CarriageofGoods

a. Articles1733to1753oftheCivilCode
b. Obligationsofthecarrier
c. Extraordinarydiligence
i. EasternShippingvs.CA(VELASCO)

ShipperEasternShippingLines
BuyerStresstekPostTensioningPhils,Inc.
ConsigneeE.Razon,Inc.
InsurerFirstNationwideAssuranceCorporation

Goods:13coilsofuncoated7wirestressrelievedwirestrand
Vessel:JapriVenture

Facts
While en route from Kobe, Japan to Manila, the vessel encountered rough seas
and stormy weather. Water entered the hatch where the goods were stored, and
was flooded with water about one foot deep. A survey of bad order cargo was
conducted at the pier. Upon survey, it was found the 7 coils were rusty on one
side, which cause was attributed to the water (fresh water from rain) in the hatch.
Andall13coilswereextremelyrustyandunsuitablefortheirpurpose.

FirstNationwideinstitutedthecomplaintagainstEasternShippingandE.Razon.

RTC:Dismissedthecase

CA:ReversedTCdecision
Eastern Shipping and E. Razon were ordered to pay 8/13 and 5/13 of the amount,
respectively.

Issue
What is the extent of liability of the common carrier and its insurer for damage
upondeliveryofthegoodstothearrastreoperator?

SC:
Petitioner claims it should not be held liable as the shipment was discharged and
delivered complete into the custody of the arrastre operator under clean tally
sheets.

While it is true the cargo was delivered to the arrastre operator in apparent good
order condition, based on the facts, the appellate court made the following
conclusions:

1
The heavy seas and rains were not caso fortuito, but normal occurrences that an
oceangoing vessel, particularly in the month of September which, in our area, is
a month of rains and heavy seas would encounter as a matter of routine. They
are not unforeseen nor unforeseeable. These are conditions that is present in the
ordinary course of a voyage. That rain water (not sea water) found its way into the
holds of the Jupri Venture is a clear indication that care and foresight did not
attend the closing of the ship's hatches so that rain water would not find its way
intothecargoholdsoftheship.

(EXTRAORDINARYDILIGENCEISSUE)
Under Article 1733 of the Civil Code, common carriers are bound to observe
"extraordinary vigilance over goods . . . .according to all circumstances of each
case,"andArticle1735ofthesameCodestates,towit:

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
theyprovethattheyobservedextraordinarydiligenceasrequiredinarticle1733.

Since the carrier has failed to establish any caso fortuito, the presumption by law
of fault or negligence on the part of the carrier applies and the carrier must
present evidence that it has observed the extraordinary diligence required by
Article 1733 of the Civil Code in order to escape liability for damage or destruction
to the goods that it had admittedly carried in this case. No such evidence exists of
record.Thus,thecarriercannotescapeliability.

ii. PhilippineCHartervs.Chemoil(BUENAVENTURA)
DOCTRINE: The filing of a claim with the carrier within the time limitation
therefore actually constitutes a condition precedent to the accrual of a right of
action against a carrier for loss of, or damage to, the goods. The shipper or
consignee must allege and prove the fulfillment of the condition. If it fails to do so,
no right of action against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent it does not
constitutealimitationofaction.

FACTS: Petitioner Philippine Charter Insurance Corporation is a domestic

corporation engaged in the business of nonlife insurance. Respondent Chemoil
Lighterage Corporation is also a domestic corporation engaged in the transport of
goods.

On 24 January 1991, Samkyung Chemical Company, Ltd., based in South Korea,

shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP)
on board MT TACHIBANA which was valued at US$90,201.57 and another
2
436.70 metric tons of DOP valued at US$634,724.89 to the Philippines. The
consignee was Plastic Group Phils., Inc. in Manila. PGP insured the cargo with
Philippine Charter Insurance Corporation against all risks. The ocean tanker MT
TACHIBANA unloaded the cargo to the tanker barge, which shall transport the
same to Del Pan Bridge in Pasig River and haul it by land to PGPs storage tanks
in Calamba, Laguna. Upon inspection by PGP, the samples taken from the
shipment showed discoloration demonstrating that it was damaged. PGP then
sentaletterwhereitformallymadeaninsuranceclaimforthelossitsustained.

Petitioner requested the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity
and Condition Survey of the shipment which issued a report stating that DOP
samples taken were discolored. Inspection of cargo tanks showed manhole
covers of ballast tanks ceilings loosely secured and that the rubber gaskets of the
manhole covers of the ballast tanks reacted to the chemical causing shrinkage
thus, loosening the covers and cargo ingress. Petitioner paid PGP the full and
final payment for the loss and issued a Subrogation Receipt. Meanwhile, PGP
paidtherespondenttheasfullpaymentforthelattersservices.

On 15 July 1991, an action for damages was instituted by the petitionerinsurer

against respondentcarrier before the RTC. Respondent filed an answer which
admitted that it undertook to transport the shipment, but alleged that before the
DOP was loaded into its barge, the representative of PGP, Adjustment Standard
Corporation, inspected it and found the same clean, dry, and fit for loading, thus
accepted the cargo without any protest or notice. As carrier, no fault and
negligence can be attributed against respondent as it exercised extraordinary
diligenceinhandlingthecargo.

TCrenderedadecisioninfavourofPlaintiff
CAreversed

ISSUES:
1. WON the Notice of Claim was filed within the required period and if in the
affirmative
2. WON the damage to the cargo was due to the fault or negligence of the
respondent.

HELD: Article 366 of the Code of Commerce has profound application in the
case at bar, which provides that Within twentyfour hours following the receipt of
the merchandise a claim may be made against the carrier on account of damage
or average found upon opening the packages, provided that the indications of the
damage or average giving rise to the claim cannot be ascertained from the
exterior of said packages, in which case said claim shall only be admitted at the
time of the receipt of the packages. After the periods mentioned have elapsed, or
3
after the transportation charges have been paid, no claim whatsoever shall be
admitted against the carrier with regard to the condition in which the goods
transportedweredelivered.

As to the first issue, the petitioner contends that the notice of contamination was
given by PGP employee, to Ms. Abastillas, at the time of the delivery of the cargo,
and therefore, within the required period. The respondent, however, claims that
the supposed notice given by PGP over the telephone was denied by Ms.
Abastillas. The Court of Appeals declared that a telephone call made to
defendantcompany could constitute substantial compliance with the requirement
of notice. However, it must be pointed out that compliance with the period for filing
notice is an essential part of the requirement, i.e. immediately if the damage is
apparent, or otherwise within twentyfour hours from receipt of the goods, the
clear import being that prompt examination of the goods must be made to
ascertain damage if this is not immediately apparent. We have examined the
evidence, and We are unable to find any proof of compliance with the required
period,whichisfataltotheaccrualoftherightofactionagainstthecarrier.

Nothing in the trial courts decision stated that the notice of claim was relayed or
filed with the respondentcarrier immediately or within a period of twentyfour
hours from the time the goods were received. The Court of Appeals made the
same finding. Having examined the entire records of the case, we cannot find a
shred of evidence that will precisely and ultimately point to the conclusion that the
noticeofclaimwastimelyrelayedorfiled.

The requirement that a notice of claim should be filed within the period stated by
Article366oftheCodeofCommerceisnotanemptyorworthlessproviso.

The object sought to be attained by the requirement of the submission of claims

in pursuance of this article is to compel the consignee of goods entrusted to a
carrier to make prompt demand for settlement of alleged damages suffered by
the goods while in transport, so that the carrier will be enabled to verify all such
claims at the time of delivery or within twentyfour hours thereafter, and if
necessary fix responsibility and secure evidence as to the nature and extent of
the alleged damages to the goods while the matter is still fresh in the minds of the
parties.

The filing of a claim with the carrier within the time limitation therefore actually
constitutes a condition precedent to the accrual of a right of action against a
carrier for loss of, or damage to, the goods. The shipper or consignee must allege
and prove the fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The aforementioned
4
requirement is a reasonable condition precedent it does not constitute a limitation
ofaction.

As discussed at length above, there is no evidence to confirm that the notice of

claim was filed within the period provided for under Article 366 of the Code of
Commerce. Petitioners contention proceeds from a false presupposition that the
noticeofclaimwastimelyfiled.

Considering that we have resolved the first issue in the negative, it is therefore
unnecessary to make a resolution on the second issue. (Meaning, since no
notice of claim was filed in time, there can be no cause of action against the
carrierforthelossordamagetothegoods)

iii. Saludovs.CA(DORIA)
DOCTRINE:
Extraordinary diligence statutorily required to be observed by the carrier
instantaneously commences upon delivery of the goods thereto, for such duty to
commence there must in fact have been delivery of the cargo subject of the
contractofcarriage.

PARTIES:
SaludoSiblings(Petitioners)Consignee
PomierskiShipper
TWA&PALCarrier
CMAS a national service used by undertakers to throughout the USA, they
furnish the air pouch which the casket is enclosed in, make all the necessary
arrangements such as flights, transfers, etc., and they see that the remains are
takentotheproperairfreightterminal

FACTS:
Pomierski and Son Funeral Home of Chicago brought the remains of
Petitioners mother to Continental Mortuary Air Services (CMAS) after the
former made the necessary preparations and arrangements and secured
apermitforthedispositionofdeadhumanbody.
CMAS booked the shipment of the remains from Chicago to San
Francisco by Trans World Airways (TWA), and from San Francisco to
Manila with Philippine Airlines (PAL) through PALs agent, Air Care
International.
Before boarding the plane to San Francisco, Petitioners checked with the
TWA counter if their mothers remains have been loaded, they were told
therewasnobodyonthatflight.
Reluctantly,PetitionersboardedtheplanetoSanFrancisco.
5
Upon arrival, they checked with TWA about their mothers remains
butweretoldthattheydidnotknowanythingaboutit.
PetitionerscalledPomierski,PomierskiimmediatelycalledCMAS.
CMASsaidthattheremainswereonaplanetoMexicoCity.
It turned out that there were 2 bodies in the terminal and somehow
the2bodieswereswitched.
The shipment was immediately loaded on an American Airlines (AA) flight
fromMexicotoSanFrancisco,thenloadedtoaPALflightforManila.
The casket bearing the remains arrived in Manila a day after its
expectedarrival.
Petitioners informed TWA of the misshipment and eventual delay in the
delivery of the cargo and of the discourtesy of its employees. In a separate
letter to PAL, Petitioners stated that they were holding PAL liable for the
delay in delivery and would commence judicial action should no favorable
explanationbegiven.
Bothcarriersdeniedliability.
AdamagesuitwasfiledbeforetheCFI.
CFI:absolvedbothairlinecompaniesofliability.
CA:affirmedintoto.

ISSUE:
WONtheairlinecarriersshouldbeheldliable.NO

HELD:
The facts as found by the CFI and CA proves that the switching happened while
the cargo was still with CMAS, well before the same was placed in the custody of
theairlines.Hence,theycannotbeheldliable.
October 26, 1976: cargo containing the casketed remains was booked for
PAL Flight PR107, San Francisco for Manila on October 27 PAL Airway
Bill was issued, not as evidence of receipt of delivery of the cargo but
merelyasaconfirmationofthebookingfortheSanFranciscoManilaflight
October 28, 1976: it was only on this day that PAL received physical
delivery of the body (It is from this date that PAL became responsible for
thecargocoveredbythePALAirwayBill.)
When the cargo was received from CMAS at the Chicago airport terminal
for shipment, Air Care International (PALs agent) and/or TWA, had no way
of determining its actual contents, since the casket was hermetically
sealed by the Philippine ViceConsul in Chicago and in an air pouch of
C.M.A.S.
Air Care International and/or TWA had to rely on the information
furnishedbytheshipperregardingthecargo'scontent.
6
Neither could Air Care International and/or TWA open the casket
for further verification, since they were not only without authority to
doso,butevenprohibited.
No fault and/or negligence can be attributed to PAL and/or TWA, the entire
faultornegligencebeingexclusivelywithCMAS

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered
to the carrier and terminates only after the lapse of a reasonable time for the
acceptance of the goods by the consignee or such other person entitled to
receivethem.
This responsibility remains in full force and effect even when they are
temporarily unloaded or stored in transit, unless the shipper or owner
exercisestherightofstoppageintransitu.
There is delivery to the carrier when the goods are ready for and have
been placed in the exclusive possession, custody and control of the
carrier for the purpose of their immediate transportation and the carrier
hasacceptedthem.
Where such a delivery has thus been accepted by the carrier, the liability
ofthecommoncarriercommenceseoinstanti.

Extraordinary diligence statutorily required to be observed by the carrier

instantaneously commences upon delivery of the goods thereto, for such duty to
commence there must in fact have been delivery of the cargo subject of the
contractofcarriage.
Only when such fact of delivery has been unequivocally established can
the liability for loss, destruction or deterioration of goods in the custody of
the carrier, absent the excepting causes under Article 1734, attach and
thepresumptionoffaultofthecarrierunderArticle1735beinvoked.

iv. LorenzoShippingvs.BJMarthel(FRANCISCO)
Note: Under this case, I found no extraordinary diligence issue, the case is all
aboutcontracts.Iguess,Atty.Angmisplacedthiscase.:))

Diligence of a party is required in entering into a contract in order to minimize

his/itsowndamages.

Parties:
1. LorenzoShippingCorporation(Lorenzo),petitioner
adomesticcorporationengagedincoastwiseshipping
buyer
7
2. BJMarthelInternational,Inc.(Marthel),respondent
engaged in trading, marketing, and selling of various industrial
commodities.
An importer/seller and distributor of different brands of engines and
spareparts.

Facts:
LorenzousedtoownthecargovesselM/VDadiangasExpress.
From 1987 onwards, Marthel supplied Lorenzo with spare parts for the
latter'smarineengines.
In1989,LorenzoaskedMarthelforaquotationforvariousmachineparts.
Acceding to this request, Marthel furnished Lorenzo with a formal
quotation.
It was stipulated in the contract that DELIVERY is within 2 months
after receipt of firm order. The TERMS is 25% upon delivery,
balance payable in 5 bimonthly equal and Installment[s] not to
exceed90days.
On02November1989,LorenzoissuedtoMarthelPurchaseOrder.
For the procurement of one set of cylinder liner to be used for M/V
DadiangasExpressrepair.
Instead of paying the 25% down payment for the first cylinder liner,
petitioner issued in favor of respondent ten postdated checks to be
drawn against the former's account with Allied Banking
Corporation.
On 15 January 1990, Lorenzo again issued Purchase Order for yet
anotherunitofcylinderliner.
This purchase order stated the term of payment to be "25% upon
delivery,balancepayablein5bimonthlyequalinstallment[s].
On 26 January 1990, respondent deposited petitioner's check that
was postdated 18 January 1990, however, the same was
dishonored by the drawee bank due to insufficiency of funds. (This
check was supposedly the payment for the first ordered cylinder
linerandnotforthesubsequentone.)
The remaining nine postdated checks were eventually returned by
respondenttopetitioner.
However, the parties presented disparate accounts of what happened to
thecheckwhichwaspreviouslydishonored.
Petitioner claimed that it replaced said check with a good one, the
proceeds of which were applied to its other obligation to
respondent. For its part, respondent insisted that it returned said
postdatedchecktopetitioner.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's
warehouseinNorthHarbor,Manila.
8
Due to the failure of the parties to settle the matter, Marthel filed an action
forsumofmoneyanddamagesbeforetheRTCMakatiCity.
Alleging that despite its repeated oral and written demands,
Lorenzoobstinatelyrefusedtosettleitsobligations.
RTC: granted Marthels prayer for issuance of preliminary attachment and
ordered lifting the levy on Lorenzo's properties and the garnishment of its
bankaccounts.
Lorenzo, in its Answer alleging therein that time was of the essence in the
delivery of the cylinder liners and that the delivery on 20 April 1990 of
said items was late as respondent committed to deliver said items
"withintwo(2)monthsafterreceiptoffirmorder"frompetitioner.
Prior to the commencement of trial, Lorenzo filed a Motion for Leave to
Sell Cylinder Lines alleging that with the passage of time, the cylinder
liners run at risk of obsolescence and deterioration to prejudice of the
partiesinthecaseandplacetheproceedsinescrow.
TC:grantedthemotion
After the trial, TC dismissed the action and help Marthel bound to the
quotation,
MarthelappealedwithCA
CA: reversed TCs decision, Marthel could not have incurred delay
in the delivery of cylinder lines as no demand, judicial, or
extrajudicialwasmadebyLorenzo.
Hence,thepetitionforreviewfiledbyLorenzo.

