SECOND DIVISION

[G.R. No. 148496. March 19, 2002]

VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL
INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent.

DECISION

MENDOZA, J.:

This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which
ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal
interest, representing the value of damaged cargo handled by petitioner, 25% thereof as
attorneys fees, and the cost of the suit.

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to
SMCs warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo
was insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel
to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25,
1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre
operator and delivered it to SMCs warehouse in Ermita, Manila. On July 25, 1990, the
goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-
chemical fluting paper were wet/stained/torn and 3 reels of kraft liner board were likewise
torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20,
1995, rendered judgment finding petitioner liable to respondent for the damage to the
shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report
(Exh. F) with entries appearing therein, classified as TED and TSN, which the claims
processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the
middle of the subject damaged cargoes respectively, coupled with the Marine Cargo Survey
Report (Exh. H - H-4-A) confirms the fact of the damaged condition of the subject
cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which provides among others
that:
. . . we opine that damages sustained by shipment is attributable to improper handling in
transit presumably whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable. Defendant by reason of the nature of [her] business should have devised
ways and means in order to prevent the damage to the cargoes which it is under obligation to
take custody of and to forthwith deliver to the consignee. Defendant did not present any
evidence on what precaution [she] performed to prevent [the] said incident, hence the
presumption is that the moment the defendant accepts the cargo [she] shall perform such
extraordinary diligence because of the nature of the cargo.
. . . .
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have
been lost, destroyed or deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they have observed the extraordinary
diligence required by law. The burden of the plaintiff, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the carrier to prove that he has exercised the extraordinary diligence required by
law. Thus, it has been held that the mere proof of delivery of goods in good order to a
carrier, and of their arrival at the place of destination in bad order, makes out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the
carrier must be held responsible. It is incumbent upon the carrier to prove that the loss was
due to accident or some other circumstances inconsistent with its liability. (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier
is supposed [to] exercise [the] extraordinary diligence required by law, hence the
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right to
receive the same.[3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for
review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED
BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND
NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.[5]
It will be convenient to deal with these contentions in the inverse order, for if petitioner is
not a common carrier, although both the trial court and the Court of Appeals held otherwise,
then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods
transported by her, would require.[6] Consequently, any damage to the cargo she agrees to
transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed
a similar contention and held the party to be a common carrier, thus
The Civil Code defines common carriers in the following terms:

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

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general public, i.e., the
general community or population, and one who offers services or solicits business only from
a narrow segmentof the general population. We think that Article 1732 deliberately refrained
from making such distinctions.

