G.R. No.

92288 February 9, 1993

BRITISH AIRWAYS, INC., petitioner,
vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST
INTERNATIONAL TRADING AND GENERAL SERVICES, respondents.
This is a petition for review on certiorari to annul and set aside the decision dated
November 15, 1989 of the Court of Appeals 1 affirming the decision of the trial court 2 in
ordering petitioner British Airways, Inc. to pay private respondent First International
Trading and General Services actual damages, moral damages, corrective or exemplary
damages, attorney's fees and the costs as well as the Resolution dated February 15,
1990 3 denying petitioner's Motion for Reconsideration in the appealed decision.
It appears on record that on February 15, 1981, private respondent First International
Trading and General Services Co., a duly licensed domestic recruitment and placement
agency, received a telex message from its principal ROLACO Engineering and
Contracting Services in Jeddah, Saudi Arabia to recruit Filipino contract workers in
behalf of said principal. 4

booked for said flight. Unfortunately, the confirmed bookings of the 13 workers were
again cancelled and rebooked to July 7, 1981.
On July 6, 1981, private respondent paid the travel tax of the said workers as required by
the petitioner but when the receipt of the tax payments was submitted, the latter informed
private respondent that it can only confirm the seats of the 12 workers on its July 7, 1981
flight. However, the confirmed seats of said workers were again cancelled without any
prior notice either to the private respondent or said workers. The 12 workers were finally
able to leave for Jeddah after private respondent had bought tickets from the other
airlines.
As a result of these incidents, private respondent sent a letter to petitioner demanding
compensation for the damages it had incurred by the latter's repeated failure to transport
its contract workers despite confirmed bookings and payment of the corresponding travel
taxes.
On July 23, 1981, the counsel of private respondent sent another letter to the petitioner
demanding the latter to pay the amount of P350,000.00 representing damages and
unrealized profit or income which was denied by the petitioner.

During the early part of March 1981, said principal paid to the Jeddah branch of
petitioner British Airways, Inc. airfare tickets for 93 contract workers with specific
instruction to transport said workers to Jeddah on or before March 30, 1981.

On August 8, 1981, private respondent received a telex message from its principal
cancelling the hiring of the remaining recruited workers due to the delay in transporting
the workers to Jeddah. 5

As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport
the 93 workers, private respondent was immediately informed by petitioner that its
principal had forwarded 93 prepaid tickets. Thereafter, private respondent instructed its
travel agent, ADB Travel and Tours. Inc., to book the 93 workers with petitioner but the
latter failed to fly said workers, thereby compelling private respondent to borrow money
in the amount of P304,416.00 in order to purchase airline tickets from the other airlines
as evidenced by the cash vouchers (Exhibits "B", "C" and "C-1 to C-7") for the 93
workers it had recruited who must leave immediately since the visas of said workers are
valid only for 45 days and the Bureau of Employment Services mandates that contract
workers must be sent to the job site within a period of 30 days.

On January 27, 1982, private respondent filed a complaint for damages against petitioner
with the Regional Trial Court of Manila, Branch 1 in Civil Case No. 82-4653.

Sometime in the first week of June, 1981, private respondent was again informed by the
petitioner that it had received a prepaid ticket advice from its Jeddah branch for the
transportation of 27 contract workers. Immediatety, private respondent instructed its
travel agent to book the 27 contract workers with the petitioner but the latter was only
able to book and confirm 16 seats on its June 9, 1981 flight. However, on the date of the
scheduled flight only 9 workers were able to board said flight while the remaining 7
workers were rebooked to June 30, 1981 which bookings were again cancelled by the
petitioner without any prior notice to either private respondent or the workers. Thereafter,
the 7 workers were rebooked to the July 4,1981 flight of petitioner with 6 more workers

On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract
workers of private respondent to Jeddah but the travel agent of the private respondent
booked only 10 contract workers for petitioner's June 9, 1981 flight. However, only 9
contract workers boarded the scheduled flight with 1 passenger not showing up as
evidenced by the Philippine Airlines' passenger manifest for Flight BA-020 (Exhibit "7",
"7-A", "7-B" and "7-C"). 6

On the other hand, petitioner, alleged in its Answer with counterclaims that it received a
telex message from Jeddah on March 20, 1981 advising that the principal of private
respondent had prepaid the airfares of 100 persons to transport private respondent's
contract workers from Manila to Jeddah on or before March 30, 1981. However, due to
the unavailability of space and limited time, petitioner had to return to its sponsor in
Jeddah the prepaid ticket advice consequently not even one of the alleged 93 contract
workers were booked in any of its flights.

Thereafter, private respondent's travel agent booked seats for 5 contract workers on
petitioner's July 4, 1981 flight but said travel agent cancelled the booking of 2 passengers
while the other 3 passengers did not show up on said flight.
Sometime in July 1981, the travel agent of the private respondent booked 7 more contract
workers in addition to the previous 5 contract workers who were not able to board the
July 4, 1981 flight with the petitioner's July 7, 1981 flight which was accepted by
petitioner subject to reconfirmation.
However on July 6, 1981, petitioner's computer system broke down which resulted to
petitioner's failure to get a reconfirmation from Saudi Arabia Airlines causing the
automatic cancellation of the bookings of private respondent's 12 contract workers. In the
morning of July 7, 1981, the computer system of the petitioner was reinstalled and
immediately petitioner tried to reinstate the bookings of the 12 workers with either Gulf
Air or Saudi Arabia Airlines but both airlines replied that no seat was available on that
date and had to place the 12 workers on the wait list. Said information was duly relayed
to the private respondent and the 12 workers before the scheduled flight.
After due trial on or on August 27, 1985, the trial court rendered its decision, the
dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing, this Court renders judgment:
1. Ordering the defendant to pay the plaintiff actual damages in the sum of
P308,016.00;
2. Ordering defendant to pay moral damages to the plaintiff in the amount of
P20,000.00;
3. Ordering the defendant to pay the plaintiff P10,000.00 by way of corrective
or exemplary damages;
4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as
attorney's fees; and
5. To pay the costs. 7
On March 13, 1986, petitioner appealed said decision to respondent appellate court after
the trial court denied its Motion for Reconsideration on February 28, 1986.
On November 15, 1989, respondent appellate court affirmed the decision of the trial
court, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED
with costs against the appellant. 8
On December 9, 1989, petitioner filed a Motion for Reconsideration which was also
denied.

Hence, this petition.

It is the contention of petitioner that private respondent has no cause of action against it
there being no perfected contract of carriage existing between them as no ticket was ever
issued to private respondent's contract workers and, therefore, the obligation of the
petitioner to transport said contract workers did not arise. Furthermore, private
respondent's failure to attach any ticket in the complaint further proved that it was never a
party to the alleged transaction.
Petitioner's contention is untenable.
Private respondent had a valid cause of action for damages against petitioner. A cause of
action is an act or omission of one party in violation of the legal right or rights of the
other. 9 Petitioner's repeated failures to transport private respondent's workers in its flight
despite confirmed booking of said workers clearly constitutes breach of contract and bad
faith on its part. In resolving petitioner's theory that private respondent has no cause of
action in the instant case, the appellate court correctly held that:
In dealing with the contract of common carriage of passengers for purpose of
accuracy, there are two (2) aspects of the same, namely: (a) the contract "to
carry (at some future time)," which contract is consensual and is necessarily
perfected by mere consent (See Article 1356, Civil Code of the Philippines),
and (b) the contract "of carriage" or "of common carriage" itself which should
be considered as a real contract for not until the carrier is actually used can the
carrier be said to have already assumed the obligation of a carrier. (Paras, Civil
Code Annotated, Vol. V, p. 429, Eleventh Ed.)
In the instant case, the contract "to carry" is the one involved which is
consensual and is perfected by the mere consent of the parties.
There is no dispute as to the appellee's consent to the said contract "to carry" its
contract workers from Manila to Jeddah. The appellant's consent thereto, on the
other hand, was manifested by its acceptance of the PTA or prepaid ticket
advice that ROLACO Engineering has prepaid the airfares of the appellee's
contract workers advising the appellant that it must transport the contract
workers on or before the end of March, 1981 and the other batch in June, 1981.
Even if a PTA is merely an advice from the sponsors that an airline is
authorized to issue a ticket and thus no ticket was yet issued, the fact remains
that the passage had already been paid for by the principal of the appellee, and
the appellant had accepted such payment. The existence of this payment was
never objected to nor questioned by the appellant in the lower court. Thus, the
cause or consideration which is the fare paid for the passengers exists in this
case.

