Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 168151

September 4, 2009

REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING

AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional Container Lines
of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set aside the
decision1 and resolution2 of the Court of Appeals (CA) dated May 26, 2004 and May 10, 2005,
respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its
agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws.
Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise
a domestic corporation engaged in the marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped from
Singapore to Manila for Temic Telefunken Microelectronics Philippines (Temic). U-Freight Singapore
PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in Singapore, contracted the services of
Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was packed,
stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with Seal No. 13223.
As the cargo was highly perishable, the inside of the container had to be kept at a temperature of 0
Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a vessel
owned by RCL, with which Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill
of Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open Policy
in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to cover all
losses/damages to the shipment.

On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel
Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied by
two surveyors, conducted a protective survey of the cargo. They found that based on the
temperature chart, the temperature reading was constant from October 18, 1995 to October 25,
1995 at 0 Celsius. However, at midnight of October 25, 1995 when the cargo had already been
unloaded from the ship the temperature fluctuated with a reading of 33 Celsius. Rocha believed
the fluctuation was caused by the burnt condenser fan motor of the refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged. Temic
filed a claim for cargo loss against Netherlands Insurance, with supporting claims documents. The
Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms of the Marine Open
Policy. Temic then executed a loss and subrogation receipt in favor of Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5, Manila,
against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the latter thought to
be the local agent of M/V Piya Bhums unknown owner.4 The complaint was docketed as Civil Case
No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping,
RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean), as
additional defendants. A third amended complaint was later made, impleading Pacific Eagle in
substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise filed
an answer with compulsory counterclaim and cross-claim. During the pendency of the case, UOcean, jointly with U-Freight Singapore, filed another answer with compulsory counterclaim. Only
Pacific Eagle and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons
why Netherland Insurances claims must be rejected. Specifically, RCL and EDSA Shipping denied
negligence in the transport of the cargo; they attributed any negligence that may have caused the
loss of the shipment to their co-defendants. They likewise asserted that no valid subrogation exists,
as the payment made by Netherlands Insurance to the consignee was invalid. By way of affirmative
defenses, RCL and EDSA Shipping averred that the Netherlands Insurance has no cause of action,
and is not the real party-in-interest, and that the claim is barred by laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants including RCL
and EDSA Shipping sought leave of court to file their respective motions to dismiss based on
demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to prove
any valid subrogation, and (2) failed to establish that any negligence on their part or that the loss
was sustained while the cargo was in their custody.

On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants
could not be held liable for the loss or damage, as their respective liabilities ended at the time of the
discharge of the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants Regional
Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET ASIDE. The
dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to Section 1, Rule
33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines and EDSA Shipping
Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to reimburse
plaintiff in the sum of P1,036,497.00 with interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]
The CA dismissed Netherland Insurances complaint against the other defendants after finding that
the claim had already been barred by prescription. 5
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for
reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable as
common carriers under the theory of presumption of negligence.
THE COURTS RULING
The present case is governed by the following provisions of the Civil Code:
ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers
is further set forth in articles1755 and 1756.
ART. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

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

2) Act of the public enemy in war, whether international or civil;
3) Act of 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.
ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if
the goods are lost, destroyed, or deteriorated, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary diligence as
required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the
sane are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them, without prejudice to the provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even during
the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common carrier
must exercise due diligence to forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North America, 6 we reiterated the rules
for the liability of a common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common carriers
are responsible, unless they can prove that such loss, destruction, or deterioration was
brought about by, among others, "flood, storm, earthquake, lightning, or other natural
disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage to
the goods in question. They contend that the cause of the damage to the cargo was the "fluctuation

of the temperature in the reefer van," which fluctuation occurred after the cargo had already been
discharged from the vessel; no fluctuation, they point out, arose when the cargo was still on board
M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same was already
discharged from the vessel and was under the custody of the arrastre operator (International
Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of
negligence provided in Article 1735 of the Civil Code should not apply. What applies in this case is
Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss
or damage to the cargo when it is caused either by an act or omission of the shipper or by the
character of the goods or defects in the packing or in the containers. Thus, RCL and EDSA Shipping
seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. 8 When the goods shipped are either lost or
arrived in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. 9
1avvphi1

To overcome the presumption of negligence, the common carrier must establish by adequate proof
that it exercised extraordinary diligence over the goods. It must do more than merely show that some
other party could be responsible for the damage.10
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of
diligence required by law over the goods they transported. Indeed, there is sufficient evidence
showing that the fluctuation of the temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from the vessel and was already
under the custody of the arrastre operator, ICTSI. This evidence, however, does not disprove that
the condenser fan which caused the fluctuation of the temperature in the refrigerated container
was not damaged while the cargo was being unloaded from the ship. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier;11 RCL and EDSA Shipping failed to dispute this.
1avvphi1

RCL and EDSA Shipping could have offered evidence before the trial court to show that the damage
to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were in the act of
discharging it from the vessel; or (3) while they were delivering it actually or constructively to the
consignee. They could have presented proof to show that they exercised extraordinary care and
diligence in the handling of the goods, but they opted to file a demurrer to evidence. As the order
granting their demurrer was reversed on appeal, the CA correctly ruled that they are deemed to have
waived their right to present evidence,12 and the presumption of negligence must stand.
It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or damage to
the cargo was caused by a defect in the packing or in the containers. To exculpate itself from liability
for the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove
any of the causes in Article 1734 of the Civil Code claimed by it by a preponderance of evidence. If
the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is
negligent.13 RCL and EDSA Shipping, however, failed to satisfy this standard of evidence and in fact

offered no evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence
bars the defendant from presenting evidence supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines of
Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May 26, 2004 in
CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29721

