FGU INSURANCE CORP. VS. G.P. SARMIENTO TRUCKING CORP.

(GPS)
G.R. No. 141910. August 6, 2002

Facts: GPS is an exclusive contractor and hauler of Concepcion Industries, Inc. One
day, it was to deliver certain goods of Concepcion Industries, Inc. aboard one of its
trucks. On its way, the truck collided with an unidentified truck, resulting in damage to
the cargoes.
FGU, insurer of the shipment paid to Concepcion Industries, Inc. the amount of the
damage and filed a suit against GPS. GPS filed a motion to dismiss for failure to prove
that it was a common carrier.

Issue: Whether or not GPS falls under the category of a common carrier.

Held: Note that GPS is an exclusive contractor and hauler of Concepcion Industries, Inc.
offering its service to no other individual or entity.
A common carrier is one which offers its services whether to the public in general or to
a limited clientele in particular but never on an exclusive basis. Therefore, GPS does not
fit the category of a common carrier although it is not freed from its liability based on
culpa contractual.

Case of FGU INSURANCE CORPORATION vs. G.P.S TRUCKING CORPORATION and

LAMBERT M. EROLES
G.R.No. 141910 06August2002

FACTS OF THE CASE:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty
(30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by
Lambert Eroles. While the truck was traversing the north diversion road along McArthur
highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck,
causing it to fall into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion
Industries, Inc., the value of the covered cargoes: P204, 450.00. FGU, in turn, being
the subrogee of the rights and interests of the insured sought reimbursement of the
amount, from GPS. Since GPS failed to heed the claim, FGU filed a complaint for
damages and breach of contract of carriage against GPS and its driver with the Regional
Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that GPS was
the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so
engaged in business as a common carrier. Respondents further claimed that the cause
of damage was purely accidental. GPS, instead of submitting its evidence, filed with
leave of court a motion to dismiss the complaint by way of demurrer to evidence on the
ground that petitioner had failed to prove that it was a common carrier. The RTC and
CA both ruled in favor of the Respondent.

ISSUES OF THE CASE:

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE

CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT
UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.

- In culpa contractual, upon which the action of petitioner rests as being the subrogee
of Concepcion Industries, Inc., the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. Thus, FGU
has a claim for the amount paid out.
- The law, recognizing the obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof
- GPS recognizes the existence of a contract of carriage between it and petitioner’s
assured, and admits that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or failure of compliance
with, the obligation in this case, the delivery of the goods in its custody to the place of
destination - gives rise to a presumption of lack of care and corresponding liability on
the part of the contractual obligor the burden being on him to establish otherwise. GPS
has failed to do so.

HELD:
The decision of the lower courts insofar as Lambert M. Eroles is concerned is affirmed
but assailed decision with regard to GPS trucking is reversed. It, is hereby ordered to
pay FGU Insurance Corporation the value of the damaged and lost cargoes in the
amount of P204, 450.00

Obligations and Contracts Terms:

• expectation interest- the interest in having the benefit of his bargain by being put in
as good a position as he would have been in had the contract been performed
• reliance interest- the interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract
not been made
• Restitution interest- which is his interest in having restored to him any benefit that he
has conferred on the other party.
• Subrogee- the person or entity that assumes the legal right to attempt to collect a
claim of another (subrogor) in return for paying the other's expenses or debts which the
other claims against a third party. A subrogee is usually the insurance company which
has insured the party whose expenses were paid.

The doctrine is not a substantive law but as mode of proof or a mere procedural
convenience as it serves to furnish a substitute for and relieves the plaintiff of the
burden of producing specific proof of negligence. The maxim simply places on the
defendant the burden of proving not being negligent. (FGU Ins Corp vs CA. 386 S 312)

TRASPO TABACALERA INSURANCE CO VS NORTH FRONT SHIPPING

SERVICES case digest
TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE,
INC., and NEW ZEALAND INSURANCE CO., LTD., vs.NORTH FRONT SHIPPING
SERVICES, INC., and COURT OF APPEALS,
G.R. No. 119197. May 16, 1997

Facts:

Sacks of grains were loaded on board a vessel owned by North Front Shipping
(common carrier); the consignee: Republic Floor Mills. The vessel was inspected by
representatives of the shipper prior to the transport and was found fitting to carry the
cargo; it was also issued a Permit to Sail. The goods were successfully delivered but it
was not immediately unloaded by the consignee. There were a shortage of 23.666
metric tons and some of the merchandise was already moldy and deteriorating. Hence,
the consignee rejected all the cargo and demanded payment of damages from the
common carrier. Upon refusal, the insurance companies (petitioners) were obliged to
pay. Petitioners now allege that there was negligence on the part of the carrier. The
trial court ruled that only ordinary diligence was required since the charter-party
agreement converted North Front Shipping into a private carrier.

Issues:

WON North Front Shipping is a common carrier. If indeed, did it fail to exercise the
required diligence and thus should be held liable?

Held:
 North Front Shipping is a common carrier. Thus, it has the burden of proving that it
observed extraordinary diligence in order to avoid responsibility for the lost cargo.
The charter-party agreement between North Front Shipping Services, Inc., and Republic
Flour Mills Corporation did not in any way convert the common carrier into a private
carrier. 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 usex
xx

Having been in the service since 1968, the master of the vessel would have known at
the outset that corn grains that were farm wet and not properly dried would eventually
deteriorate when stored in sealed and hot compartments as in hatches of a ship.
Equipped with this knowledge, the master of the vessel and his crew should have
undertaken precautionary measures to avoid or lessen the cargo’s possible deterioration
as they were presumed knowledgeable about the nature of such cargo.
But none of such measures was taken.
It did not even endeavor to establish that the loss, destruction or deterioration of the
goods was due to the following: (a) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (b) act of the public enemy in war, whether international or civil;
© act or omission of the shipper or owner of the goods; (d) the character of the goods
or defects in the packing or in the containers; (e) order or act of competent public
authority. This is a closed list. If the cause of destruction, loss or deterioration is other
than the enumerated circumstances, then the carrier is rightly liable therefor.

