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Transportation LAW

Part I Joey

Transportation Law
Luzon Stevedoring V PSC.........................................................................................................................1
Albano V. Reyes........................................................................................................................................2
Tatad V. Garcia.........................................................................................................................................2
NAPOCOR v CA......................................................................................................................................3
KMU Labor Center v. Garcia, ..................................................................................................................4
Baliwag Transit V CA...............................................................................................................................6
LRTA V. Natividad.................................................................................................................................13
Bascos V CA...........................................................................................................................................13
De Guzman v CA....................................................................................................................................13
Philam Gen Vs PKS................................................................................................................................17

Luzon Stevedoring V PSC


Petitioners apply for review of a decision of the PSC restraining them "from further operating their watercraft to transport
goods for compensation until the rates they propose to charge are approved by this Commission.

For this service, respondents charge freightage on a unit price with rates ranging from
P0.50 to P0.62 1/2 per bag or picul of sugar loaded. There is no fixed route in the transportation of these cargoes, the same
being left at the indication of the owner or shipper of the goods. The barge and the tugboats are manned by the crew of
respondents and, in case of damage to the goods in transit caused by the negligence of said crews,
respondents are liable therefor.

Upon these findings the PSC made the order now sought to be reviewed, upon complaint of the Philippine Shipowners'
Association charging that the respondents were engaged in the transportation of cargo in the Philippines for hire or
compensation without authority or approval of the Commission, with competitive fees that resulted in ruinous ompetition with
complainant.

Luzon asserts that it is a private carrier and not a public carrier. Being so, it is not subject to CA 146 which regulates
common carriers.

ISSUE:

W/n Luzon SteveDoring was a public utility in contemplation of the law, and therefore subject to the regulation of
government for public utilities

HELD:

PSC’s decision is affirmed with costs against petitioners.

It is not necessary that one holds himself out as serving or willing to serve the public in order to be considered public
service. Public service is that which is rendered for compensation, although limited exclusively to the customers of the
petitioner. In the United States where, it is said, there is no fixed definition of what constitutes public service or public utility,
it is also held that it is not always necessary, in order to be a public service, that an organization be dedicated to public use,
i.e., ready and willing to serve the public as a class. It is only necessary that it must in some way be impressed with a
public interest.

Petitioners' tugboats were not leased, but used to carry goods for compensation at a fixed rate for a fixed weight. They were
hired, hired in the sense that the shippers did not have
direction, control, and maintenance thereof, which is a characteristic feature of lease.

The Public Service Commission has interpreted the law in accordance with legislative intent. Commonwealth Act No. 146
declares in unequivocal language that an enterprise of any of the kinds therein enumerated is a public service if conducted
for hire or compensation even if the operator deals only with a portion of the public or limited clientele.

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Even where the term Public Utility is not defined by statute, is not determined by the number of people actually served. Nor
does the mere fact that service is rendered only under contract prevent a company from being a public utility. Applying the
plain letter of Commonwealth Act No. 146, Luzon is a public utility, and to restrain it from further operating its watercraft to
transport goods for hire or compensation between points in the Philippines until the rates it proposes to charge are approved
by the Public Service Commission, does not invade private rights of property or contract. The constitutionality of
Commonwealth Act No. 146 was upheld, implicitly in Luzon Brokerage Co. vs. Public Service Commission

Albano V. Reyes
A Restraining Order was instituted to restrain the respondents Philippine Ports Authority
(PPA) and the Secretary of the Department of Transportation and Communications
Rainerio O. Reyes from awarding to the International Container Terminal Services,
Inc. (ICTSI) the contract for the development, management and operation of the
Manila International Container Terminal (MICT). Seven consortia of companies actually submitted bids, which bids were
opened on July 17, 1987 . The Bidding Committee recommended the award of the contract to develop, manage and operate
the MICT to respondent International Container Terminal Services, Inc. (ICTSI) as having offered the best Technical and
Financial Proposal. Accordingly, respondent Secretary declared the ICTSI consortium as the winning bidder.

Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as citizen and taxpayer and as a member of the House
of Representatives, assailing the award of the MICT contract to the ICTSI by the PPA. The petitioner claims that since the
MICT is a public utility, it needs a legislative franchise before it can legally operate as a public utility, pursuant to Article 12,
Section 11 of the 1987 Constitution.

ISSUE:

w/n the MICT requires a legislative franchise because it is a public utility

HELD:

No. A review of the applicable provisions of law indicates that a franchise specially granted by Congress is not necessary for
the operation of the Manila International Container Port (MICP) by a private entity, a contract entered into by the PPA and
ICTSI. P.D. No. 857 expressly empowers the PPA to provide services within Port Districts "whether on its own, by contract,
or otherwise" [Sec. 6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the
International Container Terminal Services, Inc. (ICTSI) for the management, operation and development of the MICP. such
entity constituting substantial compliance with the law. This is the exemption to public utilities requiring a franchise as
normally mandated by the Constitution.

The court further went on to say that even if the MICP be considered a public utility, or a public service on the theory that it is
a "wharf" or a "dock" as contemplated under the Public Service Act, its operation would not necessarily call for a franchise
from the Legislative Branch. Franchises issued by Congress are not required before each and every public utility may
operate. Thus, the law has granted certain administrative agencies the power to grant licenses for or to authorize the
operation of certain public utilities. (See E.O. Nos. 172 and 202). In other words, P.D. 857 itself authorizes the PPA to
perform the service by itself, by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857 together,
the inescapable conclusion is that the lawmaker has empowered the PPA to undertake by itself the operation and
management of the MICP or to authorize its operation and management by another by contract or other means, at its
option.The latter power having been delegated to the PPA, a franchise from Congress to authorize an entity other than the
PPA to operate and manage the MICP becomes unnecessary.

Tatad V. Garcia
Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public
respondent Secretary of DOTC, is a foreign corporation "duly incorporated and existing under the laws of Hongkong." Being
a foreign corporation, said EDSA LRT Corp is therefore barred from the privilege of acquiring a franchise to operate a public
utility- this according to Sen. Tatatad

ISSUE:
w/n respondent EDSA LRT Corporation, Ltd., a foreign corporation ,can own EDSA LRT III, a public utility? Does it need a
franchise to own a public utility.

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HELD:

Yes it can own a public utility and NO, it does not need a franchise to own one. There is a difference between owning a
public utility and Operating a public utility. Owning a public utility (the tools, machinerie, etc) does not require a franchise. It is
operating the facility that does.

Once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to
operate the system and pay rentals for said use. What private respondent owns are the rail tracks, rolling stocks like the
coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their
ownership but their use to serve the public. The Constitution, in no uncertain terms, requires a franchise for the operation of
a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so
long as it does not operate them to serve the public.

The Constitution, in no uncertain terms, requires a franchise for the operation


of a public utility. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them to serve
the public.

NAPOCOR v CA
According to PIA, the CEPALCO proved no match to the power demands of the industries in PIE-MO such that most of
these companies operating therein closed shop.

Impelled by a "desire to provide cheap power costs to power-intensive industries operating within the Estate," PIA applied
with the National Power Corporation (NPC) for direct power connection which the latter in due course approved. One of the
companies which entered into an agreement with the NPC for a direct sale and supply of power was the Ferrochrome Phils.,
Inc. (FPI).

Contending that the said agreement violated its right as the authorized operator of an electric light and power system in the
area and the national electrification policy, CEPALCO filed a Civil Case, a petition for prohibition, mandamus and injunction
before the Regional Trial Court of Quezon City against the NPC. Notwithstanding NPC's claim that it was authorized by its
Charter to sell electric power "in bulk" to industrial enterprises, the lower court rendered a decision, restraining the NPC from
supplying power directly to FPI upon the ground that such direct sale, supply and delivery of electric power by the NPC to
FPI was violative of the rights of CEPALCO under its legislative franchise. Hence, the lower court ordered the NPC to
"permanently desist" from effecting direct supply of power to the FPI and "from entering into and/or implementing any
agreement or arrangement for such direct power connection, unless coursed through the power line" of CEPALCO.