The third essential requisite of a contract is an object certain. In this contract "to
carry", such an object is the transport of the passengers from the place of
departure to the place of destination as stated in the telex.
Accordingly, there could be no more pretensions as to the existence of an oral
contract of carriage imposing reciprocal obligations on both parties.
In the case of appellee, it has fully complied with the obligation, namely, the
payment of the fare and its willingness for its contract workers to leave for their
place of destination.
On the other hand, the facts clearly show that appellant was remiss in its
obligation to transport the contract workers on their flight despite confirmation
and bookings made by appellee's travelling agent.
xxx xxx xxx
Besides, appellant knew very well that time was of the essence as the prepaid
ticket advice had specified the period of compliance therewith, and with
emphasis that it could only be used if the passengers fly on BA. Under the
circumstances, the appellant should have refused acceptance of the PTA from
appellee's principal or to at least inform appellee that it could not accommodate
the contract workers.
xxx xxx xxx
While there is no dispute that ROLACO Engineering advanced the payment for
the airfares of the appellee's contract workers who were recruited for ROLACO
Engineering and the said contract workers were the intended passengers in the
aircraft of the appellant, the said contract "to carry" also involved the appellee
for as recruiter he had to see to it that the contract workers should be transported
to ROLACO Engineering in Jeddah thru the appellant's transportation. For that
matter, the involvement of the appellee in the said contract "to carry" was well
demonstrated when
the appellant upon receiving the PTA immediately advised the appellee
thereof. 10
Petitioner also contends that the appellate court erred in awarding actual damages in the
amount of P308,016.00 to private respondent since all expenses had already been
subsequently reimbursed by the latter's principal.
In awarding actual damages to private respondent, the appellate court held that the
amount of P308,016.00 representing actual damages refers to private respondent's second
cause of action involving the expenses incurred by the latter which were not reimbursed

by ROLACO Engineering. However, in the Complaint 11 filed by private respondent, it

was alleged that private respondent suffered actual damages in the amount of
P308,016.00 representing the money it borrowed from friends and financiers which is
P304,416.00 for the 93 airline tickets and P3,600.00 for the travel tax of the 12 workers.
It is clear therefore that the actual damages private respondent seeks to recover are the
airline tickets and travel taxes it spent for its workers which were already reimbursed by
its principal and not for any other expenses it had incurred in the process of recruiting
said contract workers. Inasmuch as all expenses including the processing fees incurred by
private respondent had already been paid for by the latter's principal on a staggered basis
as admitted in open court by its managing director, Mrs. Bienvenida Brusellas. 12 We do
not find anymore justification in the appellate court's decision in granting actual damages
to private respondent.
Thus, while it may be true that private respondent was compelled to borrow money for
the airfare tickets of its contract workers when petitioner failed to transport said workers,
the reimbursements made by its principal to private respondent failed to support the
latter's claim that it suffered actual damages as a result of petitioner's failure to transport
said workers. It is undisputed that private respondent had consistently admitted that its
principal had reimbursed all its expenses.
Article 2199 of the Civil Code provides that:
Except as provided by law or by stipulations, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him
as he has duly proved. Such compensation is referred to as actual or
compensatory damages.
Furthermore, actual or compensatory damages cannot be presumed, but must be duly
proved, and proved with reasonable degree of certainty. A court cannot rely on
speculation, conjecture or guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have suffered and on evidence of the actual
amount thereof. 13
However, private respondent is entitled to an award of moral and exemplary damages for
the injury suffered as a result of petitioner's failure to transport the former's workers
because of the latter's patent bad faith in the performance of its obligation. As correctly
pointed out by the appellate court:
As evidence had proved, there was complete failure on the part of the appellant
to transport the 93 contract workers of the appellee on or before March 30, 1981
despite receipt of the payment for their airfares, and acceptance of the same by
the appellant, with specific instructions from the appellee's principal to transport
the contract workers on or before March 30, 1981. No previous notice was ever
registered by the appellant that it could not comply with the same. And then
followed the detestable act of appellant in unilaterally cancelling, booking and

rebooking unreasonably the flight of appellee's contract workers in June to July,

1981 without prior notice. And all of these actuations of the appellant indeed
constitute malice and evident bad faith which had caused damage and
besmirched the reputation and business image of the appellee. 14
As to the alleged damages suffered by the petitioner as stated in its counterclaims, the
record shows that no claim for said damages was ever made by the petitioner
immediately after their alleged occurrence therefore said counterclaims were mere
afterthoughts when private respondent filed the present case.
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION
that the award of actual damages be deleted from said decision.

averred that it had exercised due diligence in the selection and supervision of its security
guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of
presenting evidence, filed a demurrer contending that Navidad had failed to prove that
Escartin was negligent in his assigned task. On 11 August 1998, the trial court rendered
its decision; it adjudged:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants Prudent Security and Junelito Escartin ordering the latter to pay jointly and
severally the plaintiffs the following:
"a) 1) Actual damages of P44,830.00;

G.R. No. 145804

February 6, 2003
2) Compensatory damages of P443,520.00;

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners,

vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT
SECURITY AGENCY, respondents.
The case before the Court is an appeal from the decision and resolution of the Court of
Appeals, promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R.
CV No. 60720, entitled "Marjorie Navidad and Heirs of the Late Nicanor Navidad vs.
Rodolfo Roman, et. al.," which has modified the decision of 11 August 1998 of the
Regional Trial Court, Branch 266, Pasig City, exonerating Prudent Security Agency
(Prudent) from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo
Roman liable for damages on account of the death of Nicanor Navidad.
On 14 October 1993, about half an hour past seven oclock in the evening, Nicanor
Navidad, then drunk, entered the EDSA LRT station after purchasing a "token"
(representing payment of the fare). While Navidad was standing on the platform near the
LRT tracks, Junelito Escartin, the security guard assigned to the area approached
Navidad. A misunderstanding or an altercation between the two apparently ensued that
led to a fist fight. No evidence, however, was adduced to indicate how the fight started or
who, between the two, delivered the first blow or how Navidad later fell on the LRT
tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner
Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was
killed instantaneously.
On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad,
along with her children, filed a complaint for damages against Junelito Escartin, Rodolfo
Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for
the death of her husband. LRTA and Roman filed a counterclaim against Navidad and a
cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and

3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;

"b) Moral damages of P50,000.00;
"c) Attorneys fees of P20,000;
"d) Costs of suit.
"The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of
merit.
"The compulsory counterclaim of LRTA and Roman are likewise dismissed." 1
Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court
promulgated its now assailed decision exonerating Prudent from any liability for the
death of Nicanor Navidad and, instead, holding the LRTA and Roman jointly and
severally liable thusly:
"WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the
appellants from any liability for the death of Nicanor Navidad, Jr. Instead, appellees
Rodolfo Roman and the Light Rail Transit Authority (LRTA) are held liable for his death
and are hereby directed to pay jointly and severally to the plaintiffs-appellees, the
following amounts:
a) P44,830.00 as actual damages;
b) P50,000.00 as nominal damages;
c) P50,000.00 as moral damages;
d) P50,000.00 as indemnity for the death of the deceased; and
e) P20,000.00 as and for attorneys fees."2

The appellate court ratiocinated that while the deceased might not have then as yet
boarded the train, a contract of carriage theretofore had already existed when the victim
entered the place where passengers were supposed to be after paying the fare and getting
the corresponding token therefor. In exempting Prudent from liability, the court stressed
that there was nothing to link the security agency to the death of Navidad. It said that
Navidad failed to show that Escartin inflicted fist blows upon the victim and the evidence
merely established the fact of death of Navidad by reason of his having been hit by the
train owned and managed by the LRTA and operated at the time by Roman. The
appellate court faulted petitioners for their failure to present expert evidence to establish
the fact that the application of emergency brakes could not have stopped the train.
The appellate court denied petitioners motion for reconsideration in its resolution of 10
October 2000.
In their present recourse, petitioners recite alleged errors on the part of the appellate
court; viz:

Law and jurisprudence dictate that a common carrier, both from the nature of its business
and for reasons of public policy, is burdened with the duty of exercising utmost diligence
in ensuring the safety of passengers.4 The Civil Code, governing the liability of a
common carrier for death of or injury to its passengers, provides:
"Article 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances.
"Article 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in articles 1733 and 1755."
"Article 1759. Common carriers are liable for the death of or injuries to passengers
through the negligence or willful acts of the formers employees, although such
employees may have acted beyond the scope of their authority or in violation of the
orders of the common carriers.