However, the destruction, loss or deterioration of the cargo cannot be attributed solely
to the carrier. The consignee Republic Flour Mills Corporation is guilty of contributory
negligence. It was seasonably notified of the arrival of the barge but did not
immediately start the unloading operations.

[G.R. No. 143133. June 5, 2002]

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES
TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST
INSURANCE CO., INC., respondent.

DECISION
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival
in bad order at their destination constitutes prima facie fault or negligence on the part
of the carrier. If no adequate explanation is given as to how the loss, the destruction or
the deterioration of the goods happened, the carrier shall be held liable therefor.

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
July 15, 1998 Decision[1] and the May 2, 2000 Resolution[2]of the Court of
Appeals[3] (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as
follows:

WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is
hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and
severally pay plaintiffs-appellants the following:

1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100

(P451,027.32) as actual damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time of filing of the complaint
on July 25, 1991, until fully paid;

2) Attorneys fees amounting to 20% of the claim; and

3) Costs of suit.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City
(Branch 134), which had disposed as follows:

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

complaint, as well as defendants counterclaim.[5]

The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this
wise:

On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at
Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation. On July
28, 1990, MN Anangel Sky arrived at the port of Manila and, within the subsequent
days, discharged the subject cargo. Four (4) coils were found to be in bad order B.O.
Tally sheet No. 154974.Finding the four (4) coils in their damaged state to be unfit for
the intended purpose, the consignee Philippine Steel Trading Corporation declared the
same as total loss.
Despite receipt of a formal demand, defendants-appellees refused to submit to the
consignees claim. Consequently, plaintiff-appellant paid the consignee five hundred six
thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the latters
rights and causes of action against defendants-appellees. Subsequently, plaintiff-
appellant instituted this complaint for recovery of the amount paid by them, to the
consignee as insured.

Impugning the propriety of the suit against them, defendants-appellees imputed that
the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice
or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency
of packing thereof, or to the act or omission of the shipper of the goods or their
representatives. In addition thereto, defendants-appellees argued that their liability, if
there be any, should not exceed the limitations of liability provided for in the bill of
lading and other pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment.[6]

Ruling of the Trial Court

The RTC dismissed the Complaint because respondent had failed to prove its claims
with the quantum of proof required by law.[7]
It likewise debunked petitioners counterclaim, because respondents suit was not
manifestly frivolous or primarily intended to harass them.[8]

Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitioners were liable for the loss or
the damage of the goods shipped, because they had failed to overcome the
presumption of negligence imposed on common carriers.
The CA further held as inadequately proven petitioners claim that the loss or the
deterioration of the goods was due to pre-shipment damage.[9] It likewise opined that
the notation metal envelopes rust stained and slightly dented placed on the Bill of
Lading had not been the proximate cause of the damage to the four (4) coils.[10]
As to the extent of petitioners liability, the CA held that the package limitation
under COGSA was not applicable, because the words L/C No. 90/02447 indicated that a
higher valuation of the cargo had been declared by the shipper. The CA, however,
affirmed the award of attorneys fees.
Hence, this Petition.[11]

Issues
 In their Memorandum, petitioners raise the following issues for the Courts
consideration:
I

Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;
II

Whether or not the consignee/plaintiff filed the required notice of loss within the time
required by law;
III

Whether or not a notation in the bill of lading at the time of loading is sufficient to show
pre-shipment damage and to exempt herein defendants from liability;
IV

Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of COGSA is
applicable to the case at bar.[12]
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common
carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers
should not be applied on the basis of the lone testimony offered by private respondent.
The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence and vigilance
with respect to the safety of the goods and the passengers they transport.[13] Thus,
common carriers are required to render service with the greatest skill and foresight and
to use all reason[a]ble means to ascertain the nature and characteristics of the goods
tendered for shipment, and to exercise due care in the handling and stowage, including
such methods as their nature requires.[14] The extraordinary responsibility lasts from the
time the goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or constructively, to the
consignee or to the person who has a right to receive them.[15]
This strict requirement is justified by the fact that, without a hand or a voice in the
preparation of such contract, the riding public enters into a contract of transportation
with common carriers.[16] Even if it wants to, it cannot submit its own stipulations for
their approval.[17] Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed.[18] That is, unless they prove that
they exercised extraordinary diligence in transporting the goods.[19] In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such diligence.[20]
However, the presumption of fault or negligence will not arise[21] if the loss is due to
any of the following causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether international or
civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order or act of
competent public authority.[22] This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the carrier is liable
therefor.[23]
Corollary to the foregoing, mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate explanation is given
as to how the deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.[24]
That petitioners failed to rebut the prima facie presumption of negligence is
revealed in the case at bar by a review of the records and more so by the evidence
adduced by respondent.[25]
First, as stated in the Bill of Lading, petitioners received the subject shipment in
good order and condition in Hamburg, Germany.[26]
Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and
signed by representatives of both parties showed the steel bands broken, the metal
envelopes rust-stained and heavily buckled, and the contents thereof exposed and
rusty.
Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport
Services, Inc., stated that the four coils were in bad order and condition. Normally, a
request for a bad order survey is made in case there is an apparent or a presumed loss
or damage.[29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted
and tested, the steel sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating
Corporation and dated October 12, 1990 -- admitted that they were aware of the
condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos
Checkers Agency. Pertinent portions of his testimony are reproduce hereunder:
Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the
Honorable Court with what company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected with defendant Jardine
Davies Transport Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court
your duties and responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the
discharge of cargoes.
xxxxxxxxx
Q. On or about August 1, 1990, were you still connected or employed with BM
Santos as a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and
inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
xxxxxxxxx
Q. Based on your inspection since you were also present at that time, will you inform
this Honorable Court the condition or the appearance of the bad order cargoes
that were unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the
cold steel sheets and the best evidence is the document itself, Your Honor that
shows the condition of the steel sheets.
COURT:
 Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes
are dent on the sides.[32]
All these conclusively prove the fact of shipment in good order and condition and
the consequent damage to the four coils while in the possession of petitioner,[33] who
notably failed to explain why.[34]
Further, petitioners failed to prove that they observed the extraordinary diligence
and precaution which the law requires a common carrier to know and to follow, to avoid
damage to or destruction of the goods entrusted to it for safe carriage and delivery.[35]
True, the words metal envelopes rust stained and slightly dented were noted on the
Bill of Lading; however, there is no showing that petitioners exercised due diligence to
forestall or lessen the loss.[36] Having been in the service for several years, the master
of the vessel should have known at the outset that metal envelopes in the said state
would eventually deteriorate when not properly stored while in transit.[37] Equipped with
the proper knowledge of the nature of steel sheets in coils and of the proper way of
transporting them, the master of the vessel and his crew should have undertaken
precautionary measures to avoid possible deterioration of the cargo. But none of these
measures was taken.[38] Having failed to discharge the burden of proving that they have
exercised the extraordinary diligence required by law, petitioners cannot escape liability
for the damage to the four coils.[39]
In their attempt to escape liability, petitioners further contend that they are
exempted from liability under Article 1734(4) of the Civil Code. They cite the notation
metal envelopes rust stained and slightly dented printed on the Bill of Lading as
evidence that the character of the goods or defect in the packing or the containers was
the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage
to the four coils was due to the condition noted on the Bill of Lading.[40] The aforecited
exception refers to cases when goods are lost or damaged while in transit as a result of
the natural decay of perishable goods or the fermentation or evaporation of substances
liable therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of animals.[41] None of
these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or
was apparent upon ordinary observation, it is not relieved of liability for loss or injury
resulting therefrom, once it accepts the goods notwithstanding such condition.[42] Thus,
petitioners have not successfully proven the application of any of the aforecited
exceptions in the present case.[43]

Second Issue:
Notice of Loss
 Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods
by Sea Act[44] (COGSA), respondent should have filed its Notice of Loss within three
days from delivery. They assert that the cargo was discharged on July 31, 1990, but
that respondent filed its Notice of Claim only on September 18, 1990.[45]
We are not persuaded. First, the above-cited provision of COGSA provides that the
notice of claim need not be given if the state of the goods, at the time of their receipt,
has been the subject of a joint inspection or survey. As stated earlier, prior to unloading
the cargo, an Inspection Report[46] as to the condition of the goods was prepared and
signed by representatives of both parties.[47]
Second, as stated in the same provision, a failure to file a notice of claim within
three days will not bar recovery if it is nonetheless filed within one year. [48] This one-
year prescriptive period also applies to the shipper, the consignee, the insurer of the
goods or any legal holder of the bill of lading.[49]
In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed. Thus, in the
words of the ponente, Chief Justice Hilario G. Davide Jr.:

Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes
sustained during transit--may be applied suppletorily to the case at bar.
In the present case, the cargo was discharged on July 31, 1990, while the
Complaint[51] was filed by respondent on July 25, 1991, within the one-year prescriptive
period.

Third Issue:
Package Limitation
Assuming arguendo they are liable for respondents claims, petitioners contend that
their liability should be limited to US$500 per package as provided in the Bill of Lading
and by Section 4(5)[52] of COGSA.[53]
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable,
because the value of the subject shipment was declared by petitioners beforehand, as
evidenced by the reference to and the insertion of the Letter of Credit or L/C No.
90/02447 in the said Bill of Lading.[54]
A bill of lading serves two functions. First, it is a receipt for the goods
shipped.[55] Second, it is a contract by which three parties -- namely, the shipper, the
carrier, and the consignee -- undertake specific responsibilities and assume stipulated
obligations.[56] In a nutshell, the acceptance of the bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.[57]
 Further, a stipulation in the bill of lading limiting to a certain sum the common
carriers liability for loss or destruction of a cargo -- unless the shipper or owner declares
a greater value[58] -- is sanctioned by law.[59] There are, however, two conditions to be
satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has
been fairly and freely agreed upon by the parties.[60] The rationale for, this rule is to
bind the shippers by their agreement to the value (maximum valuation) of their
goods.[61]
It is to be noted, however, that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package.[62] In all matters not regulated by the
Civil Code, the right and the obligations of common carriers shall be governed by the
Code of Commerce and special laws.[63]Thus, the COGSA, which is suppletory to the
provisions of the Civil Code, supplements the latter by establishing a statutory provision
limiting the carriers liability in the absence of a shippers declaration of a higher value in
the bill of lading.[64] The provisions on limited liability are as much a part of the bill of
lading as though physically in it and as though placed there by agreement of the
parties.[65]
In the case before us, there was no stipulation in the Bill of Lading[66] limiting the
carriers liability. Neither did the shipper declare a higher valuation of the goods to be
shipped. This fact notwithstanding, the insertion of the words L/C No. 90/02447 cannot
be the basis for petitioners liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of
Credit obtained by the shipper for the importation of steel sheets did not effect a
declaration of the value of the goods as required by the bill.[67] That notation was made
only for the convenience of the shipper and the bank processing the Letter of Credit.[68]
Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of
lading was separate from the Other Letter of Credit arrangements. We ruled thus:

