THIRD DIVISION
[Petitioners]
G.R. No. 146018 June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC., Petitioner, vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by
stipulation in the bill of lading, be limited to the value declared
by the shipper. On the other hand, the liability of the insurer is
determined by the actual value covered by the insurance policy
and the insurance premiums paid therefor, and not necessarily
by the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the
Rules of Court, seeking to set aside the August 31, 2000
Decision2 and the November 17, 2000 Resolution3 of the Court
of Appeals4 (CA) in CA-GR SP No. 62751. The dispositive part of
the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED.
The Decision appealed from is REVERSED. [Petitioner] is
hereby condemned to pay to [respondent] the total amount
of P148,500.00, with interest thereon, at the rate of 6% per
annum, from date of this Decision of the Court. [Respondents]
claim for attorneys fees [is]DISMISSED.
counterclaims are DISMISSED."5
The assailed Resolution denied petitioners Motion for
Reconsideration.
On the other hand, the disposition of the Regional Trial
Courts6 Decision,7 which was later reversed by the CA, states:
"WHEREFORE, premises considered, the case is hereby
DISMISSED for lack of merit.
"No cost."8
The Facts
The facts of the case are summarized by the appellate court in
this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to
the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong
Shipping Lines), [petitioner] for brevity, cargo consisting of
one (1) carton of Christmas dcor and two (2) sacks of plastic
toys, to be transported on board the M/V Tandag on
its Voyage No. T-189 scheduled to depart from Cebu City, on
December 12, 1991, for Tandag, Surigao del Sur. [Petitioner]
issued Bill of Lading No. 58, freight prepaid, covering the
cargo. Nestor Angelia was both the shipper and consignee of
the cargo valued, on the face thereof, in the amount
of P6,500.00. Zosimo Mercado likewise delivered cargo to
[petitioner], consisting of two (2) cartons of plastic toys and
Christmas decor, one (1) roll of floor mat and one (1) bundle of
various or assorted goods for transportation thereof from Cebu
City to Tandag, Surigao del Sur, on board the said vessel, and
said voyage. [Petitioner] issued Bill of Lading No. 59 covering
the cargo which, on the face thereof, was valued in the amount
of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo,
covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount
of P100,000.00 against all risks underOpen Policy No. 002/9
1/254 for which she was issued, by [respondent], Marine Risk
Note No. 18409 on said date. She also insured the cargo
covered by Bill of Lading No. 58, with [respondent], for the
amount ofP50,000.00, under Open Policy No. 002/9
1/254 on the basis of which [respondent] issued Marine Risk
Note No. 18410 on said date.
"When the vessel left port, it had thirty-four (34) passengers
and assorted cargo on board, including the goods of Legaspi.
After the vessel had passed by the Mandaue-Mactan Bridge,
fire ensued in the engine room, and, despite earnest efforts of
the officers and crew of the vessel, the fire engulfed and
destroyed the entire vessel resulting in the loss of the vessel
and the cargoes therein. The Captain filed the required Marine
Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with
[respondent], for the value of the cargo insured underMarine
Risk Note No. 18409 and covered by Bill of Lading No. 59.
She submitted, in support of her claim, aReceipt, dated
December 11, 1991, purportedly signed by Zosimo Mercado,
and Order Slips purportedly signed by him for the goods he
received from Feliciana Legaspi valued in the amount
of P110,056.00. [Respondent] approved the claim of Feliciana
Legaspi and drew and issued UCPB Check No. 612939, dated
March 9, 1992, in the net amount of P99,000.00, in settlement
of her claim after which she executed a Subrogation
Receipt/Deed, for said amount, in favor of [respondent]. She
also filed a claim for the value of the cargo covered by Bill of
Lading No. 58. She submitted to [respondent] a Receipt,
dated December 11, 1991 and Order Slips, purportedly signed
by Nestor Angelia for the goods he received from Feliciana
Legaspi valued at P60,338.00. [Respondent] approved her claim
and remitted to Feliciana Legaspi the net amount
of P49,500.00, after which she signed a Subrogation
Receipt/Deed, dated March 9, 1992, in favor of [respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana
Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the
collection of the total principal amount ofP148,500.00, which it
paid to Feliciana Legaspi for the loss of the cargo, praying that
judgment be rendered in its favor and against the [petitioner]
as follows:
WHEREFORE, it is respectfully prayed of this Honorable Court
that after due hearing, judgment be rendered ordering
[petitioner] to pay [respondent] the following.
 1. Actual damages in the amount of P148,500.00 plus
interest thereon at the legal rate from the time of filing of
this complaint until fully paid;
2. Attorneys fees in the amount of P10,000.00; and
3. Cost of suit.
[Respondent] further prays for such other reliefs and remedies
as this Honorable Court may deem just and equitable under
the premises.
"[Respondent] alleged, inter alia, in its complaint, that the
cargo subject of its complaint was delivered to, and received by,
[petitioner] for transportation to Tandag, Surigao del Sur under
Bill of Ladings, Annexes A and B of the complaint; that the and 59 for the cargo described therein with Zosimo Mercado
loss of the cargo was due to the negligence of the [petitioner];
and that Feliciana Legaspi had executed Subrogation
Receipts/Deeds in favor of [respondent] after paying to her the
value of the cargo on account of the Marine Risk Notes it
issued in her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a)
[petitioner] was cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel; (b) the complaint stated
no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the
goods as stated in the Bill of Lading and, hence, [petitioner]
cannot be held liable for the loss of the cargo beyond the value
thereof declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and
was allowed, by the Court a quo, to take the depositions of
Chester Cokaliong, the Vice-President and Chief Operating
Officer of [petitioner], and a resident of Cebu City, and of Noel
Tanyu, an officer of the Equitable Banking Corporation, in
Cebu City, and a resident of Cebu City, to be given before the
Presiding Judge of Branch 106 of the Regional Trial Court of
Cebu City. Chester Cokaliong and Noel Tanyu did testify, by
way of deposition, before the Court and declared inter alia,
that: [petitioner] is a family corporation like the Chester
Marketing, Inc.; Nestor Angelia had been doing business with
[petitioner] and Chester Marketing, Inc., for years, and incurred
an account with Chester Marketing, Inc. for his purchases from
said corporation; [petitioner] did issue Bills of Lading Nos. 58
and Nestor Angelia as shippers/consignees, respectively; the
engine room of theM/V Tandag caught fire after it passed the
Mandaue/Mactan Bridge resulting in the total loss of the
vessel and its cargo; an investigation was conducted by the
Board of Marine Inquiry of the Philippine Coast Guard which
rendered a Report, dated February 13, 1992 absolving
[petitioner] of any responsibility on account of the fire, which
Report of the Board was approved by the District Commander
of the Philippine Coast Guard; a few days after the sinking of
the vessel, a representative of the Legaspi Marketing filed
claims for the values of the goods under Bills of Lading Nos.
58 and 59 in behalf of the shippers/consignees, Nestor Angelia
and Zosimo Mercado; [petitioner] was able to ascertain, from
the shippers/consignees and the representative of the Legaspi
Marketing that the cargo covered by Bill of Lading No. 59 was
owned by Legaspi Marketing and consigned to Zosimo Mercado
while that covered by Bill of Lading No. 58 was purchased by
Nestor Angelia from the Legaspi Marketing; that [petitioner]
approved the claim of Legaspi Marketing for the value of the
cargo under Bill of Lading No. 59 and remitted to Legaspi
Marketing the said amount under Equitable Banking
Corporation Check No. 20230486 dated August 12, 1992, in
the amount of P14,000.00 for which the representative of the
Legaspi Marketing signed Voucher No. 4379, dated August 12,
1992, for the said amount of P14,000.00 in full payment of
claims under Bill of Lading No. 59; that [petitioner] approved
the claim of Nestor Angelia in the amount ofP6,500.00 but that
since the latter owed Chester Marketing, Inc., for some
purchases, [petitioner] merely set off the amount due to Nestor
Angelia under Bill of Lading No. 58 against his account with
Chester Marketing, Inc.; [petitioner] lost/[misplaced] the
original of the check after it was received by Legaspi Marketing,
hence, the production of the microfilm copy by Noel Tanyu of
the Equitable Banking Corporation; [petitioner] never knew,
before settling with Legaspi Marketing and Nestor Angelia that
the cargo under both Bills of Lading were insured with
[respondent], or that Feliciana Legaspi filed claims for the value
of the cargo with [respondent] and that the latter approved the
claims of Feliciana Legaspi and paid the total amount
of P148,500.00 to her; [petitioner] came to know, for the first
time, of the payments by [respondent] of the claims of Feliciana
Legaspi when it was served with the summons and complaint,
on October 8, 1992; after settling his claim, Nestor Angelia x x
x executed theRelease and Quitclaim, dated July 2, 1993,
and Affidavit, dated July 2, 1993 in favor of [respondent];
hence, [petitioner] was absolved of any liability for the loss of
the cargo covered by Bills of Lading Nos. 58 and 59; and even
if it was, its liability should not exceed the value of the cargo as
stated in the Bills of Lading.
"[Petitioner] did not anymore present any other witnesses on its
evidence-in-chief. x x x"9 (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed "to prove that the fire
which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep,
maintenance and operation of the vessel."10
Petitioner had paid P14,000 to Legaspi Marketing for the cargo
covered by Bill of Lading No. 59. The CA, however, held that the
payment did not extinguish petitioners obligation to
respondent, because there was no evidence that Feliciana
Legaspi (the insured) was the owner/proprietor of Legaspi
Marketing. The CA also pointed out the impropriety of treating
the claim under Bill of Lading No. 58 -- covering cargo valued
therein atP6,500 -- as a setoff against Nestor Angelias account
with Chester Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation
of the cargo under the Bills of Lading, x x x nor is the value of
the cargo under said Bills of Lading conclusive on the
[respondent]. This is so because, in the first place, the goods
were insured with the [respondent] for the total amount
of P150,000.00, which amount may be considered as the face
value of the goods."11
Hence this Petition.12
 Issues
Petitioner raises for our consideration the following alleged
errors of the CA:
"I
"The Honorable Court of Appeals erred, granting arguendo that
petitioner is liable, in holding that petitioners liability should
be based on the actual insured value of the goods and not
from actual valuation declared by the shipper/consignee in the
bill of lading.
"II
"The Court of Appeals erred in not affirming the findings of the
Philippine Coast Guard, as sustained by the trial court a quo,
holding that the cause of loss of the aforesaid cargoes under
Bill of Lading Nos. 58 and 59 was due to force majeure and due
diligence was [exercised] by petitioner prior to, during and
immediately after the fire on [petitioners] vessel.
"III
"The Court of Appeals erred in not holding that respondent
UCPB General Insurance has no cause of action against the
petitioner."13
In sum, the issues are: (1) Is petitioner liable for the loss of the
goods? (2) If it is liable, what is the extent of its liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods,
subject of this case, was force majeure. It adds that its exercise
of due diligence was adequately proven by the findings of the
Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the
Philippine Coast Guard show that the M/V Tandag sank due to
a fire, which resulted from a crack in the auxiliary engine fuel
oil service tank. Fuel spurted out of the crack and dripped to
the heating exhaust manifold, causing the ship to burst into
flames. The crack was located on the side of the fuel oil tank,
which had a mere two-inch gap from the engine room walling,
thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil
service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a
natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy.14 Hence, fire is not
considered a natural disaster or calamity. In Eastern Shipping
Lines, Inc. v. Intermediate Appellate Court,15 we explained:
"x x x. This must be so as it arises almost invariably from some
act of man or by human means. It does not fall within the
category of an act of God unless caused by lighting or by other
natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an petitioner responsible for the loss of the goods covered by Bills
extraordinary fortuitous event refers to leases or rural lands of Lading Nos. 58 and 59.
where a reduction of the rent is allowed when more than one-
half of the fruits have been lost due to such event, considering Second Issue:
that the law adopts a protective policy towards agriculture.
Extent of Liability
"As the peril of fire is not comprehended within the exceptions
Respondent contends that petitioners liability should be based
in Article 1734, supra, Article 1735 of the Civil Code provides
on the actual insured value of the goods, subject of this case.
that in all cases other than those mentioned in Article 1734,
On the other hand, petitioner claims that its liability should be
the common carrier shall be presumed to have been at fault or
limited to the value declared by the shipper/consignee in the
to have acted negligently, unless it proves that it has observed
Bill of Lading.
the extraordinary diligence required by law."

The records18 show that the Bills of Lading covering the lost
Where loss of cargo results from the failure of the officers of a
goods contain the stipulation that in case of claim for loss or
vessel to inspect their ship frequently so as to discover the
for damage to the shipped merchandise or property, "[t]he
existence of cracked parts, that loss cannot be attributed to
liability of the common carrier x x x shall not exceed the value
force majeure, but to the negligence of those officials.16
of the goods as appearing in the bill of lading."19 The attempt
The law provides that a common carrier is presumed to have by respondent to make light of this stipulation is unconvincing.
been negligent if it fails to prove that it exercised extraordinary As it had the consignees copies of the Bills of Lading,20 it could
vigilance over the goods it transported. Ensuring the have easily produced those copies, instead of relying on mere
seaworthiness of the vessel is the first step in exercising the allegations and suppositions. However, it presented mere
required vigilance. Petitioner did not present sufficient evidence photocopies thereof to disprove petitioners evidence showing
showing what measures or acts it had undertaken to ensure the existence of the above stipulation.
the seaworthiness of the vessel. It failed to show when the last
A stipulation that limits liability is valid21 as long as it is not
inspection and care of the auxiliary engine fuel oil service tank
against public policy. In Everett Steamship Corporation v. Court
was made, what the normal practice was for its maintenance,
of Appeals,22 the Court stated:
or some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant
"A stipulation in the bill of lading limiting the common carriers
inspection and care were not possible, and that the last time
liability for loss or destruction of a cargo to a certain sum,
the vessel was dry-docked was in November 1990. Necessarily,
unless the shipper or owner declares a greater value, is
in accordance with Article 173517 of the Civil Code, we hold
sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provides:
Art. 1749. A stipulation that the common carriers liability is
limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is
binding.
Art. 1750. A contract fixing the sum that may be recovered by
the owner or shipper for the loss, destruction, or deterioration
of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
"Such limited-liability clause has also been consistently upheld
by this Court in a number of cases. Thus, in Sea-Land Service,
Inc. vs. Intermediate Appellate Court, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of
Goods by Sea Act did not exist, the validity and binding effect
of the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited
Civil Code Provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and
fairness of the law itself, and this the private respondent does
not pretend to do. But over and above that consideration, the
just and reasonable character of such stipulation is implicit in
it giving the shipper or owner the option of avoiding accrual of
liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in
the bill of lading.
"Pursuant to the afore-quoted provisions of law, it is required
that the stipulation limiting the common carriers liability for
loss must be reasonable and just under the circumstances,
and has been freely and fairly agreed upon.
"The bill of lading subject of the present controversy specifically
provides, among others:
18. All claims for which the carrier may be liable shall be
adjusted and settled on the basis of the shippers net invoice
cost plus freight and insurance premiums, if paid, and in no
event shall the carrier be liable for any loss of possible profits
or any consequential loss.
The carrier shall not be liable for any loss of or any damage to
or in any connection with, goods in an amount exceeding One
Hundred Thousand Yen in Japanese Currency (100,000.00)
or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of
the goods higher than this amount is declared in writing by the
shipper before receipt of the goods by the carrier and inserted in
the Bill of Lading and extra freight is paid as required.
"The above stipulations are, to our mind, reasonable and
just.1avvphi1 In the bill of lading, the carrier made it clear that
its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value
of its cargo was higher than the limited liability of the carrier.
Considering that the shipper did not declare a higher valuation,
it had itself to blame for not complying with the stipulations."
(Italics supplied)
In the present case, the stipulation limiting petitioners liability
is not contrary to public policy. In fact, its just and reasonable
character is evident. The shippers/consignees may recover the
full value of the goods by the simple expedient of declaring the
true value of the shipment in the Bill of Lading. Other than the
payment of a higher freight, there was nothing to stop them
from placing the actual value of the goods therein. In fact, they
committed fraud against the common carrier by deliberately
undervaluing the goods in their Bill of Lading, thus depriving
the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill
of Lading is to protect the common carrier. Such stipulation
obliges the shipper/consignee to notify the common carrier of
the amount that the latter may be liable for in case of loss of
the goods. The common carrier can then take appropriate
measures -- getting insurance, if needed, to cover or protect
itself. This precaution on the part of the carrier is reasonable
and prudent. Hence, a shipper/consignee that undervalues the
real worth of the goods it seeks to transport does not only
violate a valid contractual stipulation, but commits a
fraudulent act when it seeks to make the common carrier
liable for more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner
by undervaluing the goods in their respective Bills of Lading.
Hence, petitioner was exposed to a risk that was deliberately
hidden from it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the
alleged actual value of the goods) the insurance company was
paid the correct higher premium by Feliciana Legaspi; while
petitioner was paid a fee lower than what it was entitled to for
transporting the goods that had been deliberately undervalued
by the shippers in the Bill of Lading. Between the two of them,
the insurer should bear the loss in excess of the value declared
in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,23 the
description of the nature and the value of the goods shipped
were declared and reflected in the bill of lading, like in the
present case. The Court therein considered this declaration as
the basis of the carriers liability and ordered payment based
on such amount. Following this ruling, petitioner should not be
held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of
lading.
We find no cogent reason to disturb the CAs finding that
Feliciana Legaspi was the owner of the goods covered by Bills of
Lading Nos. 58 and 59. Undoubtedly, the goods were merely
consigned to Nestor Angelia and Zosimo Mercado, respectively;
thus, Feliciana Legaspi or her subrogee (respondent) was
entitled to the goods or, in case of loss, to compensation
therefor. There is no evidence showing that petitioner paid her
for the loss of those goods. It does not even claim to have paid
her.
On the other hand, Legaspi Marketing filed with petitioner a
claim for the lost goods under Bill of Lading No. 59, for which
the latter subsequently paid P14,000. But nothing in the
records convincingly shows that the former was the owner of
the goods. Respondent was, however, able to prove that it was
Feliciana Legaspi who owned those goods, and who was thus
entitled to payment for their loss. Hence, the claim for the
goods under Bill of Lading No. 59 cannot be deemed to have
been extinguished, because payment was made to a person
who was not entitled thereto.