The SC affirmed, and FPI persisted with its application. FPI also contended that CEPALCO charged higher than the allowed
rates mandated by the NPC. NPC ruled for FPI to the detriment of CEPALCO. NPC began to provide direct power
connection to FPI

ISSUE

w/n he NPC may supply power directly to PIA in the PIE-MO area where CEPALCO has a franchise. Petitioner PIA asserts
that it may receive power directly from the NPC because it is a public utility. It avers that P.D. No. 538, as amended,
empowers PIA "as and to be a public utility to operate and serve the power needs within PIE-MO

HELD

A "public utility" is a business or service engaged in regularly supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone or telegraph service. The term implies public use
and service.

Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental and proprietary functions Clearly then, the PIA is
authorized to render indirect service to the public by its administration of the PHIVIDEC industrial areas like the PIE-MO and
may, therefore, be considered a public utility. As it is expressly authorized by law to perform the functions of a public utility, a
certificate of public convenience, as suggested by the Court of Appeals, is not necessary for it to avail of a direct power
connection from the NPC. However, such authority to be a public utility may not be exercised in such a manner as to
prejudice the rights of existing franchisees.

The determination of which of two public utilities has the right to supply electric power to an area which is within the
coverage of both is certainly not a rate-fixing function which should remain with the ERB. It deals with the regulation of
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the distribution of energy resources which, under Executive Order No. 172, was expressly a function of ERB. However, with
the enactment of Republic Act No. 7638, the Department of Energy took over such function. Hence, it is this Department
which shall then determine whether CEPALCO or PIA should supply power to PIE-MO.

Clearly, petitioner NPC's assertion that its "authority to entertain and hear direct connection applications is a necessary
incident of its express authority to sell electric power in bulk" is now baseless.

WHEREFORE, both petitions in G.R. No. 112702 and 113613 are hereby DENIED. The Department of Energy is directed to
conduct a hearing with utmost dispatch to determine whether it is the Cagayan Electric Power and Light Co., Inc. or
the National Power Corporation, through the PHIVIDEC Industrial Authority, which should supply electric power to the
industries in the PHIVIDEC Industrial Estate-Misamis Oriental.

KMU Labor Center v. Garcia,


Facts: Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing
provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the
purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares.
Said increased fares were to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive
portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES
FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved
with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it
is entitled under existing laws.

SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from
implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that
provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was
likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus
operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-
five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is
unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant for a
proposed transport service without having to prove public necessity, is illegal for being violative of the Public Service Act and
the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions
the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue
or has no real interest in the case at bench and in obtaining the reliefs prayed for.

Issue: WON the petitioner, KMU, has the standing to sue

Held: YES

Rationale:

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution
provides:

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xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.

In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have
the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant.
One who is directly affected by and whose interest is immediate and substantial in the controversy has the standing to sue.
The rule therefore requires that a party must show a personal stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise
of the court's remedial powers in his behalf. 8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and
damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal
right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or
orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the
burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the
riding public. Certainly, their rights must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren
procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues
raised. And this act of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had
exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto
Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted,
viz:

. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its
discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers
Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v.
Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368
(1949)], this Court brushed aside this technicality because "the transcendental importance to the public of
these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities
of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court
had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v.
Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not."
[Sanidad v. COMELEC, 73 SCRA 333 (1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and
even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this court to question
the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies
or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836
insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association,
Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C.
Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194
SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act
(Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized
elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of
the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public
policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A.
No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290
[1992]).

Other cases where we have followed a liberal policy regarding locus standi include those attacking the
validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by

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R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D.
Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar
as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16
October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179
square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d)
the approval without hearing by the Board of Investments of the amended application of the Bataan
Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such
transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v.
Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e)
the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board
exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA
771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that
the hearings conducted on the second provisional increase in oil prices did not allow the petitioner
substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g)
Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning
the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs.
Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor
affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA
662 [1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless
to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in
De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus
standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity
"considering the importance of the issue involved, concerning as it does the political exercise of qualified
voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the
Constitution by respondent."

Baliwag Transit V CA
(This case in Aquino Book)

(This following digest by Berne Guererro)

Everett Steamship Corp. vs. CA (GR 122494, 8 October 1998)

Facts: Hernandez Trading Co. Inc. imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No.
13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation
based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board “ADELFAEVERETTE,” a
vessel owned by Everett Steamship Corporation’s principal, Everett Orient Lines. The said crates were covered by Bill of
Lading NGO53MN. Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by Everett Steamship in its letter of 13 January 1992 addressed to Hernandez
Trading, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to Y 1,552,500.00
Yen, the amount shown in an Invoice MTM-941, dated 14 November 1991. However, Everett Steamship offered to pay
Y100,000.00, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of
Everett Steamship.

Hernandez Trading rejected the offer and thereafter instituted a suit for collection (Civil Case C-15532), against Everett
Shipping before the RTC of Caloocan City (Branch 126). At the pre-trial conference, both parties manifested that they have
no testimonial evidence to offer and agreed instead to file their respective memoranda. On 16 July 1993, the trial court
rendered judgment in favor of Hernandez Trading, ordering Everett Steamship to pay: (a) Y1,552,500.00; (b) Y20,000.00 or
its peso equivalent representing the actual value of the lost cargo and the material and packaging cost; (c) 10% of the total
amount as an award for and as contingent attorney’s fees; and (d) to pay the cost of the suit.

On appeal, and on 14 June 1995, the Court of Appeals deleted the award of attorney’s fees but affirmed the trial court’s
findings with the additional observation that Hernandez Trading can not be bound by the terms and conditions of the bill of
lading because it was not privy to the contract of carriage. Everett Steamship filed a petition for review.
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The Supreme Court reversed and set aside the decision of the Court of Appeals.

1. Limited liability clause sanctioned by law


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

2. Article 1749 NCC


Article 1749 of the Civil Code provides that “A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.”

3. Article 1750 NCC


Article 1750 of the Civil Code provides that “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.”

4. Limited liability clause upheld by Court; Sea Land vs. IAC


Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea Land
Service, Inc. vs. IAC, the Court ruled that “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 Article 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 . . .”

5. Conditions for the validity of limited liability clause


Pursuant to the provisions of law, it is required that the stipulation limiting the common carrier’s liability for loss must be
“reasonable and just under the circumstances, and has been freely and fairly agreed upon.”

6. Contents of bill of lading (clause 18)


The bill of lading specifically provides, among others, “(18) All claims for which the carrier may be liable shall be adjusted
and settled on the basis of the shipper’s net invoice cost plus freight and insurance premiums, if paid, and in no event shall
the carrier be liable for any loss of possible profits or any consequential loss. The carrier shall not be liable for any loss of or
any damage to or in any connection with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency
(Y100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the
value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and
inserted in the Bill of Lading and extra freight is paid as required.”
7. Stipulations are reasonable and just
The stipulations are reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to
Y100,000.00. 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.

8. Contracts of adhesion not invalid per se; PAL vs. CA


As ruled in PAL, Inc. vs. Court of Appeals, the “jurisprudence on the matter reveals the consistent holding of the court that
contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect thereof.”

9. Contracts of adhesion; Consent by adhering


In Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. the Court held that “Ong Yiu vs. Court of Appeals,
et al., instructs us that ‘contracts of adhesion wherein one party imposes a ready-made form of contract on the other . . . are
contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres he
gives his consent. . . Not even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations
since the responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier
but on the owner, shipper, or consignee as the case may be.”

10. Contract of adhesion; Ong Yiu vs. CA


As further explained in Ong Yiu vs. Court of Appeals, stipulations in contracts of adhesion are valid and binding. While it
may be true that the plane ticket was not signed. . ., he is nevertheless bound by the provisions thereof. Such provisions
have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter’s
lack of knowledge or assent to the regulation. It is what is known as a contract of ”adhesion,” in regards which it has been
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said that contracts of adhesion wherein one party imposes a ready-made form of contract on the other, as the plane ticket in
the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely;
if he adheres, he gives his consent. . . ., a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence.