(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the
contract of issuance of a letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in the letter of credit
will not affect the validity and enforceability of the contract of carriage as embodied in
the bill of lading. As the bank cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of credit, neither can the carrier be
expected to go beyond the representations of the shipper in the bill of lading and to
verify their accuracy vis--vis the commercial invoice and the letter of credit. Thus, the
discrepancy between the amount of goods indicated in the invoice and the amount in
the bill of lading cannot negate petitioners obligation to private respondent arising from
the contract of transportation.[70]
In the light of the foregoing, petitioners liability should be computed based on
US$500 per package and not on the per metric ton price declared in the Letter of
Credit.[71] In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court[72] we
explained the meaning of package:

When what would ordinarily be considered packages are shipped in a container supplied
by the carrier and the number of such units is disclosed in the shipping documents,
each of those units and not the container constitutes the package referred to in the
liability limitation provision of Carriage of Goods by Sea Act.
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill
of Lading clearly disclosed the contents of the containers, the number of units, as well
as the nature of the steel sheets, the four damaged coils should be considered as the
shipping unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners liability is reduced to US$2,000 plus interest at the legal
rate of six percent from the time of the filing of the Complaint on July 25, 1991 until the
finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as
to costs.
SO ORDERED.

[G.R. No. 143133. June 5, 2002]

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES
TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE
CO., INC., respondent.
DECISION
PANGANIBAN, J.:
Facts:
CMC Trading A.G. shipped on board the MN ‘Anangel Sky’ at Hamburg, Germany 242
coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to
the Philippine Steel Trading Corporation. On July 28, 1990, MN Anangel Sky arrived at
the port of Manila and, within the subsequent days, discharged the subject cargo. Four
(4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four
(4) coils in their damaged state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same as total loss.
Despite receipt of a formal demand, Phil. First insurance refused to submit to the
consignee’s claim. Consequently, Belgian Overseas paid the consignee P506,086.50,
and was subrogated to the latter’s rights and causes of action against defendants-
appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of the
amount paid by them, to the consignee as insured.
Impugning the propriety of the suit against them, defendants-appellees imputed that
the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice
or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency
of packing thereof, or to the act or omission of the shipper of the goods or their
representatives. In addition thereto, defendants-appellees argued that their liability, if
there be any, should not exceed the limitations of liability provided for in the bill of
lading and other pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment.”
Issue: Whether or not petitioners have overcome the presumption of negligence of a
common carrier
Held:
No.
Petitioners contend that the presumption of fault imposed on common carriers should
not be applied on the basis of the lone testimony offered by private respondent. The
contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence and vigilance with
respect to the safety of the goods and the passengers they transport. Thus, common
carriers are required to render service with the greatest skill and foresight and “to use
all reasonable means to ascertain the nature and characteristics of the goods tendered
for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires.” The extraordinary responsibility lasts from the time
the goods are unconditionally placed in the possession of and received for
transportation by the carrier until they are delivered, actually or constructively, to the
consignee or to the person who has a right to receive them.
Owing to this high degree of diligence required of them, common carriers, as a general
rule, are presumed to have been at fault or negligent if the goods they transported
deteriorated or got lost or destroyed. That is, unless they prove that they exercised
extraordinary diligence in transporting the goods. In order to avoid responsibility for
any loss or damage, therefore, they have the burden of proving that they observed
such diligence.
However, the presumption of fault or negligence will not arise if the loss is due to any
of the following causes: (1) flood, storm, earthquake, lightning, or other natural
disaster or calamity; (2) an act of the public enemy in war, whether international or
civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of
the goods or defects in the packing or the container; or (5) an order or act of
competent public authority. This is a closed list. If the cause of destruction, loss or
deterioration is other than the enumerated circumstances, then the carrier is liable
therefor.
Corollary to the foregoing, mere proof of delivery of the goods in good order to a
common carrier and of their arrival in bad order at their destination constitutes a prima
facie case of fault or negligence against the carrier. If no adequate explanation is given
as to how the deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible.
That petitioners failed to rebut the prima facie presumption of negligence is revealed in
the case at bar by a review of the records and more so by the evidence adduced by
respondent