March 27, 1929

AMANDO MIRASOL, plaintiff-appellant,

vs.
THE ROBERT DOLLAR CO., defendant-appellant.
Vicente Hilado for plaintiff-appellant.
J.A. Wolfson for defendant-appellant.
STATEMENT
After the promulgation of the decision rendered by the Second Division of February 13, 1929, 1 the
defendant filed a motion to have the case heard and decided in banc, and inasmuch as the legal
questions involved are important to the shipping interests, the court thought it best to do so.
After the formal pleas, plaintiff alleges that he is the owner and consignee of two cases of books,
shipped in good order and condition at New York, U.S.A., on board the defendant's
steamship President Garfield, for transport and delivery to the plaintiff in the City of Manila, all freight
charges paid. That the two cases arrived in Manila on September 1, 1927, in bad order and
damaged condition, resulting in the total loss of one case and a partial loss of the other. That the
loss in one case is P1,630, and the other P700, for which he filed his claims, and defendant has
refused and neglected to pay, giving as its reason that the damage in question "was caused by sea
water." That plaintiff never entered into any contract with the defendant limiting defendant's liability
as a common carrier, and when he wrote the letter of September 3, 1927, he had not then
ascertained the contents of the damaged case, and could not determine their value. That he never
intended to ratify or confirm any agreement to limit the liability of the defendant. That on September
9, 1927, when the other case was found, plaintiff filed a claim for the real damage of the books
therein named in the sum of $375.
Plaintiff prays for corresponding judgment, with legal interest from the filing of the complaint and
costs.
For answer the defendant made a general and specific denial, and as a separate and special
defense alleges that the steamship President Garfield at all the times alleged was in all respects
seaworthy and properly manned, equipped and supplied, and fit for the voyage. That the damage to

plaintiff's merchandise, if any, was not caused through the negligence of the vessel, its master,
agent, officers, crew, tackle or appurtenances, nor by reason of the vessel being unseaworthy or
improperly manned, "but that such damage, if any, resulted from faults or errors in navigation or in
the management of said vessel." As a second separate and special defense, defendant alleges that
in the bill of lading issued by the defendant to plaintiff, it was agreed in writing that defendant should
not be "held liable for any loss of, or damage to, any of said merchandise resulting from any of the
following causes, to wit: Acts of God, perils of the sea or other waters," and that plaintiff's damage, if
any, was caused by "Acts of God" or "perils of the sea." As a third special defense, defendant quoted
clause 13 of the bill of lading, in which it is stated that in no case shall it be held liable "for or in
respect to said merchandise or property beyond the sum of two hundred and fifty dollars for any
piece, package or any article not enclosed in a package, unless a higher value is stated herein and
ad valorem freight paid or assessed thereon," and that there was no other agreement. That no
September 3, 1927 the plaintiff wrote the defendant a letter as follows:
Therefore, I wish to file claim of damage to the meager maximum value that your bills of
lading will indemnify me, that is $250 as per condition 13.
As a fourth special defense, defendant alleges that the damage, if any, was caused by "sea water,"
and that the bill of lading exempts defendant from liability for that cause. That damage by "sea
water" is a shipper's risk, and that defendant is not liable.
As a result of the trial upon such issues, the lower court rendered judgment for the plaintiff for
P2,080, with legal interest thereon from the date of the final judgment, with costs, from which both
parties appealed, and the plaintiff assigns the following errors:
I. The lower court erred in holding that plaintiff's damage on account of the loss of the
damaged books in the partially damaged case can be compensated with an indemnity of
P450 instead of P750 as claimed by plaintiff.
II. The lower court, consequently, also erred in giving judgment for plaintiff for only P2,080
instead of P2,380.
III. The lower court erred in not sentencing defendant to pay legal interest on the amount of
the judgment, at least, from the date of the rendition of said judgment, namely, January 30,
1928.
The defendant assigns the following errors:
I. The lower court erred in failing to recognize the validity of the limited liability clause of the
bill of lading, Exhibit 2.
II. The lower court erred in holding defendant liable in any amount and in failing to hold, after
its finding as a fact that the damage was caused by sea water, that the defendant is not
liable for such damage by sea water.
III. The lower court erred in awarding damages in favor of plaintiff and against defendant for
P2,080 or in any other amount, and in admitting, over objection, Exhibits G, H, I and J.
JOHNS, J.:

Plaintiff's contention that he is entitled to P700 for his Encyclopedia Britannica is not tenable. The
evidence shows that the P400 that the court allowed, he could buy a new set which could contain all
of the material and the subject matter of the one which he lost. Plaintiff's third assignment of error is
well taken, as under all of the authorities, he is entitled to legal interest from the date of his
judgement rendered in the lower court and not the date when it becomes final. The lower court found
that plaintiff's damage was P2,080, and that finding is sustained by that evidence. There was a total
loss of one case and a partial loss of the other, and in the very nature of the things, plaintiff could not
prove his loss in any other way or manner that he did prove it, and the trial court who heard him
testify must have been convinced of the truth of his testimony.
There is no claim or pretense that the plaintiff signed the bill of lading or that he knew of his contents
at the time that it was issued. In that situation he was not legally bound by the clause which purports
to limit defendant's liability. That question was squarely met and decided by this court in banc in
Juan Ysmael and Co., vs. Gabino Baretto and Co., (51 Phil., 90; see numerous authorities there
cited).
Among such authorities in the case of The Kengsington decided by the Supreme Court of the U.S.
January 6, 1902 (46 Law. Ed., 190), in which the opinion was written by the late Chief Justice White,
the syllabus of which is as follows:
1. Restrictions of the liability of a steamship company for its own negligence or failure of duty
toward the passenger, being against the public policy enforced by the courts of the United
States, will not to be upheld, though the ticket was issued and accepted in a foreign country
and contained a condition making it subject to the law thereof, which sustained such
stipulation.
2. The stipulation in a steamship passenger's ticket, which compels him to value his
baggage, at a certain sum, far less than it is worth, or, in order to have a higher value put
upon it, to subject it to the provisions of the Harter Act, by which the carrier would be
exempted from all the liability therefore from errors in navigation or management of the
vessel of other negligence is unreasonable and in conflict with public policy.
3. An arbitrary limitation of 250 francs for the baggage of any steamship passenger
unaccompanied by any right to increase the amount of adequate and reasonable
proportional payment, is void as against public policy.
Both the facts upon which it is based and the legal principles involved are square in point in this
case.
The defendant having received the two boxes in good condition, its legal duty was to deliver them to
the plaintiff in the same condition in which it received them. From the time of their delivery to the
defendant in New York until they are delivered to the plaintiff in Manila, the boxes were under the
control and supervision of the defendant and beyond the control of the plaintiff. The defendant
having admitted that the boxes were damaged while in transit and in its possession, the burden of
proof then shifted, and it devolved upon the defendant to both allege and prove that the damage was
caused by reason of some fact which exempted it from liability. As to how the boxes were damaged,
when or where, was a matter peculiarly and exclusively within the knowledge of the defendant and in
the very nature of things could not be in the knowledge of the plaintiff. To require the plaintiff to prove
as to when and how the damage was caused would force him to call and rely upon the employees of
the defendant's ship, which in legal effect would be to say that he could not recover any damage for
any reason. That is not the law.

Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights,
and when goods are delivered on board ship in good order and condition, and the shipowner
delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by the reason of some fact which legally exempts
him from liability; otherwise, the shipper would be left without any redress, no matter what may have
caused the damage.
The lower court in its opinion says:
The defendant has not even attempted to prove that the two cases were wet with sea water
by fictitious event, force majeure or nature and defect of the things themselves.
Consequently, it must be presumed that it was by causes entirely distinct and in no manner
imputable to the plaintiff, and of which the steamerPresident Garfield or any of its crew could
not have been entirely unaware.
And the evidence for the defendant shows that the damage was largely caused by "sea water," from
which it contends that it is exempt under the provisions of its bill of lading and the provisions of the
article 361 of the Code of Commerce, which is as follows:
Merchandise shall be transported at the risk and venture of the shipper, if the contrary was
not expressly stipulated.
Therefore, all damages and impairment suffered by the goods during the transportation, by
reason of accident, force majeure, or by virtue of the nature or defect of the articles, shall be
for the account and risk of the shipper.
The proof of these accidents is incumbent on the carrier.
In the final analysis, the cases were received by the defendant in New York in good order and
condition, and when they arrived in Manila, they were in bad condition, and one was a total loss. The
fact that the cases were damaged by "sea water," standing alone and within itself, is not evidence
that they were damaged by force majeure or for a cause beyond the defendant's control. The words
"perils of the sea," as stated in defendant's brief apply to "all kinds of marine casualties, such as
shipwreck, foundering, stranding," and among other things, it is said: "Tempest, rocks, shoals,
icebergs and other obstacles are within the expression," and "where the peril is the proximate cause
of the loss, the shipowner is excused." "Something fortuitous and out of the ordinary course is
involved in both words 'peril' or 'accident'."
Defendant also cites and relies on the case of Government of the Philippine Islands vs. Ynchausti &
Company (40 Phil., 219), but it appears from a reading of that case that the facts are very different
and, hence, it is not in point. In the instant case, there is no claim or pretense that the two cases
were not in good order when received on board the ship, and it is admitted that they were in bad
order on their arrival at Manila. Hence, they must have been damaged in transit. In the very nature of
things, if they were damaged by reason of a tempest, rocks, icebergs, foundering, stranding or the
perils of the sea, that would be a matter exclusively within the knowledge of the officers of
defendant's ship, and in the very nature of things would not be within plaintiff's knowledge, and upon
all of such questions, there is a failure of proof.
The judgment of the lower court will be modified, so as to give the plaintiff legal interest on the
amount of his judgment from the date of its rendition in the lower court, and in all respects affirmed,
with costs. So ordered.

Johnson, Malcolm, Ostrand, Romualdez, and Villa-Real, JJ., concur.

Separate Opinions
STREET, J., dissenting in part:
I gave a hesitating adherence to the decision of this case in division, and upon further reflection, I
am now constrained to record my belief that the decision is in part erroneous. I agree with the court
that the defendant is liable to the plaintiff, but I think that its liability is limited, under clause 13,
printed on the back of the bill of lading, to the amount of 250 dollars for each of the two boxes of
books comprising this consignment. While the law does not permit a carrier gratuitously to exempt
itself from liability for the negligence of its servants, it cannot effectually do so for a valuable
consideration; and where freight rates are adjusted upon the basis of a reasonable limited value per
package, where a higher value is not declared by the shipper, the limitation as to the value is
binding. This court in two well considered decisions has heretofore upheld a limitation of exactly the
character of that indicated in clause 13 (H.E. Heacock Co. vs. Macondray & Co., 42 Phil., 205;
Freixas & Co. vs. Pacific Mail Steamship Co., 42 Phil., 198); and I am unable to see any sufficient
reason for ignoring those decisions.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 80256 October 2, 1992

BANKERS & MANUFACTURERS ASSURANCE CORP., petitioner,
vs.
COURT OS APPEALS, F. E. ZUELLIG & CO., INC. and E. RAZON, INC., respondents.