Issue:
1. W/N Marthel incurred delay in performing its obligation under the contract
ofsale.
2. W/NthesaidcontractwasvalidlyrescindedbyLorenzo.

Held:
1. No.
The SC [affirmed Court of Appeals] held that Marthel could not
have incurred delay in the delivery of cylinder liners as no demand,
judicial or extrajudicial, was made by respondent upon petitioner in
contravention of the express provision of Article 1169 of the Civil
Codewhichprovides:
i. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.SC
held that in the subject contracts, time was not of the
essence.
The delivery of the cylinder liners on 20 April 1990 was made within
a reasonable period of time considering that respondent had to
9
place the order for the cylinder liners with its principal in Japan and
thatthelatterwas,atthattime,besetbyheavyvolumeofwork
2. No.
There having been no failure on the part of the Marthel to perform
its obligation, the power to rescind the contract is unavailing to
Lorenzo.Article1191oftheNewCivilCoderunsasfollows:
i. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
whatisincumbentuponhim.
The law explicitly gives either party the right to rescind the contract
only upon the failure of the other to perform the obligation assumed
thereunder.
There is no showing that Lorenzo notified Marthel to rescind the
contractofsalebetweenthem.
SC:Petitondenied,affirmedCAsdecision.

v. SealoaderShippingvs.GrandCementManufacturing(GATCHALIAN)
(no specific extraordinary diligence discussed here also. The case focused on
negligence)

DOCTRINES:

Negligence "the omission to do something which a reasonable man, guided by

those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would
notdo

Contributory negligence conduct on the part of the injured party, contributing
as a legal cause to the harm he has suffered, which falls below the standard to
whichheisrequiredtoconformforhisownprotection

PARTIES:
1. Sealoader Shipping Corporation (Sealoader) engaged in the business of
shipping and hauling cargo from one point to another using seagoing
interislandbarges.OwnerofD/BToploader
2. Grand Cement Manufacturing Corporation (now Taiheiyo Cement
Philippines, Inc.) engaged in the business of manufacturing and selling
cement through its authorized distributors and, for which purposes, it
maintainsitsownprivatewharfinSanFernando,Cebu,Philippines.
3. Joyce Launch and Tug Co., Inc. (Joyce Launch) owned and operated the
motortugboatM/TViper

FACTS:
10
SEALOADER executed a Time Charter Party Agreement with JOYCE LAUNCH.
Sealoader chartered the M/T Viper in order to tow the its unpropelled barges for a
minimum period of fifteen days from the date of acceptance, period can be
reneweduponagreement.
SEALOADER entered into a contract with GRAND CEMENT for the loading of
cementclinkersandthedeliverythereoftoManila
D/B Toploader (a barge owned by Sealoader), arrived at the wharf of Grand
Cement tugged by the M/T Viper. The D/B Toploader, however, was not
immediately loaded with its intended cargo as the employees of Grand Cement
werestillloadinganothervessel,theCargoLiftTres.
On April 4, 1994 Typhoon Bising struck the Visayas area. Public storm signal
number3wasraisedovertheprovinceofCebu.
The D/B Toploader was, at that time, still docked at the wharf of Grand Cement.
As the winds blew stronger and the waves grew higher, the M/T Viper tried to tow
the D/B Toploader away from the wharf. The efforts of the tugboat were foiled,
however, as the towing line connecting the two vessels snapped. This occurred
asthemooringlinessecuringtheD/BToploadertothewharfwerenotcastoff.
The following day, the employees of Grand Cement discovered the D/B Toploader
situated on top of the wharf, apparently having rammed the same and causing
significantdamagethereto.
Grand Cement filed a complaint for Damages against (1) Sealoader (2) Romulo
Diantan, the captain of M/T Viper and (3) Johnny Ponce, the barge patron of the
d/B Toploader. Later on it filed an Amended Complaint and impleaded (4) Joyce
Launch
Grand Cements contention: After receiving the weather updates, Grand
Cement advised Diantan and Ponce to move their respective vessels
awayfromitswharfbutthemenrefusedtodoso.
Sealoaders Answer to the Complaint: Brought up the delay of the loading
due to the loading of another vessel. In addition, it pointed out that the
damagewasduetoatyphoon,aforcemajeurehence,beyonditscontrol
Joyce Launchs Answer to the Amended Complaint: damage was caused
by the typhoon. If the loading was done on schedule, the incident would
havebeenavoided
Sealoader filed a Crossclaim against (1) Joyce Launch and (2) Romulo Diantan.
M/T Viper was under the complete control of Joyce Launch thru Diantan.
Sealoader contends that Joyce Launch has the sole duty to secure the 2 vessels
inordertoavoidanydamagesthatmaycause.
Joyce Launchs Answer: Damage was due to the typhoon. Contended that
Grand Cement allegedly abandoned the wharf, thus, leaving the crew of
the M/T Viper helpless in preventing the D/B Toploader from ramming the
wharf. Joyce Launch likewise faulted Grand Cements employees for not
warning the crew of the M/T Viper early on to seek refuge from the
typhoon.
11
Trial ensued. Several persons were presented as witnesses to prove their
respectiveclaims.

RTC: In favor of Grand Cement. Sealoader, Joyce Launch and Ponce e solidarily liable.
(NOTE: Diantan was dropped as a defendant because summons cannot be served
sincehesworkinginabroad)
The defendants negligence can be shown from their acts or omissions, thus:
they did not take any precautionary measure as demanded or required of them in
complete disregard of the public storm signal or warning the master or captain or
the responsible crew member of the vessel was not in the vessel, hence, nobody
could make any move or action for the safety of the vessel at such time of
emergency or catastrophe and the vessel was not equipped with a radio or any
navigational communication facility, which is a mandatory requirement for all
navigationalvessels.

*Sealoaderappealed.JoyceLauchandPoncenolongerquestionedthecourtsdecision

CA:StillinfavorofGrandCement

MR was filed by Sealoader. CA issued an Amended Decision: Grand Cement was

guiltyofcontributorynegligence
Grand Cement did not take any precaution to avoid the damages wrought by the
storm. Grand Cement waited until the last possible moment before informing
Sealoader and Joyce about the impending storm. In fact, it continued loading on
another vessel. It is no wonder that Sealoader did not immediately move away
from the pier since the owner of the pier, Grand Cement, was continuing to load
another vessel despite the fast approaching storm. In totality, we find that Grand
Cement also did not exercise due diligence in this case and that its conduct
contributedtothedamagesthatitsuffered.

ISSUE:
Who, among the parties in this case, should be held liable for the damage
sustainedbythewharfofGrandCement?SEALOADERALONE.

HELD:
The Court finds that Sealoader was indeed guilty of negligence in the conduct of
itsaffairsduringtheincidentinquestion.
Grand Cement that there was either no radio on board the D/B Toploader, the
radio was not fully functional, or the head office of Sealoader was negligent in
failing to attempt to contact the D/B Toploader through radio. Either way, this
negligencecannotbeascribedtoanyoneelsebutSealoader.
Manifest laxity of the crew of D/B Toploader in monitoring the weather. Despite
the apparent difficulty in receiving weather bulletins from the head office of
12
Sealoader, the evidence on record suggests that the crew of the D/B Toploader
failedtokeepawatchfuleyeontheprevailingweatherconditions.
Acosta, the clearing officer of Sealoader relied on the assurances of the M/T
BeejaycrewandtheopinionofRomuloDiantanregardingtheweathercondition.
Sealoader cannot pass to Grand Cement the responsibility of casting off the
mooring lines connecting the D/B Toploader to the wharf. The Court agrees with
the ruling of the Court of Appeals in the Decision that the people at the wharf
could not just cast off the mooring lines without any instructions from the crew of
theD/BToploaderandtheM/TViper

Grand Cement was NOT guilty of negligent acts, which contributed to the damage
thatwasincurredonitswharf.
The Court holds that Sealoader had the responsibility to inform itself of the
prevailing weather conditions in the areas where its vessel was set to sail.
Sealoader cannot merely rely on other vessels for weather updates and warnings
on approaching storms, as what apparently happened in this case. Common
sense and reason dictates this. To do so would be to gamble with the safety of its
own vessel, putting the lives of its crew under the mercy of the sea, as well as
running the risk of causing damage to the property of third parties for which it
wouldnecessarilybeliable.

d. Duration of responsibility (Delivery of goods to common carrier Actual or

constructivedeliveryTemporaryunloadingorstorage)

i. LuDo&LuYmCorporationvs.Binamira(HAUTEA)

Doctrine:
The carrier does not assume liability for any loss or damage to the goods once they have been
"taken into the custody of customs or other authorities", or when they have been delivered at
ship'stackle.

Facts:

Delta Photo (New York based company) shipped on board M/S FERNSIDE (6) cases of films
and photographic supplies consigned to BINAMIRA. When the ship arrived at the port of Cebu,
theshipmentwasplacedinthecustodyofVisayanCebuTerminalCompany(Arrastre).

LU DO CORPORATION (Agent of the Carrier) hired Cebu Stevedoring to unload cargo. Both
the stevedoring and arrastre company made a list of bad cargo on board. The shipment in
question, was not included in the report of bad order cargo of both checkers, indicating that it
wasdischargedfromthe,shipingoodorderandcondition.

13
When BINAMIRA got hold of the cargo, the cases showed signs of pilferage. It was later found
outthatfilmsandphotographicsuppliesweremissingvaluedatP324.63

Theruledthatthecarrierwasliablestatingthat

In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the same
condition in which it received them. Except where the loss, destruction or deterioration of the merchandise
was due to any of the cases enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have
been at fault and to have acted negligently, unless it could prove that it observed extraordinary diligence in
the care and handling of the goods (Article 1735, supra). Such presumption and the liability of the carrier
attach until the goods are delivered actually or constructively, to the consignee, or to the person who has a
right to receive them (Article 1736, supra), and we believe delivery to the customs authorities is not the
delivery contemplated by Article 1736, supra, in connection with second paragraph of Article 1498, supra,
because, in such a case, the goods are then still in the hands of the Government and their owner could not
exercise dominion whatever over them until the duties are paid. In the case at bar, the presumption against
thecarrier,representedappellantasitsagent,hasnotbeensuccessfullyrebutted.

Issue&Held:
1.WhethertheCAerredinitsdecision?

YES. The provisions cited by the Court of Appeals only apply when the loss, destruction or
deterioration takes place while the goods are in the possession of the carrier, and not after it has
lost control of them. While the goods are in its possession, it is but fair that it exercise
extraordinary diligence in protecting them from damage, and if loss occurs, the law presumes
that it was due to its fault or negligence. This is necessary to protect the interest the interest of
the owner who is at its mercy. The situation changes after the goods are delivered to the
consignee.

While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to
the person who has a right to receive them", contemplated in Article 1736, because in such case
the goods are still in the hands of the Government and the owner cannot exercise dominion over
them, we believe however that the parties may agree to limit the liability of the carrier considering
that the goods have still to through the inspection of the customs authorities before they are
actually turned over to the consignee. This is a situation where we may say that the carrier
losses control of the goods because of a custom regulation and it is unfair that it be made
responsible for what may happen during the interregnum. And this is precisely what was done by
the parties herein. In the bill of lading that was issued covering the shipment in question, both the
carrier and the consignee have stipulated to limit the responsibility of the carrier for the loss or
damage

the carrier does not assume liability for any loss or damage to the goods once they have been
"taken into the custody of customs or other authorities", or when they have been delivered at
ship'stackle.

14
ii. Servando,etal.,vs.PhilippineSteamNavigation(LESAVA)
Doctrine:
A'casofortuito'presentsthefollowingessentialcharacteristics:
(1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
complywithhisobligation,mustbeindependentofthehumanwill
(2) it must be impossible to foresee the event which constitutes the 'caso fortuito', or if it can
beforeseen,itmustbeimpossibletoavoid
(3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligationinanormalmannerand
(4) the obligor must be free from any participation in the aggravation of the injury resulting to
thecreditor.
Where fortuitous event or force majeure is the immediate and proximate cause of the loss,
theobligorisexemptfromliabilityfornonperformance.
Synopsis:TherewasafireintheBureauofCustomswarehouse.

Parties:BureauofCustoms
Appellant(Carrier):PhilippineSteamNavigation
Appellees:ClaraUyBicoandAmparoServando
Facts:
Appellees loaded on board appellants vessel (FS176) carriage from Manila to Negros
Occidental.
Bico1,528cavansofrice
Servandocartonsofcoloredpaper,toysandgeneralmerchandise
Upon arrival of the vessel at Negros Occidental, the cargoes were discharged complete and
ingoodorder.
That afternoon of the same day, said warehouse was razed by a fire of unknown origin,
destroyingappellees'cargoes.
Before the fire, Clara Uy Bico was able to take delivery of 907 cavans of rice (which claim for
valueofsaidgoodswasrejectedbyAppellant).
The court a quo held that the delivery of the shipment in question to the warehouse of the
Bureau of Customs is not the delivery contemplated by Article 1736 and since the burning of
the warehouse occurred before actual or constructive delivery of the goods to the appellees,
thelossischargeableagainsttheappellant.

Issue:
WONcarriershouldberesponsible?

Held:
YES. Since the burning of the customs warehouse was an extraordinary event which happened
independently of the will of the appellant and the latter could not have foreseen the event,
Appellant is discharged from any liability. Furthermore, there is a stipulation in the contract
absolving carrier from responsibility for fortuitous events which the law allows as long as the
partiesinsertstipulationsnotcontrarytolaw,moralsorpublicpolicy.
15

In the bills of lading issued for the cargoes in question, the parties agreed to limit the
responsibility of the carrier for the loss or damage that may be caused to the shipment by
insertingthereinthefollowingstipulation:
Clause14. Carrier shall not be responsible for loss or damage to shipments
billed 'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or
accidentsoftheseaorotherwaterswarpublicenemies...fire....

The agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle
oflawwritteninArticle1174oftheCivilCode:

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

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss,
the obligor is exempt from liability for nonperformance. The Partidas, the antecedent of Article
1174 of the Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could
not have been foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck,
violenceofrobbers.'

There is nothing in the record to show that appellant carrier ,incurred in delay in the performance
of its obligation. It appears that appellant had not only notified appellees of the arrival of their
shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand,
appelleeUyBicohadtakendeliveryof907cavansofricebeforetheburningofthewarehouse.

Nor can the appellant or its employees be charged with negligence. The storage of the goods in
the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made
with their knowledge and consent. Since the warehouse belonged to and was maintained by the
government, it would be unfair to impute negligence to the appellant, the latter having no control
whatsoeveroverthesame.

iii. MitsuiLinesvs.CA(LIM)
DOCTRINE:
"Loss", within the ambit of S3(6) of the COGSA refers to the deterioration or
disappearance of goods. As defined in the Civil Code and as applied to S3(6), P4
ofthe

16
COGSA, "loss" contemplates merely a situation where no delivery at all was
made by the shipper of the goods because the same had perished, gone out of
commerce,or

disappeared in such a way that their existence is unknown or they cannot be

recovered. The deterioration of goods due to delay in their transportation
constitutes

"loss"or"damage"withinthemeaningofS3.

FACTS:
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the
Philippines by its agent, Magsaysay Agencies. It entered into a contract of
carriage through Meister Transport, Inc., an international freight forwarder, with
private respondent Lavine Loungewear Manufacturing Corporation to transport
goods of the latter from Manila to Le Havre, France. Petitioner undertook to
deliver the goods to France 28 days from initial loading. On July 24, 1991,
petitioners vessel loaded private respondents container van for carriage at the
saidportoforigin.