11. Greater vigilance required of courts when dealing with contracts of adhesion; Article 24 NCC
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said contracts must
be carefully scrutinized “in order to shield the unwary (or weaker party) from deceptive schemes contained in ready-made
covenants,” such as the bill of lading. The stringent requirement which the courts are enjoined to observe is in recognition of
Article 24 of the Civil Code which mandates that “in all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap,
the courts must be vigilant for his protection.”

12. Shipper extensively engaged in trading business, cannot be said to be ignorant of transactions as to shipment
The shipper, Maruman Trading, has been extensively engaged in the trading business. It can not be said to be ignorant of
the business transactions it entered into involving the shipment of its goods to its customers. The shipper could not have
known, or should know the stipulations in the bill of lading and there it should have declared a higher valuation of the goods
shipped. Moreover, Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing to
ship the cargo in Everett Steamship’s vessel. In fact, it was not even impleaded in the case.

13. Consignee may be bound by contract of carriage although not a signatory thereto (Agency); Sea Land vs. IAC
In Sea-Land Service, Inc. vs. IAC, the Court held that even if the consignee was not a signatory to the contract of carriage
between the shipper and the carrier, the consignee can still be bound by the contract. To begin with, there is no question of
the right, in principle, of a consignee in a bill of lading to recover from the carrier or shipper for loss of, or damage to goods
being transported under said bill, although that document may have been — as in practice it oftentimes is-drawn up only by
the consignor and the carrier without the intervention of the consignee. . . . . . . the right of a party to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from
either a relation of agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor
some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation,
such as the delivery of the goods or cargo shipped.

14. Consignee may be bound by contract of carriage although not a signatory thereto and even if stipulations in
fine print; Phoenix Assurance Co. vs. Macondray
In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and
free agreement to such provision was vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may
be observed that in one comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15)
where the Court found that a similar package limitation clause was “printed in the smallest type on the back of the bill of
lading,” it nonetheless ruled that the consignee was bound thereby on the strength of authority holding that such provisions
on liability limitation are as much a part of a bill of lading as though physically in it and as though placed therein by
agreement of the parties.

15. Act of consignee that effected acceptance of provisions of contract of carriage


When Hernandez Trading formally claimed reimbursement for the missing goods from Everett Steamship and subsequently
filed a case against the latter based on the very same bill of lading, the former accepted the provisions of the contract and
thereby made itself a party thereto, or at least has come to court to enforce it. Thus, Hernandez Trading cannot now reject or
disregard the carrier’s limited liability stipulation in the bill of lading. In other words, Hernandez Trading is bound by the whole
stipulations in the bill of lading and must respect the same.

16. Bill of lading proves carrier unaware of contents, quantity and value of crates
The bill of lading confirms the fact that Everett Steamship that it does not know of the contents, quantity and value of “the
shipment which consisted of three pre-packed crates described in Bill of Lading NGO-53MN (Cases Spare Parts). To defeat
the carrier’s limited liability, Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher
valuation of its goods before receipt thereof by the carrier and insert the said declaration in the bill of lading, with the extra
freight paid. These requirements in the bill of lading were never complied with by the shipper, hence, the liability of the
carrier under the limited liability clause stands. The commercial Invoice MTM-941 does not in itself sufficiently and
convincingly show that Everett Steamship has knowledge of the value of the cargo as contended by Hernandez Trading.

(This Digest Provided for By Berne Guerrero)

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Ganzon vs. CA (GR L-48757, 30 May 1988)
Second Division, Sarmiento (J): 3 concur

Facts: On 28 November 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap
iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT “Batman.” Pursuant to this agreement, Mauro B.
Ganzon sent his lighter “Batman” to Mariveles where it docked in 3 feet of water. On 1 December 1956, Gelacio Tumambing
delivered the scrap iron to Filomeno Niza, captain of the lighter, for loading which was actually begun on the same date by
the crew of the lighter under the captain’s supervision. When about half of the scrap iron was already loaded, Mayor Jose
Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted the
shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and fired at Gelacio
Tumambing. The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment. After
sometime, the loading of the scrap iron was resumed. But on 4 December 1956, Acting Mayor Basilio Rub, accompanied by
3 policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron where the lighter was docked. The rest
was brought to the compound of NASSCO. Later on Acting Mayor Rub issued a receipt stating that the Municipality of
Mariveles had taken custody of the scrap iron.

Tumambing instituted in the CFI of Manila an action against Ganzon for damages based on culpa contractual. The trial court
rendered a decision absolving Ganzon from liability. On appeal, however, the appellate court reversed and set aside the
decision appealed from, and entered a new one ordering Ganzon to pay Tumambing the sum of P5,895.00 as actual
damages, the sum of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney’s fees; with costs against
Ganzon. Hence, the petition for review on certiorari.

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs against
Ganzon; the decision being immediately executory.

1. By delivery, the scraps are placed in the possession of the common carrier; Contract of carriage perfected;
Duties of the carrier
By the act of delivery, the scraps were unconditionally placed in the possession and control of the common carrier, and upon
their receipt by the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the carrier’s
extraordinary responsibility for the loss, destruction, or determination of the goods commenced. Pursuant to Article 1736,
such extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee,
or to the person who has a right to receive them. The fact that part of the shipment had not been loaded on board the lighter
did not impair the said contract of transportation as the goods remained in the custody and control of the carrier, albeit still
unloaded.

2. Loss not due to any cause enumerated in Article 1734 of the Civil Code
Herein, Ganzon has failed to show that the loss of the scraps was due to any of the following causes enumerated in Article
1734 of the Civil Code, namely: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (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.

3. Negligence presumed; Burden of proof to prove otherwise


Herein, Ganzon is presumed to have been at fault or to have acted negligently. By reason of this presumption, the court is
not even required to make an express finding of fault or negligence before it could hold Ganzon answerable for the breach of
the contract of carriage. Still, Ganzon could have been exempted from any liability had he been able to prove that he
observed extraordinary diligence in the vigilance over the goods in his custody, according to all the circumstances of the
case, or that the loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of Ganzon to prove that he exercised such extraordinary diligence.

4. Order by competent authority must be valid, to allow carrier’s absolution from liability as per caso fortuito
Before Ganzon could be absolved from responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power to issue the disputed order, or that it
was lawful, or that it was issued under legal process of authority. The appellee failed to establish this. Indeed, no authority or
power of the acting mayor to issue such an order was given in evidence. Neither has it been shown that the cargo of scrap
iron belonged to the Municipality of Mariveles. What we have in the record is the stipulation of the parties that the cargo of
scrap iron was accumulated by the appellant through separate purchases here and there from private individuals. The fact
remains that the order given by the acting mayor to dump the scrap iron into the sea was part of the pressure applied by
Mayor Jose Advincula to shakedown Tumambing for P5,000.00. The order of the acting mayor did not constitute valid
authority for Ganzon and his representatives to carry out.

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Transportation LAW
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5. The intervention of the municipal officials was not of a character that would render impossible the fulfillment by
the carrier of its obligation
The intervention of the municipal officials was not of a character that would render impossible the fulfillment by the carrier of
its obligation. Herein, Ganzon was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover,
there is absence of sufficient proof that the issuance of the same order was attended with such force or intimidation as to
completely overpower the will of the petitioner’s employees. The mere difficulty in the fulfillment of the obligation is not
considered force majeure. The scraps could have been properly unloaded at the shore or at the NASSCO compound, so
that after the dispute with the local officials concerned was settled, the scraps could then be delivered in accordance with the
contract of carriage.