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES

TRANSPORT SERVICES, INC., petitioners, 
vs.
PHILIPPINE FIRST INSURANCE
CO., INC., respondents, G.R. No. 143133, June 5, 2002
Proof of the delivery of goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes prima facie fault or negligence on the part of
the carrier. If no adequate explanation is given as to how the loss, the destruction or
the deterioration of the goods happened, the carrier shall be held liable therefor.
Facts: On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at
Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation. On July
28, 1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent
days, discharged the subject cargo. Four (4) coils were found to be in bad order.
Finding the four (4) coils in their damaged state to be unfit for the intended purpose,
the consignee Philippine Steel Trading Corporation declared the same as total loss.
Petitioners refused to submit to the consignee's claim. Consequently, respondent paid
the consignee and was subrogated to the latter's rights. Subsequently, respondent
instituted this complaint for recovery of the amount paid by them, to the consignee as
insured.
Petitioners imputed that the damage and/or loss was due to pre-shipment damage. In
addition thereto, they argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other pertinent laws. Finally,
they averred that, in any event, they exercised due diligence and foresight required by
law to prevent any damage/loss to said shipment.
RTC dismissed the Complaint because respondent had failed to prove its claims. In
reversing the trial court, the CA ruled that petitioners were liable for the loss or the
damage of the goods shipped, because they had failed to overcome the presumption of
negligence imposed on common carriers.
Issue #1: Whether or not a notation in the bill of lading at the time of loading is
sufficient to show pre-shipment damage and to exempt herein defendants from liability.
Held: NO. Mere proof of delivery of the goods in good order to a common carrier and
of their arrival in bad order at their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate explanation is given as to
how the deterioration, the loss or the destruction of the goods happened, the
transporter shall be held responsible. Petitioners failed to rebut the prima facie
presumption of negligence in the case at bar. True, the words "metal envelopes rust
stained and slightly dented" were noted on the Bill of Lading; however, there is no
showing that petitioners exercised due diligence to forestall or lessen the
loss. Having failed to discharge the burden of proving that they have exercised the
extraordinary diligence required by law, petitioners cannot escape liability for the
damage to the four coils.
Issue #2: Whether or not the consignee/plaintiff filed the required notice of loss within
the time required by law.
Held: YES. Pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act
(COGSA), a failure to file a notice of claim within three days will not bar recovery if
it is nonetheless filed within one year. This one-year prescriptive period also
applies to the shipper, the consignee, the insurer of the goods or any legal
holder of the bill of lading. In the present case, the cargo was discharged on July 31,
1990, while the Complaint was filed by respondent on July 25, 1991, within the one-
year prescriptive period.
Issue #3: Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5)
of COGSA is applicable.
Held: YES. In the case before us, there was no stipulation in the Bill of Lading limiting
the carrier's liability. Neither did the shipper declare a higher valuation of the goods to
be shipped. This fact notwithstanding, the insertion of the words "L/C No. 90/02447
cannot be the basis for petitioners' liability.
A notation in the Bill of Lading which indicated the amount of the Letter of Credit
obtained by the shipper for the importation of steel sheets did not effect a declaration
of the value of the goods as required by the bill. In the light of the foregoing,
petitioners' liability should be computed based on US$500 per package and
not on the per metric ton price declared in the Letter of Credit.

CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY

OF NORTH AMERICA, respondent.
Doctrine of Limited Liability does not apply to situations in which the loss or
the injury is due to the concurrent negligence of the shipowner and the
captain.

Facts:

1. On July 25, 1990 at Puerto Princesa, Palawan, the petitioner received on board its
vessel, the M/V ‘Central Bohol,’ 376 pieces of Philippine Apitong Round Logs and
undertook to transport said shipment to Manila for delivery to Alaska Lumber Co., Inc.

2. During the voyage the degree of the position of the ship would change due to the
shifting of the logs inside. Eventually at about 15 degrees the captain ordered for
everyone to abandon the ship.

3. Respondent alleged that the total loss of the shipment was caused by the fault and
negligence of the petitioner and its captain. Petitioner while admitting the sinking of the
vessel, interposed the defense that the vessel was fully manned, fully equipped and in
all respects seaworthy; that all the logs were properly loaded and secured; that the
vessel’s master exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the storm.

4. “It raised as its main defense that the proximate and only cause of the sinking of
its vessel and the loss of its cargo was a natural disaster, a tropical storm which neither
[petitioner] nor the captain of its vessel could have foreseen.”

5. The RTC was unconvinced that the sinking of M/V Central Bohol had been caused
by the weather or any other caso fortuito. It noted that monsoons, which were common
occurrences during the months of July to December, could have been foreseen and
provided for by an ocean-going vessel. Applying the rule of presumptive fault or
negligence against the carrier, the trial court held petitioner liable for the loss of the
cargo.

6. The CA affirmed the trial court’s finding that the southwestern monsoon
encountered by the vessel was not unforeseeable. Given the season of rains and
monsoons, the ship captain and his crew should have anticipated the perils of the sea.
Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative
liability of the owner/operator, officers and crew of the vessel. However, the
determination of whether the carrier observed extraordinary diligence in protecting the
cargo it was transporting was a function of the courts, not of the BMI.

Issue:
Whether or not the Doctrine of Limited Liability applies.

Held:

No it does not.

Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case; In all other cases not
specified under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence. From the nature of their business and for reasons of public
policy, common carriers are bound to observe extraordinary diligence over the goods
they transport, according to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods, common carriers are responsible; that
is, unless they can prove that such loss, destruction or deterioration was brought
about—among others—by “flood, storm, earthquake, lightning or other natural disaster
or calamity.” In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence.
The doctrine of limited liability under Article 587 of the Code of Commerce is not
applicable to the present case. This rule does not apply to situations in which the loss or
the injury is due to the concurrent negligence of the ship-owner and the captain. It has
already been established that the sinking of M/V Central Bohol had been caused by the
fault or negligence of the ship captain and the crew, as shown by the improper stowage
of the cargo of logs. “Closer supervision on the part of the shipowner could have
prevented this fatal miscalculation.” As such, the shipowner was equally negligent. It
cannot escape liability by virtue of the limited liability rule.
SCHMITZ TRANSPORT & BROKERAGE CORPORATION v. TRANSPORT
VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., et al.

456 SCRA 557 (2005)

A common carrier shall exercise extraordinary diligence to prevent and/or minize the
loss or destruction of goods.