However, in Kaoshiung, Taiwan the goods were not transshipped immediately,

with the result that the shipment arrived in Le Havre only on November 14, 1991.
The consignee allegedly paid only half the value of the said goods on the ground
that they did not arrive in France until the off season in that country. The
remaining half was allegedly charged to the account of private respondent which
inturndemandedpaymentfrompetitionerthroughitsagent.

Petitioner denied private respondents claim. The latter filed a case in the RTC in
April 1992. In the original complaint, private respondent impleaded as defendants
Meister Transport, Inc. and Magsaysay Agencies, Inc., the latter as agent of
petitioner Mitsui O.S.K. Lines Ltd. In May 1993, it amended its complaint by
impleading petitioner as defendant in lieu of its agent. The parties to the case
thus became private respondent as plaintiff, on one side, and Meister Transport
Inc. and petitioner Mitsui O.S.K. Lines Ltd. as represented by Magsaysay
Agencies,Inc.,asdefendantsontheother.

Petitioner filed a motion to dismiss alleging that the claim against it had
prescribedundertheCarriageofGoodsbySeaAct.

RTC denied petitioners motion as well as its subsequent motion for

reconsideration. On petition for certiorari, the Court of Appeals sustained the trial
courtsorders.Hencethispetition.

17
ISSUE:
W/N private respondents action is for loss or damage to goods shipped, within
themeaningofS3(6)oftheCarriageofGoodsbySeaAct(COGSA).

HELD:
"Loss", within the ambit of S3(6) of the COGSA refers to the deterioration or
disappearance of goods. As defined in the Civil Code and as applied to S3(6), P4
of the COGSA, "loss" contemplates merely a situation where no delivery at all
was made by the shipper of the goods because the same had perished, gone out
of commerce, or disappeared in such a way that their existence is unknown or
they cannot be recovered. The deterioration of goods due to delay in their
transportationconstitutes"loss"or"damage"withinthemeaningofS3.

Whatever damage or injury is suffered by the goods while in transit would result in
loss or damage to either the shipper or the consignee. As long as it is claimed
that the losses or damages suffered by the shipper or consignee were due to the
arrival of the goods in damaged or deteriorated condition, the action is still
basically one for damage to the goods. The damages suffered by him as a result
of the delay in the shipment of his cargo are not covered by the prescriptive
provision of the COGSA above referred to, if such damages were due, not to the
deterioration and decay of the goods while in transit, but to other causes
independent of the condition of the cargo upon arrival, like a drop in their market
value,forexample.

In the case at bar, there is neither deterioration nor disappearance nor destruction
of goods caused by the carrier's breach of contract. Whatever reduction there
may have been in the value of the goods is not due to their deterioration or
disappearancebecausetheyhadbeendamagedintransit.

Precisely, the question before the trial court is not the particular sense of
"damages" as it refers to the physical loss or damage of a shipper's goods as
specifically covered by 3(6) of COGSA but Mitsui's potential liability for the
damages it has caused in the general sense and, as such, the matter is governed
by the Civil Code, the Code of Commerce and COGSA, for the breach of its
contractofcarriagewithLavine.

iv. PhilippineFirstInsurancevs.WallemFirstShipping(MORA)

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
carriertotheconsignee,ortothepersonwhohasarighttoreceivethem.
18

FACTS:
Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore
Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous,
complete and in good order for transportation to and delivery at the port of Manila
for consignee, L.G. Atkimson ImportExport, Inc. covered by a Clean Bill of
Lading. The Owner and/or Charterer of M/V Offshore Master is unknown while
the shipper of the shipment is Shanghai Fareast Ship Business Company.
Both are foreign firms doing business in the Philippines, thru its local ship agent,
respondentWallemPhilippinesShipping,Inc.

The shipment arrived at the port of Manila. It was disclosed during the discharge
of the shipment from the carrier that 2,426 poly bags were in bad order and
condition, having sustained various degrees of spillages and losses. This is
evidenced by the Turn Over Survey of Bad Order Cargoes of the arrastre
operator, Asian Terminals, Inc. The bad state of the bags is also evinced by the
arrastreoperatorsRequestforBadOrderSurvey.

Asia Star Freight Services undertook the delivery from the pier to the consignees
warehouse where it was found and noted that the bags had been discharged in
damagedandbadordercondition.

Herein petitioner is the insurer of the goods. It filed an action for damages after its
formal demand for payment of lost goods to Wallem remain unanswered and
unsettled.

RTC ordered respondents to pay petitioner. It attributed the damage and losses
sustained by the shipment to the arrastre operators mishandling the discharge of
the shipment. Since both of the the arrastre operator and common carrier are
charged with and obligated to deliver the goods in good order condition to the
consignee,itruledthattheyaresolidarilyliableforthepaymentofdamages.

CA reversed the ruling. There is no solidary liability because the damage to the
goods are attributed to the mishandling by the arrastre operator in the discharge
oftheshipment.

In their petition for review to the SC, It is undisputed that the damage or losses
were incurred by the shipment during the unloading. What is disputed is who
shouldbeliableforthedamageincurredatthatpointoftransport.

ISSUE:
Whether the carrier should be held solidarily liable for the cost of the
damagedshipment?
19

HELD:
YES.Inresolvingtheissuethecourtcitedthefollowinglawsanddoctrines:

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 transported by them. Subject to certain exceptions enumerated under
Article 1734 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. 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,ortothepersonwhohasarighttoreceivethem.

For marine vessels, Article 619 of the Code of Commerce provides that the ship
captain is liable for the cargo from the time it is turned over to him at the dock or
afloat alongside the vessel at the port of loading, until he delivers it on the shore or
on the discharging wharf at the port of unloading, unless agreed otherwise. In
Standard Oil Co. of New York v. Lopez Castelo, the Court interpreted the ship
captains liability as ultimately that of the shipowner by regarding the captain as
therepresentativeoftheshipowner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of
goods by sea, the carrier in relation to the loading, handling, stowage, carriage,
custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set forth in
the Act. Section 3 (2) thereof then states that among the carriers responsibilities
are to properly and carefully load, handle, stow, carry, keep, care for, and
dischargethegoodscarried.

The above doctrines are in fact expressly incorporated in the bill of lading between
theshipperShanghaiFareastBusinessCo.,andtheconsignee,towit:

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from

the time when the goods are loaded on board the vessel and shall cease when they are
dischargedfromthevessel.

The Carrier shall not be liable of loss of or damage to the goods before loading and after
dischargingfromthevessel,howsoeversuchlossordamagearises.

The Court also discussed that the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment of the
consignee or shipper and the ship's tackle. Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good care of the
goodsandtoturnthemovertothepartyentitledtotheirpossession.

20
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessarytopreventlossesanddamagetoshipmentsunderitscustody.

In Firemans Fund Insurance Co. v. Metro Port Service, Inc. the Court explained
the relationship and responsibility of an arrastre operator to a consignee of a
cargo,toquote:

The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common
carrier is similar to that of the consignee and the arrastre operator. 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 and obligated to
deliverthegoodsingoodconditiontotheconsignee.

Thus, the Court agrees to CAs holding that an arrastre operator and
carriermaynotbeheldsolidarilyliableatalltimes.

To answer the question who had custody of the shipment during the unloading
fromthevessel,thecourtdiscussed:

The aforementioned Section 3(2) of the COGSA states that among the carriers
responsibilities are to properly and carefully load, care for and discharge the
goods carried. The bill of lading covering the subject shipment likewise stipulates
that the carriers liability for loss or damage to the goods ceases after its
discharge from the vessel. Article 619 of the Code of Commerce holds a ship
captain liable for the cargo from the time it is turned over to him until its delivery at
theportofunloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland, it

was ruled that like the duty of seaworthiness, the duty of care of the cargo is
nondelegable, and the carrier is accordingly responsible for the acts of
the master, the crew, the stevedore, and his other agents. It has also been
held that it is ordinarily the duty of the master of a vessel to unload the
cargo and place it in readiness for delivery to the consignee, and there is
an implied obligation that this shall be accomplished with sound machinery,
competent hands, and in such manner that no unnecessary injury shall be
done thereto. And the fact that a consignee is required to furnish persons
to assist in unloading a shipment may not relieve the carrier of its duty as
tosuchunloading

The exercise of the carriers custody and responsibility over the goods during the
unloading actually transpired in teh instant case during the unloading of teh
shipment as testified by Mr. Talens, the cargo surveyor. He testified that checker
of the vessel of Wallem Philippines hired the services of the stevedores and that
the master of the vessel was observing and supervising the discharging operation
of the cargo. The checker is an employee of Wallem. He also testified that he
noted in the Bad Order Inspection that the bad order torn bags, was due to
21
stevedores utilizing steel hooks/spikes in piling the cargo to the pallet board at the
vessels cargo holds and at the pier designated area before and after
dischargedthatcausesthebagstobetorn.

The records are replete with evidence which show that the damage to the bags
happened before and after their discharge and it was caused by the stevedores of
thearrastreoperatorwhowerethenunderthesupervisionofWallem.

It is settled in maritime law jurisprudence that cargoes while being unloaded

generally remain under the custody of the carrier. In the instant case, the damage
or losses were incurred during the discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier is liable for the damage or
losses caused to the shipment. As the cost of the actual damage to the subject
shipment has long been settled, the trial courts finding of actual damages in the
amounthastobesustained.

e. Presumptionofnegligence
i. Loadmasters Customs Services, Inc., vs. Glodel Brokerage Corporation,
etal(SUPAPO)
(TruckingServiceproviderv.CustomsbrokerandInsuranceCompany)

PARTIES:
TruckingServiceProviderLoadmasters(CommonCarrier)
CustomsBrokerGlodel(CommonCarrier)
InsuranceR&BInsuranceCorporation
Extra (not a party in the case): Owner of the cargoes Columbia Wire
andCableCorp.

CAUSESOFACTION:QuasidelictbetweenLoadmastersandR&B
Culpa Contractual between Loadmasters and
Glodel

DOCTRINES:
COMMON CARRIER QUASIDELICT Whenever an employees
negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi
patris family in the selection (culpa in eligiendo) or supervision (culpa in
vigilando)ofitsemployees.

22
SAME SAME Where several causes producing an injury are concurrent
and each is an efficient cause without which the injury would not have
happened, the injury may be attributed to all or any of the causes and
recovery may be had against any or all of the responsible persons
although under the circumstances of the case, it may appear that one of
them was more culpable, and that the duty owed by them to the injured
personwasnotthesame.

FACTS:
1. 132 bundles of electric copper cathodes owned by Columbia were
shipped from Leyte and arrived at Pier 10, North Harbor, Mla on the
sameday.
2. ThecargoeswereinsuredbyR&Bagainstallrisks.
3. Columbia engaged the services of Glodel for the release and
withdrawal of the cargoes from the pier and the subsequent
deliverytoitswarehouses/plants.
4. Glodel, in turn, subcontracted Loadmasters (contract of
affreightment) to transport the cargoes to Columbias
warehouse/plantsinBulacanandValenzuelaCity.
5. The goods were loaded on board 12 trucks owned by
Loadmasters, driven by its employed drivers and accompanied by
itsemployedtruckhelpers.
6. 6 truckloads were to be delivered to Bulacan and 6 truckloads for
ValenzuelaCity.
7. However, one of the truckloads en route to Bulacan never reached
its destination as it was hijacked or robbed and was later on
recoveredwithoutthecoppercathodes.
8. Accordingly, Columbia claimed for insurance indemnity against
R&B,whichthelatterpaid.
9. Thereafter, R&B filed a complaint for damages against
LoadmastersandGlodel.

RTC: Only Glodel was liable to R&B. Loadmasters counterclaim against

R&Bwasdismissed
CA: (Glodel and R&B appealed) Loadmasters was held as an agent of
Glodel.Assuch,solidarilyliablewithR&B.

Loadmasterscontention:
It should not be held liable for damages, as it was never privy to the
contractbetweenGlodelandColumbiaorR&Bassubrogee

ISSUE:
WhetherLoadmastersisliabletoR&BtogetherwithGlodel?
23

HELD:YES!
The court held that although Loadmasters may not have direct contractual
relation with Columbia, it is still liable for tort under Article 2176 NCC on
quasidelicts. As enunciated in Mindanao Terminal and Brokerage Service
Inc. v. Phoenix Assurance Company of New York, a tort may arise despite
theabsenceofacontractualrelationship.

Inconnectiontherewith,Article2180provides:

ART. 2180. The obligation imposed by Article 2176 is demandable not only
for ones own acts or omissions, but also for those of persons for whom one
isresponsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
thoughtheformerarenotengagedinanybusinessorindustry.

It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were
instrumental in the hijacking or robbery of the shipment. As employer,
Loadmasters should be made answerable for the damages caused
by its employees who acted within the scope of their assigned task
ofdeliveringthegoodssafelytothewarehouse.

Whenever an employees negligence causes damage or injury to

another, there instantly arises a presumption juris tantum that the
employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando) of
its employees. To avoid liability for a quasidelict committed by its
employee, an employer must overcome the presumption by presenting
convincing proof that he exercised the care and diligence of a good father
of a family in the selection and supervision of his employee. In this regard,
Loadmastersfailed.

Glodel is also liable because of its failure to exercise extraordinary

diligence. It failed to ensure that Loadmasters would fully comply with the
undertaking to safely transport the subject cargo to the designated
destination. It should have been more prudent in entrusting the goods to
Loadmasters by taking precautionary measures, such as providing
escorts to accompany the trucks in delivering the cargoes. Glodel should,
therefore, be held liable with Loadmasters. Its defense of force majeure is
unavailing.

24
Indeed,GlodelandLoadmastersaresolidarilyliabletoR&B.

ii. FGUInsurancevs.CA(VELASCO)

ShipperAncoEnterpriseCompany
ConsigneeSMC
InsurerFGUInsuranceCorporation

Facts
Anco Enterprises Company (ANCO) was engaged in the shipping business. It
owned the M/T ANCO tugboat and the D/B Lucio barge which were operated as
common carriers. Since the D/B Lucio had no engine of its own, it could not
maneuver by itself and had to be towed by a tugboat for it to move from one place
toanother.

San Miguel Corporation (SMC) shipped beers from Mandaue City, Cebu, on board
the D/B Lucio, for towage by M/T ANCO. Upon arrival at San Jose, Antique, the
tugboatM/TANCOleftthebargeimmediately.

When the barge and tugboat arrived at San Jose, Antique, the clouds over the
area were dark and the waves were already big. The arrastre workers unloading
the cargoes of SMC on board the D/B Lucio began to complain about their
difficulty in unloading the cargoes. SMCs District Sales Supervisor, Fernando
Macabuag, requested ANCOs representative to transfer the barge to a safer
placebecausethevesselmightnotbeabletowithstandthebigwaves.

ANCOs representative did not heed the request because he was confident that
the barge could withstand the waves. Only part of the cargo was unloaded
becauseofthebigwaves.

During the evening, the barges rope, which was attached to the wharf, got cut off
by the waves and the barge sunk. The remaining cargoes of beer were swept into
theocean.

SMC filed a complaint for Breach of Contract of Carriage and Damages against
ANCO.

ANCO claimed that it had an agreement with SMC that ANCO would not be liable
for any losses or damages resulting to the cargoes by reason of fortuitous event.
Since the cases of beer were lost by reason of a storm, a fortuitous event which
battered and sunk the vessel in which they were loaded, they should not be held
liable. ANCO further asserted that there was an agreement between them and
SMC to insure the cargoes in order to recover indemnity in case of loss.
25
Pursuant to that agreement, 20,000 cases were insured with FGU Insurance
Corporation(FGU).

ANCOfiledaThirdPartyComplaintagainstFGU.

FGU admitted the existence of the Insurance Policy but maintained that the
alleged loss of the cargoes covered by the said insurance policy cannot be
attributed directly or indirectly to any of the risks insured against in the said
insurance policy. According to FGU, it is only liable under the policy to ANCO
and/orSMCincaseofanyofthefollowing:
a) totallossoftheentireshipment
b)lossofanycaseasaresultofthesinkingofthevesselor
c)lossasaresultofthevesselbeingonfire.