MELO, J.:
After the Court of Appeals in CA-G.R. CV No. 08226 (July 8, 1987, Kapunan, Puno (P),
Marigomen, JJ.) affirmed the dismissal by Branch XVI of the Regional Trial Court of Manila of
petitioner's complaint for recovery of the amount it had paid its insured concerning the loss of a
portion of a shipment, petitioner has interposed the instant petition for review on certiorari.
Petitioner presents the following bare operative facts: 108 cases of copper tubings were imported by
Ali Trading Company. The tubings were insured by petitioner and arrived in Manila on board and
vessel S/S "Oriental Ambassador" on November 4, 1978, and turned over the private respondent E.

Razon, the Manila arrastre operator upon discharge at the waterfront. The carrying vessel is
represented in the Philippines by its agent, the other private respondent, F. E. Zuellig and Co., Inc.,
Upon inspection by the importer, the shipment was allegedly found to have sustained loses by way
of theft and pilferage for which petitioner, as insurer, compensated the importer in the amount of
P31,014.00.
Petitioner, in subrogation of the importer-consignee and on the basis of what it asserts had been
already established that a portion of that shipment was lost through theft and pilferage
forthwith concludes that the burden of proof of proving a case of non-liability shifted to private
respondents, one of whom, the carrier, being obligated to exercise extraordinary diligence in the
transport and care of the shipment. The implication of petitioner's statement is that private
respondents have not shown why they are not liable. The premises of the argument of petitioner
may be well-taken but the conclusions are not borne out or supported by the record.
It must be underscored that the shipment involved in the case at bar was "containerized". The goods
under this arrangement are stuffed, packed, and loaded by the shipper at a place of his choice,
usually his own warehouse,in the absence of the carrier. The container is sealed by the shipper and
thereafter picked up by the carrier. Consequently, the recital of the bill of lading for goods thus
transported ordinarily would declare "Said to Contain", "Shipper's Load and Count", "Full Container
Load", and the amount or quantity of goods in the container in a particular package is only prima
facie evidence of the amount or quantity which may be overthrown by parol evidence.
A shipment under this arrangement is not inspected or inventoried by the carrier whose duty is only
to transport and deliver the containers in the same condition as when the carrier received and
accepted the containers for transport. In the case at bar, the copper tubings were placed in three
containers. Upon arrival in Manila on November 4, 1978, the shipment was discharged in apparent
good order and condition and from the pier's docking apron, the containers were shifted to the
container yard of Pier 3 for safekeeping. Three weeks later, one of the container vans, said to
contain 19 cases of the cargo, was "stripped" in the presence of petitioner's surveyors, and three
cases were found to be in bad order. The 19 cases of the van stripped were then kept inside
Warehouse No. 3 of Pier 3 pending delivery. It should be stressed at this point, that the three cases
found in bad order are not the cases for which the claim below was presented, for although the three
cases appeared to be in bad order, the contents remained good and intact.
The two other container vans were not moved from the container yard and they were not stripped.
On December 8, 1978, the cargo was released to the care of the consignee's authorized customs
broker, the RGS Customs Brokerage. The broker, accepting the shipment without exception as to
bad order, caused the delivery of the vans to the consignee's warehouse in Makati. It was at that
place, when the contents of the two containers were removed and inspected, that petitioner's
surveyors reported, that checked against the packing list, the shipment in Container No.
OOLU2552969 was short of seven cases (see p. 18, Rollo).
Under the prevailing circumstances, it is therefore, not surprising why the Court of Appeals in
sustaining the trial court, simply quoted the latter, thus:

It must be also considered that the subject container was not stripped of its content
at the pier zone. The two unstripped containers (together with the 19 cases removed
from the stripped third container) were delivered to, and received by, the customs
broker for the consignee without any exception or notation of bad order of
shortlanding (Exhs. 1, 2 and 3 Vessel). If there was any suspicion or indication of
irregularity or theft or pilferage, plaintiff or consignee's representatives should have
noted the same on the gate passes or insisted that some form of protest form part of
the documents concerning the shipment. Yet, no such step was taken. The shipment
appears to have been delivered to the customs broker in good order and condition
and complete save for the three cases noted as being apparently in bad order.
Consider further that the stripping of the subject container was done at the
consignee's warehouse where, according to plaintiff's surveyor, the loss of the seven
cases was discovered. The evidence is not settled as whether the defendants'
representative were notified of, and were present at, the unsealing and opening of
the container in the bodega. Nor is the evidence clear how much time elapsed
between the release of the shipment from the pier and the stripping of the containers
at consignee bodega. All these fail to discount the possibility that the loss in question
could have taken place after the container had left the pier. (pp. 20-21, Rollo)
Verily, if any of the vans found in bad condition, or if any inspection of the goods was to be done in
order to determine the condition thereof, the same should have been done at the pierside, the pier
warehouse, or at any time and place while the vans were under the care and custody of the carrier
or of the arrastre operator. Unfortunately for petitioner, even as one of the three vans was inspected
and stripped, the two other vans and the contents of the owner previously stripped were accepted
without exception as to any supposed bad order or condition by petitioner's own broker. To all
appearances, therefore, the shipment was accepted by petitioner in good order.
It logically follows that the case at bar presents no occasion for the necessity of discussing the
diligence required of a carrier or of the theory of prima facie liability of the carrier, for from all
indications, the shipment did not suffer loss or damage while it was under the care of the carrier, or
of the arrastre operator, it must be added.
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals
AFFIRMED, with costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149019 August 15, 2006