6. No incompatibility between Civil Code provisions on common carriers and Articles 361 and 362 of the Code of
Commerce; Article 1733 NCC modified Article 352 as to degree of diligence required of carrier
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361 and 362 of the Code of
Commerce which were the basis for the Court’s ruling in Government of the Philippine Islands vs. Ynchausti & Co. and
which Ganzon invokes in the petition. For Article 1735 of the Civil Code, conversely stated, means that the shipper will suffer
the losses and deterioration arising from the causes enumerated in Article 1734; and in these instances, the burden of
proving that damages were caused by the fault or negligence of the carrier rests upon him. However, the carrier must first
establish that the loss or deterioration was occasioned by one of the excepted causes or was due to an unforeseen event or
to force majeure. Be that as it may, insofar as Article 362 appears to require of the carrier only ordinary diligence, the same
is deemed to have been modified by Article 1733 of the Civil Code.

7. Findings on actual and exemplary damages not disturbed


Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by the Supreme Court.
Besides, these were not sufficiently controverted by Ganzon.

KOREAN AIRLINES VS. COURT OF APPEALS, 154 SCRA 211

Simple case.

FACTS:
KAL issued plane tickets to plaintiff bound for Los Angeles, California. Plaintiff checked in 30 minutes before their flight.
Notwithstanding this fact, plaintiff was not able to leave because her seat had been given to another passenger. An action
for damages was then filed.

ISSUE:
Is KAL liable for damages?

HELD:
The Supreme Court is satisfied from the findings of the respondent court and of the trial court that the private respondent
was, in the language of the airline industry, "Bumped off." She had a confirmed ticket. She arrived at the airport on time.
However, she was not allowed to board because her seat had already been given to another passenger. As a result, she
suffered damages for which the petitioner should be held liable.

Is it clear that the petitioner acted in bad faith in violating the private respondent's rights under their contract of carriage and
is therefore liable for the injures she has sustained as a result.

(This Digest Provided for By Berne Guerrero)

Dangwa Transportation vs. CA (GR 95582, 7 October 1991)

Facts: On 25 March 1985 at Marivic, Sapid, Mankayan, Benguet, Theodore M. Lardizabal was driving a passenger bus
belonging to Dangwa Transportation Co. in a reckless and imprudent manner and without due regard to traffic rules and
regulations and safety to persons and property, it ran over its passenger, Pedrito Cudiamat. However, instead of bringing

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Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and without regard to the welfare of the victim,
first brought his other passengers and cargo to their respective destinations before bringing said victim to the Lepanto
Hospital where he expired.

On 13 May 1985, Inocencia Cudiamat, Emilia Cudiamat Bandoy, Fernando Cudiamat, Marrieta Cudiamat, Norma Cudiamat,
Dante Cudiamat, Samuel Cudiamat and Ligaya Cudiamat (heirs of Pedrito Cudiamat, and represented by Inocencia
Cudiamat) filed a complaint for damages against petitioners for the death of Pedrito Cudiamat as a result of a vehicular
accident which occurred. On 29 July 1988, the trial court rendered a decision, pronouncing that Pedrito Cudiamat was
negligent, which negligence was the proximate cause of his death. Nonetheless, Lardizabal and Dangwa Transportation, in
equity, were hereby ordered to pay the heirs of Pedrito Cudiamat the sum of P10,000.00 which approximates the amount
Lardizabal and Dangwa Transportation initially offered said heirs for the amicable settlement of the case; without costs.

The Cudiamats appealed to the Court of Appeals which, in a decision (CA-GR CV 19504) promulgated on 14 August 1990,
set aside the decision of the lower court, and ordered Dangwa and Lardizabal to pay the Cudiamats (1) the sum of
P30,000.00 by way of indemnity for death of the victim Pedrito Cudiamat; (2) the sum of P20,000.00 by way of moral
damages; (3) the sum of P288,000.00 as actual and compensatory damages; and (4) the costs of the suit. Dangwa’s and
Lardizabal’s motion for reconsideration was denied by the Court of Appeals in its resolution dated 4 October 1990. Hence,
the petition.

The Supreme Court affirmed the challenged judgment and resolution of the Court of Appeals, with modifications.

1. Factual findings of the Court of Appeals generally final; Exceptions


It is an established principle that the factual findings of the Court of Appeals as a rule are final and may not be reviewed by
this Court on appeal. However, this is subject to settled exceptions, one of which is when the findings of the appellate court
are contrary to those of the trial court, in which case a reexamination of the facts and evidence may be undertaken. Herein,
the trial court and the Court of Appeals have discordant positions as to who between Dangwa Transportation and the victim
is guilty of negligence. Perforce, the Court has had to conduct an evaluation of the evidence in this case for the proper
calibration of their conflicting factual findings and legal conclusions.

2. Findings of the trial court


Pedrito Cudiamat was negligent in trying to board a moving vehicle, especially with one of his hands holding an umbrella;
and, without having given the driver or the conductor any indication that he wishes to board the bus. Dangwa Transportation
can also be found wanting of the necessary diligence. In this connection, it is safe to assume that when the deceased
Cudiamat attempted to board the bus, the vehicle’s door was open instead of being closed. This should be so, for it is hard
to believe that one would even attempt to board a vehicle (i)n motion if the door of said vehicle is closed. Here lies the
defendant’s lack of diligence. Under such circumstances, equity demands that there must be something given to the heirs of
the victim to assuage their feelings. This, also considering that initially, the common carrier had made overtures to amicably
settle the case. It did offer a certain monetary consideration to the victim’s heirs.

3. Findings of the appellate court


The subject bus was at full stop when the victim Pedrito Cudiamat boarded the same as it was precisely on this instance
where a certain Miss Abenoja alighted from the bus. Moreover, the victim did indicate his intention to board the bus when he
declared that Pedrito Cudiamat was no longer walking and made a sign to board the bus when the latter was still at a
distance from him. It was at the instance when Pedrito Cudiamat was closing his umbrella at the platform of the bus when
the latter made a sudden jerk movement as the driver commenced to accelerate the bus. The incident took place due to the
gross negligence of the driver in prematurely stepping on the accelerator and in not waiting for the passenger to first secure
his seat especially so when we take into account that the platform of the bus was at the time slippery and wet because of a
drizzle. The company utterly failed to observe its duty and obligation as common carrier to the end that they should observe
extra-ordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according
to the circumstances of each case (Article 1733, New Civil Code).

4. Findings of the appellate court supported by witnesses’ testimony; Deceased not guilty of negligence
The Supreme Court finds no reason to disturb the holding of the Court of Appeals. Its findings are supported by the
testimony of Dangwa Transportation’s own witnesses, Virginia Abalos, and its the bus conductor, Martin Anglog. The
testimonies show that the place of the accident and the place where one of the passengers alighted were both between
Bunkhouses 53 and 54, hence the finding of the Court of Appeals that the bus was at full stop when the victim boarded the
same is correct. They further confirm the conclusion that the victim fell from the platform of the bus when it suddenly
accelerated forward and was run over by the rear right tires of the vehicle, as shown by the physical evidence on where he
was thereafter found in relation to the bus when it stopped. Under such circumstances, it cannot be said that the deceased
was guilty of negligence.

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5. When bus not in motion; Duty of driver and conductor
When the bus is not in motion there is no necessity for a person who wants to ride the same to signal his intention to board.
A public utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it becomes the duty of the driver
and the conductor, every time the bus stops, to do no act that would have the effect of increasing the peril to a passenger
while he was attempting to board the same. Herein, the premature acceleration of the bus was a breach of such duty.

6. Duty of common carriers of passengers


It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar, or motorbus, to stop
their conveyances a reasonable length of time in order to afford passengers an opportunity to board and enter, and they are
liable for injuries suffered by boarding passengers resulting from the sudden starting up or jerking of their conveyances while
they are doing so.