FGU also alleged that ANCO and SMC failed to exercise ordinary diligence or the
diligence of a good father of the family in the care and supervision of the cargoes
insuredtopreventitslossand/ordestruction.

RTC: ANCO is liable to SMC. FGU is liable to bear 53% of the amount of lost
cargoes.

(ANCO liability) The cargoes were lost due to fortuitous event. There was failure
on ANCOs part to observe the degree of diligence required. (FGU liability) The
riskinsuredagainstwasthecauseofthelossofcargoes.

CA:AffirmedTCdecision

Issues
1.IsANCOliablebybeingnegligent?YES
2.IsFGUliable?NO

SC
1.YES

(EXTRAORDINARYDILIGENCEISSUE)
ANCOs representatives failed to exercise the extraordinary degree of diligence
requiredbythelawtoexculpatethemfromliabilityforthelossofthecargoes.

First, ANCO admitted that they failed to deliver to the designated consignee
29,210casesofPalePilsenandFiveHundredFifty550casesofCervezaNegra.

Second, the barge D/B Lucio had no engine of its own and could not maneuver by
itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to fend for itself even
26
when there are signs of the impending storm. Since it is the duty of the defendant
to exercise and observe extraordinary diligence in the vigilance over the cargo of
the plaintiff, the patron or captain of M/T ANCO could have placed D/B Lucio in a
very safe location before they left knowing or sensing at that time the coming of a
typhoon.

ANCO, therefore, through their representatives, failed to observe the degree of

diligencerequiredofthemundertheprovisionofArt.1733.

(FORTUITOUSEVENTISSUE)
ANCO claims that the loss of the cargoes was caused by the typhoon Sisang, a
fortuitousevent(casofortuito),andtherewasnofaultornegligenceontheirpart.

Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all
thecircumstancesofeachcase.
Such extraordinary diligence in vigilance over the goods is further expressed in
Articles1734,1735,and1745Nos.5,6,and7...

Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:
(1)Flood,storm,earthquake,lightning,orothernaturaldisasterorcalamity

Art. 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize
loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the
loss,destruction,ordeteriorationofthegoods...(Emphasissupplied)

Caso fortuito or force majeure by definition, are extraordinary events not

foreseeable or avoidable, events that could not be foreseen, or which though
foreseen,wereinevitable.

In this case, the calamity which caused the loss of the cargoes was not
unforeseen nor was it unavoidable. In fact, the other vessels in the port of San
Jose, Antique, managed to transfer to another place, a circumstance which
prompted SMCs District Sales Supervisor to request that the D/B Lucio be
likewise transferred, but to no avail. The D/B Lucio had no engine and could not
maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no
longer had any means to do so as the tugboat M/T ANCO had already departed,
27
leaving the barge to its own devices. The captain of the tugboat should have had
theforesightnottoleavethebargealoneconsideringthependingstorm.

While the loss of the cargoes was admittedly caused by the typhoon Sisang, a
natural disaster, ANCO could not escape liability to respondent SMC. The
records clearly show the failure of petitioners representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from
responsibility, the natural disaster should have been the proximate and only cause
of the loss. There must have been no contributory negligence on the part of the
commoncarrier.

2.NO

(ORDINARYNEGLIGENCEV.GROSSNEGLIGENCE)
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. The carelessness
and negligence of the insured or his agents constitute no defense on the part of
the insurer. This rule however presupposes that the loss has occurred due to
causes which could not have been prevented by the insured, despite the exercise
ofduediligence.

The question now is whether there is a certain degree of negligence that will
deprive the insured the right to recover under the insurance contract. In this case,
there is. However, when evidence show that the insureds negligence or
recklessness is so gross as to be sufficient to constitute a willful act, the insurer
mustbeexonerated.

From US case decisions, the US Supreme Court has made a distinction between
ordinary negligence and gross negligence or negligence amounting to misconduct
and its effect on the insureds right to recover under the insurance contract.
According to the Court, while mistake and negligence of the master or crew are
incident to navigation and constitute a part of the perils that the insurer is obliged
to incur, such negligence or recklessness must not be of such gross character
as to amount to misconduct or wrongful acts otherwise, such negligence shall
releasetheinsurerfromliabilityundertheinsurancecontract.

In the case at bar, both the trial court and the appellate court had concluded from
the evidence that the crewmembers of both the D/B Lucio and the M/T ANCO
wereblatantlynegligent.

Taking into account the circumstances present in the instant case, the blatant
negligence of ANCOs employees is of such gross character that it amounts to a
28
wrongful act which must exonerate FGU from liability under the insurance
contract.

f. Exemptingcauses,defensesandconditions
i. Naturaldisaster
1. EasternShippingLines,Inc.,vs.IAC(BUENAVENTURA)
DOCTRINE: Common carriers are responsible for the loss, destruction,
or deterioration of the goods unless it is due to the following: events: flood,
storm,earthquake,lightning,orothernaturaldisasterorcalamity.

FACTS:
On June, 1977 M/S ASIATICA, a Vessel operated by Eastern Shipping
Lines was bound for Manila from Kobe, Japan. It loaded, 5,000 pieces of
colorized lance pipes in 28 packages valued at P256,039.00 consigned to
Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both were insured
from marine risks with Development Insurance and Surety Corp. It also
took 128 cartoons of garment fabrics and accessories in 2 containers
consigned to Mariveles Apparel Corp and 2 Cases of surveying
instruments consigned to Aman Enterprises and General Merchandise.
The shipments were insured with DOWA Fire and Marine Insurance Co.
and Nisshin Fire and marine Insurance Co. respectably. En Route from
Kobe to Manila the vessel caught fire and sank losing all its shipment. The
insurance companies paid for the insurance of the above mentioned
shipments. They then instituted a case to redeem the insurance that they
paid to the various companies against Eastern Shipping Lines. They
contend that Eastern should not be exempted from liability because it was
not able to exercise due diligence in preventing the occurrence of the fire
aswellasitsunseaworthiness.

Eastern Shipping invoked the Carriage of Goods by Sea Act as a defense

wherein it is said to be exempt from the said liability. The Fire was said to
be one of the exempting circumstance under the act. It also contended
that it the fire occurred as a fortuitous event such as a natural disaster or
calamity which leads them to conclude that they should not be made
liable.

Trial Court rendered judgment in favor of Development Insurance. CA

affirmed.

ISSUE:
WONPetitionerCarrierisliableforthelossofthecargo

29
HELD:
YES. Having failed to discharge the burden of proving that it had exercised
the extraordinary diligence required by law, Petitioner Carrier cannot
escapeliabilityforthelossofthecargo.

Common carriers are bound to observe extraordinary diligence when

transporting goods. Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless it is due to the following:
events: flood, storm, earthquake, lightning, or other natural disaster or
calamity.

In this case fire may not be considered a natural disaster or calamity. It

does not fall within the category of an act of God unless caused by
lightning or by other natural disaster or calamity. It may even be caused by
the actual fault or privity of the carrier. This is because the occurrence
may be due to an act by man or the actual fault of the carrier. The
common carrier is presumed to have been at fault or have acted
negligently unless it proves that it has observed the extraordinary diligence
required by law. Evidence presented by the witness failed to establish the
extraordinary diligence which was required of the carrier. The fire started
24 hours before discovery and upon discovery it was already too big to
suppress. It appears that after the cargoes were stored no regular
inspections were done to see to it that the cargoes are well kept. The crew
could not even explain how the fire started. Because of this the carrier
was not able to prove that it has exercised extraordinary diligence making
it liable of the costs and damages. Even if fire were to be considered a
"natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster"
must have been the "proximate and only cause of the loss," and that the
carrier has "exercised due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster" This Petitioner
Carrier has also failed to establish satisfactorily. They are bound to pay
theinsurancecompanies.

2. The Philippine American General Insurance Co., Inc., vs. MCG

MarineServices,Inc.(DORIA)

DOCTRINE:
Presumption of fault or negligence does not arise in the cases
enumeratedunderArticle1734oftheCivilCode.
Stricter standard: before a common carrier may be absolved from
liability where the loss, destruction or deterioration of the goods is
duetoanaturaldisasterorcalamity,itmustfurtherbeshownthat:
30
1. Such natural disaster or calamity was the proximate and
onlycauseoftheloss
2. There must be "an entire exclusion of human agency from
thecauseoftheinjuryoftheloss."
Even in cases where a natural disaster is the proximate and only
cause of the loss, a common carrier is still required to exercise
due diligence to prevent or minimize loss before, during and after
the occurrence of the natural disaster, for it to be exempt from
liability.

FACTS:
San Miguel Corporation insured beer bottle cases with an
aggregate value of PhP5.8M with Philippine American General
InsuranceCompany(PHILAMGEN).
The cargo was loaded on board the M/V Peatheray PatrickG, a
vessel of MCG, to be transported from Mandaue City to Bislig,
SurigaodelSur.
Theweatherwascalmwhenthevesselstarteditsvoyage.
The following day, the vessel sunk together with the cargo
belongingtoSanMiguelCorporation.
San Miguel Corporation claimed the amount of its loss from
PHILAMGEN.
Upon PHILAMGEN's request, a surveyor from the Manila Adjusters
and Surveyors Co. went to investigate the circumstances
surrounding the loss of the cargo. The report stated that the vessel
was structurally sound and that there was no damage or crack. It
was concluded that the proximate cause of the listing and
subsequent sinking of the vessel was the shifting of ballast water
from starboard to portside. The said shifting of ballast water
allegedlyaffectedthestabilityofthevessel.
PHILAMGEN paid San Miguel and as the subrogee, filed
withtheRTCacaseforcollection.
The Board of Marine Inquiry conducted its own investigation of the
sinking to determine WON the captain and crew of the vessel
shouldbeheldresponsiblefortheincident.
The Board exonerated the captain and crew for any
administrativeliability.
The cause of the sinking of the vessel was the existence of
strong winds and enormous waves in Surigao del Sur, a
fortuitous event that could not have been forseen at the
time the vessel left the port of Mandaue City. Said fortuitous
event was the proximate and only cause of the vessel's
sinking.
31
RTC:MCGliable
CA:reversedtherulingoftheRTC.
MCG could not be held liable for the loss because said loss
occurred as a consequence of a fortuitous event, and that
such fortuitous event was the proximate and only cause of
theloss.

ISSUE:
WONMCGcanbeheldliable?NO

HELD:
Since the presence of strong winds and enormous waves was shown to
be the proximate and only cause of the sinking and the loss of the cargo,
MCGcannotbeheldliable.

Common carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by them. Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or negligent
if the goods transported by them are lost, destroyed or if the same
deteriorated.
However, this presumption of fault or negligence does not arise in
the cases enumerated under Article 1734 of the Civil Code. See
Art.1734,(1)forthiscase.

Article 1739 and jurisprudence made the standard stricter in requiring that
before a common carrier may be absolved from liability where the loss,
destruction or deterioration of the goods is due to a natural disaster or
calamity,itmustfurtherbeshownthat:
Such natural disaster or calamity was the proximate and only
causeoftheloss
There must be "an entire exclusion of human agency from the
causeoftheinjuryoftheloss."

Even in cases where a natural disaster is the proximate and only cause of
the loss, a common carrier is still required to exercise due diligence to
prevent or minimize loss before, during and after the occurrence of the
natural disaster, for it to be exempt from liability under the law for the loss
ofthegoods.
If a common carrier fails to exercise due diligence (that ordinary
care which the circumstances of the particular case demand) to
preserve and protect the goods carried by it on the occasion of a
32
natural disaster, it will be deemed to have been negligent, and the
loss will not be considered as having been due to a natural
disasterunderArticle1734(1).

The following facts support the finding that the carrier indeed exercised the
diligencerequired:
1. The strong winds and huge waves were unforeseeable: before
leaving, the captain confirmed with the coast guard that the
weatherconditionwouldpermitsafetravel
2. The vessel was seaworthy: it had 3 diesel engines, 3 propellers,
operating generator pumps for emergency, it has undergone
emergency dry docking and repair, it was skippered by a
competent and experienced captain and crew, it was awarded the
SOLASclearancetodepartbythePhilippineCoastGuard.
3. When strong winds and huge waves began pounding the ship, the
crew took emergency measures. Upon the ingress of water, the
crew continuously pumped the sea water out to prevent the ship
from sinking. However, they were still not able to control the
volume of water, which caused the listing and eventual sinking of
thevessel.

3. Lea Mer Industries, Inc., vs. Malayan Insurance Co., Inc.

(FRANCISCO)
Doctrine:
In a contract of affreightment (time or voyage charter party), the
rulesfromcommoncarriersgovern.
A demise or bareboat charter indicates a business undertaking
that is private in character, and therefore, the rights and obligations of the
parties are governed principally by their stipulations, NOT by the law on
commoncarriers.
To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer anything short of such a complete transfer is a contract of
affreightmentornotacharterpartyatall.
To excuse the common carrier fully of any liability, the
fortuitous event must have been the proximate and only cause of
theloss.

Parties:
1. IlianSilicaMiningshipper
2. LeaMerIndustriesInc.carrier,petitioner
3. VulcanIndustrialandMiningCorporationcharterer,consignee
4. MalayanInsuranceCo.insurer,respondent
33

Facts:
Ilian Silica Mining entered into a contract of carriage with the
petitioner, Lea Mer Industries Inc. for the shipment of 900 metric
tonsofsilicasandworthP565,000.
The cargo was consigned to Vulcan Industrial and Mining
CorporationandwastobeshippedfromPalawantoManila.
25 October 1991, the silica sand was boarded to Judy VII, the
vesselleasedbyLeaMer.
However, during the course of its voyage, the vessel sank
whichledtothelossofthecargo.
Consequently, the Malayan Insurance Co., as the insurer, paid
Vulcanthevalueofthelostcargo.
Malayan Insurance Co., Inc. then collected from the Lea Mer the
amount it paid to Vulcan as reimbursement and as its exercise on
therightofsubrogation.
Lea Mer refused to pay which led Malayan to institute a
complaintwiththeRTC.
RTC: dismissed the complaint stating that the loss was
duetoafortuitousevent,TyphoonTrining.
Lea Mer did not know that a typhoon was coming and that it has
been cleared by the Philippine Coast Guard to travel from Palawan
toManila.
CA: reversed TCs ruling for the reason that said vessel
was not seaworthy when it sailed to Manila. The loss of
cargo was occasioned by Lea Mers fault, not by a
fortuitousevent.

Issue:
W/Nthelossofthecargowasduetoafortuitousevent.NO.
W/NLeaMerisliableforthelossofthecargo.YES

Held:
Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or
goods, or both by land, water, or air when this service is
offeredtothepublicforcompensation.
a. Lea Mer is clearly a common carrier, because it offers to
the public its business of transporting goods through its
vessels. Thus, the Court corrects the trial court's finding
that Lea Mer became a private carrier when Vulcan
charteredit.
34
Common carriers are bound to observe extraordinary diligence in
their vigilance over the goods and the safety of the passengers
they transport, as required by the nature of their business and for
reasons of public policy. Extraordinary diligence requires rendering
service with the greatest skill and foresight to avoid damage and
destructiontothegoodsentrustedforcarriageanddelivery.
Common carriers are presumed to have been at fault or to have
acted negligently for loss or damage to the goods that they have
transported. This presumption can be rebutted only by proof that
they observed extraordinary diligence, or that the loss or damage
wasoccasionedbyanyofthefollowingcauses:
a. Flood, storm, earthquake, lightning, or other natural
disasterorcalamity
b. Act of the public enemy in war, whether international or
civil
c. Actoromissionoftheshipperorownerofthegoods
d. The character of the goods or defects in the packing or in
thecontainers
e. Orderoractofcompetentpublicauthority."
Jurisprudence defines the elements of a "fortuitous event" as
follows:
a. the cause of the unforeseen and unexpected occurrence,
or the failure of the debtors to comply with their obligations,
musthavebeenindependentofhumanwill
b. the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to
avoid
c. the occurrence must have been such as to render it
impossible for the debtors to fulfill their obligation in a
normalmannerand
d. the obligor must have been free from any participation in
theaggravationoftheresultinginjurytothecreditor.
The evidence presented by Lea Mer in support of its defense of
fortuitous event was sorely insufficient. It was not enough for the
common carrier to show that there was an unforeseen or
unexpected occurrence. Lea Mer failed to prove that it was free
fromanyfault.
According to PAGASA, on October 24, 1991, typhoon
Trining hit Batangas, the Ilocos Provinces, Isabela but NOT
Metro Manila or Palawan. Maybe Palawan was affected but
ifeveritwasaffecteditwasonlyminimal.
The barge was not seaworthy (as shown in the Philippine
Coast Guards Certificate) when it sailed. The hull of the
35
barge, there were holes that might have caused or
aggravated the sinking. Hence, the alleged fortuitous event
wasnotthesoleandproximatecauseoftheloss.
To excuse the common carrier fully of any liability, the fortuitous
event must have been the proximate and only cause of the loss.
Moreover, it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the
fortuitous event. Since it was not proven that the loss of the cargo
was due to fortuitous event, Lea Mer was liable for the lost
because as a common carrier, it failed to observe the
extraordinary diligence in the vigilance over the cargo as required
bylaw.