"I.
The honorable court of appeals gravely erred by disregarding the findings of facts by the
trial court
"ii.
The honorable court of appeals gravely erred in finding that petitioners are liable for the
death of nicanor navidad, jr.
"iii.
The honorable court of appeals gravely erred in finding that rodolfo roman is an
employee of lrta."3
Petitioners would contend that the appellate court ignored the evidence and the factual
findings of the trial court by holding them liable on the basis of a sweeping conclusion
that the presumption of negligence on the part of a common carrier was not overcome.
Petitioners would insist that Escartins assault upon Navidad, which caused the latter to
fall on the tracks, was an act of a stranger that could not have been foreseen or prevented.
The LRTA would add that the appellate courts conclusion on the existence of an
employer-employee relationship between Roman and LRTA lacked basis because Roman
himself had testified being an employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court, contended that a contract of
carriage was deemed created from the moment Navidad paid the fare at the LRT station
and entered the premises of the latter, entitling Navidad to all the rights and protection
under a contractual relation, and that the appellate court had correctly held LRTA and
Roman liable for the death of Navidad in failing to exercise extraordinary diligence
imposed upon a common carrier.

"This liability of the common carriers does not cease upon proof that they exercised all
the diligence of a good father of a family in the selection and supervision of their
employees."
"Article 1763. A common carrier is responsible for injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers, if the
common carriers employees through the exercise of the diligence of a good father of a
family could have prevented or stopped the act or omission."
The law requires common carriers to carry passengers safely using the utmost diligence
of very cautious persons with due regard for all circumstances.5 Such duty of a common
carrier to provide safety to its passengers so obligates it not only during the course of the
trip but for so long as the passengers are within its premises and where they ought to be
in pursuance to the contract of carriage.6 The statutory provisions render a common
carrier liable for death of or injury to passengers (a) through the negligence or wilful acts
of its employees or b) on account of wilful acts or negligence of other passengers or of
strangers if the common carriers employees through the exercise of due diligence could
have prevented or stopped the act or omission.7 In case of such death or injury, a carrier is
presumed to have been at fault or been negligent, and 8 by simple proof of injury, the
passenger is relieved of the duty to still establish the fault or negligence of the carrier or
of its employees and the burden shifts upon the carrier to prove that the injury is due to an
unforeseen event or to force majeure.9 In the absence of satisfactory explanation by the
carrier on how the accident occurred, which petitioners, according to the appellate court,
have failed to show, the presumption would be that it has been at fault, 10 an exception
from the general rule that negligence must be proved.11

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

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with

MODIFICATION but only in that (a) the award of nominal damages is DELETED and
(b) petitioner Rodolfo Roman is absolved from liability. No costs.
SO ORDERED.

Should Prudent be made likewise liable? If at all, that liability could only be for tort
under the provisions of Article 217612 and related provisions, in conjunction with Article
2180,13 of the Civil Code. The premise, however, for the employers liability is
negligence or fault on the part of the employee. Once such fault is established, the
employer can then be made liable on the basis of the presumption juris tantum that the
employer failed to exercise diligentissimi patris families in the selection and supervision
of its employees. The liability is primary and can only be negated by showing due
diligence in the selection and supervision of the employee, a factual matter that has not
been shown. Absent such a showing, one might ask further, how then must the liability of
the common carrier, on the one hand, and an independent contractor, on the other hand,
be described? It would be solidary. A contractual obligation can be breached by tort and
when the same act or omission causes the injury, one resulting in culpa contractual and
the other in culpa aquiliana, Article 219414 of the Civil Code can well apply.15 In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the
contract.16 Stated differently, when an act which constitutes a breach of contract would
have itself constituted the source of a quasi-delictual liability had no contract existed
between the parties, the contract can be said to have been breached by tort, thereby
allowing the rules on tort to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late
Nicanor Navidad, this Court is concluded by the factual finding of the Court of Appeals
that "there is nothing to link (Prudent) to the death of Nicanor (Navidad), for the reason
that the negligence of its employee, Escartin, has not been duly proven x x x." This
finding of the appellate court is not without substantial justification in our own review of
the records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of
any culpable act or omission, he must also be absolved from liability. Needless to say, the
contractual tie between the LRT and Navidad is not itself a juridical relation between the
latter and Roman; thus, Roman can be made liable only for his own fault or negligence.
The award of nominal damages in addition to actual damages is untenable. Nominal
damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him. 18 It is an established rule that
nominal damages cannot co-exist with compensatory damages.19

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

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) sixwheeler trucks which he owned for hauling the material to Manila. On the return trip to
Pangasinan, respondent would load his vehicles with cargo which various merchants
wanted delivered to differing establishments in Pangasinan. For that service, respondent
charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized
dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted
with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of
General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent
himself, while 600 cartons were placed on board the other truck which was driven by
Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes
never reached petitioner, since the truck which carried these boxes was hijacked
somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took
with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court
of First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of
the lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the
undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that
he could not be held responsible for the value of the lost goods, such loss having been
due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to
be a common carrier and holding him liable for the value of the undelivered goods (P
22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking

services to the public; in not exempting him from liability on the ground of force
majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent
had been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors the
following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered
cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population.
We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the law
on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the
Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway, subway
motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any

class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other
similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common
carrier even though he merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such back-hauling was done on a periodic or occasional rather than
regular or scheduled manner, and even though private respondent'sprincipal occupation
was not the carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable error.
A certificate of public convenience is not a requisite for the incurring of liability under
the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has
also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or
other franchise. To exempt private respondent from the liabilities of a common carrier
because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for
failing to comply with applicable statutory requirements. The business of a common
carrier impinges directly and intimately upon the safety and well being and property of
those members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of those
who utilize their services and the law cannot allow a common carrier to render such
duties and liabilities merely facultative by simply failing to obtain the necessary permits
and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are
held to a very high degree of care and diligence ("extraordinary diligence") in the
carriage of goods as well as of passengers. The specific import of extraordinary diligence
in the care of goods transported by a common carrier is, according to Article 1733,
"further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil
Code.

Article 1734 establishes the general rule that common carriers are responsible for the
loss, destruction or deterioration of the goods which they carry, "unless the same is due
to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a closed list.
Causes falling outside the foregoing list, even if they appear to constitute a species of
force majeure fall within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article
1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within
any of the five (5) categories of exempting causes listed in Article 1734. It would follow,
therefore, that the hijacking of the carrier's vehicle must be dealt with under the
provisions of Article 1735, in other words, that the private respondent as common carrier
is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private
respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the
care of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying
the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant
case, the standard of extraordinary diligence required private respondent to retain a
security guard to ride with the truck and to engage brigands in a firelight at the risk of his
own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also
by Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered

unreasonable, unjust and contrary to public policy:

We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise which was
lost because of an event entirely beyond private respondent's control.

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts or omissions of his or its
employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers who
donot act with grave or irresistible threat, violence or force, is dispensed with or
diminished; and

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the
Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

(7) that the common carrier shall not responsible for the loss, destruction or deterioration
of goods on account of the defective condition of the car vehicle, ship, airplane or other
equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be
allowed to divest or to diminish such responsibility even for acts of strangers like
thieves or robbers, except where such thieves or robbers in fact acted "with grave or
irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the
goods are lost as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."
In the instant case, armed men held up the second truck owned by private respondent
which carried petitioner's cargo. The record shows that an information for robbery in
band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No.
198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando
Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully
and unlawfully taking and carrying away with them the second truck, driven by Manuel
Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at
petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the
five (5) hold-uppers were armed with firearms. The robbers not only took away the truck
and its cargo but also kidnapped the driver and his helper, detaining them for several days
and later releasing them in another province (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The Court of First Instance convicted
all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded as a
fortuitous event. It is necessary to recall that even common carriers are not made absolute
insurers against all risks of travel and of transport of goods, and are not held liable for
acts or events which cannot be foreseen or are inevitable, provided that they shall have
complied with the rigorous standard of extraordinary diligence.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF
APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional
Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed
petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended,
to contract, install and operate oil pipelines. The original pipeline concession was granted
in 1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross receipts
for the fiscal year 1993 pursuant to the Local Government Code 3. The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in
four installments based on the gross receipts for products pumped at GPS-1 for the fiscal
year 1993 which amounted to P181,681,151.00. In order not to hamper its operations,
petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from
paying tax on gross receipts under Section 133 of the Local Government Code
of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code
does not include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee authorized
under Section 147 of the Local Government Code. The said section limits the

imposition of fees and charges on business to such amounts as may be

commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof
based on gross receipts is violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of
regulation, inspection and licensing. The fee is already a revenue raising
measure, and not a mere regulatory imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer.
In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133 of the Local Government Code;
(2) the authority of cities to impose and collect a tax on the gross receipts of "contractors
and independent contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the
term "contractors" excludes transportation contractors; and, (3) the City Treasurer
illegally and erroneously imposed and collected the said tax, thus meriting the immediate
refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only
to "transportation contractors and persons engaged in the transportation by hire and
common carriers by air, land and water." Respondents assert that pipelines are not
included in the term "common carrier" which refers solely to ordinary carriers such as
trucks, trains, ships and the like. Respondents further posit that the term "common
carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling
in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule
that tax exemptions are to be strictly construed against the taxpayer, taxes being
the lifeblood of the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act
387. (Exhibit A) whose concession was lately renewed by the Energy