With regard to the claim for the goods that were covered by Bill
of Lading No. 58 and valued at P6,500, the parties have not
convinced us to disturb the findings of the CA that
compensation could not validly take place. Thus, we uphold
the appellate courts ruling on this point.

WHEREFORE, the Petition is hereby PARTIALLY

GRANTED. The assailed Decision is MODIFIED in the sense
that petitioner is ORDERED to pay respondent the sums
of P14,000 and P6,500, which represent the value of the goods
stated in Bills of Lading Nos. 59 and 58, respectively. No costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 161833. July 8, 2005

PHILIPPINE CHARTER INSURANCE

CORPORATION, Petitioners, vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL
HONOR," NATIONAL SHIPPING CORPORATION OF THE
PHILIPPINES and INTERNATIONAL CONTAINER SERVICES,
INC., Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the 1997 Revised
Rules of Civil Procedure assailing the Decision1dated January
19, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 57357
which affirmed the Decision dated February 17, 1997 of the
Regional Trial Court (RTC) of Manila, Branch 37, in Civil Case
No. 95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea,
loaded a shipment of four units of parts and accessories in the
port of Pusan, Korea, on board the vessel M/V "National
Honor," represented in the Philippines by its agent, National
Shipping Corporation of the Philippines (NSCP). The shipment
was for delivery to Manila, Philippines. Freight forwarder,
Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No.
SH94103062 in the name of the shipper consigned to the order
of Metropolitan Bank and Trust Company with arrival notice in
Manila to ultimate consignee Blue Mono International
Company, Incorporated (BMICI), Binondo, Manila.
NSCP, for its part, issued Bill of Lading No.
NSGPBSML5125653 in the name of the freight forwarder, as
shipper, consigned to the order of Stamm International Inc.,
Makati, Philippines. It is provided therein that:
12. This Bill of Lading shall be prima facie evidence of the
receipt of the Carrier in apparent good order and condition
except as, otherwise, noted of the total number of Containers
or other packages or units enumerated overleaf. Proof to the
contrary shall be admissible when this Bill of Lading has been
transferred to a third party acting in good faith. No
representation is made by the Carrier as to the weight,
contents, measure, quantity, quality, description, condition,
marks, numbers, or value of the Goods and the Carrier shall
be under no responsibility whatsoever in respect of such
description or particulars.
13. The shipper, whether principal or agent, represents and
warrants that the goods are properly described, marked,
secured, and packed and may be handled in ordinary course
without damage to the goods, ship, or property or persons and
guarantees the correctness of the particulars, weight or each
piece or package and description of the goods and agrees to
ascertain and to disclose in writing on shipment, any
condition, nature, quality, ingredient or characteristic that may
cause damage, injury or detriment to the goods, other property,
the ship or to persons, and for the failure to do so the shipper
agrees to be liable for and fully indemnify the carrier and hold
it harmless in respect of any injury or death of any person and
loss or damage to cargo or property. The carrier shall be
responsible as to the correctness of any such mark,
descriptions or representations.4
The shipment was contained in two wooden crates, namely,
Crate No. 1 and Crate No. 2, complete and in good order
condition, covered by Commercial Invoice No. YJ-73564
DTD5 and a Packing List.6 There were no markings on the outer
portion of the crates except the name of the consignee.7 Crate
No. 1 measured 24 cubic meters and weighed 3,620 kgs. It
contained the following articles: one (1) unit Lathe Machine
complete with parts and accessories; one (1) unit Surface
Grinder complete with parts and accessories; and one (1) unit
Milling Machine complete with parts and accessories. On the
flooring of the wooden crates were three wooden battens placed
side by side to support the weight of the cargo. Crate No. 2, on
the other hand, measured 10 cubic meters and weighed 2,060
kgs. The Lathe Machine was stuffed in the crate. The shipment
had a total invoice value of US$90,000.00 C&F Manila. It was8
insured for P2,547,270.00 with the Philippine Charter
Insurance Corporation (PCIC) thru its general agent, Family
Insurance and Investment Corporation,9 under Marine Risk
Note No. 68043 dated October 24, 1994. 10
The M/V "National Honor" arrived at the Manila International
Container Terminal (MICT) on November 14, 1995. The
International Container Terminal Services, Incorporated
(ICTSI) was furnished with a copy of the crate cargo list and
bill of lading, and it knew the contents of the crate.11 The
following day, the vessel started discharging its cargoes using
its winch crane. The crane was operated by Olegario Balsa, a
winchman from the ICTSI,12 the exclusive arrastre operator of
MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along
with the crew and the surveyor of the ICTSI, conducted an
inspection of the cargo.13 They inspected the hatches, checked
the cargo and found it in apparent good condition. 14
Claudio
Cansino, the stevedore of the ICTSI, placed two sling cables on
each end of Crate No. 1.15 No sling cable was fastened on the
mid-portion of the crate. In Dauzs experience, this was a
normal procedure.16 As the crate was being hoisted from the
vessels hatch, the mid-portion of the wooden flooring suddenly
snapped in the air, about five feet high from the vessels twin
deck, sending all its contents crashing down hard,17 resulting
in extensive damage to the shipment.
BMICIs customs broker, JRM Incorporated, took delivery of the
cargo in such damaged condition.18 Upon receipt of the
damaged shipment, BMICI found that the same could no
longer be used for the intended purpose. The Mariners
Adjustment Corporation hired by PCIC conducted a survey and
declared that the packing of the shipment was considered
insufficient. It ruled out the possibility of taxes due to
insufficiency of packing. It opined that three to four pieces of
cable or wire rope slings, held in all equal setting, never by-
passing the center of the crate, should have been used,
considering that the crate contained heavy machinery. 19
BMICI subsequently filed separate claims against the
NSCP,20 the ICTSI,21 and its insurer, the PCIC,22 for
US$61,500.00. When the other companies denied liability,
PCIC paid the claim and was issued a Subrogation
Receipt23 for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of
Manila, Branch 35, a Complaint for Damages24against the
"Unknown owner of the vessel M/V National Honor," NSCP and
ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence
of the defendants. It prayed, among others
WHEREFORE, it is respectfully prayed of this Honorable Court
that judgment be rendered ordering defendants to pay plaintiff,
jointly or in the alternative, the following:
1. Actual damages in the amount of P1,740,634.50 plus legal
interest at the time of the filing of this complaint until fully
paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.25
ICTSI, for its part, filed its Answer with Counterclaim and
Cross-claim against its co-defendant NSCP, claiming that the
loss/damage of the shipment was caused exclusively by the
defective material of the wooden battens of the shipment,
insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI,
testified that the wooden battens placed on the wooden flooring
of the crate was of good material but was not strong enough to
support the weight of the machines inside the crate. He
averred that most stevedores did not know how to read and
write; hence, he placed the sling cables only on those portions
of the crate where the arrow signs were placed, as in the case
of fragile cargo. He said that unless otherwise indicated by
arrow signs, the ICTSI used only two cable slings on each side
of the crate and would not place a sling cable in the mid-
section.26 He declared that the crate fell from the cranes
because the wooden batten in the mid-portion was broken as it
was being lifted. 27
He concluded that the loss/damage was
caused by the failure of the shipper or its packer to place
wooden battens of strong materials under the flooring of the
crate, and to place a sign in its mid-term section where the
sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan &
Co., Inc. that the damage to the cargo could be attributed to
insufficient packing and unbalanced weight distribution of the
cargo inside the crate as evidenced by the types and shapes of
items found.28
The trial court rendered judgment for PCIC and ordered the
complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective
counterclaims of the two defendants are dismissed, with costs
against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained
in Crate No. 1 was due to the internal defect and weakness of
the materials used in the fabrication of the crates. The middle
wooden batten had a hole (bukong-bukong). The trial court
rejected the certification30 of the shipper, stating that the
shipment was properly packed and secured, as mere hearsay
and devoid of any evidentiary weight, the affiant not having
testified.
Not satisfied, PCIC appealed31 to the CA which rendered
judgment on January 19, 2004 affirming in toto the appealed
decision, with this fallo
WHEREFORE, the decision of the Regional Trial Court of
Manila, Branch 35, dated February 17, 1997, is AFFIRMED.
SO ORDERED.32
The appellate court held, inter alia, that it was bound by the
finding of facts of the RTC, especially so where the evidence in
support thereof is more than substantial. It ratiocinated that
the loss of the shipment was due to an excepted cause "[t]he
character of the goods or defects in the packing or in the
containers" and the failure of the shipper to indicate signs to
notify the stevedores that extra care should be employed in
handling the shipment.33 It blamed the shipper for its failure to
use materials of stronger quality to support the heavy
machines and to indicate an arrow in the middle portion of the
cargo where additional slings should be attached.34 The CA
concluded that common carriers are not absolute insurers
against all risks in the transport of the goods.35
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF
LAW IN NOT HOLDING THAT RESPONDENT COMMON
CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE
SHIPMENT IN THE POSSESSION OF THE ARRASTRE
OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF
LAW IN NOT APPLYING THE STATUTORY PRESUMPTION OF
FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED
THE FACTS IN FINDING THAT THE DAMAGE SUSTAINED BY
THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING AND
NOT TO THE FAULT AND NEGLIGENCE OF THE
RESPONDENTS.36
The petitioner asserts that the mere proof of receipt of the
shipment by the common carrier (to the carrier) in good order,
and their arrival at the place of destination in bad order makes
out a prima facie case against it; in such case, it is liable for
the loss or damage to the cargo absent satisfactory explanation
given by the carrier as to the exercise of extraordinary
diligence. The petitioner avers that the shipment was
sufficiently packed in wooden boxes, as shown by the fact that
it was accepted on board the vessel and arrived in Manila
safely. It emphasizes that the respondents did not contest the
contents of the bill of lading, and that the respondents knew
that the manner and condition of the packing of the cargo was
normal and barren of defects. It maintains that it behooved the
respondent ICTSI to place three to four cables or wire slings in
equal settings, including the center portion of the crate to
prevent damage to the cargo:
[A] simple look at the manifesto of the cargo and the bill of
lading would have alerted respondents of the nature of the
cargo consisting of thick and heavy machinery. Extra-care
should have been made and extended in the discharge of the
subject shipment. Had the respondent only bothered to check
the list of its contents, they would have been nervous enough
to place additional slings and cables to support those massive
machines, which were composed almost entirely of thick steel,
clearly intended for heavy industries. As indicated in the list,
the boxes contained one lat[h]e machine, one milling machine
and one grinding machine-all coming with complete parts and
accessories. Yet, not one among the respondents were cautious
enough. Here lies the utter failure of the respondents to
observed extraordinary diligence in the handling of the cargo in
their custody and possession, which the Court of Appeals
should have readily observed in its appreciation of the
pertinent facts.37
The petitioner posits that the loss/damage was caused by the
mishandling of the shipment by therein respondent ICTSI, the
arrastre operator, and not by its negligence.
The petitioner insists that the respondents did not observe
extraordinary diligence in the care of the goods. It argues that
in the performance of its obligations, the respondent ICTSI
should observe the same degree of diligence as that required of
a common carrier under the New Civil Code of the Philippines.
Citing Eastern Shipping Lines, Inc. v. Court of Appeals, 38
it
posits that respondents are liable in solidum to it, inasmuch as
both are charged with the obligation to deliver the goods in
good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is
adjudged liable, it is not solidarily liable with it. It further avers
that the "carrier cannot discharge directly to the consignee
because cargo discharging is the monopoly of the arrastre."
Liability, therefore, falls solely upon the shoulder of respondent
ICTSI, inasmuch as the discharging of cargoes from the vessel
was its exclusive responsibility. Besides, the petitioner is
raising questions of facts, improper in a petition for review
on certiorari.39
Respondent ICTSI avers that the issues raised are factual,
hence, improper under Rule 45 of the Rules of Court. It claims
that it is merely a depository and not a common carrier; hence,
it is not obliged to exercise extraordinary diligence. It reiterates
that the loss/damage was caused by the failure of the shipper
or his packer to place a sign on the sides and middle portion of
the crate that extra care should be employed in handling the
shipment, and that the middle wooden batten on the flooring of
the crate had a hole. The respondent asserts that the
testimony of Anthony Abarquez, who conducted his
investigation at the site of the incident, should prevail over that
of Rolando Balatbat. As an alternative, it argues that if ever
adjudged liable, its liability is limited only to P3,500.00 as
expressed in the liability clause of Gate Pass CFS-BR-GP No.
319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only
questions of law may be entertained by this Court in a petition
for review on certiorari. This rule, however, is not ironclad and
admits certain exceptions, such as when (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3)
there is grave abuse of discretion; (4) the judgment is based on
a misapprehension of facts; (5) the findings of fact are
conflicting; (6) there is no citation of specific evidence on which
the factual findings are based; (7) the findings of absence of
facts are contradicted by the presence of evidence on record; (8)
the findings of the Court of Appeals are contrary to those of
the trial court; (9) the Court of Appeals manifestly overlooked
certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the
findings of the Court of Appeals are beyond the issues of the
case; and (11) such findings are contrary to the admissions of
both parties. 40
We have reviewed the records and find no justification to
warrant the application of any exception to the general rule.
We agree with the contention of the petitioner that common
carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence
in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the
circumstances of each case. 41
The Court has defined
extraordinary diligence in the vigilance over the goods as
follows:
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."42
The common carriers duty to observe the requisite diligence in
the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance,
by the person entitled to receive them.43 When the goods
shipped are either lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of
negligence to hold it liable.44 To overcome the presumption of
negligence in the case of loss, destruction or deterioration of
the goods, the common carrier must prove that it exercised
extraordinary diligence.45
However, under Article 1734 of the New Civil Code, the
presumption of negligence does not apply to any of the
following causes:
1. Flood, storm, earthquake, lightning or other natural disaster
or calamity;
2. Act of the public enemy in war, whether international or
civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the
New Civil Code which exempts the common carrier for the loss
or damage to the cargo is a closed list. 46
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
aforecited causes 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. 47
"Defect" is the want or absence of something necessary for
completeness or perfection; a lack or absence of something
essential to completeness; a deficiency in something essential
to the proper use for the purpose for which a thing is to be
used.48 On the other hand, inferior means of poor quality,
mediocre, or second rate. 49
A thing may be of inferior quality
but not necessarily defective. In other words, "defectiveness" is
not synonymous with "inferiority."
In the present case, the trial court declared that based on the
record, the loss of the shipment was caused by the negligence
of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The
breakage and collapse of Crate No. 1 and the total destruction
of its contents were not imputable to any fault or negligence on
the part of said defendant in handling the unloading of the
cargoes from the carrying vessel, but was due solely to the
inherent defect and weakness of the materials used in the
fabrication of said crate.
The crate should have three solid and strong wooden batten
placed side by side underneath or on the flooring of the crate
to support the weight of its contents. However, in the case of
the crate in dispute, although there were three wooden battens
placed side by side on its flooring, the middle wooden batten,
which carried substantial volume of the weight of the crates
contents, had a knot hole or "bukong-bukong," which
considerably affected, reduced and weakened its strength.
Because of the enormous weight of the machineries inside this
crate, the middle wooden batten gave way and collapsed. As the
combined strength of the other two wooden battens were not
sufficient to hold and carry the load, they too simultaneously
with the middle wooden battens gave way and collapsed (TSN,
Sept. 26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in
Seoul, Korea. There is nothing in the record which would
indicate that defendant ICTSI had any role in the choice of the
materials used in fabricating this crate. Said defendant,
therefore, cannot be held as blame worthy for the loss of the
machineries contained in Crate No. 1.50
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in
Article 1734 of the Civil Code, particularly number (4)
thereof, i.e., the character of the goods or defects in the
packing or in the containers. The trial court found that the
breakage of the crate was not due to the fault or negligence of
ICTSI, but to the inherent defect and weakness of the materials
used in the fabrication of the said crate.
Upon examination of the records, We find no compelling reason
to depart from the factual findings of the trial court.
It appears that the wooden batten used as support for the A: At the corner of the crate, Maam.
flooring was not made of good materials, which caused the
middle portion thereof to give way when it was lifted. The Q: How many arrows did you see?
shipper also failed to indicate signs to notify the stevedores
A: Four (4) on both sides, Maam.
that extra care should be employed in handling the shipment.