SC:Petitiondenied,affirmedCAsdecision.

4. Sps.Cruzvs.SunHolidays,Inc.(GATCHALIAN)
DOCTRINE:
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
dilligence to prevent or minimise the loss before, during and after the occurrence
ofthefortuitousevent.
Theelementsofa"fortuitousevent"are:
the cause of the unforeseen and unexpected occurrence, or the failure of the
debtors to comply with their obligations, must have been independent of
humanwill
the event that constituted the caso fortuito must have been impossible to
foreseeor,ifforeseeable,impossibletoavoid
the occurrence must have been such as to render it impossible for the
debtorstofulfilltheirobligationinanormalmannerand
the obligor must have been free from any participation in the aggravation of
theresultinginjurytothecreditor

FACTS:
Spouses Dante and Leonora Cruz (petitioners) filed a Complaint against Sun
Holidays, Inc (respondents) for damages arising from the death of their son
Ruelito C. Cruz (Ruelito) who perished with his wife (newly wed) on September
11, 2000 on board the boat M/B Coco Beach III that capsized en route to
BatangasfromPuertoGalera.
36
The newly wed stayed at Coco Beach Island Resort owned by the respondent.
The couple availed the respondents tour package contact that included
transportationtoandfromtheResort.
According to Miguel Matute, a scuba diving instructor narrated the following
eventsthattranspired:
Matute (who was supposed to leave on September 10 but was advised to
stay for another night due to bad weather) and other resort guests which
included the newly wed trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they boarded M/B Coco
BeachIII,whichwastoferrythemtoBatangas.
Shortly after the boat sailed, it started to rain and as it moved into the open
seastherainandwindgotstronger,causingtheboattotiltfromsidetoside.
After getting hit by two big waves which came one after the other, M/B Coco
Beach III capsized putting all passengers underwater. As a result, 8
passengers,includingthenewlyweddied.
Petitioners demanded indemnification for the death of their son but the
Respondent denied any responsibility for the incident which it considered to be
a fortuitous event. It offered, as an act of commiseration, the amount of P10,000
topetitionersupontheirsigningofawaiver.Thepetitionerdeniedtheoffer.
Petitioner filed a Complaint alleging that respondent, as a common carrier, was
guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm
warning bulletins issued by the PAGASA as early as 5:00 a.m. of September
11,2000.
In its Answer, Respondent contended that there was no strom on September
11,2000.(note:respondentalsofiledcounterclaim)
The captain of M/B Coco Beach III averred that the resort customarily requires 4
conditions to be met before a boat was about to a sail to which all were met but
a subasco or squall, characterized by strong winds and big waves,
suddenlyoccurred,causingtheboattocapsize.

RTC: dismissed the petitioners complaint and respondents counterclaim. MR

denied

CA: denied petitioners appeal. CA ruled that the proximate cause of the incident
wasasquall,afortuitousevent.MRdenied.Hence,thePetitionforReview.

Respondent is contending that the incident was caused by a fortuitous event without
anycontributorynegligenceonitspart.

37
ISSUE:
WON respondent Sun Holidays. Inc should NOT be held liable due to
fortuitousevent(subascoorsquall)?NO.

HELD:
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions (calm sea, obtained clearance from the Coast Guard, captain and
Resorts assistant manager) of voyage before it allowed M/B Coco Beach III to sail
onSeptember11,2000.Respondentspositiondoesnotimpress.

The evidence shows that PAGASA issued 24hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect the province of
Mindoro. By the testimony of Dr. Frisco Nilo, supervising weather specialist of
PAGASA,squallsaretobeexpectedundersuchweathercondition.

A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrustedtotheirhandsasiftheyweretheirown.Thisrespondentfailedtodo.

Respondents insistence that the incident was caused by a fortuitous event does not
impresseither.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their obligations,
must have been independent of human will (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid (c) the occurrence must have been such as to render it impossible for the
debtors to fulfill their obligation in a normal manner and (d) the obligor must have
been free from any participation in the aggravation of the resulting injury to the
creditor.

To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
thefortuitousevent.

38
Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence
of squalls was expected under the weather condition of September 11, 2000.
Moreover, evidence shows that M/B Coco Beach III suffered engine trouble
before it capsized and sank. The incident was, therefore, NOT completely
freefromhumanintervention.

The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
duringandaftertheoccurrenceofthesquall.

ii. Characterofthegoods,etc.
1. Calvovs.UCPBGeneralInsuranceCo.,Inc.(HAUTEA)
Facts:
Virgines Calvo, owner of Transorient Container Terminal Services, Inc., a customs broker,
entered into a contract with San Miguel Corp. to transfer 114 reels of semichemical fluting paper
and 124 reels of kraft liner board from the Port Area in Manila to SMCs warehouse in Ermita,
Manila. The cargo was insured by UCPB General Insurance Co., Inc. On July 14, 1990, the
shipment, contained in 30 metal vans, arrived in Manila on board M/V Hayakawa Maru and, after
24 hours, were unloaded from the vessel to the custody of the arrastre operator. Transorient
withdrew the cargo from the arrastre operator and delivered it to SMCs warehouse. Upon
inspection, it was found that 15 reels of the semichemical fluting paper were wet/stained/torn
and 3 reels of kraft liner board were likewise torn. SMC collected payment from UCPB under the
insurance contract and in turn, UCPB, as subrogee, brought suit against Calvo for the value of
damage which was placed at P93,112. The RTC rendered judgment against Calvo. The CA
affirmed.

Calvo contends that she is a private carrier because, as a customs broker and warehouseman,
she does not indiscriminately hold her services out to the public but only offers the same to
selectpartieswithwhomshemaycontractintheconductofherbusiness.

She likewise claims that the drive from the Port Area to SMCs warehouse in Ermita, Manila took
merely 30 minutes and as such, the damage could not have taken place while the goods were in
hercustody

Issues&Held:
1. W/NTransorientisacommoncarrier?

YES.Transorientisacommoncarrier.

39
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation,offeringtheirservicestothepublic.

Article1732makesnodistinctionbetweenacarrier:
a. whose principal business activity is the carrying of persons or goods or both, and one
whodoessuch
carryingonlyasanancillaryactivity
b. offering transportation service on a regular or scheduled basis and one offering such service
onan
occasional,episodicorunscheduledbasis
c. 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.

[TheCourtthinks]thatArticle1732deliberatelyrefrainedfrommakingsuchdistinctions.

To hold that petitioner is a private carrier would be to deprive those with whom she contracts the
protection which the law affords them notwithstanding the fact that the obligation to carry goods
forhercustomersispartandparcelofherbusiness.

2. W/NTransorientexercisedextraordinarydiligenceinthevigilanceoverthegoods?

NO. Extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of, the goods entrusted to it for sale, carriage, and delivery. It requires common
carriers to render service with the greatest skill and foresightand to use all reasonable means to
ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care
inthehandlingandstowage,includingsuchmethodsastheirnaturerequires.

Contrary to Calvos assertion, the Survey Report indicates that when the shipper transferred the
cargo to the arrastre operator, they were covered by clean Equipment Interchange Reports
(EIRs) and, when Calvos employees withdrew the cargo from the arrastre operator, they did so
without exception or protest either with regard to the condition of the container vans or their
contents.

Thus, the shipment was received in good order and condition but was delivered to the consignee
damaged. Whenever the thing is lost or damaged in the possession of the obligor, it shall be
presumed that the loss or damage was due to his fault, unless there is proof to the contrary. No
proofwasprofferedbyCalvotorebutthislegalpresumption.

With regard to the contention that the cargo could not have been damaged while in petitioners
custody as she immediately delivered the containers to SMCs compound, suffice it to say that to
40
prove the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it used
all reasonable means to ascertain the nature and characteristic of goods tendered for transport
andthatitexercisedduecareinthehandlingthereof.Petitionerfailedtodothis.

Nor is there basis to exempt Calvo from liability under Article 1734 (4). For this provision to apply,
the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known
to the carrier or his employees or apparent upon ordinary observation, but he nevertheless
accepts the same without protest or exception notwithstanding such condition, he is not relieved
of liability for damage resulting therefrom. In this case, Calvo accepted the cargo without
exceptiondespitetheapparentdefectsinsomeofthecontainervans.

Hence, for failure to prove that she exercised extraordinary diligence in the carriage of goods in
this case or that she is exempt from liability, the presumption of negligence as provided under
Art.1735holds.

2. A.F.SanchezBrokeragevs.CA(LESAVA)
Doctrine: While paragraph No. 4 of Article 1734 of the Civil Code exempts a common carrier
from liability if the loss or damage is due to the character of the goods or defects in the packing
or in the containers, the rule is that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for the
resultingdamage.

Parties:WyethPharmaGMBH(Shipper)
FGUInsurance(Insurer)
WyethSuacoLaboratories,Inc.(Consignee)
PhiippineSkylanders,Inc.(WarehouseatNAIA)
SanchezBrokerage(BrokerageFirm)foundtobeacommoncarrier.
calculates and pays the customs duties, taxes and storage. also contracted to deliver
goodsuponconsigneesorders.
Facts:
Shipper shipped on board the carrier oral contraceptives consisting of 86,800 Blisters Femenal
tablets,14,000BlistersNordioltabletsand42,000BlistersTrinordioltablets.
Femenal tablets were placed in 124 cartons and the Nordiol tablets were placed in 20
cartons which were packed together in one (1) LD3 aluminum container, while the
Trinordialtabletswerepackedintwopallets,eachofwhichcontained30cartons.
ConsigneeinsuredshipmentagainstallriskswithInsurer.
Upon arrival of the shipment at NAIA, it was discharged "without exception" and delivered to the
warehouseofthePhilippineSkylanders,Inc.(PSI)locatedalsoattheNAIAforsafekeeping.
In order to secure release of the cargoes, Consignee engaged services of brokerage firm who
gotthegoodsoutanddeliveredtoConsignee.
41
On the receipt issued for the release of the goods, a representative from the Brokerage firm
acknowledgedhereceivedthecargoesconsistingof3pcsingoodcondition.
Since Consignee was a regular importer, the customs examiner did not inspect the cargoes,
which were thereupon stripped from the aluminum containers and loaded inside two transport
vehicleshiredbySanchezBrokerage.
Upon instructions of consignee, the cargoes were delivered to Hizon Laboratories in Antipolo
Cityforqualitycontrolcheck.
A representative of the Consignee acknowledged the delivery by affixing his signature on the
delivery receipt.Upon inspection, however, he, together witha representative of Elite Surveryors
discovered that 44 cartons containing Femenal and Nordiol tablets were in bad order. He thus
placed a note above his signature on the delivery receipt stating that 44 cartons of oral
contraceptives were in bad order. The remaining 160 cartons of oral contraceptives were
acceptedascompleteandingoodorder.
They both signed a survery repor tstating that 41 cartons of Femenal tablets and 3 cartons of
Nordioltabletswere"wetted".
Elite Surveyors later issued a Certificate attached to which was an "Annexed Schedule"
indicating that prior to the loading of the cargoes to the brokers trucks at the NAIA, they were
inspected and found to be in "apparent good condition." Also noted was that at the time of
delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which could
accountforthewettingofthe44cartonsofFemenalandNordioltablets.
Consignee demanded from the brokerage firm payment representing the value of its loss
arisingfromthedamagedtabletbutthebrokeragefirmrefusedtoheedthedemand.
Consignee filed insurance claim against Insurer which paid amount in setllement of its claim.
ConsigneeissuedSubrogationreceiptinfavorofFGUInsurance.
On demand by Insurer against Brokerage firm, it disclaimed liability by posting that the damage
was due to improper and insufficient export packaging that when sealed containers were
opened outside PSI warehouse, it was discovered that some of th eloose cartons were wet,
prompting its representative to inform Consignees representative about the condition but still
advisedthemtostilldeliverittoHizonLabwhereanadjusterwouldassessthedamage.
Insuranceco.filedcaseagainstBrokeragefirm.

TC:dismissedcomplaint.
CA: reversed decision holding that the Sanchez Brokerage engaged not only in the business of
customs brokerage but also in the transportation and delivery of the cargo of its clients, hence, a
common carrier within the context of Article 1732 of the New Civil Code. Sanchez Brokerage is
presumednegligent.

Issue:WONBrokeragefirmshouldbeheldliable?

Held: YES. While paragraph No. 4 of Article 1734 of the Civil Code exempts a common carrier

from liability if the loss or damage is due to the character of the goods or defects in the packing
or in the containers, the rule is that if the improper packing is known to the carrier or his
42
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for the
resultingdamage.

If the claim of petitioner that some of the cartons were already damaged upon delivery to it were
true, then it should naturally have received the cargo under protest or with reservations duly
notedonthereceiptissuedbyPSI.Butitmadenosuchprotestorreservation.

Since petitioner received all the cargoes in good order and condition at the time they were turned
over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion
thereof was found to be in bad order, it was incumbent on petitioner to prove that it exercised
extraordinary diligence in the carriage of the goods. It did not, however. Hence, its presumed
negligenceunderArticle1735oftheCivilCoderemainsunrebutted.

3. Philippine Charter Insurance Corporation vs. Unknown Owner of

thevesselM/VNationalHonor(LIM)
FACTS:
Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer
of a shipment on board the vessel M/V National Honor, represented in
the Philippines by its agent, National Shipping Corporation of the
Philippines(NSCP).

The M/V National Honor arrived at the Manila International Container

Terminal (MICT). The International Container Terminal Services,
Incorporated (ICTSI) was furnished with a copy of the crate cargo list and
bill of lading, and it knew the contents of the crate. The following day, the
vessel started discharging its cargoes using its winch crane. The crane
was operated by Olegario Balsa, a winchman from the ICTSI, exclusive
arrastreoperatorofMICT.

Denasto Dauz, Jr., the checkerinspector of the NSCP, along with the
crew and the surveyor of the ICTSI, conducted an inspection of the cargo.
They inspected the hatches, checked the cargo and found it in apparent
good condition. Claudio Cansino, the stevedore of the ICTSI, placed two
sling cables on each end of Crate No. 1. No sling cable was fastened on
the midportion of the crate. In Dauzs experience, this was a normal
procedure. As the crate was being hoisted from the vessels hatch, the
midportion of the wooden flooring suddenly snapped in the air, about five
feet high from the vessels twin deck, sending all its contents crashing
downhard,resultinginextensivedamagetotheshipment.

43
Upon receipt, BMICI found that the same could no longer be used for the
intended purpose. The Mariners Adjustment Corp. hired by PCIC declared
that the packing of the shipment was insufficient and opined that 34
pieces of cable or wire rope slings, held in all equal setting, never
bypassing the center of the crate, should have been used, considering
thatthecratecontainedheavymachinery.

BMICI filed separate claims against NSCP, ICTSI, PCIC, for $61,500. The
other companies denied liability so PCIC paid the claim and was issued a
SubrogationReceiptforP1,740,634.50.