10

Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec.
137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses onlycommon
carriers so as not to overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special carrier extending its
services and facilities to a single specific or "special customer" under a "special
contract."
2. The Local Tax Code of 1992 was basically enacted to give more and
effective local autonomy to local governments than the previous enactments, to
make them economically and financially viable to serve the people and
discharge their functions with a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with this policy even franchise grantees
are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151
of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10On November 29, 1995, the respondent court rendered a
decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's
motion for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this
Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the exemption
sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public
as engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation
of goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is
confined;
3. He must undertake to carry by the method by which his business is conducted
and over his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation. The fact that petitioner has a limited clientele does
not exclude it from the definition of a common carrier. In De Guzman vs. Court of
Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one
whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local idiom, as
a "sideline"). Article 1732 . . . avoids making any distinction between a person
or enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, "public service" includes:

11

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

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

transporting petroleum products, it is considered a common carrier under
Republic Act No. 387 . . . . Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier"
and, therefore, exempt from the business tax as provided for in Section 133 (j), of the
Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of
the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land, water
or air. It does not provide that the transportation of the passengers or goods should be by
motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

xxx xxx xxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government
Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line

Art. 86. Pipe line concessionaire as common carrier. A pipe line shall have
the preferential right to utilize installations for the transportation of petroleum
owned by him, but is obligated to utilize the remaining transportation capacity
pro rata for the transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such rates as may
have been approved by the Secretary of Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . .
and everything relating to the manufacture, refining, storage, or transportation
by special methods of petroleum, is hereby declared to be a public utility.
(Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In
BIR Ruling No. 069-83, it declared:

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of
Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears
to be one of those being deemed to be exempted from the taxing powers of the local
government units. May we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec.
131), line 16, paragraph 5. It states that local government units may not impose taxes on
the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see
there that provinces have the power to impose a tax on business enjoying a franchise at
the rate of not more than one-half of 1 percent of the gross annual receipts. So,

12

transportation contractors who are enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on
top of what is already being imposed by the National Internal Revenue Code which is the
so-called "common carriers tax." We do not want a duplication of this tax, so we just
provided for an exception under Section 125 [now Sec. 137] that a province may impose
this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.
SO ORDERED.

13

G.R. No. 147246

August 19, 2003

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

APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.
On appeal is the Court of Appeals' May 11, 2000 Decision 1 in CA-G.R. CV No. 49195
Decision3 of the Regional Trial Court of Manila which found petitioner liable to pay
private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on
board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General
Milling Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4.5The
shipment was insured by the private respondent Prudential Guarantee and Assurance, Inc.
against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90. 6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to
the custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was
contracted by the consignee as carrier to deliver the cargo to consignee's warehouse at
Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III,
evidenced by Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not
reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a
warning of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull
the barge to Engineering Island off Baseco to seek shelter from the approaching typhoon.
PSTSI III was tied down to other barges which arrived ahead of it while weathering out
the storm that night. A few days after, the barge developed a list because of a hole it
sustained after hitting an unseen protuberance underneath the water. The petitioner filed a
Marine Protest on August 28, 1990.8 It likewise secured the services of Gaspar Salvaging
Corporation which refloated the barge.9 The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the
consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the
barge again ran aground due to strong current. To avoid the complete sinking of the
barge, a portion of the goods was transferred to three other barges. 10

The next day, September 6, 1990, the towing bits of the barge broke. It sank completely,
resulting in the total loss of the remaining cargo.11 A second Marine Protest was filed on
September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat
retrieved and loaded on the three other barges.13 The total proceeds from the sale of the
salvaged cargo was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and
another letter dated September 18, 1990 to the private respondent for the value of the lost
cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the
petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for
recovery of the amount of indemnity, attorney's fees and cost of suit. 16 Petitioner filed its
answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion
of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from
the date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the
amount awarded as and for attorney's fees. Defendant's counterclaim is hereby
DISMISSED. With costs against defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The
appellate court affirmed the decision of the trial court with modification. The dispositive
portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with
modification in the sense that the salvage value of P201,379.75 shall be
deducted from the amount of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the
appellate court in a Resolution promulgated on February 21, 2001.

14

Hence, this petition. Petitioner submits the following errors allegedly committed by the
appellate court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT
PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE
FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF
THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE
CARRIER IN ALL CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY
NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY
CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY
OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms
or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has
no fixed and publicly known route, maintains no terminals, and issues no tickets. It points
out that it is not obliged to carry indiscriminately for any person. It is not bound to carry
goods unless it consents. In short, it does not hold out its services to the general public. 20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in
Article 1732 of the Civil Code makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such

carrying only as an ancillary activity. We also did not distinguish between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Further, we ruled that
Article 1732 does not distinguish between a carrier offering its services to the general
public, and one who offers services or solicits business only from a narrow segment of
the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and
drayage22 and it offers its barges to the public for carrying or transporting goods by water
for compensation. Petitioner is clearly a common carrier. In De Guzman, supra,23 we
considered private respondent Ernesto Cendaa to be a common carrier even if his
principal occupation was not the carriage of goods for others, but that of buying used
bottles and scrap metal in Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is
done on an irregular rather than scheduled manner, and with an only limited clientele. A
common carrier need not have fixed and publicly known routes. Neither does it have to
maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court
of Appeals.24 The test to determine a common carrier is "whether the given undertaking
is a part of the business engaged in by the carrier which he has held out to the general
public as his occupation rather than the quantity or extent of the business transacted." 25 In
the case at bar, the petitioner admitted that it is engaged in the business of shipping and
lighterage,26 offering its barges to the public, despite its limited clientele for carrying or
transporting goods by water for compensation. 27
On the second issue, we uphold the findings of the lower courts that petitioner failed to
exercise extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them.28 They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 29 To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the goods,
the common carrier must prove that it exercised extraordinary diligence. There are,
however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances
when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;

15

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

(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
In the case at bar, the barge completely sank after its towing bits broke, resulting in the
total loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, it
should not be held liable for the loss of the cargo. However, petitioner failed to prove that
the typhoon is the proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the typhoon to prevent
or minimize the loss.30 The evidence show that, even before the towing bits of the barge
broke, it had already previously sustained damage when it hit a sunken object while
docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its hole was
patched with only clay and cement. The patch work was merely a provisional remedy, not
enough for the barge to sail safely. Thus, when petitioner persisted to proceed with the
voyage, it recklessly exposed the cargo to further damage. A portion of the crossexamination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc.,
states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
xxx

xxx

xxx

q - Can you tell us what else transpired after that incident?

a - After the first accident, through the initiative of the barge owners, they
tried to pull out the barge from the place of the accident, and bring it to the
anchor terminal for safety, then after deciding if the vessel is stabilized, they
tried to pull it to the consignee's warehouse, now while on route another
accident occurred, now this time the barge totally hitting something in the
course.
q - You said there was another accident, can you tell the court the nature of
the second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what
caused the sinking?
a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.
xxx
xxx
xxx
This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an
incoming typhoon. During the time that the barge was heading towards the consignee's
wharf on September 5, 1990, typhoon "Loleng" has already entered the Philippine area of
responsibility.32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor of
the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33

xxx
xxx
xxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow
the Barge to lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods to be
delivered at their Wharf since they needed badly the wheat that was loaded in
PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxx
xxx
xxx
CROSS-EXAMINATION BY ATTY. IGNACIO:34
xxx
xxx
xxx
q - And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?
a - The next day, in the morning, we hired for additional two (2) tugboats
as I have stated.
q - Despite of the threats of an incoming typhoon as you testified a while
ago?
a - It is already in an inner portion of Pasig River. The typhoon would be
coming and it would be dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.
q - And yet as a standard operating procedure of your Company, you have
to secure a sort of Certification to determine the weather condition, am I
correct?
a - Yes, sir.
q - So, more or less, you had the knowledge of the incoming typhoon,
right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig entrance, it is a
safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure
to escape liability for the loss sustained by the private respondent. Surely, meeting a
typhoon head-on falls short of due diligence required from a common carrier. More
importantly, the officers/employees themselves of petitioner admitted that when the
towing bits of the vessel broke that caused its sinking and the total loss of the cargo upon
reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is
not the proximate cause of the loss of the cargo; a human factor, i.e., negligence had
intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001
are hereby AFFIRMED. Costs against petitioner.