Claudio Cansino, a stevedore of ICTSI, testified before the court
their duties and responsibilities:
Q: What did you do with the arrows?

"Q: With regard to crates, what do you do with the crates?

A: When I saw the arrows, thats where I placed the slings,
Maam.
A: Everyday with the crates, there is an arrow drawn where the
sling is placed, Maam.

Q: When the crates have arrows drawn and where you placed
Q: Now, did you find any other marks on the crate?
the slings, what do you do with these crates?

A: Nothing more, Maam.

A: A sling is placed on it, Maam.

Q: Now, Mr. Witness, if there are no arrows, would you place

Q: After you placed the slings, what do you do with the crates?
slings on the parts where there are no arrows?

A: After I have placed a sling properly, I ask the crane (sic) to

A: You can not place slings if there are no arrows, Maam."
haul it, Maam.

Appellants allegation that since the cargo arrived safely from

the port of [P]usan, Korea without defect, the fault should be

Q: Now, what, if any, were written or were marked on the crate?
A: The thing that was marked on the cargo is an arrow just like
of a chain, Maam.
Q: And where did you see or what parts of the crate did you see
those arrows?
attributed to the arrastre operator who mishandled the cargo,
is without merit. The cargo fell while it was being carried only
at about five (5) feet high above the ground. It would not have
so easily collapsed had the cargo been properly packed. The
shipper should have used materials of stronger quality to
support the heavy machines. Not only did the shipper fail to
properly pack the cargo, it also failed to indicate an arrow in
the middle portion of the cargo where additional slings should
be attached. At any rate, the issue of negligence is factual in
nature and in this regard, it is settled that factual findings of
the lower courts are entitled to great weight and respect on
appeal, and, in fact, accorded finality when supported by
substantial evidence.51
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of
respondent ICTSI. The petitioner failed to rebut the testimony
of Dauz, that the crates were sealed and that the contents
thereof could not be seen from the outside.52 While it is true
that the crate contained machineries and spare parts, it
cannot thereby be concluded that the respondents knew or
should have known that the middle wooden batten had a hole,
or that it was not strong enough to bear the weight of the
shipment.
There is no showing in the Bill of Lading that the shipment was
in good order or condition when the carrier received the cargo,
or that the three wooden battens under the flooring of the
cargo were not defective or insufficient or inadequate. On the
other hand, under Bill of Lading No. NSGPBSML512565 issued
by the respondent NSCP and accepted by the petitioner, the
latter represented and warranted that the goods were properly
packed, and disclosed in writing the "condition, nature, quality
or characteristic that may cause damage, injury or detriment
to the goods." Absent any signs on the shipment requiring the
placement of a sling cable in the mid-portion of the crate, the
respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in
apparent good condition, is sufficient to sustain a finding of
absence of defects in the merchandise. Case law has it that
such statement will create a prima faciepresumption only as to
the external condition and not to that not open to inspection.53
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED
for lack of merit.
SO ORDERED.
THIRD DIVISION
G.R. No. 143133 June 5, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and
JARDINE DAVIES TRANSPORT SERVICES,
INC., petitioners, vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier
and of their arrival in bad order at their destination constitutes
prima facie fault or negligence on the part of the carrier. If no
adequate explanation is given as to how the loss, the
destruction or the deterioration of the goods happened, the
carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of
Court, assailing the July 15, 1998 Decision1 and the May 2,
2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV
No. 53571. The decretal portion of the Decision reads as
follows:
"WHEREFORE, in the light of the foregoing disquisition,
the decision appealed from is hereby REVERSED and
SET ASIDE. Defendants-appellees are ORDERED to
jointly and severally pay plaintiffs-appellants the
following:
'1) FOUR Hundred Fifty One Thousand Twenty-
Seven Pesos and 32/100 (P451,027.32) as actual
damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time
of filing of the complaint on July 25, 1991, until
fully paid;
'2) Attorney's fees amounting to 20% of the claim;
and
'3) Costs of suit.'" 4
The assailed Resolution denied petitioner's Motion for
Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC)
of Makati City (Branch 134), which had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is
hereby rendered, dismissing the complaint, as well as
defendant's counterclaim."5
The Facts
The factual antecedents of the case are summarized by the
Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board
the M/V 'Anangel Sky' at Hamburg, Germany 242 coils
of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine
Steel Trading Corporation. On July 28, 1990, M/V
Anangel Sky arrived at the port of Manila and, within
the subsequent days, discharged the subject cargo. Four
(4) coils were found to be in bad order B.O. Tally sheet
No. 154974. Finding the four (4) coils in their damaged
state to be unfit for the intended purpose, the consignee
Philippine Steel Trading Corporation declared the same
as total loss.1wphi1.nt
"Despite receipt of a formal demand, defendants-
appellees refused to submit to the consignee's claim.
Consequently, plaintiff-appellant paid the consignee five
hundred six thousand eighty six & 50/100 pesos
(P506,086.50), and was subrogated to the latter's rights
and causes of action against defendants-appellees.
Subsequently, plaintiff-appellant instituted this
 complaint for recovery of the amount paid by them, to
the consignee as insured.
"Impugning the propriety of the suit against them,
defendants-appellees imputed that the damage and/or
loss was due to pre-shipment damage, to the inherent
nature, vice or defect of the goods, or to perils, danger
and accidents of the sea, or to insufficiency of packing
thereof, or to the act or omission of the shipper of the
goods or their representatives. In addition thereto,
defendants-appellees argued that their liability, if there
be any, should not exceed the limitations of liability
provided for in the bill of lading and other pertinent
laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight
required by law to prevent any damage/loss to said
shipment."6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had
failed to prove its claims with the quantum of proof required by
law.7
It likewise debunked petitioners' counterclaim, because
respondent's suit was not manifestly frivolous or primarily
intended to harass them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were
liable for the loss or the damage of the goods shipped, because
they had failed to overcome the presumption of negligence
imposed on common carriers.
The CA further held as inadequately proven petitioners' claim
that the loss or the deterioration of the goods was due to pre-
shipment damage.9 It likewise opined that the notation "metal
envelopes rust stained and slightly dented" placed on the Bill of
Lading had not been the proximate cause of the damage to the
four (4) coils.10
As to the extent of petitioners' liability, the CA held that the
package limitation under COGSA was not applicable, because
the words "L/C No. 90/02447" indicated that a higher
valuation of the cargo had been declared by the shipper. The
CA, however, affirmed the award of attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for
the Court's consideration:
I
"Whether or not plaintiff by presenting only one
witness who has never seen the subject shipment and
whose testimony is purely hearsay is sufficient to pave
the way for the applicability of Article 1735 of the Civil
Code;
II
 "Whether or not the consignee/plaintiff filed the
required notice of loss within the time required by law;
III
"Whether or not a notation in the bill of lading at the
time of loading is sufficient to show pre-shipment
damage and to exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability
under Section 4 (5) of COGSA is applicable to the case at
bar."12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption
of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is
applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on
common carriers should not be applied on the basis of the lone
testimony offered by private respondent. The contention is
untenable.
Well-settled is the rule that common carriers, from the nature
of their business and for reasons of public policy, are bound to
observe extraordinary diligence and vigilance with respect to
the safety of the goods and the passengers they
transport.13 Thus, common carriers are required to render
service with the greatest skill and foresight and "to use all
reason[a]ble means to ascertain the nature and characteristics
of the goods tendered for shipment, and to exercise due care in
the handling and stowage, including such methods as their
nature requires."14 The extraordinary responsibility lasts from
the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier
until they are delivered, actually or constructively, to the
consignee or to the person who has a right to receive them. 15
This strict requirement is justified by the fact that, without a
hand or a voice in the preparation of such contract, the riding
public enters into a contract of transportation with common
carriers.16 Even if it wants to, it cannot submit its own
stipulations for their approval.17 Hence, it merely adheres to
the agreement prepared by them.
Owing to this high degree of diligence required of them,
common carriers, as a general rule, are presumed to have been
at fault or negligent if the goods they transported deteriorated
or got lost or destroyed.18 That is, unless they prove that they
exercised extraordinary diligence in transporting the
goods.19 In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed
such diligence.20
However, the presumption of fault or negligence will not
arise 21
if the loss is due to any of the following causes: (1) flood,
storm, earthquake, lightning, or other natural disaster or
calamity; (2) an act of the public enemy in war, whether
international or civil; (3) an act or omission of the shipper or
owner of the goods; (4) the character of the goods or defects in
the packing or the container; or (5) an order or act of
competent public authority.22 This is a closed list. If the cause
of destruction, loss or deterioration is other than the
enumerated circumstances, then the carrier is liable therefor. 23
Corollary to the foregoing, mere proof of delivery of the goods in
good order to a common carrier and of their arrival in bad
order at their destination constitutes a prima facie case of fault
or negligence against the carrier. If no adequate explanation is
given as to how the deterioration, the loss or the destruction of
the goods happened, the transporter shall be held
responsible.24
That petitioners failed to rebut the prima facie presumption of
negligence is revealed in the case at bar by a review of the
records and more so by the evidence adduced by respondent.25
First, as stated in the Bill of Lading, petitioners received the
subject shipment in good order and condition in Hamburg,
Germany.26
Second, prior to the unloading of the cargo, an Inspection
Report27 prepared and signed by representatives of both parties
showed the steel bands broken, the metal envelopes rust-
stained and heavily buckled, and the contents thereof exposed
and rusty.
Third, Bad Order Tally Sheet No. 15497928 issued by Jardine
Davies Transport Services, Inc., stated that the four coils were
in bad order and condition. Normally, a request for a bad order
survey is made in case there is an apparent or a presumed loss
or damage.29
Fourth, the Certificate of Analysis30 stated that, based on the
sample submitted and tested, the steel sheets found in bad
order were wet with fresh water.
Fifth, petitioners -- in a letter31 addressed to the Philippine
Steel Coating Corporation and dated October 12, 1990 --
admitted that they were aware of the condition of the four coils
found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker
of BM Santos Checkers Agency. Pertinent portions of his
testimony are reproduce hereunder:
"Q. Mr. Esmerio, you mentioned that you are a Head
Checker. Will you inform the Honorable Court with what
company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos checkers Agency related or
connected with defendant Jardine Davies Transport
Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will
you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board
the vessel, sir, to supervise the discharge of cargoes.
cargoes that were unloaded from the MV/ANANGEL
SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself
reflects the condition of the cold steel sheets and
the best evidence is the document itself, Your
Honor that shows the condition of the steel
sheets.
COURT:

xxx xxx xxx Let the witness answer.

Q. On or about August 1, 1990, were you still A. The scrap of the cargoes is broken already and
connected or employed with BM Santos as a Head the rope is loosen and the cargoes are dent on the
Checker? sides."32

A. Yes, sir. All these conclusively prove the fact of shipment in good order
and condition and the consequent damage to the four coils
Q. And, on or about that date, do you recall having while in the possession of petitioner,33 who notably failed to
attended the discharging and inspection of cold steel explain why.34
sheets in coil on board the MV/AN ANGEL SKY?
Further, petitioners failed to prove that they observed the
A. Yes, sir, I was there. extraordinary diligence and precaution which the law requires
a common carrier to know and to follow to avoid damage to or
xxx xxx xxx
destruction of the goods entrusted to it for safe carriage and
delivery.35
Q. Based on your inspection since you were also
present at that time, will you inform this Honorable
True, the words "metal envelopes rust stained and slightly
Court the condition or the appearance of the bad order
dented" were noted on the Bill of Lading; however, there is no
showing that petitioners exercised due diligence to forestall or
lessen the loss.36 Having been in the service for several years,
the master of the vessel should have known at the outset that
metal envelopes in the said state would eventually deteriorate
when not properly stored while in transit. 37
Equipped with the
proper knowledge of the nature of steel sheets in coils and of
the proper way of transporting them, the master of the vessel
and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo. But none of these
measures was taken.38 Having failed to discharge the burden of
proving that they have exercised the extraordinary diligence
required by law, petitioners cannot escape liability for the
damage to the four coils.39
In their attempt to escape liability, petitioners further contend
that they are exempted from liability under Article 1734(4) of
the Civil Code. They cite the notation "metal envelopes rust
stained and slightly dented" printed on the Bill of Lading as
evidence that the character of the goods or defect in the
packing or the containers was the proximate cause of the
damage. We are not convinced.
From the evidence on record, it cannot be reasonably
concluded that the damage to the four coils was due to the
condition noted on the Bill of Lading.40 The aforecited exception
refers to cases when goods are lost or damaged while in transit
as a result of the natural decay of perishable goods or the
fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural
propensities of animals.41 None of these is present in the
instant case.
Further, even if the fact of improper packing was known to the
carrier or its crew or was apparent upon ordinary observation,
it is not relieved of liability for loss or injury resulting
therefrom, once it accepts the goods notwithstanding such
condition.42 Thus, petitioners have not successfully proven the
application of any of the aforecited exceptions in the present
case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of
the Carriage of Goods by Sea Act44 (COGSA), respondent
should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31,
1990, but that respondent filed its Notice of Claim only on
September 18, 1990.45
We are not persuaded. First, the above-cited provision of
COGSA provides that the notice of claim need not be given if
the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to
unloading the cargo, an Inspection Report46 as to the condition
of the goods was prepared and signed by representatives of
both parties.47
Second, as stated in the same provision, a failure to file a
notice of claim within three days will not bar recovery if it is
nonetheless filed within one year.48 This one-year prescriptive
period also applies to the shipper, the consignee, the insurer of
the goods or any legal holder of the bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled
that a claim is not barred by prescription as long as the one-
year period has not lapsed. Thus, in the words of the ponente,
Chief Justice Hilario G. Davide Jr.:
"Inasmuch as the neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA)--
which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained
during transit--may be applied suppletorily to the case
at bar."
In the present case, the cargo was discharged on July 31,
1990, while the Complaint51 was filed by respondent on July
25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims,
petitioners contend that their liability should be limited to
US$500 per package as provided in the Bill of Lading and by
Section 4(5) 52
of COGSA. 53
On the other hand, respondent argues that Section 4(5) of
COGSA is inapplicable, because the value of the subject
shipment was declared by petitioners beforehand, as evidenced
by the reference to and the insertion of the Letter of Credit or
"L/C No. 90/02447" in the said Bill of Lading.54
A bill of lading serves two functions. First, it is a receipt for the
goods shipped.53 Second, it is a contract by which three parties
-- namely, the shipper, the carrier, and the consignee --
undertake specific responsibilities and assume stipulated
obligations.56 In a nutshell, the acceptance of the bill of lading
by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a
perfected and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain
sum the common carrier's liability for loss or destruction of a
cargo -- unless the shipper or owner declares a greater
value58 -- is sanctioned by law.59 There are, however, two
conditions to be satisfied: (1) the contract is reasonable and
just under the circumstances, and (2) it has been fairly and
freely agreed upon by the parties.60 The rationale for this rule
is to bind the shippers by their agreement to the value
(maximum valuation) of their goods.61
It is to be noted, however, that the Civil Code does not limit the
liability of the common carrier to a fixed amount per
package.62 In all matters not regulated by the Civil Code, the
right and the obligations of common carriers shall be governed
by the Code of Commerce and special laws.63 Thus, the
COGSA, which is suppletory to the provisions of the Civil Code,
supplements the latter by establishing a statutory provision
limiting the carrier's liability in the absence of a shipper's
declaration of a higher value in the bill of lading.64 The
provisions on limited liability are as much a part of the bill of
lading as though physically in it and as though placed there by
agreement of the parties.65
In the case before us, there was no stipulation in the Bill of
Lading 66
limiting the carrier's liability. Neither did the shipper
declare a higher valuation of the goods to be shipped. This fact
notwithstanding, the insertion of the words "L/C No. 90/02447
cannot be the basis for petitioners' liability.
First, a notation in the Bill of Lading which indicated the
amount of the Letter of Credit obtained by the shipper for the
importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill.67 That notation was
made only for the convenience of the shipper and the bank
processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals, 69
we
held that a bill of lading was separate from the Other Letter of
Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of
lading in the present case, must be treated
independently of the contract of sale between the seller
and the buyer, and the contract of issuance of a letter of
credit between the amount of goods described in the
commercial invoice in the contract of sale and the
amount allowed in the letter of credit will not affect the
validity and enforceability of the contract of carriage as
embodied in the bill of lading. As the bank cannot be
expected to look beyond the documents presented to it
by the seller pursuant to the letter of credit, neither can
the carrier be expected to go beyond the representations
of the shipper in the bill of lading and to verify their
accuracy vis--vis the commercial invoice and the letter
of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill
of lading cannot negate petitioner's obligation to private
respondent arising from the contract of
transportation."70
In the light of the foregoing, petitioners' liability should be
computed based on US$500 per package and not on the per
metric ton price declared in the Letter of Credit.71 In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,72 we
explained the meaning of packages:
"When what would ordinarily be considered packages
are shipped in a container supplied by the carrier and
the number of such units is disclosed in the shipping
documents, each of those units and not the container
constitutes the 'package' referred to in the liability
limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping
Lines and the fact that the Bill of Lading clearly disclosed the
contents of the containers, the number of units, as well as the
nature of the steel sheets, the four damaged coils should be
considered as the shipping unit subject to the US$500
limitation.1wphi1.nt
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners' liability is reduced to
US$2,000 plus interest at the legal rate of six percent from the
time of the filing of the Complaint on July 25, 1991 until the
finality of this Decision, and 12 percent thereafter until fully
paid. No pronouncement as to costs.
SO ORDERED.