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 respondent Black Sea)
545 hot rolled steel sheets. The vessel arrived at the port of Manila and the Philippine
Ports Authority (PPA) assigned it a place of berth at the outside breakwater at the
Manila South Harbor. Petitioner Schmitz Transport, engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to Little Giant
Steelpipe Corporation‘s warehouse at Cainta, Rizal. It likewise engaged the services of
respondent Transport Venture Inc. (TVI) to send a barge and tugboat at shipside.

The tugboat, after positioning the barge alongside the vessel, left and returned to the
port terminal. Later on, arrastre operator commenced to unload 37 of the 545 coils
from the vessel unto the barge. By noon the next day, during which the weather
condition had become inclement due to an approaching storm, the unloading unto the
barge of the 37 coils was accomplished. However, there was no tugboat that pulled the
barge back to the pier. Eventually, because of the strong waves, the crew of the barge
abandoned it and transferred to the vessel. The barge capsized, washing the 37 coils
into the sea. Earnest efforts on the part of both the consignee Little Giant and Industrial
Insurance to recover the lost cargoes proved futile.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI and Black
Sea through its representative Inchcape (the defendants) before the RTC of Manila, for
the recovery of the amount it paid to Little Giant plus adjustment fees, attorney‘s fees,
and litigation expenses. Industrial Insurance won and the Schmitz et al.’s motion for
reconsideration is denied.

In effect, Schmitz now filed charges against TVI et al. It 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. The Court
rendered a decision holding Schmitz and TVI liable.

ISSUES:

Whether or not the liability for the loss may attach to Black Sea, Schmitz and TVI
HELD:

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

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

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

The Court holds then that Schmitz and TVI are solidarily liable for the loss of the
cargoes. 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

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 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 Schmitz, it had discharged its duty.

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

SCRA 639) →
Schmitz Transport & Brokerage Corporation vs. Transport Venture, Inc. (458 SCRA 557)
10DEC
FACTS:
Petitioner, who was in charge of securing requisite clearances, receive the cargoes from
the shipside and deliver it to the consignee Little Giant Steel Pipe Corporation
warehouse at Cainta, Rizal, hired the services of respondent Transport Venture
Incorporation (TVI)’s tugboat for the hot rolled steel sheets in coil. Coils were unloaded
to the barge but there was no tugboat to pull the barge to the pier. Due to strong
waves caused by approaching storm, the barge was abandoned. Later, the barge
capsized washing 37 coils into the sea. Consignee was executed a subrogation receipt
by Industrial Insurance after the former’s filing of formal claim. Industrial Insurance
filed a complaint against both petitioner and respondent herein. The trial court held that
petitioner and respondent TVI were jointly and severally liable for the subrogation.
ISSUE:
Whether or not the loss of cargoes was due to fortuitous event.
RULING:
NO. In order, to be considered a fortuitous event: (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.
Petitioner and respondent TVI were jointly and severally liable for the amount of paid
by the consignee plus interest computed from the date of decision of the trial court.

[G.R. No. 146018. June 25, 2003]

EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL
INSURANCE COMPANY, INC., respondent.

DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill
of lading, be limited to the value declared by the shipper. On the other hand, the
liability of the insurer is determined by the actual value covered by the insurance policy
and the insurance premiums paid therefor, and not necessarily by the value declared in
the bill of lading.

The Case
Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court,
seeking to set aside the August 31, 2000 Decision[2]and the November 17, 2000
Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 62751. The dispositive part
of the Decision reads:

IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed
from is REVERSED. [Petitioner] is hereby condemned to pay to [respondent] the total
amount of P148,500.00, with interest thereon, at the rate of 6% per annum, from date
of this Decision of the Court.[Respondents] claim for attorneys fees
[is] DISMISSED. [Petitioners] counterclaims are DISMISSED.[5]
The assailed Resolution denied petitioners Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which
was later reversed by the CA, states:

WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.

No cost.[8]

The Facts
The facts of the case are summarized by the appellate court in this wise:

Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong
Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo
consisting of one (1) carton of Christmas dcor and two (2) sacks of plastic toys, to be
transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart
from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner]
issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was
both the shipper and consignee of the cargo valued, on the face thereof, in the amount
of P6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two
(2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and one (1)
bundle of various or assorted goods for transportation thereof from Cebu City to
Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner]
issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was
valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.

On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading
No. 59, with the UCPB General Insurance Co., Inc., [respondent] for brevity, for the
amount of P100,000.00 against all risks under Open Policy No. 002/91/254 for
which she was issued, by [respondent], Marine Risk Note No. 18409 on said
date. She also insured the cargo covered by Bill of Lading No. 58, with [respondent],
for the amount of P50,000.00, under Open Policy No. 002/91/254 on the basis of
which [respondent] issued Marine Risk Note No. 18410 on said date.
When the vessel left port, it had thirty-four (34) passengers and assorted cargo on
board, including the goods of Legaspi. After the vessel had passed by the Mandaue-
Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the
officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the
required Marine Protest.

Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of
the cargo insured under Marine Risk Note No. 18409 and covered by Bill of Lading
No. 59. She submitted, in support of her claim, a Receipt, dated December 11, 1991,
purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for
the goods he received from Feliciana Legaspi valued in the amount
of P110,056.00.[Respondent] approved the claim of Feliciana Legaspi and drew and
issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of P99,000.00,
in settlement of her claim after which she executed a Subrogation Receipt/Deed,
for said amount, in favor of [respondent]. She also filed a claim for the value of the
cargo covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt,
dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for
the goods he received from Feliciana Legaspi valued at P60,338.00. [Respondent]
approved her claim and remitted to Feliciana Legaspi the net amount of P49,500.00,
after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor
of [respondent].

