to a
limited clientele, although involving the carriage of goods for a fee, the person[3]

or corporation providing such service could very well be just a private carrier. A
typical case is that of a charter party which includes both the vessel and its
crew, such as in a bareboat or demise, where the charterer obtains the use and
service of all or some part of a ship for a period of time or a voyage or
voyages and gets the control of the vessel and its crew. Contrary to the
[4] [5]

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. Neither can the concept of a common carrier change merely
[6]

because individual contracts are executed or entered into with patrons of the
carrier. Such restrictive interpretation would make it easy for a common carrier
to escape liability by the simple expedient of entering into those distinct
agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or deterioration
of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. The provisions
[7]

of Article 1733, notwithstanding, common carriers are exempt from liability for
loss, destruction, or deterioration of the goods due to any of the following
causes:

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

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

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

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

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

The appellate court ruled, gathered from the testimonies and sworn marine
protests of the respective vessel masters of Limar I and MT Iron Eagle, that
there was no way by which the barges or the tugboats crew could have
prevented the sinking of Limar I. The vessel was suddenly tossed by waves of
extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of
1.5 knots resulting in the entry of water into the barges hatches. The official
Certificate of Inspection of the barge issued by the Philippine Coastguard and
the Coastwise Load Line Certificate would attest to the seaworthiness of Limar
I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none
of the recognized exceptions from the rule - (1) when the factual findings of the
Court of Appeals and the trial court are contradictory; (2) when the conclusion
is a finding grounded entirely on speculation, surmises, or conjectures; (3) when
the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion
in the appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; (6) when the judgment of the Court
of Appeals is premised on a misapprehension of facts; (7) when the Court of
Appeals failed to notice certain relevant facts which, if properly considered,
would justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and (10) when the findings of fact
of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record would appear to be clearly
extant in this instance.
 All given then, the appellate court did not err in its judgment absolving PKS
Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

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

CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO

SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO,
EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAEZAL AND SOTERA E. CAEZAL, respondents.

DECISION
PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would
collide with MV Doa Paz, killing almost all the passengers and crew members of both ships, and
thus resulting in one of the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision[1]holding petitioner
jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio
Lines, Inc.s passenger ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene,
diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and
other oil products owned by Caltex by virtue of a charter contract between them.[3]
 On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and his
officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance.[4] The MV Doa
Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route
of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a
week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within
the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of
MV Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at the
time of the incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
waters by vessels that responded to distress calls.[5] Among those who perished were public school
teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years old), both
unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual
operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doa
Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
Damages Arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter
Sulpicio).Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against
MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party complaint
against petitioner. The dispositive portion reads:

WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

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

2. The statutory costs of the proceedings.

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

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

ARSENIO M. GONONG

Judge[7]

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

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

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

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

2. Compensatory damages representing the unearned income of Sebastian E. Caezal,

in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED
EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P

300,000.00);

4. Attorneys fees in the concept of actual damages in the amount of FIFTY

THOUSAND PESOS (P 50,000.00);

5. Costs of the suit.

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

SO ORDERED.

JORGE S. IMPERIAL
Associate Justice

WE CONCUR:

RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS

Associate Justice Associate Justice[8]

Hence, this petition.

We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier
is public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping
documents on the one hand, or a charter party or similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one by which
the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for
the conveyance of goods, on a particular voyage, in consideration of the payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is leased to
the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the ship owner to supply the ships
store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of
the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with
his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to
liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private one? We
need to answer this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel as a
common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding
the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or voyage charter. It
is only when the charter includes both the vessel and its crew, as in a bareboat or
demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or
voyage charter retains possession and control of the ship, although her holds may, for
the moment, be the property of the charterer.

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

Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment xxx

A common carrier is a person or corporation whose regular business is to carry passengers or

property for all persons who may choose to employ and to remunerate him.[16] MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of
Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers for passengers or goods
or both, by land, water, or air for compensation, offering their services to the public.

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

It appears to the Court that private respondent is properly characterized as a common

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

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

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel
to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the care and
skill of common carriers in the vigilance over the goods and safety of the passengers, especially
because with the modern development of science and invention, transportation has become more
rapid, more complicated and somehow more hazardous.[19] For these reasons, a passenger or a
shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier
being obliged by law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these
deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate
only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
 5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the
Civil Code, which provide:

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

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

And what is negligence?

The Civil Code provides:

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

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

In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may
be the failure to observe that degree of care, precaution, and vigilance, which the circumstances
justly demand, or the omission to do something which ordinarily regulate the conduct of human
affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common carrier
simply for being engaged in public service.[22] The Civil Code demands diligence which is required
by the nature of the obligation and that which corresponds with the circumstances of the persons,
the time and the place. Hence, considering the nature of the obligation between Caltex and MT
Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness,[23] shippers of goods, when transacting with common carriers,
are not expected to inquire into the vessels seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers and hold them liable in case
of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot expect passengers to inquire every
time they board a common carrier, whether the carrier possesses the necessary papers or that all
the carriers employees are qualified. Such a practice would be an absurdity in a business where
time is always of the essence. Considering the nature of transportation business, passengers and
shippers alike customarily presume that common carriers possess all the legal requisites in its
operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper
in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here
under VESSELS DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7,
1987, Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid
C.I. which will expire on December 7, 1987 but on the last week of November, I called the attention
of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will
renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going
to send me a copy as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long
business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the
documents are in order. xxx[25]
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection
has expired on December 7. Did it occur to you not to let the vessel sail on that day because of the
very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were
able to secure a renewal of the Certificate of Inspection and that they will in time submit
us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in
the coastwise license on December 7, 1987. What was your assurance for the record that this
document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three
years, they were allowed to sail by the Coast Guard. That are some that make me believe that they
in fact were able to secure the necessary renewal.
 Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed, referring
to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast
Guard, it means that it has Certificate of Inspection extended as assured to this witness by Restituto
Abalos. That in no case MV Vector will be allowed to sail if the Certificate of Inspection is, indeed,
not to be extended. That was his repeated explanation to the cross-examination. So, there is no need
to clarify the same in the re-direct examination.[27]
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two
years before the tragic incident occurred in 1987. Past services rendered showed no reason for
Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things
considered, we find no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit
our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals ruling
insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of
the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendant-
appellee Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and costs
the latter is adjudged to pay plaintiffs-appellees in the case.
No costs in this instance.
SO ORDERED.

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,

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

RESOLUTION

FRANCISCO, R., J.:

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

The factual background of this case is as follows:

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

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

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

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

Hence, this petition.

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

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

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:
 Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of
its captain and crew, would remain in the absence of stipulation.3

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

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

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

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

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

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

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

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

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

The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the
same. Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by
the provisions of the Civil Code) provides:

Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by marine
and navigation laws, ordinances or regulations, and must not be disqualified
according to the same for the discharge of the duties of the position. . . .

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.

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

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

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

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

This legal provision containing the equitable principle of subrogation has been applied in a long line
of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court
of Appeals,9 wherein this Court explained:
 Article 2207 of the Civil Code is founded on the well-settled principle of subrogation.
If the insured property is destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured
operated as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.

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

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

SO ORDERED.