FIRST DIVISON

G.R. No. 115024 February 7, 1996

MA. LOURDES VALENZUELA, petitioner, vs.

COURT OF APPEALS, RICHARD LI and ALEXANDER
COMMERCIAL, INC., respondents.

x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-
x

G.R. No. 117944 February 7, 1996

RICHARD LI, petitioner, vs.

COURT OF APPEALS and LOURDES
VALENZUELA, respondents.

DECISION

KAPUNAN, J.:

These two petitions for review on certiorari under Rule 45 of the

Revised Rules of Court stem from an action to recover damages
by petitioner Lourdes Valenzuela in the Regional Trial Court of
Quezon City for injuries sustained by her in a vehicular
accident in the early morning of June 24, 1990. The facts
found by the trial court are succinctly summarized by the
Court of Appeals below:
This is an action to recover damages based on quasi-
delict, for serious physical injuries sustained in a
vehicular accident.
Plaintiff's version of the accident is as follows: At around
2:00 in the morning of June 24, 1990, plaintiff Ma.
Lourdes Valenzuela was driving a blue Mitsubishi lancer
with Plate No. FFU 542 from her restaurant at Marcos
highway to her home at Palanza Street, Araneta Avenue.
She was travelling along Aurora Blvd. with a companion,
Cecilia Ramon, heading towards the direction of Manila.
Before reaching A. Lake Street, she noticed something
wrong with her tires; she stopped at a lighted place
where there were people, to verify whether she had a flat
tire and to solicit help if needed. Having been told by the
people present that her rear right tire was flat and that
she cannot reach her home in that car's condition, she
parked along the sidewalk, about 1-1/2 feet away, put
on her emergency lights, alighted from the car, and went
to the rear to open the trunk. She was standing at the
left side of the rear of her car pointing to the tools to a
man who will help her fix the tire when she was
suddenly bumped by a 1987 Mitsubishi Lancer driven
by defendant Richard Li and registered in the name of
defendant Alexander Commercial, Inc. Because of the
impact plaintiff was thrown against the windshield of
the car of the defendant, which was destroyed, and then
fell to the ground. She was pulled out from under
defendant's car. Plaintiff's left leg was severed up to the
middle of her thigh, with only some skin and sucle
connected to the rest of the body. She was brought to
the UERM Medical Memorial Center where she was
found to have a "traumatic amputation, leg, left up to
distal thigh (above knee)". She was confined in the
hospital for twenty (20) days and was eventually fitted
with an artificial leg. The expenses for the hospital
confinement (P120,000.00) and the cost of the artificial
leg (P27,000.00) were paid by defendants from the car
insurance.
In her complaint, plaintiff prayed for moral damages in
the amount of P1 million, exemplary damages in the
amount of P100,000.00 and other medical and related
expenses amounting to a total of P180,000.00, including
loss of expected earnings.
Defendant Richard Li denied that he was negligent. He
was on his way home, travelling at 55 kph; considering
that it was raining, visibility was affected and the road
was wet. Traffic was light. He testified that he was
driving along the inner portion of the right lane of
Aurora Blvd. towards the direction of Araneta Avenue,
when he was suddenly confronted, in the vicinity of A.
Lake Street, San Juan, with a car coming from the
opposite direction, travelling at 80 kph, with "full bright
lights". Temporarily blinded, he instinctively swerved to
the right to avoid colliding with the oncoming vehicle,
and bumped plaintiff's car, which he did not see because
it was midnight blue in color, with no parking lights or
early warning device, and the area was poorly lighted.
He alleged in his defense that the left rear portion of
plaintiff's car was protruding as it was then "at a
standstill diagonally" on the outer portion of the right
lane towards Araneta Avenue (par. 18, Answer). He
confirmed the testimony of plaintiff's witness that after
being bumped the car of the plaintiff swerved to the
right and hit another car parked on the sidewalk.
Defendants counterclaimed for damages, alleging that
 plaintiff was reckless or negligent, as she was not a
licensed driver.
The police investigator, Pfc. Felic Ramos, who prepared
the vehicular accident report and the sketch of the three
cars involved in the accident, testified that the plaintiff's
car was "near the sidewalk"; this witness did not
remember whether the hazard lights of plaintiff's car
were on, and did not notice if there was an early warning
device; there was a street light at the corner of Aurora
Blvd. and F. Roman, about 100 meters away. It was not
mostly dark, i.e. "things can be seen" (p. 16, tsn, Oct.
28, 1991).
A witness for the plaintiff, Rogelio Rodriguez, testified
that after plaintiff alighted from her car and opened the
trunk compartment, defendant's car came approaching
very fast ten meters from the scene; the car was
"zigzagging". The rear left side of plaintiff's car was
bumped by the front right portion of defendant's car; as
a consequence, the plaintiff's car swerved to the right
and hit the parked car on the sidewalk. Plaintiff was
thrown to the windshield of defendant's car, which was
destroyed, and landed under the car. He stated that
defendant was under the influence of liquor as he could
"smell it very well" (pp. 43, 79, tsn, June 17, 1991).
After trial, the lower court sustained the plaintiff's submissions
and found defendant Richard Li guilty of gross negligence and
liable for damages under Article 2176 of the Civil Code. The
trial court likewise held Alexander Commercial, Inc., Li's
employer, jointly and severally liable for damages pursuant to
Article 2180. It ordered the defendants to jointly and severally
pay the following amounts:
1. P41,840.00, as actual damages, representing the
miscellaneous expenses of the plaintiff as a result of her
severed left leg;
2. The sums of (a) P37,500.00, for the unrealized profits
because of the stoppage of plaintiff's Bistro La Conga
restaurant three (3) weeks after the accident on June
24, 1990; (b) P20,000.00, a month, as unrealized profits
of the plaintiff in her Bistro La Conga restaurant, from
August, 1990 until the date of this judgment and (c)
P30,000.00, a month for unrealized profits in plaintiff's
two (2) beauty salons from July, 1990 until the date of
this decision;
3. P1,000,000.00, in moral damages;
4. P50,000.00, as exemplary damages;
5. P60,000.00, as reasonable attorney's fees; and
6. Costs.
As a result of the trial court's decision, defendants filed an
Omnibus Motion for New Trial and for Reconsideration, citing
testimony in Criminal Case O.C. No. 804367 (People vs.
Richard Li), tending to show that the point of impact, as
depicted by the pieces of glass/debris from the parties' cars,
appeared to be at the center of the right lane of Aurora Blvd.
The trial court denied the motion. Defendants forthwith filed
an appeal with the respondent Court of Appeals. In a Decision
rendered March 30, 1994, the Court of Appeals found that
there was "ample basis from the evidence of record for the trial
court's finding that the plaintiff's car was properly parked at
the right, beside the sidewalk when it was bumped by
defendant's car."1 Dismissing the defendants' argument that
the plaintiff's car was improperly parked, almost at the center
of the road, the respondent court noted that evidence which
was supposed to prove that the car was at or near center of the
right lane was never presented during the trial of the
case.2 The respondent court furthermore observed that:
Defendant Li's testimony that he was driving at a safe
speed of 55 km./hour is self serving; it was not
corroborated. It was in fact contradicted by eyewitness
Rodriguez who stated that he was outside his beerhouse
located at Aurora Boulevard after A. Lake Street, at or
about 2:00 a.m. of June 24, 1990 when his attention
was caught by a beautiful lady (referring to the plaintiff)
alighting from her car and opening the trunk
compartment; he noticed the car of Richard Li
"approaching very fast ten (10) meters away from the
scene"; defendant's car was zigzagging", although there
were no holes and hazards on the street, and "bumped
the leg of the plaintiff" who was thrown against the
windshield of defendant's care, causing its destruction.
He came to the rescue of the plaintiff, who was pulled
out from under defendant's car and was able to say
"hurting words" to Richard Li because he noticed that
the latter was under the influence of liquor, because he
"could smell it very well" (p. 36, et. seq., tsn, June 17,
1991). He knew that plaintiff owned a beerhouse in Sta.
Mesa in the 1970's, but did not know either plaintiff or
defendant Li before the accident.
In agreeing with the trial court that the defendant Li was liable
for the injuries sustained by the plaintiff, the Court of Appeals,
in its decision, however, absolved the Li's employer, Alexander
Commercial, Inc. from any liability towards petitioner Lourdes
Valenzuela and reduced the amount of moral damages to
P500,000.00. Finding justification for exemplary damages, the
respondent court allowed an award of P50,000.00 for the same,
in addition to costs, attorney's fees and the other damages. The
Court of Appeals, likewise, dismissed the defendants'
counterclaims.3
Consequently, both parties assail the respondent court's
decision by filing two separate petitions before this Court.
Richard Li, in G.R. No. 117944, contends that he should not be
held liable for damages because the proximate cause of the
accident was Ma. Lourdes Valenzuela's own negligence.
Alternatively, he argues that in the event that this Court finds
him negligent, such negligence ought to be mitigated by the
contributory negligence of Valenzuela.
On the other hand, in G.R. No. 115024, Ma. Lourdes
Valenzuela assails the respondent court's decision insofar as it
absolves Alexander Commercial, Inc. from liability as the owner
of the car driven by Richard Li and insofar as it reduces the
amount of the actual and moral damages awarded by the trial
court.4
As the issues are intimately related, both petitions are hereby
consolidated.
It is plainly evident that the petition for review in G.R. No.
117944 raises no substantial questions of law. What it, in
effect, attempts to have this Court review are factual findings of
the trial court, as sustained by the Court of Appeals finding
Richard Li grossly negligent in driving the Mitsubishi Lancer
provided by his company in the early morning hours of June
24, 1990. This we will not do. As a general rule, findings of fact
of the Court of Appeals are binding and conclusive upon us,
and this Court will not normally disturb such factual findings
unless the findings of fact of the said court are palpably
unsupported by the evidence on record or unless the judgment
itself is based on a misapprehension of facts.5
In the first place, Valenzuela's version of the incident was fully
corroborated by an uninterested witness, Rogelio Rodriguez,
the owner-operator of an establishment located just across the
scene of the accident. On trial, he testified that he observed a
car being driven at a "very fast" speed, racing towards the
general direction of Araneta Avenue.6 Rodriguez further added
that he was standing in front of his establishment, just ten to
twenty feet away from the scene of the accident, when he saw
the car hit Valenzuela, hurtling her against the windshield of
the defendant's Mitsubishi Lancer, from where she eventually
fell under the defendant's car. Spontaneously reacting to the
incident, he crossed the street, noting that a man reeking with
the smell of liquor had alighted from the offending vehicle in
order to survey the incident.7 Equally important, Rodriguez
declared that he observed Valenzuela's car parked parallel and
very near the sidewalk,8 contrary to Li's allegation that
Valenzuela's car was close to the center of the right lane. We
agree that as between Li's "self-serving" asseverations and the
observations of a witness who did not even know the accident
victim personally and who immediately gave a statement of the
incident similar to his testimony to the investigator
immediately after the incident, the latter's testimony deserves
greater weight. As the court emphasized:
The issue is one of credibility and from Our own
examination of the transcript, We are not prepared to set
aside the trial court's reliance on the testimony of
Rodriguez negating defendant's assertion that he was
driving at a safe speed. While Rodriguez drives only a
motorcycle, his perception of speed is not necessarily
impaired. He was subjected to cross-examination and no
attempt was made to question .his competence or the
accuracy of his statement that defendant was driving
"very fast". This was the same statement he gave to the
police investigator after the incident, as told to a
newspaper report (Exh. "P"). We see no compelling basis
for disregarding his testimony.
The alleged inconsistencies in Rodriguez' testimony are
not borne out by an examination of the testimony.
Rodriguez testified that the scene of the accident was
across the street where his beerhouse is located about
ten to twenty feet away (pp. 35-36, tsn, June 17, 1991).
He did not state that the accident transpired
immediately in front of his establishment. The
ownership of the Lambingan se Kambingan is not
material; the business is registered in the name of his
mother, but he explained that he owns the
establishment (p. 5, tsn, June 20, 1991). Moreover, the
testimony that the streetlights on his side of Aurora
Boulevard were on the night the accident transpired (p.
8) is not necessarily contradictory to the testimony of
Pfc. Ramos that there was a streetlight at the corner of
Aurora Boulevard and F. Roman Street (p. 45, tsn, Oct.
20, 1991).
With respect to the weather condition, Rodriguez
testified that there was only a drizzle, not a heavy rain
and the rain has stopped and he was outside his
establishment at the time the accident transpired (pp.
64-65, tsn, June 17, 1991). This was consistent with
plaintiff's testimony that it was no longer raining when
she left Bistro La Conga (pp. 10-11, tsn, April 29, 1991).
It was defendant Li who stated that it was raining all the
way in an attempt to explain why he was travelling at
only 50-55 kph. (p. 11, tsn, Oct. 14, 1991). As to the
testimony of Pfc. Ramos that it was raining, he arrived
at the scene only in response to a telephone call after
the accident had transpired (pp. 9-10, tsn, Oct. 28,
1991). We find no substantial inconsistencies in
Rodriguez's testimony that would impair the essential
 integrity of his testimony or reflect on his honesty. We
are compelled to affirm the trial court's acceptance of
the testimony of said eyewitness.
Against the unassailable testimony of witness Rodriguez we
note that Li's testimony was peppered with so many
inconsistencies leading us to conclude that his version of the
accident was merely adroitly crafted to provide a version,
obviously self-serving, which would exculpate him from any
and all liability in the incident. Against Valenzuela's
corroborated claims, his allegations were neither backed up by
other witnesses nor by the circumstances proven in the course
of trial. He claimed that he was driving merely at a speed of 55
kph. when "out of nowhere he saw a dark maroon lancer right
in front of him, which was (the) plaintiff's car". He alleged that
upon seeing this sudden "apparition" he put on his brakes to
no avail as the road was slippery.9
One will have to suspend disbelief in order to give credence to
Li's disingenuous and patently self-serving asseverations. The
average motorist alert to road conditions will have no difficulty
applying the brakes to a car traveling at the speed claimed by
Li. Given a light rainfall, the visibility of the street, and the
road conditions on a principal metropolitan thoroughfare like
Aurora Boulevard, Li would have had ample time to react to the
changing conditions of the road if he were alert - as every
driver should be - to those conditions. Driving exacts a more
than usual toll on the senses. Physiological "fight or
flight" 10 mechanisms are at work, provided such mechanisms
were not dulled by drugs, alcohol, exhaustion, drowsiness,
etc.11 Li's failure to react in a manner which would have
avoided the accident could therefore have been only due to
either or both of the two factors: 1) that he was driving at a
"very fast" speed as testified by Rodriguez; and 2) that he was
under the influence of alcohol.12 Either factor working
independently would have diminished his responsiveness to
road conditions, since normally he would have slowed down
prior to reaching Valenzuela's car, rather than be in a situation
forcing him to suddenly apply his brakes. As the trial court
noted (quoted with approval by respondent court):
Secondly, as narrated by defendant Richard Li to the
San Juan Police immediately after the incident, he said
that while driving along Aurora Blvd., out of nowhere he
saw a dark maroon lancer right in front of him which
was plaintiff's car, indicating, again, thereby that,
indeed, he was driving very fast, oblivious of his
surroundings and the road ahead of him, because if he
was not, then he could not have missed noticing at a
still far distance the parked car of the plaintiff at the
right side near the sidewalk which had its emergency
lights on, thereby avoiding forcefully bumping at the
plaintiff who was then standing at the left rear edge of
her car.
Since, according to him, in his narration to the San
Juan Police, he put on his brakes when he saw the
plaintiff's car in front of him, but that it failed as the
road was wet and slippery, this goes to show again, that,
contrary to his claim, he was, indeed, running very fast.
For, were it otherwise, he could have easily completely
stopped his car, thereby avoiding the bumping of the
plaintiff, notwithstanding that the road was wet and
slippery. Verily, since, if, indeed, he was running slow,
as he claimed, at only about 55 kilometers per hour,
then, inspite of the wet and slippery road, he could have
avoided hitting the plaintiff by the mere expedient or
applying his brakes at the proper time and distance.
It could not be true, therefore, as he now claims during
his testimony, which is contrary to what he told the
police immediately after the accident and is, therefore,
 more believable, that he did not actually step on his
brakes but simply swerved a little to the right when he
saw the on-coming car with glaring headlights, from the
opposite direction, in order to avoid it.
For, had this been what he did, he would not have
bumped the car of the plaintiff which was properly
parked at the right beside the sidewalk. And, it was not
even necessary for him to swerve a little to the right in
order to safely avoid a collision with the on-coming car,
considering that Aurora Blvd. is a double lane avenue
separated at the center by a dotted white paint, and
there is plenty of space for both cars, since her car was
running at the right lane going towards Manila on the
on-coming car was also on its right lane going to
Cubao.13
Having come to the conclusion that Li was negligent in driving
his company-issued Mitsubishi Lancer, the next question for us
to determine is whether or not Valenzuela was likewise guilty of
contributory negligence in parking her car alongside Aurora
Boulevard, which entire area Li points out, is a no parking
zone.
We agree with the respondent court that Valenzuela was not
guilty of contributory negligence.
Contributory negligence is conduct on the part of the injured
party, contributing as a legal cause to the harm he has
suffered, which falls below the standard to which he is required
to conform for his own protection.14 Based on the foregoing
definition, the standard or act to which, according to petitioner
Li, Valenzuela ought to have conformed for her own protection
was not to park at all at any point of Aurora Boulevard, a no
parking zone. We cannot agree.
Courts have traditionally been compelled to recognize that an
actor who is confronted with an emergency is not to be held up
to the standard of conduct normally applied to an individual
who is in no such situation. The law takes stock of impulses of
humanity when placed in threatening or dangerous situations
and does not require the same standard of thoughtful and
reflective care from persons confronted by unusual and
oftentimes threatening conditions.15
Under the "emergency rule" adopted by this Court in Gan
vs. Court of Appeals,16 an individual who suddenly finds
himself in a situation of danger and is required to act without
much time to consider the best means that may be adopted to
avoid the impending danger, is not guilty of negligence if he
fails to undertake what subsequently and upon reflection may
appear to be a better solution, unless the emergency was
brought by his own negligence.17
Applying this principle to a case in which the victims in a
vehicular accident swerved to the wrong lane to avoid hitting
two children suddenly darting into the street, we held, in Mc
Kee vs. Intermediate Appellate Court,18 that the driver therein,
Jose Koh, "adopted the best means possible in the given
situation" to avoid hitting the children. Using the "emergency
rule" the Court concluded that Koh, in spite of the fact that he
was in the wrong lane when the collision with an oncoming
truck occurred, was not guilty of negligence.19
While the emergency rule applies to those cases in which
reflective thought, or the opportunity to adequately weigh a
threatening situation is absent, the conduct which is required
of an individual in such cases is dictated not exclusively by the
suddenness of the event which absolutely negates thoroughful
care, but by the over-all nature of the circumstances. A woman
driving a vehicle suddenly crippled by a flat tire on a rainy
night will not be faulted for stopping at a point which is both
convenient for her to do so and which is not a hazard to other
motorists. She is not expected to run the entire boulevard in
search for a parking zone or turn on a dark street or alley
where she would likely find no one to help her. It would be
hazardous for her not to stop and assess the emergency (simply
because the entire length of Aurora Boulevard is a no-parking
zone) because the hobbling vehicle would be both a threat to
her safety and to other motorists. In the instant case,
Valenzuela, upon reaching that portion of Aurora Boulevard
close to A. Lake St., noticed that she had a flat tire. To avoid
putting herself and other motorists in danger, she did what
was best under the situation. As narrated by respondent court:
"She stopped at a lighted place where there were people, to
verify whether she had a flat tire and to solicit help if needed.
Having been told by the people present that her rear right tire
was flat and that she cannot reach her home she parked along
the sidewalk, about 1 1/2 feet away, behind a Toyota Corona
Car."20 In fact, respondent court noted, Pfc. Felix Ramos, the
investigator on the scene of the accident confirmed that
Valenzuela's car was parked very close to the sidewalk.21 The
sketch which he prepared after the incident showed
Valenzuela's car partly straddling the sidewalk, clear and at a
convenient distance from motorists passing the right lane of
Aurora Boulevard. This fact was itself corroborated by the
testimony of witness Rodriguez.22
Under the circumstances described, Valenzuela did exercise
the standard reasonably dictated by the emergency and could
not be considered to have contributed to the unfortunate
circumstances which eventually led to the amputation of one of
her lower extremities. The emergency which led her to park her
car on a sidewalk in Aurora Boulevard was not of her own
making, and it was evident that she had taken all reasonable
precautions.
Obviously in the case at bench, the only negligence ascribable
was the negligence of Li on the night of the accident.
"Negligence, as it is commonly understood is conduct which
creates an undue risk of harm to others."23It is the failure to
observe that degree of care, precaution, and vigilance which
the circumstances justly demand, whereby such other person
suffers injury.24 We stressed, in Corliss vs. Manila Railroad
Company,25 that negligence is the want of care required by the
circumstances.
The circumstances established by the evidence adduced in the