DELSAN TRANSPORT LINES, INC., Petitioner,

vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan
Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16,
2001, of the Court of Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier decision of the
Regional Trial Court (RTC) of Manila, Branch IX, in two separate complaints for damages docketed
as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other
hand, respondent American Home Assurance Corporation (AHAC for brevity) is a foreign insurance
company duly licensed to do business in the Philippines through its agent, the AmericanInternational Underwriters, Inc. (Phils.). It is engaged, among others, in insuring cargoes for
transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l
Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery
to the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of
Afreightment. The shipment was insured by respondent AHAC against all risks under Inland Floater
Policy No. AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading
operations commenced. The discharging of the diesel oil started at about 1:30 PM of the same day.
However, at about 10:30 PM, the discharging had to be stopped on account of the discovery that the
port bow mooring of the vessel was intentionally cut or stolen by unknown persons. Because there
was nothing holding it, the vessel drifted westward, dragged and stretched the flexible rubber hose
attached to the riser, broke the elbow into pieces, severed completely the rubber hose connected to
the tanker from the main delivery line at sea bed level and ultimately caused the diesel oil to spill into
the sea. To avoid further spillage, the vessels crew tried water flushing to clear the line of the diesel
oil but to no avail. In the meantime, the shore tender, who was waiting for the completion of the
water flushing, was surprised when the tanker signaled a "red light" which meant stop pumping.
Unaware of what happened, the shore tender, thinking that the vessel would, at any time, resume
pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the diesel
oil that was earlier discharged from the vessel into the shore tank backflowed. Due to non-availability
of a pump boat, the vessel could not send somebody ashore to inform the people at the depot about
what happened. After almost an hour, a gauger and an assistant surveyor from the Caltexs Bulk
Depot Office boarded the vessel. It was only then that they found out what had happened.
Thereafter, the duo immediately went ashore to see to it that the shore tank gate valve was closed.

The loss of diesel oil due to spillage was placed at 113.788 k/l while some 435,081 k/l thereof
backflowed from the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but
the latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant
to Marine Risk Note No. 34-5093-6, and P1,939,575.37 for backflow of the diesel oil pursuant to
Inland Floater Policy No. AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against
Delsan before the Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be
indemnified for damages suffered in the amount of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559
against Delsan for the loss caused by the backflow. It likewise prayed that it be awarded the amount
of P1,939,575.37 for damages and reasonable attorneys fees. As counterclaim in both cases, AHAC
prayed for attorneys fees in the amount ofP200,000.00 and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same
issues, the two were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for
the loss of the cargo for its negligence in its duty as a common carrier. Dispositively, the decision
reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum
of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984 until fully paid and
satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate
from February 6, 1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.

SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA
declared that Delsan failed to exercise the extraordinary diligence of a good father of a family in the
handling of its cargo. Applying Article 1736 4 of the Civil Code, the CA ruled that since the
discharging of the diesel oil into Caltex bulk depot had not been completed at the time the losses
occurred, there was no reason to imply that there was actual delivery of the cargo to Caltex, the
consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila,
Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that
attorneys fees awarded in Civil Case Nos. 85-29357 and 85-30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil
Code cannot exculpate it from liability for the loss of the subject cargo and in not applying the rule on
contributory negligence against Caltex, the shipper-owner of the cargo, and in not taking into
consideration the fact that the loss due to backflow occurred when the diesel oil was already
completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA,
affirmatory of those of the trial court, are binding on the Court unless there is a clear showing that
such findings are tainted with arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First,
the loss through spillage was partly due to the contributory negligence of Caltex; and Second, the
loss through backflow should not be borne by Delsan because it was already delivered to Caltexs
shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. 6 To overcome the presumption of negligence in 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;
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.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a
contributory negligence on the part of the owner of the goods Caltex. We see no reason to depart
therefrom. As aptly pointed out by the CA, it had been established that the proximate cause of the
spillage and backflow of the diesel oil was due to the severance of the port bow mooring line of the
vessel and the failure of the shore tender to close the storage tank gate valve even as a check on
the drain cock showed that there was still a product on the pipeline. To the two courts below, the
actuation of the gauger and the escort surveyor, both personnel from the Caltex Bulk Depot, negates
the allegation that Caltex was remiss in its duties. As we see it, the crew of the vessel should have
promptly informed the shore tender that the port mooring line was cut off. However, Delsan did not
do so on the lame excuse that there was no available banca. As it is, Delsans personnel signaled a
"red light" which was not a sufficient warning because such signal only meant that the pumping of
diesel oil had been finished. Neither did the blowing of whistle suffice considering the distance of
more than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was
not the agreed signal. Had the gauger and the escort surveyor from Caltex Bulk Depot not gone
aboard the vessel to make inquiries, the shore tender would have not known what really happened.
The crew of the vessel should have exerted utmost effort to immediately inform the shore tender that
the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by
one of the excepted causes if it were to seek exemption from responsibility. 7 Unfortunately, it
miserably failed to discharge this burden by the required quantum of proof.
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because
the same had already been actually and legally delivered to Caltex at the time it entered the shore
tank holds no water. It had been settled that the subject cargo was still in the custody of Delsan
because the discharging thereof has not yet been finished when the backflow occurred. Since the
discharging of the cargo into the depot has not yet been completed at the time of the spillage when
the backflow occurred, there is no reason to imply that there was actual delivery of the cargo to the
consignee. Delsan is straining the issue by insisting that when the diesel oil entered into the tank of
Caltex on shore, there was legally, at that moment, a complete delivery thereof to Caltex. To be sure,
the extraordinary responsibility of common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to a person who has the right
to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been finished,
Delsan still has the duty to guard and to preserve the cargo. The carrier still has in it the
responsibility to guard and preserve the goods, a duty incident to its having the goods transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. 9 The mere proof
of delivery of goods in good order to the carrier, and their arrival in the place of destination in bad
order, make out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability. 10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the
performance of its duties. Consequently, it is obliged to prove that the damage to its cargo was
caused by one of the excepted causes if it were to seek exemption from responsibility. 11 Having
failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
Cost against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 150751