7. Even assuming bus moving, deceased still not negligent


Even assuming that the bus was moving, the act of the victim in boarding the same cannot be considered negligent under
the circumstances. It is not negligence per se, or as a matter of law, for one to attempt to board a train or streetcar which is
moving slowly. An ordinarily prudent person would have made the attempt to board the moving conveyance under the same
or similar circumstances. The fact that passengers board and alight from a slowly moving vehicle is a matter of common
experience and both the driver and conductor could not have been unaware of such an ordinary practice.

8. When contractual obligation of common carrier starts


The victim herein, by stepping and standing on the platform of the bus, is already considered a passenger and is entitled to
all the rights and protection pertaining to such a contractual relation. Hence, it has been held that the duty which the carrier
of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom.

9. Diligence required of common carriers


Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence for the safety of the passengers transported by them, according to all the circumstances of each case. A common
carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances.

10. Negligence must be proved; Exception in ontract of carriage


In an action based on a contract of carriage, the court need not make an express finding of fault or negligence on the part of
the carrier in order to hold it responsible to pay the damages sought by the passenger. By the contract of carriage, the
carrier assumes the express obligation to transport the passenger to his destination safely and to observe extraordinary
diligence with a due regard for all the circumstances, and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier. This is an exception to the general rule that negligence must be proved,
and it is therefore incumbent upon the carrier to prove that it has exercised extraordinary diligence as prescribed in Articles
1733 and 1755 of the Civil Code.

11. Failure to bring injured immediately to hospital patent proof of negligence


The circumstances under which the driver and the conductor failed to bring the gravely injured victim immediately to the
hospital for medical treatment is a patent and incontrovertible proof of their negligence. It defies understanding and can even
be stigmatized as callous indifference. The evidence shows that after the accident the bus could have forthwith turned at
Bunk 56 and thence to the hospital, but its driver instead opted to first proceed to Bunk 70 to allow a passenger to alight and
to deliver a refrigerator, despite the serious condition of the victim.

12. Rule as to amount recoverable in tort


The rule is that the amount recoverable by the heirs of a victim of a tort is not the loss of the entire earnings, but rather the
loss of that portion of the earnings which the beneficiary would have received. In other words, only net earnings, not gross
earnings, are to be considered, that is, the total of the earnings less expenses necessary in the creation of such earnings or
income and minus living and other incidental expenses.

13. Actual award of damages to be given


The deductible living and other expense of the deceased may fairly and reasonably be fixed at P500.00 a month or
P6,000.00 a year. In adjudicating the actual or compensatory damages, the appellate court found that the deceased was 48
years old, in good health with a remaining productive life expectancy of 12 years, and then earning P24,000.00 a year. Using
the gross annual income as the basis, and multiplying the same by 12 years, it accordingly awarded P288,000. Applying the
rule on computation based on the net earnings, said award must be rectified and reduced to P216,000.00. However, in
accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00.

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LRTA V. Natividad
FACTS
On 14 October 1993, about half an hour past 7:00 p.m., Nicanor Navidad, then drunk, entered the EDSA LRT station after
purchasing a “token” (representing payment of the fare). While Navidad was standing on the platform near the LRT tracks,
Junelito Escartin, the security guard assigned to the area approached Navidad. A misunderstanding or an altercation
between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight
started or who, between the two, delivered the firstblow or how Navidad later fell on the LRT tracks. At the exact moment
that Navidad fell, an LRT train, operated by Rodolfo Roman, was coming in.Navidad was struck by the moving train, and he
was killed instantaneously.

On 8 December 1994, the widow of Nicanor, Marjorie Navidad, along with her children, filed a complaint for damages
against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for
the death of her husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and
Prudent. Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection and
supervision of its security guards. The LRTA and Roman presented their evidence while Prudent and Escartin, instead of
presenting evidence, filed a demurrer contending that Navidad had failed to prove that Escartin was negligent in his
assigned task. On 11 August 1998, the trial court rendered its decision, ordering Prudent Security and Escartin to jointly and
severally pay Navidad (a) (1) Actual damages of P44,830.00; (2) Compensatory damages of P443,520.00; (3) Indemnity for
the death of Nicanor Navidad in the sum of P50,000.00; (b) Moral damages of P50,000.00; (c) Attorney’s fees of P20,000;
and (d) Costs of suit. The court also dismissed the complaint against LRTA and Rodolfo Roman for lack of merit, and the
compulsory counterclaim of LRTA and Roman.

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its decision exonerating
Prudent from any liability for the death of Nicanor Navidad and, instead, holding the LRTA and Roman jointly and severally
liable. The appellate court modified the judgment ordering Roman and the LRTA solidarily liable to pay Navidad (a)
P44,830.00 as actual damages; (b) P50,000.00 as nominal damages; (c) P50,000.00 as moral damages; (d) P50,000.00 as
indemnity for the death of the deceased; and (e) P20,000.00 as and for attorney’s fees. The appellate court denied LRTA’s
and Roman’s motion for reconsideration in its resolution of 10 October 2000. Hence, this appeal.

ISSUE

W/N LRTA liable for tort arising from contract

HELD

YES. As discussed in the Aquino book, once one has a token, he is deemed a passenger on a train. The contract is
perfected.

Other issues:

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

• 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.

Bascos V CA
(Case in Aquino Book)

De Guzman v CA
(Case in Aquino Book)

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(Following case by Berne Guererro)

Planters Products vs. CA (GR 101503, 15 September 1993)


Facts: Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation of New York, USA, 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 Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, USA, to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading 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
Charter was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan. Riders to the
aforesaid charter-party starting from paragraph 16 to 40 were attached to the pre-printed agreement. Addenda 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, 4 of her holds were all presumably inspected by the charterer’s representative and
found fit to take a load of urea in bulk pursuant to paragraph 16 of the charter-party. 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 3 layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout the
entire voyage. 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. PPI unloaded the cargo from the holds into its steel-bodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the charter-party
(which provided for an FIOS clause). The hatches remained open throughout the duration of the discharge. 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 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. PPI’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 fertilizer. It took 11 days for PPI to unload the cargo,
from 5 July to 18 July 1974 (except July 12th, 14th and 18th). A 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. 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. 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. 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.”

On 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The court a quo however
sustained the claim of PPI against the carrier for the value of the goods lost or damaged.

On appeal, the Court of Appeals reversed the lower court and absolved the carrier from liability for the value of the cargo that
was lost or damaged. PPI appealed by way of petition for review.

The Supreme Court dismissed the petition; affirmed the assailed decision of the Court of Appeals, which reversed the trial
court; and consequently, dismissed Civil Case 98623 of the then CFI, now RTC, of Manila; with costs against PPI.

1. Charter party defined


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; 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.

2. Types of charter parties


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.

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3. Kinds of contract of affreightment
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. 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 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.

4. Common or public carrier defined; Scope of definition


The term “common or public carrier” is defined in Article 1732 of the Civil Code. 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.

5. Distinction between common or public carrier, and private or special carrier


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.

6. Extraordinary diligence required of common carriers (Article 1733); Ordinary diligence required of private
carriers
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. In the case of private carriers, however, the
exercise of ordinary diligence in the carriage of goods will suffice.

7. Common carriers presumed negligent in case of loss, etc. of goods; No presumption in private carriers
In 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. 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.

8. Kyosei Kisen Kabushiki Kaisha a common carrier, remained as so in charter party


Kyosei Kisen Kabushiki Kaisha, in the ordinary course of business, operates as a common carrier, transporting goods
indiscriminately for all persons. When PPI 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. 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, the charterer is a stranger to the crew and to the ship. Thus, 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. 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.

9. When charter party converts common carrier to private carrier


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.

10. Reliance on case of Home Insurance vs. American Steamship misplaced


The carrier’s heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies is misplaced for the
reason that the meat of the controversy therein was the validity of a stipulation in the charter-party exempting the shipowner
from liability for loss due to the negligence of its agent, and not the effects of a special charter on common carriers.

11. American rule as to shipper carrying special cargo not applicable in the Philippines; Stricter interpretation of
admiralty laws
The rule in the United States that a ship chartered by a single shipper to carry special cargo is not a common carrier, does
not find application in Philippine jurisdiction, for the Court has 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.