On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint

anchored on torts against [petitioner], with the Regional Trial Court of Makati City, for
the collection of the total principal amount of P148,500.00, which it paid to Feliciana
Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and
against the [petitioner] as follows:

WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing,
judgment be rendered ordering [petitioner] to pay [respondent] the following.

1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate
from the time of filing of this complaint until fully paid;

2. Attorneys fees in the amount of P10,000.00; and

3. Cost of suit.

[Respondent] further prays for such other reliefs and remedies as this Honorable Court
may deem just and equitable under the premises.

[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its
complaint was delivered to, and received by, [petitioner] for transportation to Tandag,
Surigao del Sur under Bill of Ladings, Annexes A and B of the complaint; that the loss
of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi
had executed Subrogation Receipts/Deeds in favor of [respondent] after paying to
her the value of the cargo on account of the Marine Risk Notes it issued in her favor
covering the cargo.

In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by
the Board of Marine Inquiry of any negligence in the burning of the vessel; (b) the
complaint stated no cause of action against [petitioner]; and (c) the shippers/consignee
had already been paid the value of the goods as stated in the Bill of Lading and,
hence, [petitioner] cannot be held liable for the loss of the cargo beyond the value
thereof declared in the Bill of Lading.

After [respondent] rested its case, [petitioner] prayed for and was allowed, by the
Court a quo, to take the depositions of Chester Cokaliong, the Vice-President and Chief
Operating Officer of [petitioner], and a resident of Cebu City, and of Noel Tanyu, an
officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City,
to be given before the Presiding Judge of Branch 106 of the Regional Trial Court of
Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before
the Court and declared inter alia, that: [petitioner] is a family corporation like
the Chester Marketing, Inc.; Nestor Angelia had been doing business with
[petitioner] and Chester Marketing, Inc., for years, and incurred an account with
Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did
issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo
Mercado and Nestor Angelia as shippers/consignees, respectively; the engine room of
the M/V Tandagcaught fire after it passed the Mandaue/Mactan Bridge resulting in the
total loss of the vessel and its cargo; an investigation was conducted by the Board of
Marine Inquiry of the Philippine Coast Guard which rendered a Report, dated February
13, 1992 absolving [petitioner] of any responsibility on account of the fire, which Report
of the Board was approved by the District Commander of the Philippine Coast Guard; a
few days after the sinking of the vessel, a representative of the Legaspi Marketing filed
claims for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of
the shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner] was able to
ascertain, from the shippers/consignees and the representative of the Legaspi
Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi
Marketing and consigned to Zosimo Mercado while that covered by Bill of Lading No.
58 was purchased by Nestor Angelia from the Legaspi Marketing; that [petitioner]
approved the claim of Legaspi Marketing for the value of the cargo under Bill of
Lading No. 59 and remitted to Legaspi Marketing the said amount under Equitable
Banking Corporation Check No. 20230486 dated August 12, 1992, in the amount
of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher
No. 4379, dated August 12, 1992, for the said amount of P14,000.00 in full payment of
claims under Bill of Lading No. 59; that [petitioner] approved the claim of Nestor
Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing,
Inc., for some purchases, [petitioner] merely set off the amount due to Nestor Angelia
under Bill of Lading No. 58 against his account with Chester Marketing, Inc.;
[petitioner] lost/[misplaced] the original of the check after it was received by Legaspi
Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable
Banking Corporation; [petitioner] never knew, before settling with Legaspi Marketing
and Nestor Angelia that the cargo under both Bills of Lading were insured with
[respondent], or that Feliciana Legaspi filed claims for the value of the cargo with
[respondent] and that the latter approved the claims of Feliciana Legaspi and paid the
total amount of P148,500.00 to her; [petitioner] came to know, for the first time, of the
payments by [respondent] of the claims of Feliciana Legaspi when it was served with
the summons and complaint, on October 8, 1992; after settling his claim, Nestor
Angelia x x x executed the Release and Quitclaim, dated July 2, 1993,
and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was
absolved of any liability for the loss of the cargo covered by Bills of Lading Nos. 58
and 59; and even if it was, its liability should not exceed the value of the cargo as
stated in the Bills of Lading.

[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x
x[9] (Citations omitted)

Ruling of the Court of Appeals

The CA held that petitioner had failed to prove that the fire which consumed the
vessel and its cargo was caused by something other than its negligence in the upkeep,
maintenance and operation of the vessel.[10]
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of
Lading No. 59. The CA, however, held that the payment did not extinguish petitioners
obligation to respondent, because there was no evidence that Feliciana Legaspi (the
insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the
impropriety of treating the claim under Bill of Lading No. 58 -- covering cargo valued
therein at P6,500 -- as a setoff against Nestor Angelias account with Chester
Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo under
the Bills of Lading, x x x nor is the value of the cargo under said Bills of Lading
conclusive on the [respondent]. This is so because, in the first place, the goods were
insured with the [respondent] for the total amount of P150,000.00, which amount may
be considered as the face value of the goods.[11]
Hence this Petition.[12]

Issues
Petitioner raises for our consideration the following alleged errors of the CA:
I

The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in
holding that petitioners liability should be based on the actual insured value of the
goods and not from actual valuation declared by the shipper/consignee in the bill of
lading.
II

The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard,
as sustained by the trial court a quo, holding that the cause of loss of the aforesaid
cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and due diligence
was [exercised] by petitioner prior to, during and immediately after the fire on
[petitioners] vessel.
III

The Court of Appeals erred in not holding that respondent UCPB General Insurance has
no cause of action against the petitioner.[13]
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is
liable, what is the extent of its liability?