September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one
of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary
diligence to prevent or minimize the loss. In the present case, the weather condition encountered by
petitioners vessel was not a "storm" or a natural disaster comprehended in the law. Given the known
weather condition prevailing during the voyage, the manner of stowage employed by the carrier was
insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.
The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse
and set aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915.
The assailed Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated
August 4, 1994 is hereby MODIFIED in so far as the award of attorneys fees is DELETED.
The decision is AFFIRMED in all other respects."3
The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution. 4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as
follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel,
the M/V Central Bohol, 376 pieces [of] Philippine Apitong Round Logs and undertook to
transport said shipment to Manila for delivery to Alaska Lumber Co., Inc.
"The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine
Cargo Policy No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and
commenced the voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10
degrees starboardside, due to the shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship
captain ordered his men to abandon ship and at about 0130 hours of the same day the
vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and
negligence of the [petitioner] and its captain and as direct consequence thereof the
consignee suffered damage in the sum ofP3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to
the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being
the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of
the consignee as against the [petitioner].
"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel
was fully manned, fully equipped and in all respects seaworthy; that all the logs were
properly loaded and secured; that the vessels master exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the storm.

"It raised as its main defense that the proximate and only cause of the sinking of its vessel
and the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor
the captain of its vessel could have foreseen."5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or
any other caso fortuito. It noted that monsoons, which were common occurrences during the months
of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying
the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for
the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount
of P200,000 from the principal claim of respondent and found that the latter was entitled to be
subrogated to the rights of the insured. The court a quo disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondent] and against the [petitioner] ordering the latter to pay the following:
1) the amount of P2,800,000.00 with legal interest thereof from the filing of this
complaint up to and until the same is fully paid;
2) P80,000.00 as and for attorneys fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel
was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew
should have anticipated the perils of the sea. The appellate court further held that the weather
disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due
to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage.
Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because
its own negligence had contributed thereto.
The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the
Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a
vessel to be seaworthy, it must be fit to meet the perils of the sea.
Found untenable was petitioners insistence that the trial court should have given greater weight to
the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest
filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had
presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during
the course of the proceedings before the BMI, not the actual findings and conclusions of the agency.
Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative liability of the
owner/operator, officers and crew of the vessel. However, the determination of whether the carrier
observed extraordinary diligence in protecting the cargo it was transporting was a function of the
courts, not of the BMI.

The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners
negligence -- particularly its improper stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits the following issues for our consideration:
"(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V
Central Bohol was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation
is hearsay evidence under Section 36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of the Court of Appeals that the logs in the hold shifted and
such shifting could only be due to improper stowage has a valid and factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of
the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct
inquiries on maritime accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar." 9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2)
whether the doctrine of limited liability is applicable. These issues involve a determination of factual
questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so,
whether its sole and proximate cause was such natural disaster or whether petitioner was partly to
blame for failing to exercise due diligence in the prevention of that loss.
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport, according to all the circumstances of
each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers
are responsible; that is, unless they can prove that such loss, destruction or deterioration was
brought about -- among others -- by "flood, storm, earthquake, lightning or other natural disaster or
calamity."11 In all other cases not specified under Article 1734 of the Civil Code, common carriers are

presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the
occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the
weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law13 may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this
mode of appeal,14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be
reviewed on appeal16 only under exceptional circumstances such as, among others, when the
inference is manifestly mistaken,17 the judgment is based on a misapprehension of facts, 18 or the CA
manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify
a different conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the
conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated
by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on
July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and
his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another
monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking
of M/V Central Bohol had been caused by the strong southwest monsoon. 21 Having made such
factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon
was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the vessel showed
that there was a southwestern monsoon at the time. Normally expected on sea voyages, however,
were such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather
specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA), testified that a thunderstorm might occur in the midst of a southwest monsoon. According
to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded
by the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as
a "storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was
observed within the Philippine area of responsibility during that period. 23
According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per
hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was
blowing around force 7 to 8 on the Beaufort Scale. 25 Consequently, the strong winds accompanying
the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary
vicissitudes of a sea voyage.26

Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of
the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and
only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In
other words, the damaging effects blamed on the event or phenomenon must not have been caused,
contributed to, or worsened by the presence of human participation. 27 The defense of fortuitous event
or natural disaster cannot be successfully made when the injury could have been avoided by human
precaution.28
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss before, during and
after the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The
loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1). 29
We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only by
the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been
due only to improper stowage. The assailed Decision stated:
"Notably, in Master Cahatols account, the vessel encountered the first southwestern
monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and
rough seas yet the vessel withstood the onslaught. The second monsoon attack occurred at
about 12:00 midnight. During this occasion, the master felt that the logs in the hold shifted,
prompting him to order second mate Percival Dayanan to look at the bodega. Complying
with the captains order, 2nd mate Percival Dayanan found that there was seawater in the
bodega. 2nd mate Dayanans account was:
14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay
ang naganap na paglubog sa barkong M/V Central Bohol?
S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst)
habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at
Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito
Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob
nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat
na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito
Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega
ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si
Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga
crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang
pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at
di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay
nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang
ako ay lumingon sa barko ito ay di ko na nakita.
"Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler
Frederick Perena, are one in saying that the vessel encountered two weather disturbances,
one at around 10 oclock to 11 oclock in the evening and the other at around 12 oclock

midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel
endured the first and not the second. Why? The reason is plain. The vessel felt the strain
during the second onslaught because the logs in the bodega shifted and there were already
seawater that seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the first
southwestern monsoon without any mishap, and that it began to list only during the second monsoon
immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of
tons of water back and forth had created pressures that eventually caused the ship to sink. Had the
logs not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there
was another motor launch that had been buffeted by the same weather condition within the same
area, yet it was able to arrive safely at El Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the
latters Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V
Central Bohol listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further,
petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon,
was under extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold
and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10)
degrees starboardside."32
Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and
conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted
exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that
they had been improperly loaded.
According to the boatswains testimony, the logs were piled properly, and the entire shipment was
lashed to the vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round
logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in
the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling.
However, while they were placed side by side, there were unavoidable clearances between them
owing to their round shape. Those loaded on deck were lashed together several times across by
cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port. 34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not
sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of
different lengths ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs
should not have been stowed with nothing to hold them securely in place. Each pile of logs should
have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering
the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule
out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll
towards the bottom of the ship.

The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the
logs had not shifted, stated that "the logs were still properly lashed by steel chains on deck."
Parenthetically, this statement referred only to those loaded on deck and did not mention anything
about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs
were still intact clearly pertained only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the
month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated
heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing
the logs in the hold, in consonance with their duty of observing extraordinary diligence in
safeguarding the goods. But the carrier took a calculated risk in improperly securing the cargo.
Having lost that risk, it cannot now escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce36 is not applicable to the
present case. This rule does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain.37 It has already been established that the
sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the
shipowner could have prevented this fatal miscalculation."38As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs
against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe
the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer
to be subrogated to the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned
and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee
Coca-Cola Bottlers Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same
day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink
bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file
an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were
due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged
that the vessel was improperly manned and that its officers were grossly negligent in failing to take
appropriate measures to proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no
right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event,
FELMAN had abandoned all its rights, interests and ownership over "MV Asilda" together with her
freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of
the Code of Commerce. 2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of
Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits.
FELMAN filed a petition forcertiorari with this Court but it was subsequently denied on 13 February
1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV Asilda"
was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine
Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and

its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should
attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in
which case, Art. 587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could
not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its
implied warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to
the assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not
give PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994
respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy
as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while
the vessel possessed the necessary Coast Guard certification indicating its seaworthiness with
respect to the structure of the ship itself, it was not seaworthy with respect to the cargo.
Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured's
implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
properly subrogated to the rights and interests of the shipper. Furthermore, respondent court held
that the filing of notice of abandonment had absolved the shipowner/agent from liability under the
limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the
port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should
apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which
the shipper had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as
well as the chief mate of the vessel confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink
bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty
boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola
bottles on deck. 4 The ship captain stated that around four o'clock in the morning of 7 July 1983 he was
awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed
that the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy
rolling and pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel
was balanced. At about seven o'clock in the morning, the master of the vessel stopped the engine
because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to
starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full
speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide
on his next move, some of the cargo on deck were thrown overboard and seawater entered the
engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his
crew to abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to
the entry of seawater through a hole in the hull caused by the vessel's collision with a partially
submerged log. 5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which
was adopted by the Court of Appeals, reads
We found in the course of our investigation that a reasonable explanation for the
series of lists experienced by the vessel that eventually led to her capsizing and
sinking, was that the vessel wastop-heavy which is to say that while the vessel may
not have been overloaded, yet the distribution or stowage of the cargo on board was
done in such a manner that the vessel was in top-heavy condition at the time of her
departure and which condition rendered her unstable and unseaworthy for that
particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed
as a fishing vessel . . . and it was not designed to carry a substantial amount or
quantity of cargo on deck. Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under deck, her stability
would not have been affected and the vessel would not have been in any danger of
capsizing, even given the prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the
vessel was rendered unseaworthy for the purpose of carrying the type of cargo
because the weight of the deck cargo so decreased the vessel's metacentric height
as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must
be pointed out that ships are precisely designed to be able to navigate safely even
during heavy weather and frequently we hear of ships safely and successfully
weathering encounters with typhoons and although they may sustain some amount
of damage, the sinking of ship during heavy weather is not a frequent occurrence
and is not likely to occur unless they are inherently unstable and unseaworthy . . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V
"Asilda" was her condition of unseaworthiness arising from her having been topheavy when she departed from the Port of Zamboanga. Her having capsized and
eventually sunk was bound to happen and was therefore in the category of an
inevitable occurrence (emphasis supplied). 6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate
cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's
allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on
deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were
recovered near the vicinity of the sinking. Considering that the ship's hatches were properly secured,
the empty Coca-Cola cases recovered could have come only from the vessel's deck cargo. It is
settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown
that the deck cargo will not interfere with the proper management of the ship. However, in this case it
was established that "MV Asilda" was not designed to carry substantial amount of cargo on deck.
The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric

height 7 thus making it unstable. The strong winds and waves encountered by the vessel are but the
ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and
unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply
put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel.
This liability however can be limited through abandonment of the vessel, its equipment and freightage as
provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still
be held answerable despite the abandonment, as where the loss or injury was due to the fault of the
shipowner and the captain. 9 The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average
was occasioned by the shipowner's own fault. 10 It must be stressed at this point that Art. 587 speaks only
of situations where the fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the
Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as
an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner
could have prevented this fatal miscalculation. As such, FELMAN was equally negligent. It cannot
therefore escape liability through the expedient of filing a notice of abandonment of the vessel by
virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them, according to all the circumstances of each
case . . ." In the event of loss of goods, common carriers are presumed to have acted negligently.
FELMAN, the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy
with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness
that rendered the assured not entitled to the payment of is claim under the policy. Hence, when
PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary payment" and no right
of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the
assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if
expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n
every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy
when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage,
contemplated by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the
vessel but he has full control in the selection of the common carrier that will transport his goods. He also
has full discretion in the choice of assurer that will underwrite a particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In policies
where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in
writing in the policy in the clearest language. 13And where the policy stipulates that the seaworthiness of
the vessel as between the assured and the assurer is admitted, the question of seaworthiness cannot be
raised by the assurer without showing concealment or misrepresentation by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances
has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No.
100367-PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence
Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of
Affreightment as between the Assured and the Company shall not prejudice the insurance. The
seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted." 15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
"(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby
admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two
things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in
cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel.
Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action
against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to
the assured operates as an equitable assignment to the assurer of all the remedies which the assured
may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the
insurance company of the insurance claim. It accrues simply upon payment by the insurance company of
the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice, equity and good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN to

Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against
FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500
cases of 1-liter Coca-Cola softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29
November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 148496

March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals, affirming
the decision2of the Regional Trial Court, Makati City, Branch 148, which ordered petitioner to pay
respondent, as subrogee, the amount of P93,112.00 with legal interest, representing the value of
damaged cargo handled by petitioner, 25% thereof as attorney's fees, and the cost of the suit.
1wphi1.nt

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a
sole proprietorship customs broker. At the time material to this case, petitioner entered into a
contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting
paper and 124 reels of kraft liner board from the Port Area in Manila to SMC's warehouse at the
Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB
General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board
"M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to
her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMC's
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo

Surveyors, who found that 15 reels of the semi-chemical fluting paper were "wet/stained/torn" and 3
reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the aforementioned
amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in the Regional
Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment finding
petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report
(Exh. "F") with entries appearing therein, classified as "TED" and "TSN", which the claims
processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the
middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey
Report (Exh. "H" - "H-4-A") confirms the fact of the damaged condition of the subject
cargoes. The surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others
that:
" . . . we opine that damages sustained by shipment is attributable to improper
handling in transit presumably whilst in the custody of the broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable. Defendant by reason of the nature of [her] business should have devised ways
and means in order to prevent the damage to the cargoes which it is under obligation to take
custody of and to forthwith deliver to the consignee. Defendant did not present any evidence
on what precaution [she] performed to prevent [the] said incident, hence the presumption is
that the moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have
been lost, destroyed or deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they have observed the extraordinary
diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the carrier to prove that he has exercised the extraordinary diligence required by
law. Thus, it has been held that the mere proof of delivery of goods in good order to a carrier,
and of their arrival at the place of destination in bad order, makes out a prima facie case
against the carrier, so that if no explanation is given as to how the injury occurred, the carrier
must be held responsible. It is incumbent upon the carrier to prove that the loss was due to
accident or some other circumstances inconsistent with its liability." (cited in Commercial
Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common carrier
is supposed [to] exercise [the] extraordinary diligence required by law, hence the
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right to
receive the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts -1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her,
would require.6 Consequently, any damage to the cargo she agrees to transport cannot be presumed
to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not
a common carrier but a private carrier because, as a customs broker and warehouseman, she does
not indiscriminately hold her services out to the public but only offers the same to select parties with
whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar
contention and held the party to be a common carrier, thus The Civil Code defines "common carriers" in the following terms:

"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public."
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on aregular 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 narrowsegment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:
" x x x every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. x x x" 8
There is greater reason for holding petitioner to be a common carrier because the transportation of
goods is an integral part of her business. To uphold petitioner's contention would be to deprive those
with whom she contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for her customers, as already noted, is part and parcel of petitioner's
business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the vigilance
over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying vessel
"M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator, to whom the
goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23,
1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise
damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880

rain gutter deformed/cracked

ICSU-363461-3

left side rubber gasket on door distorted/partly loose

PERU-204209-4

with pinholes on roof panel right portion

TOLU-213674-3

wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0

with dent/crack on roof panel

ICSU-412105-0

rubber gasket on left side/door panel partly detached loosened.10

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

Shipment, provided with our protective supervision was noted discharged ex vessel to dock
of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal
vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990. 12
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to
the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition as
the same were received by the former without exception, that is, without any report of
damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented,
the defendant-appellant would report it immediately to the consignee or make an exception
on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant received the shipment in good order and
condition and delivered the same to the consignee damaged. We can only conclude that the
damages to the cargo occurred while it was in the possession of the defendant-appellant.
Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it shall
be presumed that the loss (or damage) was due to his fault, unless there is proof to the
contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods. 13
Anent petitioner's insistence that the cargo could not have been damaged while in her custody as
she immediately delivered the containers to SMC's compound, suffice it to say that to prove the
exercise of extraordinary diligence, petitioner must do more than merely show the possibility that
some other party could be responsible for the damage. It must prove that it used "all reasonable
means to ascertain the nature and characteristic of goods tendered for [transport] and that [it]
exercise[d] due care in the handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides -Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

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

1wphi1.nt