12. Observations of Raoul Colinvaux, the learned barrister-at-law


“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
collussion occur; and the same difficulty in discovering the truth as to what has taken place arises . . .”
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13. Burden of proof in an action for recovery of damages against a common carrier
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.

14. Carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of negligence
(1) 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 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 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. (2) 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. 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.
Verily, the presumption of negligence on the part of respondent carrier has been efficaciously overcome by the showing of
extraordinary zeal and assiduity exercised by the carrier in the care of the cargo.

15. Period which carrier was to observe degree of diligence; Limitation clause of FIOS meaning
The period during which the carrier 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 re-examined 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. 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.
16. When common carriers not liable for loss, destruction or deterioration of goods
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 character of the goods or defects in the packaging or in the containers. The Code
of Commerce also provides that all losses and deteriorations 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. 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.

17. Characteristics of urea


Urea is 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 80 degrees
centigrade.

18. Expected risks of bulk shipping


(1) 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. (2) The dissipation of quantities of fertilizer, or its deterioration 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. (3) 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.

19. Hull of vessel in good condition; Improbable that sea water seep in vessel’s hold
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

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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 “bad 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.

20. Variable weather condition a risk of loss or damage which owner or shipper of goods has to face
Herein, 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. 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. This is a risk the shipper or the owner of the goods has to face.

Philam Gen Vs PKS


Facts:

Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS shipping company (PKS) to
transport its 75,000 bags of cement. DUMC insured the full amount of the goods with the petitioner insurance company
(Philamgen). Ironically, the barge sank bringing down the entire cargo of 75,000 bags of cement. DUMC filed a formal claim
for the entire amount of insurance, to which Philamgen promptly paid. Philamgen then sought a reimbursement of the
amount it paid to DUMC but the PKS refused to pay, which prompted Philamgen to file a suit against PKS. The trial court,
finding the cause of the loss to be through fortuitous event, dismissed the complaint filed. Philamgen interposed an appeal to
the Court of Appeals which affirmed in toto the decision of the trial court. In this appeal before the Supreme Court,
Philamgen contended that the appellate court committed patent error in ruling that PKS is not a common carrier and it is not
liable for the loss of the subject cargo.

According to the Supreme Court, the issue of whether a carrier is private or common carrier on the basis of facts found by
the trial court or the appellate court can be a valid and reviewable question of law. Contrary to the conclusion made by the
appellate court, its factual findings indicated that PKS engaged itself in the business of carrying goods for others, although
for a limited clientele, undertaking to carry such goods for a fee. Hence, the Court found PKS to be a common carrier.
However, the Court also found that PKS exercised the proper diligence demanded of a common carrier. The factual findings
of the appellate court were strengthened by the Certificate of Inspection of the barge issued by the Philippine Coastguard
and the Coastwise Load Line Certificate, which attested to the seaworthiness of the vessel involved in this case. Hence, the
Court found no error in the judgment made by the appellate court in absolving PKS from liability for the loss of the DUMC
cargo.

Doctrine: 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 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.

(This Case Provided By Berne Guererro)

Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)

Facts: MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, which is engaged in the
business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. On the other hand, the MV Doña
Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/
Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week. On 19 December 1987, motor tanker MT
Vector left Limay, Bataan, enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by Caltex, by virtue
of a charter contract between Vector Shipping and Caltex. The next day, the passenger ship MV Doña Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers
totaling 1,493 as indicated in the Coast Guard Clearance, but possibly carrying an estimated 4,000 passengers. At about
10:30 p.m. of 20 December 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between
Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector
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claimed that they were sleeping at the time of the incident. Only 24 survived the tragedy after having been rescued from the
burning waters by vessels that responded to distress calls. Among those who perished were public school teacher Sebastian
Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved to be
on board the vessel. On 22 March 1988, the board of marine inquiry after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doña Paz.

On 13 February 1989, Teresita and Sotera Cañezal, filed with the RTC Manila, a complaint for “Damages Arising from
Breach of Contract of Carriage” against Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party complaint against Francisco
Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. On 15 September 1992, the trial court rendered decision
dismissing the third party complaint against Caltex.

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc. (CA-GR CV 39626), on 15 April 1997, the Court of
Appeal modified the trial court’s ruling and included petitioner Caltex as one of the those liable for damages. Hence the
petition.

The Supreme Court granted the petition and set aside the decision of the Court of Appeals, insofar as it held Caltex liable
under the third party complaint to reimburse/indemnify Sulpicio Lines, Inc. the damages the latter is adjudged to pay
plaintiffs-appellees. The Court affirmed the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the
heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein. Third-party defendant-appellee Vector
Shipping Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever
damages, attorneys’ fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.

1. The respective rights and duties of a carrier depends on the nature of the contract of carriage

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. In the case at bar, Caltex and Vector entered into a contract of affreightment, also known as a
voyage charter.

2. Charter party and contract of affreightment defined

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.

3. Kinds of contract of affreightment

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

4. Charterer’s liability: Bareboat charter vs. Contract of affreightment

Under a demise or bareboat charter, 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.

5. Categories of charter parties

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter.

6. Bareboat, but not voyage charter, transforms common carrier into private carrier

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of
affreightment (Coastwise Lighterage Corp. vs. CA) 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-
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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. (Planters Products vs. CA). In the case at bar, 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.

7. Common carrier defined

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. In the case at bar, MT Vector fits the definition of a common carrier under
Article 1732 of the Civil Code (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).

8. Article 1732, Common carrier, construed

Article 1732 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. Article 1733 deliberately refrained from making
such distinctions.

9. Responsibility of carrier before voyage; Seaworthiness

Under Section 3 of the Carriage of Goods by Sea Act, (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; among
others. 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.

10. Article 1173 of the New Civil Code

Article 1173 of the Civil Code provides that “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.”

11. Negligence defined

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 (Southeastern College vs. CA).

12. Reason for the applicability of Section 3 COGSA, and Article 1755 NCC to carriers, not shipper and passengers;
Ordinary diligence required of shippers

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. 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. 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.” 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. Because of the implied warranty of seaworthiness, shippers of
goods, when transacting with common carriers, are not expected to inquire into the vessel’s seaworthiness, genuineness of
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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, passengers cannot be expected to inquire every time they board a common carrier, whether the carrier
possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice would be an absurdity in a
business where time is always of the essence. Considering the nature of transportation business, passengers and shippers
alike customarily presume that common carriers possess all the legal requisites in its operation. In the case at bar, the
nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

13. Caltex not liable for damages

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.

(Following Case By Berne G)

Samar Mining Co. vs. Nordeutscher Lloyd (GR L-28673, 23 October 1984)

Facts: An importation was made by Samar Mining Co. Inc. of 1 crate Optima welded wedge wire sieves through the M/S
Schwabenstein, a vessel owned by Nordeutscher Lloyd, (represented in the Philippines by its agent, C.F. Sharp & Co., Inc.),
which shipment is covered by Bill of Lading 18 duly issued to consignee Samar Mining. Upon arrival of the vessel at the port
of Manila, the importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. The
goods were however never delivered to, nor received by, the consignee at the port of destination — Davao. When the letters
of complaint sent to Nordeutscher Lloyd failed to elicit the desired response, Samar Mining filed a formal claim for
P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the former, but neither paid.

Samar Mining filed a suit to enforce payment. Nordeutscher Lloyd and CF Sharp & Co. brought in AMCYL as third party
defendant. The trial court rendered judgment in favor of Samar Mining, ordering Nordeutscher Lloyd, et. al. to pay the
amount of P1,691.93 plus attorney’s fees and costs. However, the Court stated that Nordeutscher Lloyd, et. al. may recoup
whatever they may pay Samar Mining by enforcing the judgment against third party defendant AMCYL which had earlier
been declared in default. Nordeutscher Lloyd and CF Sharp & Co. appealed from said decision.