16

SO ORDERED.
G.R. No. 149038
April 9, 2003
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs.
PKS SHIPPING COMPANY, respondent.
The petition before the Court seeks a review of the decision of the Court of Appeals in
C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the
judgment of the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the
complaint for damages filed by petitioner insurance corporation against respondent
shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five
thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five
Thousand Pesos (P3,375,000.00). DUMC insured the goods for its full value with
petitioner Philippine American General Insurance Company (Philamgen). The goods
were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On the evening
of 22 December 1988, about nine oclock, whileLimar I was being towed by respondents
tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa
Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of
cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance.
Philamgen promptly made payment; it then sought reimbursement from PKS Shipping of
the sum paid to DUMC but the shipping company refused to pay, prompting Philamgen
to file suit against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have
been caused either by a fortuitous event, in which case the ship owner was not liable, or
through the negligence of the captain and crew of the vessel and that, under Article 587
of the Code of Commerce adopting the "Limited Liability Rule," the ship owner could
free itself of liability by abandoning, as it apparently so did, the vessel with all her
equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the
decision of the trial court. The appellate court ruled that evidence to establish that PKS
Shipping was a common carrier at the time it undertook to transport the bags of cement
was wanting because the peculiar method of the shipping companys carrying goods for
others was not generally held out as a business but as a casual occupation. It then
concluded that PKS Shipping, not being a common carrier, was not expected to observe
the stringent extraordinary diligence required of common carriers in the care of goods.
The appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on the part of
PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent
error in ruling that PKS Shipping is not a common carrier and that it is not liable for the
loss of the subject cargo. The fact that respondent has a limited clientele, petitioner
argues, does not militate against respondents being a common carrier and that the only
way by which such carrier can be held exempt for the loss of the cargo would be if the
loss were caused by natural disaster or calamity. Petitioner avers that typhoon "APIANG"
has not entered the Philippine area of responsibility and that, even if it did, respondent
would not be exempt from liability because its employees, particularly the tugmaster,
have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what
Philamgen seeks is not a review on points or errors of law but a review of the undisputed
factual findings of the RTC and the appellate court. In any event, PKS Shipping points
out, the findings and conclusions of both courts find support from the evidence and
applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the
question of whether it is a private carrier or a common carrier and, in either case, to the
other question of whether or not it has observed the proper diligence (ordinary, if a
private carrier, or extraordinary, if a common carrier) required of it given the
circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are
consistent with those of the trial court, may not at liberty be reviewed by this Court in a
petition for review under Rule 45 of the Rules of Court. 1 The conclusions derived from
those factual findings, however, are not necessarily just matters of fact as when they are
so linked to, or inextricably intertwined with, a requisite appreciation of the applicable
law. In such instances, the conclusions made could well be raised as being appropriate
issues in a petition for review before this Court. Thus, an issue whether a carrier is private
or common on the basis of the facts found by a trial court or the appellate court can be a
valid and reviewable question of law.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public."
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service
Act; it defines "public service" to be
"x x x every person that now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, subway motor vehicle,

17

either for freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communication systems, wire or wireless
broadcasting stations and other similar public services. x x x. (Underscoring
supplied)."
The prevailing doctrine on the question is that enunciated in the leading case of De
Guzman vs. Court of Appeals.2 Applying Article 1732 of the Code, in conjunction with
Section 13(b) of the Public Service Act, this Court has held:
"The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as `a sideline). Article
1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the `general public, i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.
"So understood, the concept of `common carrier under Article 1732 may be
seen to coincide neatly with the notion of `public service, under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code."
Much of the distinction between a "common or public carrier" and a "private or special
carrier" lies in the character of the business, such that if the undertaking is an isolated
transaction, not a part of the business or occupation, and the carrier does not hold itself
out to carry the goods for the general public or to a limited clientele, although involving
the carriage of goods for a fee,3 the person or corporation providing such service could
very well be just a private carrier. A typical case is that of a charter party which includes
both the vessel and its crew, such as in a bareboat or demise, where the charterer obtains
the use and service of all or some part of a ship for a period of time or a voyage or
voyages4 and gets the control of the vessel and its crew.5 Contrary to the conclusion made
by the appellate court, its factual findings indicate that PKS Shipping has engaged itself
in the business of carrying goods for others, although for a limited clientele, undertaking
to carry such goods for a fee. The regularity of its activities in this area indicates more
than just a casual activity on its part.6 Neither can the concept of a common carrier
change merely because individual contracts are executed or entered into with patrons of

the carrier. Such restrictive interpretation would make it easy for a common carrier to
escape liability by the simple expedient of entering into those distinct agreements with
clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper
diligence demanded of common carriers, Article 1733 of the Civil Code requires
common carriers to observe extraordinary diligence in the vigilance over the goods they
carry. In case of loss, destruction or deterioration of goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving
otherwise rests on them.7The provisions of Article 1733, notwithstanding, common
carriers are exempt from liability for loss, destruction, or deterioration of the goods due to
any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.8
The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which
the barges or the tugboats crew could have prevented the sinking of Limar I. The vessel
was suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and
buffeted by strong winds of 1.5 knots resulting in the entry of water into the barges
hatches. The official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the seaworthiness
of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the
recognized exceptions from the rule - (1) when the factual findings of the Court of
Appeals and the trial court are contradictory; (2) when the conclusion is a finding
grounded entirely on speculation, surmises, or conjectures; (3) when the inference made
by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or
impossible; (4) when there is a grave abuse of discretion in the appreciation of facts; (5)
when the appellate court, in making its findings, went beyond the issues of the case and
such findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when
the Court of Appeals failed to notice certain relevant facts which, if properly considered,
would justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are contradicted by
the evidence on record would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping
from liability for the loss of the DUMC cargo. WHEREFORE, the petition is DENIED.
No costs.

18

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS,
SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Does a charter-party 1 between a shipowner and a charterer transform a common carrier
into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation
(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46%
fertilizer which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V
"Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from
Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced
by Bill of Lading No. KP-1 signed by the master of the vessel and issued on the date of
departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun
Plum" pursuant to the Uniform General Charter 2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3Riders to the aforesaid
charter-party starting from par. 16 to 40 were attached to the pre-printed agreement.
Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on
the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate
from National Cargo Bureau inspector or substitute appointed by charterers for
his account certifying the vessel's readiness to receive cargo spaces. The vessel's
hold to be properly swept, cleaned and dried at the vessel's expense and the
vessel to be presented clean for use in bulk to the satisfaction of the inspector
before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the
supervision of the shipper, the steel hatches were closed with heavy iron lids, covered
with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed
and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches
were opened with the use of the vessel's boom. Petitioner unloaded the cargo from the
holds into its steelbodied dump trucks which were parked alongside the berth, using

metal scoops attached to the ship, pursuant to the terms and conditions of the charterpartly (which provided for an F.I.O.S. clause). 6 The hatches remained open throughout
the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before
it was transported to the consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale
where they were individually weighed for the purpose of ascertaining the net weight of
the cargo. The port area was windy, certain portions of the route to the warehouse were
sandy and the weather was variable, raining occasionally while the discharge was in
progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI)
sheets, with an opening at the front where the dump trucks entered and unloaded the
fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and
alongside the trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except
July 12th, 14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped,
by taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the
cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit
for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing
the cost of the alleged shortage in the goods shipped and the diminution in value of that
portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for
shortlanded certificate and not a formal claim, and that this "request" was denied by them
because they "had nothing to do with the discharge of the shipment." 14Hence, on 18 July
1975, PPI filed an action for damages with the Court of First Instance of Manila. The
defendant carrier argued that the strict public policy governing common carriers does not
apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the
defendant carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is
presumed negligent in case of loss or damage of the goods it contracts
to transport, all that a shipper has to do in a suit to recover for loss or