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was
force majeure. It adds that its exercise of due diligence was adequately proven by the
findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard
show that the M/V Tandag sank due to a fire, which resulted from a crack in the
auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack was located
on the side of the fuel oil tank, which had a mere two-inch gap from the engine room
walling, thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire
could not have been caused by force majeure.Broadly speaking, force majeure
generally applies to a natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy.[14] Hence, fire is not considered a natural
disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court,[15] we explained:
x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the category of an act of God unless caused by lighting or by other natural disaster or
calamity. It may even be caused by the actual fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands 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 protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

Where loss of cargo results from the failure of the officers of a vessel to inspect
their ship frequently so as to discover the existence of cracked parts, that loss cannot
be attributed to force majeure, but to the negligence of those officials.[16]
The law provides that a common carrier is presumed to have been negligent if it
fails to prove that it exercised extraordinary vigilance over the goods it
transported. Ensuring the seaworthiness of the vessel is the first step in exercising the
required vigilance. Petitioner did not present sufficient evidence showing what
measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed
to show when the last inspection and care of the auxiliary engine fuel oil service tank
was made, what the normal practice was for its maintenance, or some other evidence
to establish that it had exercised extraordinary diligence. It merely stated that constant
inspection and care were not possible, and that the last time the vessel was dry-docked
was in November 1990. Necessarily, in accordance with Article 1735[17] of the Civil
Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading
Nos. 58 and 59.

Second Issue:
Extent of Liability
Respondent contends that petitioners liability should be based on the actual insured
value of the goods, subject of this case. On the other hand, petitioner claims that its
liability should be limited to the value declared by the shipper/consignee in the Bill of
Lading.
The records[18] show that the Bills of Lading covering the lost goods contain the
stipulation that in case of claim for loss or for damage to the shipped merchandise or
property, [t]he liability of the common carrier x x x shall not exceed the value of the
goods as appearing in the bill of lading.[19] The attempt by respondent to make light of
this stipulation is unconvincing. As it had the consignees copies of the Bills of
Lading,[20] it could have easily produced those copies, instead of relying on mere
allegations and suppositions.However, it presented mere photocopies thereof to
disprove petitioners evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid[21] as long as it is not against public
policy. In Everett Steamship Corporation v. Court of Appeals,[22] the Court stated:

A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater
value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which
provides:

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

Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been freely and fairly agreed upon.

Such limited-liability clause has also been consistently upheld by this Court in a number
of cases. Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

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

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting
the common carriers liability for loss must be reasonable and just under the
circumstances, and has been freely and fairly agreed upon.

The bill of lading subject of the present controversy specifically provides, among others:

18. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the shippers net invoice cost plus freight and insurance premiums, if paid, and
in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.

The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency
(100,000.00) or its equivalent in any other currency per package or customary freight
unit (whichever is least) unless the value of the goods higher than this amount is
declared in writing by the shipper before receipt of the goods by the carrier and
inserted in the Bill of Lading and extra freight is paid as required.
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the
carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare
a higher valuation if the value of its cargo was higher than the limited liability of the
carrier. Considering that the shipper did not declare a higher valuation, it had itself to
blame for not complying with the stipulations. (Italics supplied)
In the present case, the stipulation limiting petitioners liability is not contrary to
public policy. In fact, its just and reasonable character is evident. The
shippers/consignees may recover the full value of the goods by the simple expedient of
declaring the true value of the shipment in the Bill of Lading. Other than the payment of
a higher freight, there was nothing to stop them from placing the actual value of the
goods therein. In fact, they committed fraud against the common carrier by deliberately
undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper
and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect
the common carrier. Such stipulation obliges the shipper/consignee to notify the
common carrier of the amount that the latter may be liable for in case of loss of the
goods. The common carrier can then take appropriate measures -- getting insurance, if
needed, to cover or protect itself. This precaution on the part of the carrier is
reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth of
the goods it seeks to transport does not only violate a valid contractual stipulation, but
commits a fraudulent act when it seeks to make the common carrier liable for more
than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the
goods in their respective Bills of Lading. Hence, petitioner was exposed to a risk that
was deliberately hidden from it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of
the goods) the insurance company was paid the correct higher premium by Feliciana
Legaspi; while petitioner was paid a fee lower than what it was entitled to for
transporting the goods that had been deliberately undervalued by the shippers in the
Bill of Lading. Between the two of them, the insurer should bear the loss in excess of
the value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature
and the value of the goods shipped were declared and reflected in the bill of lading, like
in the present case. The Court therein considered this declaration as the basis of the
carriers liability and ordered payment based on such amount. Following this ruling,
petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the
owner of the goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods
were merely consigned to Nestor Angelia and Zosimo Mercado, respectively; thus,
Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of
loss, to compensation therefor. There is no evidence showing that petitioner paid her
for the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods
under Bill of Lading No. 59, for which the latter subsequently paid P14,000. But nothing
in the records convincingly shows that the former was the owner of the
goods. Respondent was, however, able to prove that it was Feliciana Legaspi who
owned those goods, and who was thus entitled to payment for their loss. Hence, the
claim for the goods under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58
and valued at P6,500, the parties have not convinced us to disturb the findings of the
CA that compensation could not validly take place. Thus, we uphold the appellate courts
ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision
is MODIFIED in the sense that petitioner isORDERED to pay respondent the sums
of P14,000 and P6,500, which represent the value of the goods stated in Bills of Lading
Nos. 59 and 58, respectively. No costs.
SO ORDERED.