PCIC paid the damages, and as subrogee, filed a case against M/V
National Honor, NSCP and ICTSI alleging that the loss was due their fault
andnegligence.

ICTSI filed a Counterclaim and Crossclaim against NSCP, claiming that

the loss/damage of the shipment was caused exclusively by the defective
materialofthewoodenbattens,insufficientpackingoractsoftheshipper.

NSCP counters that if ever respondent ICTSI is adjudged liable, it is not

solidarily liable with it. It avers that the "carrier cannot discharge directly to
the consignee because cargo discharging is the monopoly of the
arrastre."

The trial court held that the loss of the shipment was due to the internal
defect and weakness of the materials used in the crates and was thus,
attributable to the shipper. On appeal, the CA affirmed the trial courts
decision and added that the shipper also failed to indicate an arrow in the
middleportionofthecargowhereadditionalslingsshouldbeattached.

PCIC avers that the shipment was sufficiently packed in wooden boxes,
as shown by the fact that it was accepted on board the vessel and arrived
in Manila safely. It emphasizes that respondents did not contest the
contents of the bill of lading, and that respondents knew that the manner
and condition of the packing of the cargo was normal and barren of
defects. It maintains that it behooved the respondent ICTSI to place three
to four cables or wire slings in equal settings, including the center portion
ofthecratetopreventdamagetothecargo.

ISSUE:
W/N ICTSI failed to exercise extraordinary diligence in handling the
shipment.

44
HELD:
No.
We agree with the contention of the petitioner that common carriers, from
the nature of their business and for reasons of public policy, are mandated
to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the
circumstances of each case. The Court has defined extraordinary
diligenceinthevigilanceoverthegoodsasfollows:

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

The common carriers 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.] >When the
goods shipped are either 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. To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, the common carrier must prove
thatitexercisedextraordinarydiligence.

However, under Article 1734 of the New Civil Code, the presumption of
negligencedoesnotapplytoanyofthefollowingcauses:

1.Flood,storm,earthquake,lightningorothernaturaldisasterorcalamity
2.Actofthepublicenemyinwar,whetherinternationalorcivil
3.Actoromissionoftheshipperorownerofthegoods
4. The character of the goods or defects in the packing or in the
containers
5.Orderoractofcompetentpublicauthority.

It bears stressing that the enumeration in Article 1734 of the New Civil
Code which exempts the common carrier for the loss or damage to the
cargo is a closed list. To exculpate itself from liability for the loss/damage
45
to the cargo under any of the causes, the common carrier is burdened to
prove any of the aforecited causes claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of evidence is shifted to the
shippertoprovethatthecarrierisnegligent.

Defect is the want or absence of something necessary for

completeness or perfection a lack or absence of something essential to
completeness a deficiency in something essential to the proper use for
the purpose for which a thing is to be used. On the other hand, inferior
means of poor quality, mediocre, or second rate. A thing may be of inferior
quality but not necessarily defective. In other words, defectiveness is not
synonymouswithinferiority.

In the present case, the trial court declared that based on the record, the
loss of the shipment was caused by the negligence of the petitioner as the
shipper:

The same may be said with respect to defendant ICTSI. The breakage
and collapse of Crate No. 1 and the total destruction of its contents were
not imputable to any fault or negligence on the part of said defendant in
handling the unloading of the cargoes from the carrying vessel, but was
due solely to the inherent defect and weakness of the materials used in
thefabricationofsaidcrate.

The crate should have three solid and strong wooden batten placed side
by side underneath or on the flooring of the crate to support the weight of
itscontents.xxx

iii. Orderofcompetentauthority
1. Ganzonvs.CA(MORA)

Perfection of contract of carriage Extraordinary responsibility of carrier for loss,

destruction or deterioration of the goods, when it commences and ceases. By
said 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 petitionercarriers extraordinary responsibility for the for the loss,
destruction, or deterioration of the goods commenced. Pursuant to Art. 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
remainedinthecustodyandcontrolofthecarrier,albeitstillunloaded.
46

FACTS:
Actionfordamagesbasedonculpacontractual.

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 that agreement, Mauro B. Ganzon sent his
lighter "Batman" to Mariveles where it docked in three feet of water On
December 1, 1956, Gelacio Tumambing delivered the scrap iron to defendant
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,fortreatment.

After sometime, the loading of the scrap iron was resumed. But Acting Mayor
Basilio Rub, accompanied by three 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.

CA:orderedplaintiffappelleeMauroGuanzontopayappellantTumambing

Petitioner claims that he is exempt from any liability because the loss of the
scraps was due to the intervention of the municipal officials in Mariveles which
constitutesasacasofurtuitounderArt1174oftheCivilCode.

ISSUE:
Whether the CA erred in condemning the petitioner for the acts of his
employees in dumping the scrap of metal into the sea despite that it was
orderedbythelocalgovernmentofficialwithoutthehisparticipation?

HELD:
NO.AstheCAfound:
...before the appellee 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
47
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 the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appelleeMauroGanzonandhisrepresentativestocarryout.

Here, the intervention of the municipal officials was not of a character that would
render impossible the fulfillment by the carrier of its obligation. The petitioner
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 Court agrees with the
respondents that the scraps would 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
thecontractofcarriage.

Dissenting:
The petitioner should not have been held liable for damages because it falls
under the exceptions in Article 1734 of the Civil Code because the suspension
of loading of scraps of metal was from Mayos Jose Advicunla who was a
competent public authority Petitioner had no control over the situation as, in
fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act'
of said official and even suffered a gunshot wound on the occasion. When
loading was resumed, Acting Mayor Basilio Rub, accompanied by three
policemen, ordered the dumping of the scrap iron into the sea right where the
lighter was docked. Could the captain of the lighter and his crew could have
defiedtheorder?

Through the "order" or "act" of "competent public authority," therefore, the

performance of a contractual obligation was rendered impossible. The scrap
iron that was dumped into the sea was "destroyed" while the rest of the cargo
was "seized." The seizure is evidenced by the receipt issues by Acting Mayor
Rub stating that the Municipality of Mariveles had taken custody of the scrap
iron. Apparently, therefore, the seizure and destruction of the goods was done
under legal process or authority so that petitioner should be freed from
responsibility.

48

iv. Absenceofdelay
1. Philamgenvs.CA(SUPAPO)
(Insurancev.Shipowner)

PARTIES:
InsurancecompanyPhilamgen
ShipOwnerTranspacificTowage
OwnerofgoodsDavaoUnionMarketingCorp.

SYNOPSIS:(Sorrymahabayungfactskasi)
A cargo arrived in a port. It was not immediately unloaded in the
vessel because of several reasons. During the unloading of
cargoes, a super typhoon came. As such, not all cargoes were
unloaded in the vessel. Unfortunately, the vessel was broke into 2
parts. The cement were damaged and the GI sheets were pilfered
and looted. With this, the owner of cargoes claimed its insurance
indemnity against the insurer. The insurer wants to get
reimbursement from the ship owner contending that it was the
latters negligence and accordingly should bear the loss. The TC
held the ship owner liable as there was unreasonable delay, which
exposed the cargo to accident. The CA reversed it, ruling that the
loss was due solely to a fortuitous event. The SC affirmed CAs
decision that the delay was not due to negligence but attributable to
severalfactors.Hence,theshipownerisnotliablefortheloss.

FACTS:
1. Davao Union Marketing Corporation shipped on board the
vessel M/V "Crazy Horse" operated by the Transpacific
Towage, Inc. cargo consisting of 9,750 sheets of union brand
GI sheets and 86,860 bags of union Pozzolan and union
PortlandCement.
2. The cargo was consigned to the Bicol Union Center of
Pasacao, Camarines Sur, with a certain Pedro Olivan as the
"NotifyParty."
3. The cargo was insured by the Philamgen, covering 86,000, of
UnionPozzolanandPortlandcement.
4. The vessel M/V "Crazy Horse" arrived on September 7, 1985
asscheduledattheportofPasacao,CamarinesSur.
5. Upon arrival the shipmaster notified the consignee's
"NotifyParty" that the vessel was all ready to discharge the
cargo.
49
6. The discharging could not be affected immediately and
continuouslybecauseofcertainreasons:
a. First, the buoys were installed only on September 11,
1985
b. second, the discharge permit was secured by the
consigneeonlyonSeptember13,1985
c. third a wooden catwalk had to be installed and extension
of the wharf had to be made, which was completed only
onSeptember26,1985
d. fourth, the discharging was not continuous because there
were intermittent rains and the stevedores supplied by
the consignee did not work during the town fiesta of the
VirginofPenafrancia.
7. 40 days after the shipment arrived, super typhoon Saling
came. The Pasacao area was placed under storm signal No.
3.
8. Because of super typhoon Saling, the discharging of the
cargo had to be suspended on October 17, 1985 due to the
heavy downpour, strong winds, and turbulent sea. To prevent
damage to the cargo all hatches of the vessel were closed and
secured.
9. The vessel sustained holes in the engine room and eventually
brokeinto2partsandsankpartially.
10. The shipmaster reported the incident to the Philippine Coast
Guard but despite the presence of three (3) coast guards,
nothing could be done about the pilferage done on the vessel
anditscargo.
11. Almost the whole barrio and because there were so many of
them the crew and the guards were helpless to stop the
pilferage and looting. As a result of the incident the cargo of
cement was damaged while the GI sheets were looted and
nothingwasleftoftheundischargedpieces.
12. Accordingly, Davao Union claimed its insurance indemnity
againstPhilamgenwhichitpaid.
13. As such, Philamgen demanded from Transpacific the amount
it paid to Davao Union, claiming that the loss of the cargo was
directly and exclusively brought about by the fault and
negligence of the shipmaster and the crew of M/V "Crazy
Horse".
14. However,Transpacificrefused.

(ThecontentionliesintheTCandCAsruling)
50
TCS RULING: although the immediate cause of the loss may
have been due to an act of God, the defendant carrier had exposed
the property to the accident. Also, it found plaintiff guilty of
contributorynegligence.

The lapse of thirty four (34) days with Transpacific not having
completed the unloading of the goods, is tantamount to
unreasonable delay, which delay exposed the unloaded
cargo to accident. The trial court held Transpacific liable for the
loss of goods under Article 1740 of the Civil Code which provides
that if the common carrier negligently incurs in delay in
transporting the goods, a natural disaster shall not free the carrier
fromresponsibility.

CAS RULING: reversed the decision of the TC and ruled

Transpacific Towage is not responsible for the loss of the insured
cargoassaidlosswasduesolelytoafortuitousevent.

It ruled out any negligence committed by Transpacific and held that

the delay in fully unloading the cargo from the vessel "was
occasioned by causes that may not be attributed solely to
human factors, among which were the natural conditions of
the port where the M/V "Crazy Horse" had docked, the
customs of the place and the weather conditions. It applied
Article 1739 of the Civil Code which provides as follows: In order
that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of
the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the
occurrence of flood, storm, or other natural disaster in order that
the common carrier may be exempted from liability for the loss,
destruction,ordeteriorationofthegoods.

ISSUE: Whether the delay is due to negligence of Transpacific and

assuchshouldbeartheloss?

HELD: NO! Transpacific is not legally liable for the loss of the
insured goods. Neither of the parties herein could be faulted
for such delay, for the same (delay) was due not to
negligence,buttoseveralfactors.

While it is true that there was indeed delay in discharging the cargo
from the vessel, we agree with the Court of Appeals that neither of
51
the parties herein could be faulted for such delay, for the same
(delay) was due not to negligence, but to several factors earlier
discussed. The cargo having been lost due to typhoon "Saling",
and the delay incurred in its unloading not being due to negligence,
private respondent is exempt from liability for the loss of the cargo,
pursuanttoArticle1740oftheCivilCode.

The records also show that before, during and after the
occurrence of typhoon "Saling", private respondent through its
shipmaster exercised due negligence to prevent or minimize the
loss of the cargo, as shown by the following facts: (1) at 5:20 a.m.
of 18 October 1985, as typhoon "Saling" continued to batter the
Pasacao area, the shipmaster tried to maneuver the vesel amidst
strong winds and rough seas (2) when water started to enter the
engine room and later the engine broke down, the shipmaster
ordered the ship to be abandoned, but he sought police assistance
to prevent pilferage of the vessel and its cargo (3) after the vessel
broke into two (2) parts and sank partially, the shipmaster reported
the incident to the Philippine Coast Guard, but unfortunately,
despite the presence of three (3) coast guards, nothing could be
done to stop the pilferage as almost the entire barrio folk came to
loot the vessel and its cargo, including the G.I. sheets. The
diligence exercised by the shipmaster further supports the
exemption of private respondent from liability for the loss of the
cargo,inaccordancewithArticle1739oftheCivilCode.

v. Duediligencetopreventlessentheloss
1. AsiaLighterageandShipping,Inc.,vs.CA(VELASCO)

ShipperMarubeniAmericanCorporation
ConsigneeGeneralMillingCorporation
InsurerPrudentialGuaranteeandAssurance,Inc.
Carrier(fromporttowarehouse)AsiaLighterageandShipping,Inc.

Goods:BetterWesternWhiteWheat

Facts
Goods were shipped to Manila from Portland, Oregon. Upon arrival in
Manila, the cargo was transferred to the custody of the petitioner Asia
Lighterage and Shipping, Inc. It was contracted by the consignee as
carrier to deliver the cargo to consignee's warehouse in Pasig City. The
52
goods loaded on barge for delivery, but the cargo did not reach its
destination.

It appears that the transport of said cargo was suspended due to a

warning of an incoming typhoon. Petitioner proceeded to pull the barge to
an island to seek shelter from the approaching typhoon. The barge was
tied down to other barges. A few days after, the barge developed a list
because of a hole it sustained after hitting an unseen protuberance
underneath the water. The petitioner filed a Marine Protest. It likewise
secured the services of Gaspar Salvaging Corporation which refloated the
barge.Theholewasthenpatchedwithclayandcement.

The barge was then towed to ISLOFF terminal before it finally headed
towards the consignee's wharf. Upon reaching the Sta. Mesa spillways,
the barge again ran aground due to strong current. To avoid the complete
sinking of the barge, a portion of the goods was transferred to three other
barges.

The next day, the towing bits of the barge broke. It sank completely,
resulting in the total loss of the remaining cargo. A second Marine Protest
wasfiled.

A bidding was conducted to dispose of the damaged wheat retrieved and

loaded on the three other barges. The total proceeds from the sale of the
salvagedcargowasP201,379.75.

On the same day, consignee sent a claim letter to the petitioner, and
another letter to the private respondent (Insurer, Prudential) for the value of
thelostcargo.

Private respondent indemnified the consignee. Thereafter, as subrogee, it

soughtrecoveryofsaidamountfromthepetitioner,buttonoavail.

RTC:infavorofPrudential

CA:Affirmedwithmodification,deductingtheproceedsofthesale

Issuesofthecase:
1 WON petitioner is a common carrier YES (But not the topic the case
isunder)
2 WON extraordinary diligence was exercised in the care and custody of
theconsigneescargoNO

53
SC:
1.YES

Article 1732 of the Civil Code defines common carriers as persons,

corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation,offeringtheirservicestothepublic.

Petitioners contention: private carries because it does not hold out its
servicestothegeneralpublic.

Jurisprudence: CivCode makes no distinction between principal business

and ancillary activity. No distinction between regular/scheduled trips and
occasional/episodic. No distinction between services offered to general
public and those that are solicited from a narrow segment of the
population.

2.NO

Petitioner failed to exercise extraordinary diligence in its care and custody

oftheconsigneesgoods.

Common carriers are bound to observe extraordinary diligence in the

vigilance over the goods transported by them. They are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. To overcome the presumption of negligence in the case of
loss, destruction or deterioration of the goods, the common carrier must
prove that it exercised extraordinary diligence. There are, however,
exceptions to this rule. Article 1734 of the Civil Code enumerates the
instances when the presumption of negligence does not attach, when the
causeisdueto:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity
(2)Actofthepublicenemyinwar,whetherinternationalorcivil
(3)Actoromissionoftheshipperorownerofthegoods
(4) The character of the goods or defects in the packing or in the
containers
(5)Orderoractofcompetentpublicauthority.