The Supreme Court reversed the appealed decision, and dismissed Samar Mining’s complaint; without costs.

1. Nature of bill of lading


The nature of the bill of lading is that it operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. Being a contract, it is the law between the parties thereto, who are
bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public
policy.

2. Goods to be transshipped at “port of discharge from ship” (Manila) to “port of discharge of goods” (Davao)
Bill of Lading 18 sets forth in page 2 thereof that one (1) crate of Optima welded wedge wire sieves was received by the
carrier NORDEUTSCHER LLOYD at the “port of loading” which is Bremen, Germany, while the freight had been prepaid up
to the port of destination or the “port of discharge of goods”, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN, only up to the “port of discharge from ship” — Manila. Thereafter, the goods were to be
transshipped by the carrier to the port of destination or “port of discharge of goods”. The stipulation is plainly indicated on the
face of the bill which contains the following phrase printed below the space provided for the “port of discharge from ship”,
thus, “if goods are to be transshipped at port of discharge, show destination under the column for `description of contents.’”

3. Content of ”description of contents” in bill of lading


The following words appeared typewritten under the column for “description of contents”: “PORT OF DISCHARGE OF
GOODS: DAVAO FREIGHT PREPAID”

4. Transship defined
The word “transship” means “to transfer for further transportation from one ship or conveyance to another.”

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5. Extent of carrier’s responsibility or liability in transshipment delineated under Section 1 paragraph 3 and
Section 11 of the Bill of Lading
The extent of the carrier’s responsibility and/or liability in the transshipment of the goods are spelled out and delineated
under Section 1, paragraph 3 of Bill of Lading 18, to wit “The carrier shall not be liable in any capacity whatsoever for any
delay, loss or damage occurring before the goods enter ship’s tackle to be loaded or after the goods leave ship’s tackle to be
discharged, transshipped or forwarded”; and in Section 11 of the same Bill, which provides that “Wherever the carrier or
master may deem it advisable or in any case where the goods are placed at carrier’s disposal at or consigned to a point
where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part
of the goods before or after loading at the original port of shipment, . . . This carrier, in making arrangements for any
transshipping or forwarding vessels or means of transportation not operated by this carrier shall be considered solely the
forwarding agent of the shipper and without any other responsibility whatsoever even though the freight for the whole
transport has been collected by him. . . . Pending or during forwarding or transshipping the carrier may store the goods
ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for
detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered
for storage, handling or any service incidental thereto”

6. Validity of stipulations exempting carrier from liability for loss of goods not in its actual custody; Phoenix
Assurance Co. vs. US Lines
The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the
same are not in its actual custody has been upheld by the Court in Phoenix Assurance Co. Ltd. vs. United States Lines, 22
SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to
the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in
both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of
lading.

7. Applicable law; Law of country of destination


The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by special laws.

8. Article 1736 NCC; When responsibility of common carrier lasts


Article 1736 of the Civil Code provides that “The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.”

9. Article 1738 NCC; When liability of common carrier operative


Article 1738, referred to in Article 1736, provides that “The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.”

10. Article 1738 not applicable


Article 1738 finds no applicability to the present case, as it contemplates a situation where the goods had already reached
their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment
to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.

11. Article 1736 applicable


Article 1736 is applicable to the present case. Under said article, the carrier may be relieved of the responsibility for loss or
damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who
has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller,
and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the
goods as his representative for the purpose of custody or disposal. By the same token, there is actual delivery in contracts
for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. Herein, the court a quo found that there was actual delivery to the
consignee through its duly authorized agent, the carrier.

12. Relationship between Samar Mining and the Nordeutscher Lloyd and Sharp as to the transactions involving
transport of goods and transshipment of the same
Two undertakings appeared embodied and/or provided for in the Bill of Lading. The first is FOR THE TRANSPORT OF
GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. At the hiatus between these two undertakings of Nordeutscher Lloyd

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which is the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of
agent of the consignee. Thus, the character of the Nordeutscher Lloyd’s possession also changes, from possession in its
own name as carrier, into possession in the name of consignee as the latter’s agent. Such being the case, there was, in
effect, actual delivery of the goods from Nordeutscher Lloyd as carrier to itself as agent of the consignee. Upon such
delivery, Nordeutscher Lloyd, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards.

13. Agent not guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to
accomplish the object of the agency
Even as agent of the consignee, Nordeutscher Lloyd cannot be made answerable for the value of the missing goods. It is
true that the transshipment of the goods, which was the object of the agency, was not fully performed. However,
Nordeutscher Lloyd had commenced said performance, the completion of which was aborted by circumstances beyond its
control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or
fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency.

14. Article 1884 NCC


Article 1884 of the Civil Code provides that “The agent is bound by his acceptance to carry out the agency, and is liable for
the damages which, through his non-performance, the principal may suffer.”

15. Article 1889 NCC


Article 1889 of the Civil Code provides that “The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.”

16. Article 1892 NCC


Article 1892 of the Civil Code provides that “The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2)
When he was given such power but without designating the person and the person appointed was notoriously incompetent
or insolvent.”

17. Article 1909 NCC


Article 1909 of the Civil Code provides that “The agent is responsible not only for fraud, but also for negligence which shall
be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.”

18. Discharge of goods in Manila and delivery of the same to the bonded warehouse in full accord to stipulations
in bill of lading; Carrier not liable for loss of goods
In discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded
warehouse, the carriers were acting in full accord with the contractual stipulations contained in Bill of Lading 18. The delivery
of the goods to AMCYL was part of the carriers’ duty to transship the goods from Manila to their port of destination — Davao.
The records fail to reveal proof of negligence, deceit or fraud committed by Nordeutscher Lloyd or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYL which acted as
appellant’s substitute in storing the goods awaiting transshipment. The actions of the carrier and of its representative in the
Philippines being in full faith with the lawful stipulations of Bill of Lading 18 and in conformity with the provisions of the New
Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question.

(Following Case by Berne G)

Eastern Shipping Lines vs. CA (GR 97412, 12 July 1994)


En Banc, Vitug (J): 13 concur, 1 took no part

Facts: On 4 December 1981, 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel “SS
Eastern Comet” owned by Eastern Shipping Lines under Bill of Lading YMA-8. The shipment was insured under Mercantile
Insurance Company’s Marine Insurance Policy 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on 12
December 1981, it was discharged unto the custody of Metro Port Services, Inc. The latter excepted to one drum, said to be
in bad order, which damage was unknown to Mercantile Insurance. On 7 January 1982, Allied Brokerage Corporation
received the shipment from Metro Port Service, one drum opened and without seal. On January 8 and 14, 1982, Allied
Brokerage made deliveries of the shipment to the consignees’ warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake. Due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of the shipping company, arrastre operator
and broker-forwarder. Claims were presented against them who failed and refused to pay the same. As a consequence of
the losses sustained, Mercantile Insurance was compelled to pay the consignee P19,032.95 under the aforestated marine
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insurance policy, so that it became subrogated to all the rights of action of said consignee against the shipping company,
etc.

After trial, the trial court rendered judgment (1) ordering the shipping company, the arrastre operator and the broker-
forwarder to pay Mercantile Insurance, in solidum, the amount of P19,032.95 with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping,
Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro
Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to
exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); P3,000.00 as attorney’s fees, and costs;
and dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

Dissatisfied, Eastern Shipping Lines appealed to the Court of Appeals. The Court of Appeal affirmed in toto the judgment of
the court a quo.

The Supreme Court partly granted the petition. The Court affirmed the appealed decision with the modification that the legal
interest to be paid is 6% on the amount due computed from the decision, dated 3 February 1988, of the court a quo. A 12%
interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.

1. Duration of common carrier’s duty to observe requisite diligence


The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them (Arts. 1736-1738, Civil
Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).

2. Presumption of carrier’s negligence in case of loss, damage of goods; None of the exclusive exceptions can be
applied
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure
to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365).
There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in
Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to the case at bar.