court below plainly demonstrate that Li was grossly negligent
in driving his Mitsubishi Lancer. It bears emphasis that he was
driving at a fast speed at about 2:00 A.M. after a heavy
downpour had settled into a drizzle rendering the street
slippery. There is ample testimonial evidence on record to show
that he was under the influence of liquor. Under these
conditions, his chances of effectively dealing with changing
conditions on the road were significantly lessened. As Presser
and Keaton emphasize:
[U]nder present day traffic conditions, any driver of an
automobile must be prepared for the sudden appearance
of obstacles and persons on the highway, and of other
vehicles at intersections, such as one who sees a child
on the curb may be required to anticipate its sudden
dash into the street, and his failure to act properly when
they appear may be found to amount to negligence.26
Li's obvious unpreparedness to cope with the situation
confronting him on the night of the accident was clearly of his
own making.
We now come to the question of the liability of Alexander
Commercial, Inc. Li's employer. In denying liability on the part
of Alexander Commercial, the respondent court held that:
There is no evidence, not even defendant Li's testimony,
that the visit was in connection with official matters. His
functions as assistant manager sometimes required him
to perform work outside the office as he has to visit
buyers and company clients, but he admitted that on
the night of the accident he came from BF Homes
Paranaque he did not have "business from the company"
(pp. 25-26, ten, Sept. 23, 1991). The use of the company
car was partly required by the nature of his work, but
the privilege of using it for non-official business is a
"benefit", apparently referring to the fringe benefits
attaching to his position.
Under the civil law, an employer is liable for the
negligence of his employees in the discharge of their
respective duties, the basis of which liability is
not respondeat superior, but the relationship of pater
familias, which theory bases the liability of the master
ultimately on his own negligence and not on that of his
servant (Cuison v. Norton and Harrison Co., 55 Phil.
18). Before an employer may be held liable for the
negligence of his employee, the act or omission which
caused damage must have occurred while an employee
was in the actual performance of his assigned tasks or
duties (Francis High School vs. Court of Appeals, 194
SCRA 341). In defining an employer's liability for the
acts done within the scope of the employee's assigned
tasks, the Supreme Court has held that this includes
any act done by an employee, in furtherance of the
interests of the employer or for the account of the
employer at the time of the infliction of the injury or
damage (Filamer Christian Institute vs. Intermediate
Appellate Court, 212 SCRA 637). An employer is
expected to impose upon its employees the necessary
discipline called for in the performance of any act
"indispensable to the business and beneficial to their
employer" (at p. 645).
In light of the foregoing, We are unable to sustain the
trial court's finding that since defendant Li was
authorized by the company to use the company car
"either officially or socially or even bring it home", he
can be considered as using the company car in the
service of his employer or on the occasion of his
functions. Driving the company car was not among his
functions as assistant manager; using it for non-official
purposes would appear to be a fringe benefit, one of the
perks attached to his position. But to impose liability
upon the employer under Article 2180 of the Civil Code,
 earlier quoted, there must be a showing that the damage
was caused by their employees in the service of the
employer or on the occasion of their functions. There is
no evidence that Richard Li was at the time of the
accident performing any act in furtherance of the
company's business or its interests, or at least for its
benefit. The imposition of solidary liability against
defendant Alexander Commercial Corporation must
therefore fail.27
We agree with the respondent court that the relationship in
question is not based on the principle of respondeat superior,
which holds the master liable for acts of the servant, but that
of pater familias, in which the liability ultimately falls upon the
employer, for his failure to exercise the diligence of a good
father of the family in the selection and supervision of his
employees. It is up to this point, however, that our agreement
with the respondent court ends. Utilizing the bonus pater
familias standard expressed in Article 2180 of the Civil
Code, 28 we are of the opinion that Li's employer, Alexander
Commercial, Inc. is jointly and solidarily liable for the damage
caused by the accident of June 24, 1990.
First, the case of St. Francis High School vs. Court of
Appeals29 upon which respondent court has placed undue
reliance, dealt with the subject of a school and its teacher's
supervision of students during an extracurricular activity.
These cases now fall under the provision on special parental
authority found in Art. 218 of the Family Code which generally
encompasses all authorized school activities, whether inside or
outside school premises.
Second, the employer's primary liability under the concept
of pater familias embodied by Art 2180 (in relation to Art. 2176)
of the Civil Code is quasi-delictual or tortious in character. His
liability is relieved on a showing that he exercised the diligence
of a good father of the family in the selection and supervision
of its employees. Once evidence is introduced showing that the
employer exercised the required amount of care in selecting its
employees, half of the employer's burden is overcome. The
question of diligent supervision, however, depends on the
circumstances of employment.
Ordinarily, evidence demonstrating that the employer has
exercised diligent supervision of its employee during the
performance of the latter's assigned tasks would be enough to
relieve him of the liability imposed by Article 2180 in relation to
Article 2176 of the Civil Code. The employer is not expected to
exercise supervision over either the employee's private activities
or during the performance of tasks either unsanctioned by the
former or unrelated to the employee's tasks. The case at bench
presents a situation of a different character, involving a
practice utilized by large companies with either their employees
of managerial rank or their representatives.
It is customary for large companies to provide certain classes of
their employees with courtesy vehicles. These company cars
are either wholly owned and maintained by the company itself
or are subject to various plans through which employees
eventually acquire their vehicles after a given period of service,
or after paying a token amount. Many companies provide
liberal "car plans" to enable their managerial or other
employees of rank to purchase cars, which, given the cost of
vehicles these days, they would not otherwise be able to
purchase on their own.
Under the first example, the company actually owns and
maintains the car up to the point of turnover of ownership to
the employee; in the second example, the car is really owned
and maintained by the employee himself. In furnishing vehicles
to such employees, are companies totally absolved of
responsibility when an accident involving a company-issued
car occurs during private use after normal office hours?
Most pharmaceutical companies, for instance, which provide
cars under the first plan, require rigorous tests of road
worthiness from their agents prior to turning over the car
(subject of company maintenance) to their representatives. In
other words, like a good father of a family, they entrust the
company vehicle only after they are satisfied that the employee
to whom the car has been given full use of the said company
car for company or private purposes will not be a threat or
menace to himself, the company or to others. When a company
gives full use and enjoyment of a company car to its employee,
it in effect guarantees that it is, like every good father, satisfied
that its employee will use the privilege reasonably and
responsively.
In the ordinary course of business, not all company employees
are given the privilege of using a company-issued car. For large
companies other than those cited in the example of the
preceding paragraph, the privilege serves important business
purposes either related to the image of success an entity
intends to present to its clients and to the public in general, or
- for practical and utilitarian reasons - to enable its managerial
and other employees of rank or its sales agents to reach clients
conveniently. In most cases, providing a company car serves
both purposes. Since important business transactions and
decisions may occur at all hours in all sorts of situations and
under all kinds of guises, the provision for the unlimited use of
a company car therefore principally serves the business and
goodwill of a company and only incidentally the private
purposes of the individual who actually uses the car, the
managerial employee or company sales agent. As such, in
providing for a company car for business use and/or for the
purpose of furthering the company's image, a company owes a
responsibility to the public to see to it that the managerial or
other employees to whom it entrusts virtually unlimited use of
a company issued car are able to use the company issue
capably and responsibly.
In the instant case, Li was an Assistant Manager of Alexander
Commercial, Inc. In his testimony before the trial court, he
admitted that his functions as Assistant Manager did not
require him to scrupulously keep normal office hours as he
was required quite often to perform work outside the office,
visiting prospective buyers and contacting and meeting with
company clients. 30 These meetings, clearly, were not strictly
confined to routine hours because, as a managerial employee
tasked with the job of representing his company with its
clients, meetings with clients were both social as well as work-
related functions. The service car assigned to Li by Alexander
Commercial, Inc. therefore enabled both Li - as well as the
corporation - to put up the front of a highly successful entity,
increasing the latter's goodwill before its clientele. It also
facilitated meeting between Li and its clients by providing the
former with a convenient mode of travel.
Moreover, Li's claim that he happened to be on the road on the
night of the accident because he was coming from a social visit
with an officemate in Paranaque was a bare allegation which
was never corroborated in the court below. It was obviously
self-serving. Assuming he really came from his officemate's
place, the same could give rise to speculation that he and his
officemate had just been from a work-related function, or they
were together to discuss sales and other work related
strategies.
In fine, Alexander Commercial, inc. has not demonstrated, to
our satisfaction, that it exercised the care and diligence of a
good father of the family in entrusting its company car to Li. No
allegations were made as to whether or not the company took
the steps necessary to determine or ascertain the driving
proficiency and history of Li, to whom it gave full and unlimited
use of a company car.31 Not having been able to overcome the
burden of demonstrating that it should be absolved of liability
for entrusting its company car to Li, said company, based on
the principle of bonus pater familias, ought to be jointly and
severally liable with the former for the injuries sustained by
Ma. Lourdes Valenzuela during the accident.
Finally, we find no reason to overturn the amount of damages
awarded by the respondent court, except as to the amount of
moral damages. In the case of moral damages, while the said
damages are not intended to enrich the plaintiff at the expense
of a defendant, the award should nonetheless be
commensurate to the suffering inflicted. In the instant case we
are of the opinion that the reduction in moral damages from an
amount of P1,000,000.00 to P800,000,00 by the Court of
Appeals was not justified considering the nature of the
resulting damage and the predictable sequelae of the injury.
As a result of the accident, Ma. Lourdes Valenzuela underwent
a traumatic amputation of her left lower extremity at the distal
left thigh just above the knee. Because of this, Valenzuela will
forever be deprived of the full ambulatory functions of her left
extremity, even with the use of state of the art prosthetic
technology. Well beyond the period of hospitalization (which
was paid for by Li), she will be required to undergo adjustments
in her prosthetic devise due to the shrinkage of the stump from
the process of healing.
These adjustments entail costs, prosthetic replacements and
months of physical and occupational rehabilitation and
therapy. During her lifetime, the prosthetic devise will have to
be replaced and re-adjusted to changes in the size of her lower
limb effected by the biological changes of middle-age,
menopause and aging. Assuming she reaches menopause, for
example, the prosthetic will have to be adjusted to respond to
the changes in bone resulting from a precipitate decrease in
calcium levels observed in the bones of all post-menopausal
women. In other words, the damage done to her would not only
be permanent and lasting, it would also be permanently
changing and adjusting to the physiologic changes which her
body would normally undergo through the years. The
replacements, changes, and adjustments will require
corresponding adjustive physical and occupational therapy. All
of these adjustments, it has been documented, are painful.
The foregoing discussion does not even scratch the surface of
the nature of the resulting damage because it would be highly
speculative to estimate the amount of psychological pain,
damage and injury which goes with the sudden severing of a
vital portion of the human body. A prosthetic device, however
technologically advanced, will only allow a reasonable amount
of functional restoration of the motor functions of the lower
limb. The sensory functions are forever lost. The resultant
anxiety, sleeplessness, psychological injury, mental and
physical pain are inestimable.
As the amount of moral damages are subject to this Court's
discretion, we are of the opinion that the amount of
P1,000,000.00 granted by the trial court is in greater accord
with the extent and nature of the injury - physical and
psychological - suffered by Valenzuela as a result of Li's grossly
negligent driving of his Mitsubishi Lancer in the early morning
hours of the accident.
WHEREFORE, PREMISES CONSIDERED, the decision of the
Court of Appeals is modified with the effect of REINSTATING
the judgment of the Regional Trial Court.SO ORDERED.
Separate Opinions
VITUG, J., concurring:
Pursuant to Article 21801 of the Civil Code that acknowledges
responsibility under a relationship of patria potestas, a person
may be held accountable not only for his own direct culpable
act or negligence but also for those of others albeit predicated
on his own supposed failure to exercise due care in his
supervisory authority and functions. In the case of an
employer, that vicarious liability attaches only when the
tortious conduct of the employee relates to, or is in the course
of, his employment. The question to ask should be whether, at
the time of the damage or injury, the employee is engaged in
the affairs or concerns of the employer or, independently, in
that of his own. While an employer incurs no liability when an
employee's conduct, act or omission is beyond the range of
employment,2 a minor deviation from the assigned task of an
employee, however, does not affect the liability of an employer. 3
SECOND DIVISION
G.R. No. L-55347 October 4, 1985
PHILIPPINE NATIONAL RAILWAYS, petitioner, vs.
THE HONORABLE COURT OF APPEALS and ROSARIO
TUPANG, respondents.
ESCOLIN, J.:
Invoking the principle of state immunity from suit, the
Philippine National Railways, PNR for short, instituted this
petition for review on certiorari to set aside the decision of the
respondent Appellate Court which held petitioner PNR liable for
damages for the death of Winifredo Tupang, a paying passenger
who fell off a train operated by the petitioner.
The pertinent facts are summarized by the respondent court as
follows:
The facts show that on September 10, 1972, at
about 9:00 o'clock in the evening, Winifredo
Tupang, husband of plaintiff Rosario Tupang,
boarded 'Train No. 516 of appellant at Libmanan,
Camarines Sur, as a paying passenger bound for
Manila. Due to some mechanical defect, the train
stopped at Sipocot, Camarines Sur, for repairs,
taking some two hours before the train could
resume its trip to Manila. Unfortunately, upon
passing Iyam Bridge at Lucena, Quezon,
Winifredo Tupang fell off the train resulting in his
death.The train did not stop despite the alarm
raised by the other passengers that somebody fell
from the train. Instead, the train conductor
Perfecto Abrazado, called the station agent at
Candelaria, Quezon, and requested for
verification of the information. Police authorities
of Lucena City were dispatched to the Iyam
Bridge where they found the lifeless body of
Winifredo Tupang.
As shown by the autopsy report, Winifredo
Tupang died of cardio-respiratory failure due to
massive cerebral hemorrhage due to traumatic
injury [Exhibits B and C, Folder of
Exhibits],Tupang was later buried in the public
cemetery of Lucena City by the local police
authorities. [Rollo, pp. 91-92]
Upon complaint filed by the deceased's widow, Rosario Tupang,
the then Court of First Instance of Rizal, after trial, held the
petitioner PNR liable for damages for breach of contract of
carriage and ordered "to pay the plaintiff the sum of
P12,000,00 for the death of Winifredo Tupang, plus P20,000.00
for loss of his earning capacity and the further sum of
P10,000.00 as moral damages, and P2,000.00 as attorney's
1
fees, and costs.
On appeal, the Appellate Court sustained the holding of the
trial court that the PNR did not exercise the utmost diligence
required by law of a common carrier. It further increased the
amount adjudicated by the trial court by ordering PNR to pay
the plaintiff an additional sum of P5,000.00 as exemplary
damages.
Moving for reconsideration of the above decision, the PNR
raised for the first time, as a defense, the doctrine of state
immunity from suit. It alleged that it is a mere agency of the
Philippine government without distinct or separate personality
of its own, and that its funds are governmental in character
and, therefore, not subject to garnishment or execution. The
motion was denied; the respondent court ruled that the ground
advanced could not be raised for the first time on appeal.
Hence, this petition for review.
The petition is devoid of merit. The PNR was created under
Rep. Act 4156, as amended. Section 4 of the said Act provides:
The Philippine national Railways shall have the
following powers:
a. To do all such other things and to transact all
such business directly or indirectly necessary,
incidental or conducive to the attainment of the
purpose of the corporation; and
b. Generally, to exercise all powers of a
corporation under the Corporation Law.
Under the foregoing section, the PNR has all the powers, the
characteristics and attributes of a corporation under the
Corporation Law. There can be no question then that the PNR
may sue and be sued and may be subjected to court processes
2
just like any other corporation.
The petitioner's contention that the funds of the PNR are not
subject to garnishment or execution hardly raises a question of
first impression. In Philippine National Railways v. Union de
3
Maquinistas, et al., then Justice Fernando, later Chief Justice,
said. "The main issue posed in this certiorari proceeding,
whether or not the funds of the Philippine National Railways,
could be garnished or levied upon on execution was resolved in
two recent decisions, the Philippine National Bank v. Court of
Industrial Relations [81 SCRA 314] and Philippine National
Bank v. Hon. Judge Pabalan [83 SCRA 595]. This Court in both
cases answered the question in the affirmative. There was no
legal bar to garnishment or execution. The argument based on
non-suability of a state allegedly because the funds are
governmental in character was unavailing.So it must be again."
In support of the above conclusion, Justice Fernando cited the
Court's holding in Philippine National Bank v. Court of
Industrial Relations, to wit: "The premise that the funds could
be spoken of as public in character may be accepted in the
sense that the People's Homesite and Housing Corporation was
a government-owned entity. It does not follow though that they
were exempt from garnishment. National Shipyard and Steel
Corporation v. Court of Industrial Relations is squarely in point.
As was explicitly stated in the opinion of then Justice, later
Chief Justice, Concepcion: "The allegation to the effect that the
funds of the NASSCO are public funds of the government, and
that, as such, the same may not be garnished, attached or
levied upon, is untenable for, as a government- owned and
controlled corporation, the NASSCO has a personality of its
own, distinct and separate from that of the Government. It
has-pursuant to Section 2 of Executive Order No. 356, dated
October 23, 1950 * * *, pursuant to which the NASSCO has
been established- 'all the powers of a corporation under the
4 doing so. Death or any injury suffered by any of its passengers
Corporation Law * * *.
As far back as 1941, this Court in the case of Manila Hotel
Employees Association v. Manila Hotel Co., 5
laid down the rule
that "when the government enters into commercial business, it
abandons its sovereign capacity and is to be treated like any
other corporation. [Bank of the U.S. v. Planters' Bank, 9 Waitch
904, 6 L. ed. 244]. By engaging in a particular business
through the instrumentality of a corporation the government
divests itself pro hac vice of its sovereign character, so as to
render the corporation subject to the rules of law governing
6 tightly and tenaciously on the upright metal bar found at the
private corporations. Of Similar import is the pronouncement
in Prisco v. CIR,' that "when the government engages in
business, it abdicates part of its sovereign prerogatives and
descends to the level of a citizen, ... . " In fine, the petitioner
PNR cannot legally set up the doctrine of non-suability as a bar
to the plaintiff's suit for damages.
The appellate court found, the petitioner does not deny, that
the train boarded by the deceased Winifredo Tupang was so
over-crowded that he and many other passengers had no
choice but to sit on the open platforms between the coaches of
the train. It is likewise undisputed that the train did not even
slow down when it approached the Iyam Bridge which was
under repair at the time, Neither did the train stop, despite the
alarm raised by other passengers that a person had fallen off
7
the train at lyam Bridge.
The petitioner has the obligation to transport its passengers to
their destinations and to observe extraordinary diligence in
gives rise to the presumption that it was negligent in the
performance of its obligation under the contract of carriage.
Thus, as correctly ruled by the respondent court, the petitioner
failed to overthrow such presumption of negligence with clear
and convincing evidence.
But while petitioner failed to exercise extraordinary diligence as
8
required by law, it appears that the deceased was chargeable
with contributory negligence. Since he opted to sit on the open
platform between the coaches of the train, he should have held
side of said platform to avoid falling off from the speeding train.
Such contributory negligence, while not exempting the PNR
from liability, nevertheless justified the deletion of the amount
adjudicated as moral damages. By the same token, the award
of exemplary damages must be set aside. Exemplary damages
may be allowed only in cases where the defendant acted in a I concur with the admonition that government owned and/or
wanton, fraudulent, reckless, oppressive or malevolent controlled corporations should desist from invoking the
manner. 9
There being no evidence of fraud, malice or bad faith baseless immunity from suit.
on the part of petitioner, the grant of exemplary damages
should be discarded.