In the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was
caused by a typhoon, hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the typhoon is the
54
proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the
typhoon to prevent or minimize the loss. The evidence show that, even
before the towing bits of the barge broke, it had already previously
sustained damage when it hit a sunken object on its first docket incident.
It even suffered a hole. Clearly, this could not be solely attributed to the
typhoon. The partlysubmerged vessel was refloated but its hole was
patched with only clay and cement. The patch work was merely a
provisional remedy, not enough for the barge to sail safely. Thus, when
petitioner persisted to proceed with the voyage, it recklessly exposed the
cargotofurtherdamage.

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

force majeure to escape liability for the loss sustained by the private
respondent. Surely, meeting a typhoon headon falls short of due
diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the towing
bits of the vessel broke that caused its sinking and the total loss of the
cargo upon reaching the Pasig River, it was no longer affected by the
typhoon. The typhoon then is not the proximate cause of the loss of the
cargoahumanfactor,i.e.,negligencehadintervened.

vi. Effectofcontributorynegligence
1. Tabacalera Insurance Co. vs. North Front Shipping Services, Inc.
(BUENAVENTURA)

DOCTRINE: However, we cannot attribute the destruction, loss or deterioration of

the cargo solely to the carrier. We find the consignee Republic Flour Mills
Corporation guilty of contributory negligence. It was seasonably notified of the
arrival of the barge but did not immediately start the unloading operations. No
explanation was proffered by the consignee as to why there was a delay of six (6)
days. Had the unloading been commenced immediately the loss could have
been completely avoided or at least minimized. As testified to by the chemist
who analyzed the corn samples, the mold growth was only at its incipient stage
and could still be arrested by drying. The corn grains were not yet toxic or unfit
for consumption. For its contributory negligence, Republic Flour Mills
Corporationshouldshareatleast40%oftheloss

FACTS: 20,234 sacks of corn grains valued at P3,500,640.00 were shipped on

board North Front 777, a vessel owned by North Front Shipping Services, Inc. The
cargo was consigned to Republic Flour Mills Corporation in Manila and insured
with the herein mentioned insurance companies. The vessel was inspected prior
55
to actual loading by representatives of the shipper and was found fit to carry the
merchandise. The cargo was covered with tarpaulins and wooden boards. The
hatches were sealed and could only be opened by representatives of Republic
FlourMillsCorporation.

The vessel left Cagayan de Oro for Manila, Republic Flour was advised of its
arrival but it did not immediately commence the unloading operations. There were
days when unloading had to be stopped due to variable weather conditions and
sometimes for no apparent reason at all. When the cargo was eventually
unloaded there was a shortage of 26.333 metric tons. The remaining
merchandise was already moldy, rancid and deteriorating. The unloading
operations were completed twenty (20) days after the arrival of the barge at the
wharfofRepublicFlourMillsCorporationinPasigCity.

The corn grains were examined and it was found that the corn grains had molds
due to contact with sea water. The mold growth was only incipient and not
sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growthcouldstillbearrestedbydrying.

Republic Flour Mills Corporation rejected the entire cargo and formally demanded
from North Front Shipping Services, Inc., payment for the damages suffered by it.
The demands however were unheeded. The insurance companies paid Republic
FlourMillsCorporationP2,189,433.40.

The insurance companies lodged a complaint for damages against North Front
Shipping Services, Inc., claiming that the loss was exclusively attributable to the
fault and negligence of the carrier. The Marine Cargo Adjusters hired by the
insurance companies conducted a survey and found cracks in the bodega of the
barge and heavy concentration of molds on the tarpaulins and wooden boards.
They did not notice any seals in the hatches. The tarpaulins were not brand new
as there were patches on them, contrary to the claim of North Front Shipping
Services, Inc., thus making it possible for water to seep in. They also discovered
thatthebulkheadofthebargewasrusty.

North Front Shipping averred that it could not be made culpable for the loss and
deterioration of the cargo as it was never negligent. The captain of the vessel
reiterated that the barge was inspected prior to the actual loading and was found
adequate and seaworthy. The tarpaulins were doubled and brand new and the
hatches were properly sealed. They did not encounter big waves hence it was
not possible for water to seep in. He further averred that the corn grains were
farmwetandnotproperlydriedwhenloaded.

56
TC: DISMISSED ruling that the contract entered into between North Front
Shipping and Republic Flour Mills was a charterparty agreement. As such, only
ordinary diligence (inspection of the barge by the shipper/reps before loading,
issuance of Permit to Sail issued by the Coast Guard) in the care of goods was
requiredofNorthFrontShippingServices,Inc.

CA: ruled that a common carrier is required to observe a higher degree of

diligence North Front 777 satisfactorily complied with all the requirements hence
wasissuedaPermittoSailafterproperinspection.

ISSUE ON CONTRIBUTORY NEGLIGENCE: WON Republic Flour is guilty of

contributorynegligenceastothelossanddeteriorationofthegoods?

HELD ON CONTRIBUTORY NEGLIGENCE: YES. SC found the consignee

Republic Flour Mills Corporation guilty of contributory negligence. It was
seasonably notified of the arrival of the barge but did not immediately start the
unloading operations. No explanation was proffered by the consignee as to why
there was a delay of six (6) days. Had the unloading been commenced
immediately the loss could have been completely avoided or at least minimized.
As testified to by the chemist who analyzed the corn samples, the mold growth
was only at its incipient stage and could still be arrested by drying. The corn
grains were not yet toxic or unfit for consumption. For its contributory negligence,
RepublicFlourMillsCorporationshouldshareatleast40%oftheloss.

HELD: North Front Shipping is a corporation engaged in the business of

transporting cargo and offers its services indiscriminately to the public. It is
without doubt a common carrier. As such it is required to observe extraordinary
diligence in its vigilance over the goods it transports. When goods placed in its
care are lost or damaged, the carrier is presumed to have been at fault or to have
acted negligently. North Front Shipping Services, Inc., therefore has the burden of
proving that it observed extraordinary diligence in order to avoid responsibility for
thelostcargo.

North Front Shipping Services, Inc., proved that the vessel was inspected prior to
actual loading by representatives of the shipper and was found fit to take a load of
corn grains. They were also issued Permit to Sail by the Coast Guard. The
master of the vessel testified that the corn grains were farm wet when loaded.
However, this testimony was disproved by the clean bill of lading issued by North
Front Shipping Services, Inc., which did not contain a notation that the corn grains
were wet and improperly dried. Having been in the service since 1968, the
master of the vessel would have known at the outset that corn grains that were
farm wet and not properly dried would eventually deteriorate when stored in
sealed and hot compartments as in hatches of a ship. Equipped with this
57
knowledge, the master of the vessel and his crew should have undertaken
precautionary measures to avoid or lessen the cargo's possible deterioration as
they were presumed knowledgeable about the nature of such cargo. But none of
suchmeasureswastaken.

In fine, we find that the carrier failed to observe the required extraordinary
diligence in the vigilance over the goods placed in its care. The proofs
presented by North Front Shipping Services, Inc., were insufficient to rebut the
prima facie presumption of private respondent's negligence, more so if we
considertheevidenceadducedbypetitioners

g. Stipulationsforlimitationofliability
i. H.E.HeacockCompanyvs.Macondray&Company,Inc.(DORIA)
FACTS:
Heacock caused to be delivered on board steamship Bolton Castle, 4
cases of merchandise 1 of which contained 12 8day Edmond clocks to
be transported from New York to Manila, consigned to Macondray as
agent and representative of the vessel. Upon arrival in Manila, neither the
master of said vessel nor Macondray delivered to Heacock the Edmond
clocks,althoughdemandwasmadefortheirdelivery.
The bill of lading issued and delivered to Heacock by the master of the
steamshipcontainedthefollowingclauses:
1. It is mutually agreed that the value of the goods receipted for
above does not exceed $500 per freight ton, or, in proportion for
any part of a ton, unless the value be expressly stated herein and
advaloremfreightpaidthereon.
9. Also, that in the event of claims for short delivery of, or damage
to, cargo being made, the carrier shall not be liable for more than
the net invoice price plus freight and insurance less all charges
saved, and any loss or damage for which the carrier may be liable
shallbeadjustedprorataonthesaidbasis.
The case containing the Edmond clocks measured 3 cubic feet, and the
freight ton value thereof was $1,480, U. S. currency. Heacock declared no
more than $500 per freight ton on the clocks, and no ad valorem freight
waspaidthereon.
Macondray tendered to Heacock P76.36, the proportionate freight ton
value of the Edmond clocks, in payment to the latter's claim. Heacock
rejected. Heacock filed before the CFI a complaint for recovery of a sjm of
money.
Heacock insists that it is entitled to recover the market value of the clocks.
Macondray, on the other hand, contends that, in accordance with clause 1
of the bill of lading, the plaintiff is entitled to recover only the sum of
P76.36, the proportionate freight ton value of the said clocks. The claim of
58
the plaintiff is based upon the argument that the two clause in the bill of
lading above quoted, limiting the liability of the carrier, are contrary to
public order and, therefore, null and void. The defendant, on the other
hand, contends that both of said clauses are valid, and the clause 1
shouldhavebeenappliedbythelowercourtinsteadofclause9.

CFI:infavorofHeacockinaccordancewithclause9oftheBOL

ISSUE:
May a common carrier, by stipulations inserted in the bill of lading, limit its
liabilityforthelossofordamagetothecargoonlytoanagreedvaluation?YES

HELD:
Three kinds of stipulations have often been made in a bill of lading. The
first is one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing
for an unqualified limitation of such liability to an agreed valuation. And the
third is one limiting the liability of the carrier to an agreed valuation unless
the shipper declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the first and second
kinds of stipulations are invalid as being contrary to public policy, but the
thirdisvalidandenforceable.
A reading of clauses 1 and 9 of the bill of lading here in question, however,
clearly shows that the present case falls within the third stipulation, to wit:
That a clause in a bill of lading limiting the liability of the carrier to a certain
amount unless the shipper declares a higher value and pays a higher rate
offreight,isvalidandenforceable.
Where a contract of carriage, signed by the shipper, is fairly made,
agreeing on a valuation of the property carried, with the rate of freight
based on the condition that the carrier assumes liability only to the extent
of the agreed valuation, even in case of loss or damage by the negligence
of the carrier, the contract will be upheld as proper and lawful mode of
securing a due proportion between the amount for which the carrier may
be responsible and the freight he receives, and protecting himself against
extravagantandfancifulvaluations.
If a common carrier gives to a shipper the choice of two rates, the lower of
the conditioned upon his agreeing to a stipulated valuation of his property
in case of loss, even by the carrier's negligence, if the shipper makes
such a choice, understandingly and freely, and names his valuation, he
cannot thereafter recover more than the value which he thus places upon
his property. As a matter of legal distinction, estoppel is made the basis of
this ruling, that, having accepted the benefit of the lower rate, in
59
common honesty the shipper may not repudiate the conditions on which it
wasobtained,buttheruleandtheeffectofitareclearlyestablished.
"A carrier may not, by a valuation agreement with a shipper, limit its liability
in case of the loss by negligence of an interstate shipment to less than the
real value thereof, unless the shipper is given a choice of rates, based on
valuation."
A limitation of liability based upon an agreed value to obtain a lower rate
does not conflict with any sound principle of public policy and it is not
conformable to plain principles of justice that a shipper may understate
value in order to reduce the rate and then recover a larger value in case of
loss.
Clauses (1 and 9) of the bill of lading are not contrary to public order.
Article 1255 of the Civil Code provides that "the contracting parties may
establish any agreements, terms and conditions they may deem
advisable, provided they are not contrary to law, morals or public order."
Said clauses of the bill of lading are, therefore, valid and binding upon the
partiesthereto.

ii. Shewaramvs.PAL(FRANCISCO)
Doctrine:
When limitation of carriers liability clause is printed at the back of the
ticketstubisnotbinding.

Parties:
1. ParmanandShewarampassenger,HindufromDavao
2. PhilippineAirLinescommoncarrier

Facts:
A PAL ticket, on the reverse side, stated in fine/small print that if the value
of baggage is not stated/decared, and the baggage is lost, the maximum
liability of PAL is P100.00 if value in excess of P100.00 is stated, PAL will
charge extra because PAL is being held liable for an amount exceeding
P100.00.
ShewaramfromDavao,boardedPALplaneforManila.
His 3 pieces of baggage were mistagged instead of going to Manila, it was
taggedboundtoIligan.
Asaresult,whenhearrivedinManila,his3baggagedidnotarrive.
While his things were in Iligan, his baggage were opened by PALs
employeestocheckforownersidentity.
When his baggage arrived in Manila, Shewaram checked them and he
found out that his transistor radio (cost: P197.00) and his camera (cost: P
176.00)weremissing.
60
PAL offered to pay P100.00 basing from the stipulation written on the
reversed side of the PALs ticket (limiting PALs liability in cases of
losses).
Shewaramrefusedbecausehewantsfullpayment.
Shewaram instituted an action to recover damages suffered by him due to
the alleged failure of PAL to observe extraordinary diligence in the vigilance
andcarriageofhisbaggage
MTC: ordered PAL to pay Shewaram P373.00 (total cost of the
missing items) as actual damages, P100.00 as exemplary
damages,P150.00asattorneysfees.
PALappealtoCFI
CFI: modified the judgment by eliminating the award of
exemplarydamages,therestwereaffirmedintoto.
PAL appealed on the ground that the lower court erred in not dismissing
the case or limiting the liability of PAL to P100.00 in relation to the carriers
liabilityclauseprintedatthebackoftheticket.

Issue:
W/NthelimitedliabilityruleshallapplyinthecasefavoringPAL.

Held:
No.
Under Article 1750 of the NCC, the pecuniary liability of a common carrier
may by contract be limited to a fixed amount provided that the contract is
reasonable and just under the circumstances and has been fairly and
freelyagreedupon.
Where the conditions printed at the back of the ticket stub are in
letters so small that they are hard to read as in the case this
would not warrant the presumption that the passenger was aware
of those conditions such that he had fairly and freely agreed to
them. Shewaram is not and cannot, therefore, be bound by the
conditionsofcarriagefoundatthebackoftheticketstub.
In other words, the limited liability rule shall not apply. Since the
stipulation on a qualified liability, which operates to reduce the
liability of the carrier, the carrier and the shipper must agree
thereupon. Otherwise, the carrier will be liable for full. PAL is fully
liable for full because Shewaram did not agree to the stipulation on
the ticket, as manifested by the fact that Shewaram did not sign
theticket.Ticketshouldhavebeensigned.
Carriercannotlimititsliabilityforlossduetoitsnegligence.
SC:AffirmedCFIsdecision.

iii. OngYiuvs.CA(GATCHALIAN)
61

DOCTRINE: 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. And jurisprudence provides
that "a contract limiting liability upon an agreed valuation does not offend against
thepolicyofthelawforbiddingonefromcontractingagainsthisownnegligence.