19

damage is to show receipt by the carrier of the goods and to delivery

by it of less than what it received. After that, the burden of proving
that the loss or damage was due to any of the causes which exempt
him from liability is shipted to the carrier, common or private he may
be. Even if the provisions of the charter-party aforequoted are deemed
valid, and the defendants considered private carriers, it was still
incumbent upon them to prove that the shortage or contamination
sustained by the cargo is attributable to the fault or negligence on the
part of the shipper or consignee in the loading, stowing, trimming and
discharge of the cargo. This they failed to do. By this omission,
coupled with their failure to destroy the presumption of negligence
against them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968
case of Home Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court
ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a
private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a
presumption of negligence do not find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiffappellee to adduce sufficient evidence to prove the negligence of the defendant
carrier as alleged in its complaint. It is an old and well settled rule that if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to
show in a satisfactory manner the facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v.
Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the
basis of its cause of action, i.e. the alleged negligence of defendant carrier. It
appears that the plaintiff was under the impression that it did not have to
establish defendant's negligence. Be that as it may, contrary to the trial court's
finding, the record of the instant case discloses ample evidence showing that
defendant carrier was not negligent in performing its obligation . . . 18 (emphasis
supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the
Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on
the present controversy because the issue raised therein is the validity of a stipulation in
the charter-party delimiting the liability of the shipowner for loss or damage to goods
cause by want of due deligence on its part or that of its manager to make the vessel
seaworthy in all respects, and not whether the presumption of negligence provided under
the Civil Code applies only to common carriers and not to private carriers. 19 Petitioner

further argues that since the possession and control of the vessel remain with the
shipowner, absent any stipulation to the contrary, such shipowner should made liable for
the negligence of the captain and crew. In fine, PPI faults the appellate court in not
applying the presumption of negligence against respondent carrier, and instead shifting
the onus probandi on the shipper to show want of due deligence on the part of the carrier,
when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a
private carrier by reason of a charter-party; in the negative, whether the shipowner in the
instant case was able to prove that he had exercised that degree of diligence required of
him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases.
This being so, we find it fitting to first define important terms which are relevant to our
discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her
to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in
part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the charterer with a transfer to
him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of affreightment may
either be time charter, wherein the vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases,
the charter-party provides for the hire of vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay
for the wages of the master and the crew, and defray the expenses for the maintenance of
the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the
Civil Code. 23 The definition extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying goods or transporting passengers or both
for compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the
character of the business, such that if the undertaking is a single transaction, not a part of
the general business or occupation, although involving the carriage of goods for a fee, the
person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the
nature of their business, should observe extraordinary diligence in the vigilance over the
goods they carry. 25 In the case of private carriers, however, the exercise of ordinary

20

diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction
or deterioration of the goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them. 26 On the
contrary, no such presumption applies to private carriers, for whosoever alleges damage
to or deterioration of the goods carried has the onus of proving that the cause was the
negligence of the carrier.

where her services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually
without any representative on board the ship; the same opportunities for fraud
or collusion occur; and the same difficulty in discovering the truth as to what
has taken place arises . . .

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

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

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

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

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

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

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

We quote with approval the observations of Raoul Colinvaux, the learned barrister-atlaw 30

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

As a matter of principle, it is difficult to find a valid distinction between cases

in which a ship is used to convey the goods of one and of several persons.
Where the ship herself is let to a charterer, so that he takes over the charge and
control of her, the case is different; the shipowner is not then a carrier. But

. . . Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligations. Particularly, the following testimonies

21

of plaintiff-appellee's own witnesses clearly show absence of negligence by the

defendant carrier; that the hull of the vessel at the time of the discharge of the
cargo was sealed and nobody could open the same except in the presence of the
owner of the cargo and the representatives of the vessel (TSN, 20 July 1977, p.
14); that the cover of the hatches was made of steel and it was overlaid with
tarpaulins, three layers of tarpaulins and therefore their contents were protected
from the weather (TSN, 5 April 1978, p. 24); and, that to open these hatches,
the seals would have to be broken, all the seals were found to be intact (TSN, 20
July 1977, pp. 15-16) (emphasis supplied).
The period during which private respondent was to observe the degree of diligence
required of it as a public carrier began from the time the cargo was unconditionally
placed in its charge after the vessel's holds were duly inspected and passed scrutiny by
the shipper, up to and until the vessel reached its destination and its hull was reexamined
by the consignee, but prior to unloading. This is clear from the limitation clause agreed
upon by the parties in the Addendum to the standard "GENCON" time charter-party
which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and
discharge of the cargo was to be done by the charterer, free from all risk and expense to
the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from
improper stowage only when the stowing is done by stevedores employed by him, and
therefore under his control and supervision, not when the same is done by the consignee
or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for
the loss, destruction or deterioration of the goods if caused by the charterer of the goods
or defects in the packaging or in the containers. The Code of Commerce also provides
that all losses and deterioration which the goods may suffer during the transportation by
reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for
the account and risk of the shipper, and that proof of these accidents is incumbent upon
the carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting
from the preceding causes if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has
established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound
consisting mostly of ammonia and carbon monoxide compounds which are used as
fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However,
during storage, nitrogen and ammonia do not normally evaporate even on a long voyage,
provided that the temperature inside the hull does not exceed eighty (80) degrees
centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use
of a clamped shell, losses due to spillage during such operation amounting to one percent
(1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause of
these spillages is the clamped shell which does not seal very tightly. Also, the wind tends
to blow away some of the materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by

an extremely high temperature in its place of storage, or when it comes in contact with
water. When Urea is drenched in water, either fresh or saline, some of its particles
dissolve. But the salvaged portion which is in liquid form still remains potent and usable
although no longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with
foreign particles was made greater by the fact that the fertilizer was transported in "bulk,"
thereby exposing it to the inimical effects of the elements and the grimy condition of the
various pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea
water to seep into the vessel's holds during the voyage since the hull of the vessel was in
good condition and her hatches were tightly closed and firmly sealed, making the M/V
"Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there
was loss or contamination of the cargo, it was more likely to have occurred while the
same was being transported from the ship to the dump trucks and finally to the
consignee's warehouse. This may be gleaned from the testimony of the marine and cargo
surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged
"bar order cargo" as contained in their report to PPI was just an approximation or
estimate made by them after the fertilizer was discharged from the vessel and segregated
from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and
unloaded her cargo. It rained from time to time at the harbor area while the cargo was
being discharged according to the supply officer of PPI, who also testified that it was
windy at the waterfront and along the shoreline where the dump trucks passed enroute to
the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather
condition prevalent during its unloading, as was the case at bar. This is a risk the shipper
or the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved
the inherent character of the goods which makes it highly vulnerable to deterioration; as
well as the inadequacy of its packaging which further contributed to the loss. On the other
hand, no proof was adduced by the petitioner showing that the carrier was remise in the
exercise of due diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of
Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case No.
98623 of the then Court of the First Instance, now Regional Trial Court, of Manila should
be, as it is hereby DISMISSED.
Costs against petitioner.

22

G.R. No. 145044

June 12, 2008

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,

vs.
NEPTUNE ORIENT LINES/OVERSEAS AGENCY SERVICES, INC., respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari1 of the Resolution of the Court of Appeals (CA)
in CA-G.R. CV No. 52855 promulgated on April 13, 2000 granting respondents' motion
for reconsideration dated March 9, 2000. The Resolution held respondents liable for
damages to petitioner subject to the limited-liability provision in the bill of lading.
The facts are as follows:
On September 30, 1993, L.T. Garments Manufacturing Corp. Ltd. shipped from Hong
Kong three sets of warp yarn on returnable beams aboard respondent Neptune Orient
Lines' vessel, M/V Baltimar Orion, for transport and delivery to Fukuyama
Manufacturing Corporation (Fukuyama) of No. 7 Jasmin Street, AUV Subdivision, Metro
Manila.
The said cargoes were loaded in Container No. IEAU-4592750 in good condition under
Bill of Lading No. HKG-0396180. Fukuyama insured the shipment against all risks with
petitioner Philippine Charter Insurance Corporation (PCIC) under Marine Cargo Policy
No. RN55581 in the amount of P228,085.
During the course of the voyage, the container with the cargoes fell overboard and was
lost.