WHEREFORE, the decision of the respondent appellate court is

hereby modified by eliminating therefrom the amounts of
P10,000.00 and P5,000.00 adjudicated as moral and
exemplary damages, respectively. No costs.

SO ORDERED.

Concepcion, Jr., Cuevas, and Alampay, JJ., concur.

Separate Opinions

AQUINO, J., concurring:

The case of Malong vs. PNR, L-49930, Aug. 7, 1985 (en banc)
hold that the PNR is not immune from suit and is liable as a
common carrier for the negligent acts of its employeees. It is
expressly liable for moral damages for the death of a passanger
under arts. 1764 and 2206 of the Civil Code.

ABAD SANTOS, J., concurring:

 (2) P10,000.00 by way of moral damages;

SECOND DIVISION (3) P20,000.00 by way of exemplary damages;

G.R. No. 119706 March 14, 1996 (4) P10,000.00 as attorney's fee;

PHILIPPINE AIRLINES, INC., petitioner, vs.
COURT OF APPEALS and GILDA C. MEJIA, respondents.
REGALADO, J.:p
all in addition to the costs of the suit.
Defendant's counterclaim is hereby dismissed for lack of merit.
3

This is definitely not a case of first impression. The incident The facts as found by respondent Court of Appeals are as
which eventuated in the present controversy is a drama of follows:
common contentious occurrence between passengers and
On January 27, 1990, plaintiff Gilda C. Mejia shipped thru
carriers whenever loss is sustained by the former. Withal, the
defendant, Philippine Airlines, one (1) unit microwave oven,
exposition of the factual ambience and the legal precepts in
with a gross weight of 33 kilograms from San Francisco, U.S.A.
this adjudication may hopefully channel the assertiveness of
to Manila, Philippines. Upon arrival, however, of said article in
passengers and the intransigence of carriers into the
Manila, Philippines, plaintiff discovered that its front glass
realization that at times a bad extrajudicial compromise could
door was broken and the damage rendered it unserviceable.
be better than a good judicial victory.
Demands both oral and written were made by plaintiff against
Assailed in this petition for review is the decision of respondent the defendant for the reimbursement of the value of the
damaged microwave oven, and transportation charges paid by
Court of Appeals in CA-G.R. CV No. 42744 1 which affirmed the
2 plaintiff to defendant company. But these demands fell on deaf
decision of the lower court finding petitioner Philippine Air
ears.
Lines, Inc. (PAL) liable as follows:

On September 25, 1990, plaintiff Gilda C. Mejia filed the

ACCORDINGLY, judgment is hereby rendered ordering
instant action for damages against defendant in the lower
defendant Philippine Air Lines, Inc., to pay plaintiff Gilda C.
court.
Mejia:

In its answer, defendant Airlines alleged inter alia, by way of

(1) P30,000.00 by way of actual damages of the microwave
special and affirmative defenses, that the court has no
oven;
jurisdiction over the case; that plaintiff has no valid cause of
action against defendant since it acted only in good faith and in
compliance with the requirements of the law, regulations,
conventions and contractual commitments; and that defendant
had always exercised the required diligence in the selection,
hiring and supervision of its employees. 4
What had theretofore transpired at the trial in the court a quo
is narrated as follows:
Plaintiff Gilda Mejia testified that sometime on January 27,
1990, she took defendant's plane from San Francisco, U.S.A.
for Manila, Philippines (Exh. "F"). Amongst her baggages (sic)
was a slightly used microwave oven with the brand name
"Sharp" under PAL Air Waybill No. 0-79-1013008-3 (Exh. "A").
When shipped, defendant's office at San Francisco inspected it.
It was in good condition with its front glass intact. She did not
declare its value upon the advice of defendant's personnel at
San Francisco.
When she arrived in Manila, she gave her sister Concepcion C.
Dio authority to claim her baggag(e) (Exh. "G") and took a
connecting flight for Bacolod City.
When Concepcion C. Dio claimed the baggag(e) (Exh. "B") with
defendant, then with the Bureau of Customs, the front glass of
the microwave oven was already broken and cannot be repaired
because of the danger of radiation. They demanded from
defendant thru Atty. Paco P30,000.00 for the damages
although a brand new one costs P40,000.00, but defendant
refused to pay.
Hence, plaintiff engaged the services of counsel. Despite
demand (Exh. "E") by counsel, defendant still refused to pay.
The damaged oven is still with defendant. Plaintiff is engaged in
(the) catering and restaurant business. Hence, the necessity of
the oven. Plaintiff suffered sleepless nights when defendant
refused to pay her (for) the broken oven and claims P10,000.00
moral damages, P20,000.00 exemplary damages, P10,000.00
attorney's fees plus P300.00 per court appearance and
P15,000.00 monthly loss of income in her business beginning
February, 1990.
Defendant Philippine Airlines thru its employees Rodolfo
Pandes and Vicente Villaruz posited that plaintiff's claim was
not investigated until after the filing of the formal claim on
August 13, 1990 (Exh. "6" also Exh. "E"). During the
investigations, plaintiff failed to submit positive proof of the
value of the cargo. Hence her claim was denied.
Also plaintiff's claim was filed out of time under paragraph 12,
a (1) of the Air Waybill (Exh. "A", also Exh. "1") which provides:
"(a) the person entitled to delivery must make a complaint to
the carrier in writing in case: (1) of visible damage to the
goods, immediately after discovery of the damage and at the
latest within 14 days from the receipt of the goods. 5
As stated at the outset, respondent Court of Appeals similarly
ruled in favor of private respondent by affirming in full the trial
court's judgment in Civil Case No. 6210, with costs against
petitioner. 6 Consequently, petitioner now impugns respondent
appellate court's ruling insofar as it agrees with (1) the
conclusions of the trial court that since the air waybill is a
contract of adhesion, its provisions should be strictly
construed against herein petitioner; (2) the finding of the trial
court that herein petitioner's liability is not limited by the
provisions of the air waybill; and (3) the award by the trial
court to private respondent of moral and exemplary damages,
attorney's fees and litigation expenses.
The trial court relied on the ruling in the case of Fieldmen's
Insurance Co., Inc. vs. Vda. De Songco, et al. 7 in finding that
the provisions of the air waybill should be strictly construed
against petitioner. More particularly, the court below stated its
findings thus:
In this case, it is seriously doubted whether plaintiff had read
the printed conditions at the back of the Air Waybill (Exh. "1"),
or even if she had, if she was given a chance to negotiate on the
conditions for loading her microwave oven. Instead she was
advised by defendant's employee at San Francisco, U.S.A., that
there is no need to declare the value of her oven since it is not
brand new. Further, plaintiff testified that she immediately
submitted a formal claim for P30,000.00 with defendant. But
their claim was referred from one employee to another th(e)n
told to come back the next day, and the next day, until she was
referred to a certain Atty. Paco. When they got tired and
frustrated of coming without a settlement of their claim in
sight, they consulted a lawyer who demanded from defendant
on August 13, 1990 (Exh. "E", an[d] Exh. "6").
The conclusion that inescapably emerges from the above
8
findings of fact is to concede it with credence. . . . .
Respondent appellate court approved said findings of the trial
court in this manner:
We cannot agree with defendant-appellant's above contention.
Under our jurisprudence, the Air Waybill is a contract of
adhesion considering that all the provisions thereof are
prepared and drafted only by the carrier (Sweet Lines v. Teves,
83 SCRA 361). The only participation left of the other party is
to affix his signature thereto (BPI Credit Corporation vs. Court
of Appeals, 204 SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498;
Maersk vs. Court of Appeals, 222 SCRA 108, among the recent
cases). In the earlier case of Angeles v. Calasanz, 135 SCRA
323, the Supreme Court ruled that "the terms of a contract [of
adhesion] must be interpreted against the party who drafted
the same." . . . . 9
Petitioner airlines argues that the legal principle enunciated in
Fieldmen's Insurance does not apply to the present case
because the provisions of the contract involved here are neither
ambiguous nor obscure. The front portion of the air waybill
contains a simple warning that the shipment is subject to the
conditions of the contract on the dorsal portion thereof
regarding the limited liability of the carrier unless a higher
valuation is declared, as well as the reglementary period within
which to submit a written claim to the carrier in case of
damage or loss to the cargo. Granting that the air waybill is a
contract of adhesion, it has been ruled by the Court that such
contracts are not entirely prohibited and are in fact binding
regardless of whether or not respondent herein read the
provisions thereof. Having contracted the services of petitioner
carrier instead of other airlines, private respondent in effect
negotiated the terms of the contract and thus became bound in reality free to reject it entirely; if he adheres, he gives his
thereby. 10
consent. . . , a contract limiting liability upon an agreed
valuation does not offend against the policy of the law
Counsel for private respondent refutes these arguments by forbidding one from contracting against his own negligence.
saying that due to her eagerness to ship the microwave oven to
Manila, private respondent assented to the terms and As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:
conditions of the contract without any opportunity to question
or change its terms which are practically on a "take-it-or-leave- . . . , it should be borne in mind that a contract of adhesion
it" basis, her only participation therein being the affixation of may be struck down as void and unenforceable, for being
her signature. Further, reliance on the Fieldmen's Insurance subversive of public policy, only when the weaker party is
case is misplaced since it is not the ambiguity or obscurity of imposed upon in dealing with the dominant bargaining party
the stipulation that renders necessary the strict interpretation and is reduced to the alternative of taking it or leaving it,
of a contract of adhesion against the drafter, but the completely deprived of the opportunity to bargain on equal
peculiarity of the transaction wherein one party, normally a footing. . . . .
corporation, drafts all the provisions of the contract without
but subject to the caveat that
any participation whatsoever on the part of the other party
11
other than affixment of signature. . . . . Just because we have said that Condition No. 5 of the
airway bill is binding upon the parties to and fully operative in
A review of jurisprudence on the matter reveals the consistent
this transaction, it does not mean, and let this serve as fair
holding of the Court that contracts of adhesion are not invalid
warning to respondent carriers, that they can at all times
per se and that it has on numerous occasions upheld the
12
whimsical seek refuge from liability in the exculpatory
binding effect thereof. As explained in Ong Yiu vs. Court of
sanctuary of said Condition No. 5 . . . .
Appeals, et al., supra:
The peculiar nature of such contracts behooves the Court to
. . . . Such provisions have been held to be a part of the
closely scrutinize the factual milieu to which the provisions are
contract of carriage, and valid and binding upon the passenger
intended to apply. Thus, just as consistently and
regardless of the latter's lack of knowledge or assent to the
unhesitatingly, but without categorically invalidating such
regulation. It is what is known as a contract of "adhesion," in
contracts, the Court has construed obscurities and
regards which it has been said that contracts of adhesion
ambiguities in the restrictive provisions of contracts of
wherein one party imposes a ready-made form of contract on
adhesion strictly albeit not unreasonably against the drafter
the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is
thereof when justified in light of the operative facts and
surrounding circumstances. 13
We find nothing objectionable about the lower court's reliance
upon the Fieldmen's Insurance case, the principles wherein
squarely apply to the present petition. The parallelism between
the aforementioned case and this one is readily apparent for,
just as in the instant case, it is the binding effect of the
provisions in a contract of adhesion (an insurance policy in
Fieldmen's Insurance) that is put to test.
A judicious reading of the case reveals that what was pivotal in
the judgment of liability against petitioner insurance company
therein, and necessarily interpreting the provisions of the
insurance policy as ineffective, was the finding that the
representations made by the agent of the insurance company
rendered it impossible to comply with the conditions of the
contract in question, rather than the mere ambiguity of its
terms. The extended pronouncements regarding strict
construction of ambiguous provisions in an adhesion contract
against its drafter, which although made by the Court as an
aside but has perforce evolved into a judicial tenet over time,
was actually an incidental statement intended to emphasize
the duty of the court to protect the weaker, as against the more
dominant, party to a contract, as well as to prevent the
iniquitous situation wherein the will of one party is imposed
upon the other in the course of negotiation.
Thus, there can be no further question as to the validity of the
terms of the air waybill, even if the same constitutes a contract
of adhesion. Whether or not the provisions thereof particularly
on the limited liability of the carrier are binding on private
respondent in this instance must be determined from the facts
and circumstances involved vis-a-vis the nature of the
provisions sought to be enforced, taking care that equity and
fair play should characterize the transaction under review.
On petitioner's insistence that its liability for the damage to
private respondent's microwave oven, if any, should be limited
by the provisions of the air waybill, the lower court had this to
say:
By and large, defendant's evidence is anchored principally on
plaintiff's alleged failure to comply with paragraph 12, a(1)
(Exh. "1-C-2") of the Air waybill (Exh. "A," also Exh. "1"), by
filing a formal claim immediately after discovery of the damage.
Plaintiff filed her formal claim only on August 13, 1990 (Exh.
"6", also Exh. "E"). And, failed to present positive proof on the
value of the damaged microwave oven. Hence, the denial of her
claim.
This Court has misgivings about these pretensions of
defendant.
xxx xxx xxx
Finally, the Court finds no merit to defendant's contention that
under the Warsaw Convention, its liability if any, cannot exceed
U.S. $20.00 based on weight as plaintiff did not declare the
contents of her baggage nor pay additional charges before the
14
flight.
The appellate court declared correct the non-application by the
trial court of the limited liability of therein defendant-appellant
under the "Conditions of the Contract" contained in the air
waybill, based on the ruling in Cathay Pacific Airways, Ltd. vs.
Court of Appeals, et al., 15
which substantially enunciates the
rule that while the Warsaw Convention has the force and effect
of law in the Philippines, being a treaty commitment by the
government and as a signatory thereto, the same does not
operate as an exclusive enumeration of the instances when a
carrier shall be liable for breach of contract or as an absolute
limit of the extent of liability, nor does it preclude the operation
of the Civil Code or other pertinent laws.
Petitioner insists that both respondent court and the trial
court erred in finding that petitioner's liability, if any, is not
limited by the provisions of the air waybill, for, as evidence of
the contract of carriage between petitioner and private
respondent, it substantially states that the shipper certifies to
the correctness of the entries contained therein and accepts
that the carrier's liability is limited to US $20 per kilogram of
goods lost, damaged or destroyed unless a value is declared
and a supplementary charge paid. Inasmuch as no such
declaration was made by private respondent, as she admitted
during cross-examination, the liability of petitioner, if any,
should be limited to 28 kilograms multiplied by US $20, or
$560. Moreover, the validity of these conditions has been
upheld in the leading case of Ong Yiu vs. Court of Appeals, et
al., supra, and subsequent cases, for being a mere reiteration
of the limitation of liability under the Warsaw Convention,
16
which treaty has the force and effect of law.
It is additionally averred that since private respondent was
merely advised, not ordered, that she need not declare a higher
value for her cargo, the final decision of refraining from making
such a declaration fell on private respondent and should not
put the petitioner in estoppel from invoking its limited liability.
1
7
In refutation, private respondent explains that the reason for
the absence of a declaration of a higher value was precisely
because petitioner's personnel in San Francisco, U.S.A. advised
her not to declare the value of her cargo, which testimony has
not at all been rebutted by petitioner. This being so, petitioner
is estopped from faulting private respondent for her failure to
18
declare the value of the microwave oven.
The validity of provisions limiting the liability of carriers
contained in bills of lading have been consistently upheld for
the following reason:
. . . . The stipulation in the bill of lading limiting the common
carrier's liability to the value of goods appearing in the bill,
unless the shipper or owner declares a greater value, is valid
and binding. The limitation of the carrier's liability is
sanctioned by the freedom of the contracting parties to
establish such stipulations, clauses, terms, or conditions as
they may deem convenient, provided they are not contrary to
19
law, morals, good customs and public policy. . . . .
However, the Court has likewise cautioned against blind
reliance on adhesion contracts where the facts and
20
circumstances warrant that they should be disregarded.
In the case at bar, it will be noted that private respondent
signified an intention to declare the value of the microwave
oven prior to shipment, but was explicitly advised against
doing so by PAL's personnel in San Francisco, U.S.A., as borne examination that private respondent's cargo was accepted by
out by her testimony in court: PAL in its San Francisco office:

xxx xxx xxx ATTY. VINCO

Q Did you declare the value of the shipment? So that, be that as it may, my particular concern is that, it is
the PAL personnel that accepts the baggage?
A No. I was advised not to.
WITNESS
Q Who advised you?
Yes, sir.
21
A At the PAL Air Cargo.
ATTY. VINCO
It cannot be denied that the attention of PAL through its
personnel in San Francisco was sufficiently called to the fact Also, if he comes from abroad like in this particular case, it is
that private respondent's cargo was highly susceptible to the PAL personnel who accepts the baggage?
breakage as would necessitate the declaration of its actual
value. Petitioner had all the opportunity to check the condition WITNESS
22
and manner of packing prior to acceptance for shipment, as
Yes, sir.
well as during the preparation of the air waybill by PAL's
Acceptance Personnel based on information supplied by the ATTY. VINCO
23
shipper, and to reject the cargo if the contents or the packing
did not meet the company's required specifications. Certainly, And the PAL personnel may or may not accept the baggage?
PAL could not have been otherwise prevailed upon to merely
accept the cargo. WITNESS

While Vicente Villaruz, officer-in-charge of the PAL Import Yes, sir.

Section at the time of incident, posited that there may have
24 ATTY. VINCO
been inadequate and improper packing of the cargo, which
by itself could be a ground for refusing carriage of the goods
According to what is stated as in the acceptance of the cargo, it
presented for shipment, he nonetheless admitted on cross-
is to the best interest of the airlines, that is, he want(s) also
 25
that the airlines would be free from any liability. Could that be No, sir.
one of the grounds for not admitting a baggage?
In response to the trial court's questions during the trial, he
WITNESS also stated that while the passenger's declaration regarding the
general or fragile character of the cargo is to a certain extent
Safety is number one (1) determinative of its classification, PAL nevertheless has and
exercises discretion as to the manner of handling required by
xxx xxx xxx
the nature of the cargo it accepts for carriage. He further
opined that the microwave oven was only a general, not a
ATTY. VINCO
26
fragile, cargo which did not require any special handling.
So, this baggage was accepted and admitted in San Francisco?
There is no absolute obligation on the part of a carrier to
WITNESS accept a cargo. Where a common carrier accepts a cargo for
shipment for valuable consideration, it takes the risk of
Yes, sir. delivering it in good condition as when it was loaded. And if the
fact of improper packing is known to the carrier or its
ATTY. VINCO personnel, or apparent upon observation but it accepts the
goods notwithstanding such condition, it is not relieved of
And you could not show any document to the Court that would
liability for loss or injury resulting therefrom. 27
suggest that this baggage was denied admittance by your office
at San Francisco? The acceptance in due course by PAL of private respondent's
cargo as packed and its advice against the need for declaration
WITNESS
of its actual value operated as an assurance to private
respondent that in fact there was no need for such a
No, I cannot show.
declaration. Petitioner can hardly be faulted for relying on the
ATTY. VINCO representations of PAL's own personnel.

Now, can you show any document that would suggest that In other words, private respondent Mejia could and would have
there was insufficient pac(k)aging on this particular baggage complied with the conditions stated in the air waybill, i.e.,
from abroad? declaration of a higher value and payment of supplemental
transportation charges, entitling her to recovery of damages
WITNESS beyond the stipulated limit of US $20 per kilogram of cargo in
the event of loss or damage, had she not been effectively
prevented from doing so upon the advice of PAL's personnel for
reasons best known to themselves.
As pointed out by private respondent, the aforestated facts
were not denied by PAL in any of its pleadings nor rebutted by
way of evidence presented in the course of the trial, and thus
in effect it judicially admitted that such an advice was given by
its personnel in San Francisco, U.S.A. Petitioner, therefore, is
estopped from blaming private respondent for not declaring the
value of the cargo shipped and which would have otherwise
entitled her to recover a higher amount of damages. The
Court's bidding in the Fieldmen's Insurance case once again
rings true:
. . . As estoppel is primarily based on the doctrine of good faith
and the avoidance of harm that will befall an innocent party
due to its injurious reliance, the failure to apply it in this case
would result in gross travesty of justice.
We likewise uphold the lower court's finding that private
respondent complied with the requirement for the immediate
filing of a formal claim for damages as required in the air
waybill or, at least, we find that there was substantial
compliance therewith.
Private respondent testified that she authorized her sister,
Concepcion Dio, to claim her cargo consisting of a microwave
oven since the former had to take a connecting flight to
Bacolod City on the very same afternoon of the day of her
28
arrival. As instructed, Concepcion Dio promptly proceeded
to PAL's Import Section the next day to claim the oven. Upon
discovering that the glass door was broken, she immediately
filed a claim by way of the baggage freight claim 29
on which
was duly annotated the damage sustained by the oven. 30
Her testimony relates what took place thereafter:
ATTY. VINCO
So, after that inspection, what did you do?
WITNESS
After that annotation placed by Mr. Villaruz, I went home and I
followed it up the next day with the Clerk of PAL cargo office.
ATTY. VINCO
What did the clerk tell you?
WITNESS
She told me that the claim was being processed and I made
several phone calls after that. I started my follow-ups February
up to June 1990.
ATTY. VINCO
And what results did those follow-ups produce?
WITNESS
All they said (was) that the document was being processed,
that they were waiting for Atty. Paco to report to the office and
they could refer the matter to Atty. Paco.
ATTY. VINCO They told me that they were going to process the claim based
on the price that I gave them but there was no definite result.
Who is this Atty. Paco?
ATTY. VINCO
WITNESS
How many times did you go and see Atty. Paco regarding the
He was the one in-charge of approving our claim. claim of your sister?

ATTY. VINCO WITNESS

Were you able to see Atty. Paco? I made one personal visit and several follow-up calls. With Atty.
Paco, I made one phone call but I made several phone calls
WITNESS
with his secretary or the clerk at PAL cargo office and I was
trying to locate him but unfortunately, he was always out of his
Yes, sir. I personally visited Atty. Paco together with my auntie 31
office.
who was a former PAL employee.