FACTS:

Petitioner Ong Yiu (a lawyer and businessman) was a fare paying

passenger of respondent Philippine Airlines (PAL) for a flight from Mactan
CebuboundforButuanCity.
PetitionerisscheduledtoattendahearingCFIButuan
As a passenger, he checked in one piece of luggage (blue maleta) for
whichhewasissuedaclaimcheck.
Upon his arrival in Butuan City on Aug. 26, 1967, he claimed his luggage but
foundoutthatitcouldnotbefound.
PAL Butuan sent a message (teletype operator) to PAL Cebu to inquire
abouttheluggage.
The luggage must have been transmitted to Manila. PAL Manila wired PAL
Cebu and advised the latter that the luggage was carried over to Manila and
that it would be forwarded to Cebu on the same day. Instructions were given
thatitbeimmediatelyforwardedtoButuanCityonthefirstavailableflight.
PAL Cebu sent a message to PAL Butuan that the luggage would be
forwarded the following day, August 27, 1967. However, this message was
not received by PAL Butuan as all the personnel had already left since there
were no more incoming flights that afternoon. (note: petitioner has no idea
aboutthis)
Worried about his luggage because it contained all the vital documents
needed for trial, petitioner wired PAL Cebu in the evening of Aug 26
demanding the delivery of his luggage. PAL Cebu received the telegram the
next day and decided not to reply and tell him that his luggage was on its
way. PAL Cebu assumed that the luggage would arrive first before the
messagewouldbereceived.
On Aug 27, the petitioner went to Bancasi Airport (airport of Butuan) to
inquire about his luggage. He did not wait, however, for the morning flight.
Saidflightcarriedthemissingluggage.
Maximo Gomez, the porter clerk, paged petitioner who already left. A certain
Emilio Dagorro who used to drive the petitioner volunteered to deliver the
luggage to him. Gomez allowed him to do so because he recognized
DagorrotobepetitionersdriverwhenhesinButuan.
62
Gomez placed the luggage on the counter, when Dagorro pressed the lock,
the luggage opened. He called the attention of Gomez who just examined
(nottouch)thecontents
When the luggage was delivered to the petitioner, the latter found out the the
vital documents were missing. He refused to accept the luggage. Dagorro
returnedtheluggagetoGomezwhosealedandforwardedittoPALCebu.
As a result, the petitioner had to request for the postponement of the hearing
whichwasgranted.
Petitioner filed a complaint for damages for breach of contract of
transportationagainstPAL

RTC: PAL acted in bad faith and in malice and awarded petitioner with 80k worth
ofmoraldamages,30kexemplarydamages,5kattorneysfee

CA: PAL guilty of simple negligence only. It did not award petitioner the moral and
exemplary damages. Ordered PAL to pay petitioner 100phph, the baggage
liability PAL assumed under the condition of carriage printed at the back of
theticket.
Plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The
liability, however, of PAL for the loss, in accordance with the
stipulation written on the back of the ticket, Exhibit 12, is limited to
P100.00 per baggage, plaintiff not having declared a greater value,
and not having called the attention of the defendant on its true
value and paid the tariff therefor. The validity of this stipulation is
not questioned by the plaintiff. They are printed in reasonably and
fairly big letters, and are easily readable. Moreover, plaintiff had been a
frequent passenger of PAL from Cebu to Butuan City and back, and he,
beingalawyerandbusinessman,mustbefullyawareoftheseconditions.

ISSUE:WONtheliabilityofPALisonly100php?YES

HELD:

ThepertinentConditionofCarriageprintedatthebackoftheplaneticketreads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or
damaged baggage of the passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher valuation in excess of
P100.00, but not in excess, however, of a total valuation of P1,000.00 and
additionalchargesarepaidpursuanttoCarrier'stariffs.

63
There is no dispute that petitioner did not declare any higher value for his luggage,
muchlessdidhepayanyadditionaltransportationcharge.

But petitioner argues that there is nothing in the evidence to show that he had
actually entered into a contract with PAL limiting the latter's liability for loss or
delay of the baggage of its passengers, and that Article 1750 of the Civil Code has
notbeencompliedwith.

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

While it may be true that petitioner had not signed the plane ticket he is
nevertheless bound by the provisions thereof. "Such provisions have been held to
be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation". It is what
is known as a contract of "adhesion", in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely if he adheres, he gives his consent. And jurisprudence provides that "a
contract limiting liability upon an agreed valuation does not offend against the
policyofthelawforbiddingonefromcontractingagainsthisownnegligence.

Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00.Besides,
passengers are advised not to place valuable items inside their baggage but "to
avail of our Vcargo service " It is likewise to be noted that there is nothing in the
evidencetoshowtheactualvalueofthegoodsallegedlylostbypetitioner.

iv. BritishAirwaysvs.CA(HAUTEA)

Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the
servicesofacertainMr.Gumartopreparehistravelplans.

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong
viaPAL,anduponarrivalinHongkonghehadtotakeaconnectingflighttoBombayonboardBA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same
wouldbetransferredtotheBAflightboundforBombay.

64
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been
diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to
fileaclaimbyaccomplishingthePropertyIrregularityReport.

Mahtani filed his complaint for damages and attorneys fees against BA and Mr. Gumar before
thetrialcourt

BA filed a thirdparty complaint against PAL alleging that the reason for the nontransfer of the

luggage was due to the latters late arrival in Hongkong, thus leaving hardly any time for the
proper transfer of Mahtanis luggage to the BA aircraft bound for Bombay. PAL filed its answer to
the thirdparty complaint, wherein it disclaimed any liability, arguing that there was, in fact,
adequate time to transfer the luggage to BA facilities in Hongkong. Furthermore, the transfer of
theluggagetoHongkongauthoritiesshouldbeconsideredastransfertoBA

Trial Court: Awarded compensatory damages to Mahtani and dismissed the 3

rd
party complaint
againstPAL

Since plaintiff did not declare the value of the contents in his luggage and even failed to
show receipts of the alleged gifts for the members of his family in Bombay, the most that
can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars
($20.00) per kilo, or a combined value of Four Hundred ($400.00) U.S. Dollars for Twenty
kilos representing the contents plus Seven Thousand (P7,000.00) Pesos representing the
purchasepriceofthetwo(2)suitcases.

British Airways posits that there should have been no separate award for the luggage and the
contents thereof since Mahtani failed to declare a separate higher valuation for the luggage and
therefore, its liability is limited, at most, only to the amount stated in the ticket. (Contract of
Adhesion)

Issues&Held:
1.WhetherBAscontentioniscorrect?

NO. We have, nevertheless, ruled against blind reliance on adhesion contracts where the facts
andcircumstancesjustifythattheyshouldbedisregarded.

Likewise, the benefits of limited liability are subject to waiver such as when the air carrier failed to
raise timely objections during the trial when questions and answers regarding the actual claims
anddamagessustainedbythepassengerwereasked.

Here, BA had waived the defense of limited liability when it allowed Mahtani to testify as to the
actualdamagesheincurredduetothemisplacementofhisluggage,withoutanyobjection.
65
2.Whetherthedismissalofthe3
rd
partycomplaintofBAagainstPALwasproper?

NO.Wecannotagreewiththedismissalofthethirdcomplaint.

The fourth paragraph of the Conditions of Contracts of the ticket issued by BA to Mahtani

confirmsthatthecontractwasoneofcontinuousairtransportationfromManilatoBombay.

PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA. An agent is
also responsible for any negligence in the performance of its function and is liable for damages
which the principal may suffer by reason of its negligent act. Hence, the Court of Appeals erred
when it opined that BA, being the principal, had no cause of action against PAL, its agent or
subcontractor.

It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the
latters negligence was the proximate cause of Mahtanis unfortunate experience, instead of
totallyabsolvingPALfromanyliability.

Note: Since the instant petition was based on breach of contract of carriage, Mahtani can only
sue BA alone, and not PAL, since the latter was not a party to the contract. However, this is not
tosaythatPALisrelievedfromanyliabilityduetoanyofitsnegligentacts.

v. EverettSteamshipCorporationvs.CA(MEJILLANO)

Doctrine: A stipulation in the bill of lading limiting the common carriers liability for
loss or destruction of a cargo to a certain sum, unless the shipper or owner
declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750
of the Civil Code. It is required that the stipulation limiting the common carriers
liability for loss must be reasonable and just under the circumstances, and has
beenfreelyandfairlyagreedupon.

Facts:
Petitioner:EverettSteamshipCorporation
PrivateRespondent:HernandezTradingCo.

Private respondent imported three crates of bus spare parts marked as: MARCO
C/No. 12, MARCO C/No. 13 and MARCO C/No. 14 from its supplier, Maruman
Trading,aforeigncorporationbasedinInazawa,Aichi,Japan.
The crates were shipped from Nagoya, Japan to Manila on board
ADELFAEVERETTE, a vessel owned by petitioners principal, Everett Orient
Lines.ThesaidcrateswerecoveredbyBillofLadingNo.NGO53MN.
66
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO
C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter
of January 13, 1992 addressed to private respondent, which thereafter made a
formal claim upon petitioner for the value of the lost cargo amounting
1,552,500.00yen.

However, petitioner offered to pay only 100,000.00 yen, the maximum amount
stipulated under Clause 18 of the covering bill of lading which limits the liability of
petitioner.

18. All claims for which the carrier may be liable shall be adjusted and
settled on the basis of the shippers net invoice cost plus freight and
insurance premiums, if paid, and in no event shall the carrier be liable for
anylossofpossibleprofitsoranyconsequentialloss.
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
Ladingandextrafreightispaidasrequired.(Emphasissupplied)

Private respondent rejected the offer and instituted a suit for collection docketed
asCivilCaseNo.C15532,againstpetitionerbeforetheRTCofCaloocan.

RTC:renderedjudgmentinfavorofprivaterespondent.

CA:deleted the award of attorneys fees but affirmed the trial courts findings with
the additional observation that private respondent can not be bound by the terms
and conditions of the bill of lading because it was not privy to the contract of
carriage.

Issues:
1. WONPetitionerisliableforthefullamountofMarcoC/No.14:NO
2. WONPrivateRespondentaprivytothecontractofcarriage:YES
Held:
1. A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a
67
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Codewhichprovide:
ART. 1749. A stipulation that the common carriers liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or
ownerdeclaresagreatervalue,isbinding.
ART. 1750. A contract fixing the sum that may be recovered by the owner
or shipper for the loss, destruction, or deterioration of the goods is valid, if it
is reasonable and just under the circumstances, and has been freely and
fairlyagreedupon.
Pursuant to the aforequoted provisions of law, it is required that the stipulation
limiting the common carriers liability for loss must be reasonable and just under
thecircumstances,andhasbeenfreelyandfairlyagreedupon.

The Court held that the stipulations under Clause 18 of the covering bill of lading
are reasonable and just. In the bill of lading, the carrier made it clear that its
liability would only be up to 100,000.00 yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not
declare a higher valuation, it had itself to blame for not complying with the
stipulations.

2. In SeaLand Service, Inc. vs. Intermediate Appellate Court (supra), it was held
that even if the consignee was not a signatory to the contract of carriage between
theshipperandthecarrier,theconsigneecanstillbeboundbythecontract.

When private respondent formally claimed reimbursement for the missing goods
from petitioner and subsequently filed a case against the latter based on the very
same bill of lading, it (private respondent) accepted the provisions of the contract
and thereby made itself a party thereto, or at least has come to court to enforce it.
Thus, private respondent cannot now reject or disregard the carriers limited
liability stipulation in the bill of lading. In other words, private respondent is bound
bythewholestipulationsinthebillofladingandmustrespectthesame.

In fine, the liability of petitioner for the loss of the cargo is limited to 100,000.00
yen,pursuanttoClause18ofthebilloflading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in
C.A.G.R.CVNo.42803isherebyREVERSEDandSETASIDE.

h. Liabilityforbaggageofpassengers
i. SarkiesToursPhilippines,Inc.vs.CA(MEJILLANO)
68

Doctrine: 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 x x x transported by them, and this liability lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to x x x the person who has a right to receive them, unless the loss
isduetoanyoftheexceptedcausesunderArticle1734thereof.

Moral damages and exemplary damages are due where the negligence and bad
faithofacommoncarrierhasbeendulyestablished.

Facts:
Petitioner:SarkiesToursPhilippines,Inc.
Respondents:ElinoFortades,MarisolFortades,andFatimaMinervaFortades

On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on
her way to Legazpi City. Her brother helped her load 3 pieces of luggage
containing all of her optometry review books, materials and equipment, trial
lenses, trial contact lenses, passport and visa, as well as her mother Marisols
U.S. immigration (green) card, among other important documents and personal
belongings.

Her belongings were kept in the baggage compartment of the bus, but during a
stopover at Daet, it was discovered that all but one bag remained in the open
compartment. Some of the passengers suggested retracing the route to try to
recoverthelostitems,butthedriverignoredthemandproceededtoLegazpiCity.

Fatima immediately reported the loss to her mother who, in turn, went to
petitioners office in Legazpi City and later at its head office in Manila. However,
they merely offered her P1,000.00 for each piece of luggage lost, which she
turneddown.

Respondents decided to file the case below to recover the value of the remaining
lost items, as well as moral and exemplary damages, attorneys fees and
expenses of litigation. They claimed that the loss was due to petitioners failure to
observe extraordinary diligence in the care of Fatimas luggage and that petitioner
dealtwiththeminbadfaithfromthestart.

Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatimaallegedlydidnotdeclareanyexcessbaggageuponboardingitsbus.

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TC:adjudgedthecaseinfavorofrespondents
CA: affirmed the trial courts judgment, but deleted the award of moral and
exemplarydamages

Issue:WONPetitionerisliableforthelossofrespondentsluggage.YES

Held: Under the Civil Code, (c)ommon carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods x x x transported by them, and this liability lasts
from the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to x x x the person who has a right to
receive them, unless the loss is due to any of the excepted causes under Article
1734thereof.
The cause of the loss in the case at bar was petitioners negligence in not
ensuring that the doors of the baggage compartment of its bus were securely
fastened. As a result of this lack of care, almost all of the luggage was lost, to the
prejudiceofthepayingpassengers.

The Court agrees with the Court of Appeals in awarding P30,000.00 for the lost
items and P30,000.00 for the transportation expenses, but disagrees with the
deletion of the award of moral and exemplary damages which, in view of the
foregoing proven facts, with negligence and bad faith on the fault of petitioner
having been duly established, should be granted to respondents in the amount of
P20,000.00andP5,000.00,respectively.

ii. PALvs.CA(MEJILLANO)

Doctrine: 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. The provisions of the New Civil Code
oncommoncarriersareArticles1733,1735and1753.
Facts:
Petitioner:PhilippineAirlines
PrivateRespondent:IsidroCo
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On April 17, 1985, Co arrived at the Manila International Airport aboard petitioner
airline's PAL Flight No. 107 from San Francisco, California. Co proceeded to the
baggage retrieval area to claim his check in possession. He found 8 of his
luggage,butdespitediligentsearch,failedtolocatehis9
th
luggage.
Co then immediately notified petitioner company through its employee, Willy
Guevarra, who was then in charge of the PAL claim counter at the airport.
Guevarra, filled up the printed form acknowledging one of the Cos luggage to be
missing. Co, on several occasions, unrelentingly called at petitioners office in
order to pursue his complaint about his missing luggage but no avail. Petitioner
never found Cos missing luggage or paid its corresponding value. Thus,
respondentsuedtheairlinefordamages.
RTC:ruledinfavorofCo
CA:affirmedRTCsruling
Petitioner alleges that the appellate court erred in not applying the limit of liability
under the Warsaw Convention, which limits the liability of an air carrier of loss,
delay or damage to checkedin baggage to US$20.00 based on weight as private
respondent Co did not declare the contents of his baggage nor pay traditional
chargesbeforetheflight.
Issue: WON the CA erred in disregarding the limits of liability under the Warsaw
Convention.NO
Held: The Court find no merit in that contention. In Samar Mining Company, Inc.
vs.NordeutscherLloyd(132SCRA529),the43Courtruled:
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. The provisions of the New Civil Code on common carriers are
Articles1733,1735and1753whichprovide:
Art. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers
transportedbythem,accordingtoallthecircumstancesofeachcase.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5
of the preceding article if the goods are lost, destroyed or deteriorated,
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common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence
asrequiredinarticle1733.
Art. 1753. The law of the country to which the goods are to be transported
shall govern the liability of the common carrier for their loss, destruction or
deterioration.
Since the passenger's destination in this case was the Philippines, Philippine law
governstheliabilityofthecarrierforthelossofthepassenger'sluggage.
In this case, the petitioner failed to overcome, not only the presumption, but more
importantly, the private respondent's evidence, proving that the carrier's
negligence was the proximate cause of the loss of his baggage. Furthermore,
petitioner acted in bad faith in faking a retrieval receipt to bail itself out of having to
payCo'sclaim.
WHEREFORE, the petition for review is DENIED for lack of merit. Costs against
thepetitioner.
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