On March 21, 1994, PCIC filed a complaint for damages against respondents with the
Regional Trial Court (RTC) of Manila, Branch 35.
Respondents filed an Answer with Compulsory Counterclaim denying liability. They
alleged that during the voyage, the vessel encountered strong winds and heavy seas
making the vessel pitch and roll, which caused the subject container with the cargoes to
fall overboard. Respondents contended that the occurrence was a fortuitous event which
exempted them from any liability, and that their liability, if any, should not exceed
US$500 or the limit of liability in the bill of lading, whichever is lower.
In a Decision dated January 12, 1996, the RTC held that respondents, as common
carrier,2 failed to prove that they observed the required extraordinary diligence to prevent
loss of the subject cargoes in accordance with the pertinent provisions of the Civil
Code.3 The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering the defendants, jointly and
severally, to pay the plaintiff the Peso equivalent as of February 17, 1994 of
HK$55,000.00 or the sum of P228,085.00, whichever is lower, with costs
against the defendants.4
Respondents' motion for reconsideration was denied by the RTC in an Order dated
February 19, 1996.
Respondents appealed the RTC Decision to the CA.
In a Decision promulgated on February 15, 2000, the CA affirmed the RTC Decision
with modification, thus:
WHEREFORE, the assailed decision is hereby MODIFIED. Appellants
Neptune and Overseas are hereby ordered to pay jointly and severally appellee
PCIC P228,085.00, representing the amount it paid Fukuyama. Costs against
the appellants.5

Thus, Fukuyama wrote a letter to respondent Overseas Agency Services, Inc. (Overseas
Agency), the agent of Neptune Orient Lines in Manila, and claimed for the value of the
lost cargoes. However, Overseas Agency ignored the claim. Hence, Fukuyama sought
payment from its insurer, PCIC, for the insured value of the cargoes in the amount
of P228,085, which claim was fully satisfied by PCIC.

Respondents moved for reconsideration of the Decision of the CA arguing, among others,
that their liability was only US$1,500 or US$500 per package under the limited liability
provision of the Carriage of Goods by Sea Act (COGSA).

On February 17, 1994, Fukuyama issued a Subrogation Receipt to petitioner PCIC for the
latter to be subrogated in its right to recover its losses from respondents.

In its Resolution dated April 13, 2000, the CA found the said argument of respondents to
be meritorious. The dispositive portion of the Resolution reads:

PCIC demanded from respondents reimbursement of the entire amount it paid to

Fukuyama, but respondents refused payment.

WHEREFORE, the motion is partly granted in the sense that appellants shall be
liable to pay appellee PCIC the value of the three packages lost computed at the
rate of US$500 per package or a total of US$1,500.00.6

23

Hence, this petition raising this lone issue:

THE COURT OF APPEALS ERRED IN AWARDING RESPONDENTS
DAMAGES SUBJECT TO THE US$500 PER PACKAGE LIMITATION.

minutes East, four (4) x 40 ft. containers were lost/fell overboard. The
numbers of these containers are NUSU-3100789, TPHU -5262138, IEAU4592750, NUSU-4515404.
xxx

Petitioner contends that the CA erred in awarding damages to respondents subject to the
US$500 per package limitation since the vessel committed a "quasi deviation" which is a
breach of the contract of carriage when itintentionally threw overboard the container
with the subject shipment during the voyage to Manila for its own benefit or preservation
based on a Survey Report7 conducted by Mariner's Adjustment Corporation, which firm
was tasked by petitioner to investigate the loss of the subject cargoes. According to
petitioner, the breach of contract resulted in the abrogation of respondents' rights under
the contract and COGSA including the US$500 per package limitation. Hence,
respondents cannot invoke the benefit of the US$500 per package limitation and the CA
erred in considering the limitation and modifying its decision accordingly.
The contention lacks merit.
The facts as found by the RTC do not support the new allegation of facts by petitioner
regarding the intentional throwing overboard of the subject cargoes and quasi deviation.
The Court notes that in petitioner's Complaint before the RTC, petitioner alleged as
follows:
xxx

xxx

xxx

2.03 In the course of the maritime voyage from Hongkong to Manila subject
shipment fell overboardwhile in the custody of the defendants and were never
recovered; it was part of the LCL cargoes packed by defendants in container
IEAU-4592750 that fell overboard during the voyage.8
Moreover, the same Survey Report cited by petitioner stated:

xxx

xxx

Furthermore, during the course of voyage, high winds and heavy seas were
encountered causing the ship to roll and pitch heavily. The course and speed
was altered to ease motion of the vessel, causing delay and loss of time on the
voyage.
xxx

xxx

xxx

SURVEYORS REMARKS:
In view of the foregoing incident, we are of the opinion that the shipment of 3
cases of Various Warp Yarn on Returnable Beams which were containerized
onto 40 feet LCL (no. IEAU-4592750) and fell overboardthe subject vessel
during heavy weather is an "Actual Total Loss".9
The records show that the subject cargoes fell overboard the ship and petitioner should
not vary the facts of the case on appeal. This Court is not a trier of facts, and, in this case,
the factual finding of the RTC and the CA, which is supported by the evidence on record,
is conclusive upon this Court.
As regards the issue on the limited liability of respondents, the Court upholds the
decision of the CA.
Since the subject cargoes were lost while being transported by respondent common
carrier from Hong Kong to the Philippines, Philippine law applies pursuant to the Civil
Code which provides:

From the investigation conducted, we noted that Capt. S.L. Halloway, Master of
MV "BALTIMAR ORION" filed a Note of Protest in the City of Manila, and
was notarized on 06 October 1993.

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.

Based on Note of Protest, copy attached hereto for your reference, carrier vessel
sailed from Hongkong on 1st October 1993 carrying containers bound for
Manila.

Art. 1766. In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special
laws.

Apparently, at the time the vessel [was] sailing at about 2400 hours of
2nd October 1993, she encountered winds and seas such as to cause occasional
moderate to heavy pitching and rolling deeply at times. At 0154 hours, same
day, while in position Lat. 20 degrees, 29 minutes North, Long. 115 degrees, 49

The rights and obligations of respondent common carrier are thus governed by the
provisions of the Civil Code, and the COGSA,10 which is a special law, applies
suppletorily.

24

The pertinent provisions of the Civil Code applicable to this case are as follows:
Art. 1749. A stipulation that the common carrier's liability is limited to the value
of the goods appearing in the bill of lading, unless the shipper or owner declares
a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
agreed upon.
In addition, Sec. 4, paragraph (5) of the COGSA, which is applicable to all contracts for
the carriage of goods by sea to and from Philippine ports in foreign trade, provides:
Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the bill
of lading. This declaration, if embodied in the bill of lading shall be prima facie
evidence, but shall be conclusive on the carrier.
In this case, Bill of Lading No. 0396180 stipulates:
Neither the Carrier nor the vessel shall in any event become liable for any loss
of or damage to or in connection with the transportation of Goods in an amount
exceeding US$500 (which is the package or shipping unit limitation under U.S.
COGSA) per package or in the case of Goods not shipped in packages per
shipping unit or customary freight, unless the nature and value of such Goods
have been declared by the Shipper before shipment and inserted in this Bill
of Lading and the Shipper has paid additional charges on such declared
value. . . .
The bill of lading11 submitted in evidence by petitioner did not show that the shipper in
Hong Kong declared the actual value of the goods as insured by Fukuyama before
shipment and that the said value was inserted in the Bill of Lading, and so no additional
charges were paid. Hence, the stipulation in the bill of lading that the carrier's liability
shall not exceed US$500 per package applies.

A stipulation in the bill of lading limiting the common carrier's liability for loss
or destruction of a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provide:
'Art. 1749. A stipulation that the common carrier's liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding.'
'Art. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely
agreed upon.'
Such limited-liability clause has also been consistently upheld by this court in a
number of cases. Thus, inSea-Land Service, Inc. vs. Intermediate Appellate
Court, we ruled:
'It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea
Act did not exist, the validity and binding effect of the liability limitation clause
in the bill of lading here are nevertheless fully sustainable on the basis alone of
the cited Civil Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a limit to
liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and fairness
of the law itself.... But over and above that consideration, the just and
reasonable character of such stipulation is implicit in it giving the shipper or
owner the option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and value of the
shipment in the bill of lading.'
The CA, therefore, did not err in holding respondents liable for damages to petitioner
subject to the US$500 per package limited- liability provision in the bill of lading.
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals in
CA-G.R. CV No. 52855 promulgated on April 13, 2000 is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

Such stipulation in the bill of lading limiting respondents' liability for the loss of the
subject cargoes is allowed under Art. 1749 of the Civil Code, and Sec. 4, paragraph (5) of
the COGSA. Everett Steamship Corporation v. Court of Appeals 12 held:

25

[G.R. No. 71929. December 4, 1990.]

ALITALIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA
E. PABLO, respondents.
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a
research grantee of the Philippine Atomic Energy Agency was invited to take part at a
meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division of
Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was
invited in view of her specialized knowledge in "foreign substances in food and the
agriculture environment." She accepted the invitation, and was then scheduled by the
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on the
first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on
petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and
time table set for her by ALITALIA. She was however told by the ALITALIA personnel
there at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of
the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2)
suitcases: one contained her clothing and other personal items; the other, her scientific
papers, slides and other research material. But the other flights arriving from Rome did
not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she
inquired about her suitcases in the domestic and international airports, and filled out the
forms prescribed by ALITALIA for people in her predicament. However, her baggage
could not be found. Completely distraught and discouraged, she returned to Manila
without attending the meeting in Ispra, Italy. prcd
Once back in Manila she demanded that ALITALIA make reparation for the damages
thus suffered by her. ALITALIA offered her "free airline tickets to compensate her for
any alleged damages. . . ." She rejected the offer, and forthwith commenced the
action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to
Ispra, 7 Italy, but only on the day after her scheduled appearance and participation at the
U.N. meeting there. 8 Of course Dr. Pablo was no longer there to accept delivery; she
was already on her way home to Manila. And for some reason or other, the suitcases were
not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later, and
four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in
Dr. Pablo's favor: 10

(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of
the judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision
but also increased the award of nominal damages payable by ALITALIA to
P40,000.00. 12 That increase it justified as follows: 1 3
"Considering the circumstances, as found by the Trial Court and the negligence
committed by defendant, the amount of P20,000.00 under present inflationary conditions
as awarded . . . to the plaintiff as nominal damages, is too little to make up for the
plaintiff's frustration and disappointment in not being able to appear at said conference;
and for the embarrassment and humiliation she suffered from the academic community
for failure to carry out an official mission for which she was singled out by the faculty to
represent her institution and the country. After weighing carefully all the considerations,
the amount awarded to the plaintiff for nominal damages and attorney's fees should be
increased to the cost of her round trip air fare or at the present rate of peso to the dollar at
P40,000,00."
ALITALIA has appealed to this Court on certiorari. Here, it seeks to make basically the
same points it tried to make before the Trial Court and the Intermediate Appellate Court,
i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability;
and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages
and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court
to have refused to pass on all the assigned errors and in not stating the facts and the law
on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it
took place on board the aircraft or in the course of its operations of embarking or
disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19

"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal damages;

26

In these cases, it is provided in the Convention that the "action for damages, however,
founded, can only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner:
21
1. In the carriage of passengers the liability of the carrier for each passenger is limited to
the sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and the
passenger may agree to a higher limit of liability. LLjur
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is
limited to a sum of 250 francs per kilogramme, unless the passenger or consignor has
made, at the time when the package was handed over to the carrier, a special declaration
of interest in delivery at destination and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not exceeding the declared
sum, unless he proves that sum is greater than the actual value to the consignor at
delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any
object contained therein, the weight to be taken into consideration in determining the
amount to which the carrier's liability is limited shall be only the total weight of the
package or packages concerned. Nevertheless, when the loss, damage or delay of a part
of the registered baggage or cargo, or of an object contained therein, affects the value of
other packages covered by the same baggage check or the same air way bill, the total
weight of such package or packages shall also be taken into consideration in determining
the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the
carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with
its own law, in addition, the whole or part of the court costs and of the other expenses of
litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount
of the damages awarded, excluding court costs and other expenses of the litigation, does
not exceed the sum which the carrier has offered in writing to the plaintiff within a period
of six months from the date of the occurrence causing the damage, or before the
commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions
which exclude or limit his liability, if the damage is caused by his wilful misconduct or
by such default on his part as, in accordance with the law of the court seized of the case,
is considered to be equivalent to wilful misconduct," or "if the damage is (similarly)
caused . . by any agent of the carrier acting within the scope of his employment." 22 The
Hague Protocol amended the Warsaw Convention by removing the provision that if the
airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved
that the damage resulted from an act or omission of the carrier, its servants or agents,

done with intent to cause damage or recklessly and with knowledge that damage would
probably result." The same deletion was effected by the Montreal Agreement of 1966,
with the result that a passenger could recover unlimited damages upon proof of wilful
misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an
airline's liability, or as an absolute limit of the extent of that liability. Such a proposition
is not borne out by the language of the Convention, as this Court has now, and at an
earlier time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion
that it should be deemed a limit of liability only in those cases where the cause of the
death or injury to person, or destruction, loss or damage to property or delay in its
transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or employee for
which the carrier is responsible, and there is otherwise no special or extraordinary form
of resulting injury. The Convention's provisions, in short, do not "regulate or exclude
liability for other breaches of contract by the carrier" 26 or misconduct of its officers and
employees, or for some particular or exceptional type of damage. Otherwise, "an air
carrier would be exempt from any liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of carriage, which is absurd." 27 Nor may
it for a moment be supposed that if a member of the aircraft complement should inflict
some physical injury on a passenger, or maliciously destroy or damage the latter's
property, the Convention might successfully be pleaded as the sole gauge to determine
the carrier's liability to the passenger. Neither may the Convention be invoked to justify
the disregard of some extraordinary sort of damage resulting to a passenger and preclude
recovery therefor beyond the limits set by said Convention. It is in this sense that the
Convention has been applied, or ignored, depending on the peculiar facts presented by
each case. cdphil

In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention
was applied as regards the limitation on the carrier's liability, there being a simple loss of
baggage without any otherwise improper conduct on the part of the officials or
employees of the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as
not restrictive of the carrier's liability, where there was satisfactory evidence of malice or
bad faith attributable to its officers and employees. 29 Thus, an air carrier was sentenced
to pay not only compensatory but also moral and exemplary damages, and attorney's fees,
for instance, where its employees rudely put a passenger holding a first-class ticket in the
tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his seat to
a white man, 31 or gave the seat of a passenger with a confirmed reservation to
another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by
calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,

27

belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some
special species of injury was caused to Dr. Pablo because petitioner ALITALIAmisplaced
her baggage and failed to deliver it to her at the time appointed a breach of its contract
of carriage, to be sure with the result that she was unable to read the paper and make
the scientific presentation (consisting of slides, autoradiograms or films, tables and
tabulations) that she had painstakingly labored over, at the prestigious international
conference, to attend which she had traveled hundreds of miles, to her chagrin and
embarrassment and the disappointment and annoyance of the organizers. She felt, not
unreasonably, that the invitation for her to participate at the conference, extended by the
Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations, was a singular honor not only to herself, but to the University of the Philippines
and the country as well, an opportunity to make some sort of impression among her
colleagues in that field of scientific activity. The opportunity to claim this honor or
distinction was irretrievably lost to her because of Alitalia's breach of its contract.

WHEREFORE, no error being perceived in the challenged decision of the Court of

Appeals, it appearing on the contrary to be entirely in accord with the facts and the law,
said decision is hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.
||| (Alitalia v. Intermediate Appellate Court, G.R. No. 71929, December 04, 1990)

Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned
that her suitcases were missing up to the time when, having gone to Rome, she finally
realized that she would no longer be able to take part in the conference. As she herself put
it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in the
transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but
safely. She is however entitled to nominal damages which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated and recognized, and not for the purpose of indemnifying
the plaintiff for any loss suffered and this Court agrees that the respondent Court of
Appeals correctly set the amount thereof at P40,000.00. As to the purely technical
argument that the award to her of such nominal damages is precluded by her omission to
include a specific claim therefor in her complaint, it suffices to draw attention to her
general prayer, following her plea for moral and exemplary damages and attorney's fees,
"for such other and further just and equitable relief in the premises," which certainly is
broad enough to comprehend an application as well for nominal damages. Besides,
petitioner should have realized that the explicit assertion, and proof, that Dr. Pablo's right
had been violated or invaded by it absent any claim for actual or compensatory
damages, the prayer thereof having been voluntarily deleted by Dr. Pablo upon the return
to her of her baggage necessarily raised the issue of nominal damages. cdrep
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees
to Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises.The law
authorizes recovery of attorney's fees inter alia where, as here, "the defendant's act or
omission has compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest," 34 or "where the court deems it just and equitable." 35

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