PAL claims processor, Rodolfo Pandes, * confirmed having

xxx xxx xxx
32
received the baggage freight claim on January 30, 1990 and
ATTY. VINCO the referral to and extended pendency of the private
respondent's claim with the office of Atty. Paco, to wit:
So, what did you do, did you make a report or did you tell Atty.
Paco of your scouting around for a possible replacement? ATTY. VINCO:

WITNESS Q And you did instruct the claimant to see the Claim Officer of
the company, right?
I did call him back at his office. I made a telephone call.
WITNESS:
ATTY. VINCO
A Yes, sir.
And what answer did Atty. Paco make after you have reported
back to him? ATTY. VINCO:

WITNESS Q And the Claim Officer happened to be Atty. Paco?

WITNESS: A Yes.

A Yes, sir. ATTY. VINCO:

ATTY. VINCO: Q In other words, the plaintiff rather had never stop(ped) in her
desire for your company to settle this claim, right?
Q And you know that the plaintiff thru her authorized
representative Concepcion Dio, who is her sister had many WITNESS:
times gone to Atty. Paco, in connection with this claim of her
33
sister? A Yes, sir.

WITNESS: Considering the abovementioned incidents and private

respondent Mejia's own zealous efforts in following up the
A Yes, sir. claim, 34
it was clearly not her fault that the letter of demand
for damages could only be filed, after months of exasperating
ATTY. VINCO: 35
follow-up of the claim, on August 13, 1990. If there was any
failure at all to file the formal claim within the prescriptive
Q As a matter of fact even when the complaint was already filed
period contemplated in the air waybill, this was largely because
here in Court the claimant had continued to call about the
of PAL's own doing, the consequences of which cannot, in all
settlement of her claim with Atty. Paco, is that correct?
fairness, be attributed to private respondent.
xxx xxx xxx
Even if the claim for damages was conditioned on the timely
WITNESS: filing of a formal claim, under Article 1186 of the Civil Code
that condition was deemed fulfilled, considering that the
A Yes, sir. collective action of PAL's personnel in tossing around the claim
and leaving it unresolved for an indefinite period of time was
ATTY. VINCO: tantamount to "voluntarily preventing its fulfillment." On
grounds of equity, the filing of the baggage freight claim, which
Q You know this fact because a personnel saw you in one of sufficiently informed PAL of the damage sustained by private
the pre-trial here when this case was heard before the sala of respondent's cargo, constituted substantial compliance with
Judge Moscardon, is that correct? the requirement in the contract for the filing of a formal claim.

WITNESS:
All told, therefore, respondent appellate court did not err in
ruling that the provision on limited liability is not applicable in
this case. We, however, note in passing that while the facts and
circumstances of this case do not call for the direct application
of the provisions of the Warsaw Convention, it should be
stressed that, indeed, recognition of the Warsaw Convention
does not preclude the operation of the Civil Code and other
pertinent laws in the determination of the extent of liability of
the common carrier. 36
The Warsaw Convention, being a treaty to which the
Philippines is a signatory, is as much a part of Philippine law
as the Civil Code, Code of Commerce and other municipal
special laws. 37 The provisions therein contained, specifically
on the limitation of carrier's liability, are operative in the
Philippines but only in appropriate situations.
Petitioner ascribes ultimate error in the award of moral and
exemplary damages and attorney's fees in favor of private
respondent in that other than the statement of the trial court
that petitioner acted in bad faith in denying private
respondent's claim, which was affirmed by the Court of
Appeals, there is no evidence on record that the same is true.
The denial of private respondent's claim was supposedly in the
honest belief that the same had prescribed, there being no
timely formal claim filed; and despite having been given an
opportunity to submit positive proof of the value of the
damaged microwave oven, no such proof was submitted.
Petitioner insists that its failure to deliver the oven in the
condition in which it was shipped could hardly be considered
38
as amounting to bad faith.
Private respondent counters that petitioner's failure to deliver
the microwave oven in the condition in which it was received
can be described as gross negligence amounting to bad faith,
on the further consideration that it failed to prove that it
exercised the extraordinary diligence required by law, and that
no explanation whatsoever was given as to why the front glass
of the oven was broken. 39
The trial court justified its award of actual, moral and
exemplary damages, and attorney's fees in favor of private
respondent in this wise:
Since the plaintiff's baggage destination was the Philippines,
Philippine law governs the liability of the defendant for
damages for the microwave oven.
The provisions of the New Civil Code on common carriers are
Article(s) 1733, 1735 and 1753 . . . .
xxx xxx xxx
In this case, defendant failed to overcome, not only the
presumption but more importantly, plaintiff's evidence that
defendant's negligence was the proximate cause of the
damages of the microwave oven. Further plaintiff has
established that defendant acted in bad faith when it denied
the former's claim on the ground that the formal claim was
filed beyond the period as provided in paragraph 12 (a-1) (Exh.
"1-C-2") of the Air Waybill (Exh. "1", also Exh. "A"), when
actually, Concepcion Dio, sister of plaintiff has immediately
40
filed the formal claim upon discovery of the damage.
Respondent appellate court was in full agreement with the trial The very admissions of PAL, through Vicente Villaruz of its
court's finding of bad faith on the part of petitioner as a basis Import Section, as follows:
for the award of the aforestated damages, declaring that:
ATTY. VINCO
As to the last assigned error, a perusal of the facts and law of
the case reveals that the lower court's award of moral and So that, you now claim, Mr. Witness, that from the time the
exemplary damages, attorney's fees and costs of suit to cargo was unloaded from the plane until the time it reaches
plaintiff-appellee is in accordance with current laws and the Customs counter where it was inspected, all the way, it was
jurisprudence on the matter. Indeed, aside from the fact that the PAL personnel who did all these things?
defendant-appellant acted in bad faith in breaching the
WITNESS
contract and in denying plaintiff's valid claim for damages,
plaintiff-appellee underwent profound distress, sleepless
Yes, however, there is also what we call the Customs
nights, and anxiety upon knowledge of her damaged microwave
storekeeper and the Customs guard along with the cargo.
oven in possession of defendant-appellant, entitling her to the
award of moral and exemplary damages (Cathay Pacific ATTY. VINCO
Airways, Ltd. vs. C.A., supra; Arts. 2219 & 2221, New Civil
Code), and certainly plaintiff-appellant's unjust refusal to You made mention about a locator?
comply with her valid demand for payment, thereby also
entitling her to reasonable attorney's fees [Art. 2208 (2) and WITNESS
41
(11), id.].
Yes, sir.
It will be noted that petitioner never denied that the damage to
the microwave oven was sustained while the same was in its ATTY. VINCO

custody. The possibility that said damage was due to causes

This locator, is he an employee of the PAL or the Customs?
beyond the control of PAL has effectively been ruled out since
the entire process in handling of the cargo from the
WITNESS
unloading thereof from the plane, the towing and transfer to
the PAL warehouse, the transfer to the Customs examination He is a PAL employee. 43

area, and its release thereafter to the shipper was done

almost exclusively by, and with the intervention or, at the very lead to the inevitable conclusion that whatever damage may
least, under the direct supervision of a responsible PAL have been sustained by the cargo is due to causes attributable
42
personnel. to PAL's personnel or, at all events, under their responsibility.
Moreover, the trial court underscored the fact that petitioner
was not able to overcome the statutory presumption of
negligence in Article 1735 which, as a common carrier, it was
laboring under in case of loss, destruction or deterioration of
goods, through proper showing of the exercise of extraordinary
diligence. Neither did it prove that the damage to the
microwave oven was because of any of the excepting causes
under Article 1734, all of the same Code. Inasmuch as the
subject item was received in apparent good condition, no
contrary notation or exception having been made on the air
waybill upon its acceptance for shipment, the fact that it was
delivered with a broken glass door raises the presumption that
PAL's personnel were negligent in the carriage and handling of
the cargo. 44
Furthermore, there was glaringly no attempt whatsoever on the
part of petitioner to explain the cause of the damage to the
oven. The unexplained cause of damage to private respondent's
cargo constitutes gross carelessness or negligence which by
45
itself justifies the present award of damages. The equally
unexplained and inordinate delay in acting on the claim upon
referral thereof to the claims officer, Atty. Paco, and the
noncommittal responses to private respondent's entreaties for
settlement of her claim for damages belies petitioner's
pretension that there was no bad faith on its part. This
unprofessional indifference of PAL's personnel despite full and
actual knowledge of the damage to private respondent's cargo,
just to be exculpated from liability on pure technicality and
bureaucratic subterfuge, smacks of willful misconduct and
46
insensitivity to a passenger's plight tantamount to bad faith
and renders unquestionable petitioner's liability for damages.
In sum, there is no reason to disturb the findings of the trial
court in this case, especially with its full affirmance by
respondent Court of Appeals.
On this note, the case at bar goes into the annals of our
jurisprudence after six years and recedes into the memories of
our legal experience as just another inexplicable inevitability.
We will never know exactly how many man-hours went into the
preparation, litigation and adjudication of this simple dispute
over an oven, which the parties will no doubt insist they
contested as a matter of principle. One thing, however, is
certain. As long as the first letter in "principle" is somehow
outplaced by the peso sign, the courts will always have to
resolve similar controversies although mutual goodwill could
have dispensed with judicial recourse. IN VIEW OF ALL OF
THE FOREGOING, the assailed judgment of respondent Court
of Appeals is AFFIRMED in toto. SO ORDERED.
SECOND DIVISION
G.R. No. 88092 April 25, 1990
CITADEL LINES, INC., petitioner, vs.
COURT OF APPEALS* and MANILA WINE MERCHANTS,
INC., respondents.
Del Rosario & Del Rosario Law Offices for petitioner.
Limqueco and Macaraeg Law Office for private respondent.
REGALADO, J.:
Through this petition, we are asked to review the decision of
the Court of Appeals dated December 20, 1988, in CA-G.R. No.
CV-10070, 1
which affirmed the August 30, 1985 decision of
the Regional Trial Court of Manila, Branch 27, in Civil Case No.
126415, entitled Manila Wine Merchants, Inc. vs. Citadel
Lines, Inc. and E. Razon, Inc., with a modification by deleting
the award of attorney's fees and costs of suit.
The following recital of the factual background of this case is
culled from the findings in the decision of the court a quo and
adopted by respondent court based on the evidence of record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the
CARRIER) is the general agent of the vessel "Cardigan
Bay/Strait Enterprise," while respondent Manila Wine
Merchants, Inc. (hereafter, the CONSIGNEE) is the importer of
the subject shipment of Dunhill cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait
Enterprise" loaded on board at Southampton, England, for
carriage to Manila, 180 Filbrite cartons of mixed British
manufactured cigarettes called "Dunhill International Filter"
and "Dunhill International Menthol," as evidenced by Bill of
Lading No. 70621374 2
and Bill of Lading No. 70608680
the Ben Line Containers Ltd. The shipment arrived at the Port
of Manila Pier 13, on April 18, 1979 in container van No. BENU
204850-9. The said container was received by E. Razon, Inc.
(later known as Metro Port Service, Inc. and referred to herein
as the ARRASTRE) under Cargo Receipt No. 71923 dated April
18, 1979. 4
On April 30, 1979, the container van, which contained two
shipments was stripped. One shipment was delivered and the
other shipment consisting of the imported British
manufactured cigarettes was palletized. Due to lack of space at
the Special Cargo Coral, the aforesaid cigarettes were placed in
two containers with two pallets in container No. BENU 204850-
9, the original container, and four pallets in container No.
BENU 201009-9, with both containers duly padlocked and
sealed by the representative of the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker
discovered that container van No. BENU 201009-9 had a
different padlock and the seal was tampered with. The matter
was reported to Jose G. Sibucao, Pier Superintendent, Pier 13,
and upon verification, it was found that 90 cases of imported
British manufactured cigarettes were missing. This was
confirmed in the report of said Superintendent Sibucao to
Ricardo Cosme, Assistant Operations Manager, dated May 1,
1979 5
and the Official Report/Notice of Claim of Citadel Lines,
Inc. to E. Razon, Inc. dated May 8, 1979. 6
Per investigation
conducted by the ARRASTRE, it was revealed that the cargo in
question was not formally turned over to it by the CARRIER but
was kept inside container van No. BENU 201009-9 which was
3
of
padlocked and sealed by the representatives of the CARRIER
without any participation of the ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it
filed a formal claim dated May 21, 1979, 7
with the CARRIER,
demanding the payment of P315,000.00 representing the
market value of the missing cargoes. The CARRIER, in its reply
letter dated May 23, 1979, 8
admitted the loss but alleged that
the same occurred at Pier 13, an area absolutely under the
control of the ARRASTRE. In view thereof, the CONSIGNEE
filed a formal claim, dated June 4, 1979, 9
with the
ARRASTRE, demanding payment of the value of the goods but
said claim was denied.
After trial, the lower court rendered a decision on August 30,
1985, exonerating the ARRASTRE of any liability on the ground
that the subject container van was not formally turned over to
its custody, and adjudging the CARRIER liable for the principal
amount of P312,480.00 representing the market value of the
lost shipment, and the sum of P30,000.00 as and for attorney's
fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of
the court a quo but deleted the award of attorney's fees and
costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was
in the custody of E. Razon, Inc. or of Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier
contained in the bill of lading is binding on the consignee.
The first issue is factual in nature. The Court of Appeals
declared in no uncertain terms that, on the basis of the
evidence presented, the subject cargo which was placed in a
container van, padlocked and sealed by the representative of
the CARRIER was still in its possession and control when the
loss occurred, there having been no formal turnover of the
cargo to the ARRASTRE. Besides, there is the categorical
admission made by two witnesses, namely, Atty. Lope M.
Velasco and Ruben Ignacio, Claims Manager and Head
Checker, respectively, of the CARRIER, 10
that for lack of space
the containers were not turned over to and as the
responsibility of E. Razon Inc. The CARRIER is now estopped
from claiming otherwise.
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. 11
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 extra ordinary diligence as required in Article 1733 of
the Civil Code. 12
The duty of the consignee is to prove merely
that the goods were lost. Thereafter, the burden is shifted to
the carrier to prove that it has exercised the extraordinary
diligence required by law. And, its 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 them. 13
Considering, therefore, that the subject shipment was lost
while it was still in the custody of herein petitioner CARRIER,
and considering further that it failed to prove that the loss was
occasioned by an excepted cause, the inescapable conclusion is
that the CARRIER was negligent and should be held liable
therefor.
The cases cited by petitioner in support of its allegations to the
contrary do not find proper application in the case at bar
simply because those cases involve a situation wherein the
shipment was turned over to the custody and possession of the
arrastre operator.
We, however, find the award of damages in the amount of
P312,800.00 for the value of the goods lost, based on the
alleged market value thereof, to be erroneous. It is clearly and
expressly provided under Clause 6 of the aforementioned bills
of lading issued by the CARRIER that its liability is limited to
$2.00 per kilo. Basic is the rule, long since enshrined as a
statutory provision, that a stipulation limiting the liability of
the carrier to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is
binding. 14
Further, a contract fixing the sum that may be
recovered by the owner or shipper for the loss, destruction or
deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been fairly and freely agreed
upon. 15
The CONSIGNEE itself admits in its memorandum that the
value of the goods shipped does not appear in the bills of
lading. 16
Hence, the stipulation on the carrier's limited liability
applies. There is no question that the stipulation is just and
reasonable under the circumstances and have been fairly and
freely agreed upon. In Sea-land Service, Inc. vs. Intermediate
Appellate Court, et al. 17
we there explained what is a just and
reasonable, and a fair and free, stipulation, in this wise:
. . . That said stipulation is just and reasonable arguable from
the fact that it echoes Art. 1750 itself in providing a limit to
liability only if a greater value is not declared for the shipment
in the bill of lading. To hold otherwise would amount to
questioning the justice and fairness of that law itself, and this
the private respondent does not pretend to do. But over and
above that consideration the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the
option of avoiding accrual of liability limitation by the simple
and surely far from onerous expedient of declaring the nature
and value of the shipment in the bill of lading. And since the
shipper here has not been heard to complain of having been
"rushed," imposed upon or deceived in any significant way into
agreeing to ship the cargo under a bill of lading carrying such
a stipulation in fact, it does not appear, that said party has
been heard from at all insofar as this dispute is concerned
there is simply no ground for assuming that its agreement
thereto was not as the law would require, freely and fairly
sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or
24.82 kilos per carton. Since 90 cartons were lost and the
weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the
CARRIER's liability amounts to only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby
MODIFIED and petitioner Citadel Lines, Inc. is ordered to pay
private respondent Manila Wine Merchants, Inc. the sum of
US$4,465.60. or its equivalent in Philippine currency at the
exchange rate obtaining at the time of payment thereof. In all
other respects, said judgment of respondent Court is
AFFIRMED.
SO ORDERED.