3. The rationale why the carrier and arrastre operator are made liable in solidum
In Fireman’s Fund Insurance vs. Metro Port Services (182 SCRA 455), the Court has explained in holding the carrier and the
arrastre operator liable in solidum, in the manner that “The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the Arrastre to take good care of the
goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon
the Carrier. Both the Arrastre and the Carrier are therefore charged with the obligation to deliver the goods in goods
condition to the consignee.” The pronouncement, however, does not imply that the arrastre operator and the customs broker
are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule.

4. First group of cases on variances on the Court’s ruling on legal interest


In the cases of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. angas (1992), the basic issue focus on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has
been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or
credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in
the concept of damage arising from the breach of a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the
complaint is filed until the adjudged amount is fully paid.

5. Second group of cases on variances on the Court’s ruling on legal interest


The cases of Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and
American Express International v. Intermediate Appellate Court (1988), did not alter the pronounced rule on the application
of the 6% or 12% interest per annum, depending on whether or not the amount involved is a loan or forbearance, on the one
hand, or one of indemnity for damage, on the other hand. Unlike, however, the “first group” which remained consistent in
holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the “second
group” varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear

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legal interest from the date of the decision of the court a quo, explaining that “if the suit were for damages, ‘unliquidated and
not known until definitely ascertained, assessed and determined by the courts after proof,’ then, interest ’should be from the
date of the decision.’” American Express International v. IAC, introduced a different time frame for reckoning the 6% interest
by ordering it to be “computed from the finality of (the) decision until paid.” The Nakpil and Sons case ruled that 12% interest
per annum should be imposed from the finality of the decision until the judgment amount is paid.

6. Reason for the variance on the Court’s rulings


The factual circumstances may have called for different applications, guided by the rule that the courts are vested with
discretion, depending on the equities of each case, on the award of interest.

7. Rules in the determination of legal interests

a. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is
breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on “Damages” of the
Civil Code govern in determining the measure of reoverable damages. 20
b. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. 21
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil
Code.
2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per
annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date of the
judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount of finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

National Development Co. vs. CA (GR L-49407, 19 August 1988)

Facts: In accordance with a memorandum agreement entered into between National Development Corporation (NDC) and
Maritime Corporation of the Philippines Inc. (MCP) on 13 September 1962, NDC as the first preferred mortgagee of three
ocean going vessels including one with the name ‘Doña Nati’ appointed MCP as its agent to manage and operate said
vessel for and in its behalf and account. Thus, on 28 February 1964 the E. Philipp Corporation of New York loaded on board
the vessel ‘Doña Nati’ at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of
Manila Banking Corporation, Manila and the People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills Corporation. Also loaded on the same vessel at Tokyo, Japan,
were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil. En route to Manila the vessel Doña Nati figured in a collision
at 6:04 a.m. on 15 April 1964 at Ise Bay, Japan with a Japanese vessel ‘SS Yasushima Maru’ as a result of which 550 bales
of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold
on the authority of the General Average Surveyor for Y6,045,500 and 15 bales were not landed and deemed lost. The
damaged and lost cargoes was worth P344,977.86 which amount, the Development Insurance and Surety Corporation
(DISC) as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed. Also
considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd., consigned to the order of Manila Banking
Corporation, Manila, acting for Guilcon, Manila. The total loss was P19,938.00 which DISC as insurer paid to Guilcon as
holder of the duly endorsed bill of lading. Thus, DISC had paid as insurer the total amount of P364,915.86 to the consignees
or their successors-in-interest, for the said lost or damaged cargoes.

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On 22 April 1965, DISC filed before the then Court of First Instance of Manila an action for the recovery of the sum of
P364,915.86 plus attorney’s fees of P10,000.00 against NDC and MCP. On 12 November 1969, after DISC and MCP
presented their respective evidence, the trial court rendered a decision ordering MCP and NDC to pay jointly and solidarily to
DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on 22 April 1965,
until fully paid and attorney’s fees of P10,000.00. Likewise, in said decision, the trial court granted MCP’s cross-claim against
NDC.

MCP interposed its appeal on 20 December 1969, while NDC filed its appeal on 17 February 1970 after its motion to set
aside the decision was denied by the trial court in its order dated 13 February 1970. On 17 November 1978, the Court of
Appeals promulgated its decision affirming in toto the decision of the trial court. Hence, the appeals by certiorari. On 25 July
1979, the Supreme Court ordered the consolidation of the above cases.

The Supreme Court denied the subject petitions for lack of merit, and affirmed the assailed decision of the Appellate Court.

1. Law of country of destination governs liability of common carrier


As held in Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under similar circumstances that
“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” (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes
transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and 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 (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to
the provisions of the Civil Code.

2. Actual collision occurring in foreign waters immaterial


Herein, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan
to the Philippines and that they were lost or damaged due to a collision which was found to have been caused by the
negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

3. Extraordinary diligence required of common carriers; Negligence presumed


Under Article 1733 of 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 the goods and for the safety of the passengers transported by
them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than
those mentioned is Article 1734 thereof, 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.

4. Collision does not fall under matters regulated by Civil Code; Application of Article 826 to 839 of the Code of
Commerce proper
The collision, however, falls among matters not specifically regulated by the Civil Code, so that no reversible error can be
found in the lower court’s application to the present case of Articles 826 to 839, Book Three of the Code of Commerce,
which deal exclusively with collision of vessels.

5. Articles 826 and 827 of the Code of Commerce; Liability of owner either when imputable to the personnel of the
vessel or imputable to both vessels
Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the
vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant
case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer
its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

6. Primary liability of shipowner on occasion of collision due to fault of captain


Under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from
liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the
shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the conduct of the voyage (Yeung Sheng
Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

7. Code of Commerce applies both to domestic and foreign trade; COGSA does not repeal nor limit Code of
Commerce’s application
The Code of Commerce applies not only to domestic trade but also foreign trade. Aside from the fact that the Carriage of
Goods by Sea Act (Commonwealth Act 65) does not specifically provide for the subject of collision, said Act in no uncertain
terms, restricts its application “to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade.”
Under Section 1 thereof, it is explicitly provided that “nothing in this Act shall be construed as repealing any existing
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provision of the Code of Commerce which is now in force, or as limiting its application.” By such incorporation, it is obvious
that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.

8. DISC a subrogee, has a right of action against MCP


Herein, Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the
shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods
are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact.
Accordingly, as it is undisputed that the insurer, DISC paid the total amount of P364,915.86 to said consignees for the loss
or damage of the insured cargo, it is evident that DISC has a cause of action to recover (what it has paid) from MCP.

9. MCP an agent; Agency broad enough to include shipagent in maritime law


The Memorandum Agreement of 13 September 1962 shows that NDC appointed MCP as Agent, a term broad enough to
include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the
vessel, including the power to contract in the name of the NDC. Consequently, under the circumstances, MCP cannot
escape liability.

10. Owner and agent of offending vessel liable when both are impleaded
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are
impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the
agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra
citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that
while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the
Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially
as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and
agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its
origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]).
Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the
cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against
the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn, Meyer Y Co. v.
McMicking et al. 11 Phil. 276 [1908]).

11. Value of goods declared in bills of lading, liability of MCP not limited to P200 per package or per bale of raw
cotton as stated in paragraph 17 of bill of lading
The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence
during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51 Phil.
90 [1927]) “cannot limit its liability for injury to a less of goods where such injury or loss was caused by its own negligence.”
Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to
save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on
averages (Articles 806 to 818, Code of Commerce).

12. Action not prescribed; Section 3 (6)


The bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Doña Nati
on 18 April 1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on
schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their
arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on 18 April 1964 arrived only on
June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived
in Manila on the said dates. Accordingly, the complaint was filed on 22 April 1965, i.e. long before the lapse of 1 year from
the date the lost or damaged cargo “should have been delivered” in the light of Section 3, sub-paragraph (6) of COGSA.

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