So understood, the concept of common carrier under Article 1732 may be seen to coincide
neatly with the notion of public service, under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, public
service includes:
x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and
other similar public services. x x x [8]
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners contention
would be to deprive those with whom she contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for her customers, as
already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in
the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She claims
that the spoilage or wettage took place while the goods were in the custody of either the
carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre
operator, to whom the goods were unloaded and who allegedly kept them in open air for nine
days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers were
deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to
wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached
loosened.[10]
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that
he has no personal knowledge on whether the container vans were first stored in petitioners
warehouse prior to their delivery to the consignee. She likewise claims that after
withdrawing the container vans from the arrastre operator, her driver, Ricardo Nazarro,
immediately delivered the cargo to SMCs warehouse in Ermita, Manila, which is a mere
thirty-minute drive from the Port Area where the cargo came from. Thus, the damage to the
cargo could not have taken place while these were in her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the arrastre
operator, these were covered by clean Equipment Interchange Report (EIR) and, when
petitioners employees withdrew the cargo from the arrastre operator, they did so without
exception or protest either with regard to the condition of container vans
or their contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock
of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal
vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good condition.
. . . .
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to
the arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition as
the same were received by the former without exception, that is, without any report of
damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented,
the defendant-appellant would report it immediately to the consignee or make an exception
on the delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only conclude
that the damages to the cargo occurred while it was in the possession of the defendant-
appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is
proof to the contrary. No proof was proffered to rebut this legal presumption and the
presumption of negligence attached to a common carrier in case of loss or damage to the
goods.[13]
Anent petitioners insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMCs compound, suffice it to say
that to prove the exercise of extraordinary diligence, petitioner must do more than merely
show the possibility that some other party could be responsible for the damage. It must
prove that it used all reasonable means to ascertain the nature and characteristic of goods
tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]. Petitioner
failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides
Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
. . . .
(4) The character of the goods or defects in the packing or in the containers.
. . . .
For this provision to apply, the rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted the cargo without exception despite
the apparent defects in some of the container vans. Hence, for failure of petitioner to prove
that she exercised extraordinary diligence in the carriage of goods in this case or that she is
exempt from liability, the presumption of negligence as provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1]
Per Justice Presbitero J. Velasco, Jr., and concurred in by Justices Bienvenido L. Reyes
and Juan Q. Enriquez, Jr.
[2]
Per Judge Oscar Pimentel.
[3]
RTC Decision, pp. 3-5; Rollo, pp. 31-33.
[4]
Id., p. 6; id., p. 34.
[5]
Petition, p. 5, Rollo, p. 13.
[6]
Planters Products, Inc. v. Court of Appeals, 226 SCRA 476 (1993).
[7]
168 SCRA 612 (1988).
[8]
Id., pp. 617-618 (italics in the original).
[9]
164 SCRA 685, 692 (1988).
[10]
CA Decision, p. 5; Rollo, p. 25.
[11]
Petition, pp. 6-9; Rollo, pp. 14-17.
[12]
CA Decision, p. 6; Rollo, p. 26 (emphasis in the original).
[13]
Id., pp. 6-7; id., pp. 26-27 (emphasis in the original).
[14]
See 5-A Ambrosio Padilla, Civil Code Annotated 472 (6th ed., 1990) citing Southern
Lines, Inc. v. Court of Appeals and City of Iloilo, 114 Phil. 198 (1962).
[15]
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of [Art. 1734], if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently unless they prove that they observed extraordinary
diligence as required in Article 1733.

Republic of the Philippines

SUPREME COURT
THIRD DIVISION
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK
SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its
Resolution2 dated September 28, 2001 denying the motion for reconsideration, which
affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-
631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport),
together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent
Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable for the loss
of 37 hot rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk,
Russia on board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black
Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee,
Little Giant Steel Pipe Corporation (Little Giant),4 were insured against all risks with Industrial
Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South
Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignees) warehouse at Cainta, Rizal,7 in turn engaged the services of TVI to send a
barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVIs tugboat "Lailani" towed the barge "Erika V" to
shipside.8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal
Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the 37 coils was
accomplished.10 No tugboat pulled the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge
abandoned it and transferred to the vessel. The barge pitched and rolled with the waves and
eventually capsized, washing the 37 coils into the sea.12 At 7:00 a.m., a tugboat finally
arrived to pull the already empty and damaged barge back to the pier.13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to
recover the lost cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of P5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in favor of
Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea
through its representative Inchcape (the defendants) before the RTC of Manila, for the
recovery of the amount it paid to Little Giant plus adjustment fees, attorneys fees, and
litigation expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes
while typhoon signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent
for unloading the cargoes outside of the breakwater notwithstanding the storm signal. 18 The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
ordering the defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with
interest from the date the complaint was filed until fully satisfied, as well as the sum
of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount
recoverable from the defendants as attorneys fees plus the costs of suit. The counterclaims
and cross claims of defendants are hereby DISMISSED for lack of [m]erit. 19
To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of
excessive attorneys fees of more thanP1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the incident was caused by a fortuitous
event. 20
By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001,
affirmed in toto the decision of the trial court, 22 it finding that all the defendants were
common carriers Black Sea and TVI for engaging in the transport of goods and cargoes
over the seas as a regular business and not as an isolated transaction, 23 and Schmitz
Transport for entering into a contract with Little Giant to transport the cargoes from ship to
port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one was
essential such that without each others contributory negligence the incident would not have
happened and so much so that the person principally liable cannot be distinguished with
sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although
defendants obviously had nothing to do with the force of nature, they however had control of
where to anchor the vessel, where discharge will take place and even when the discharging
will commence."26
The defendants respective motions for reconsideration having been denied by
Resolution27 of September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner)
filed the present petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its
principal, consignee Little Giant, hence, the transportation contract was by and between Little
Giant and TVI.28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and
TVI were required to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and supervision
thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes
and transferred them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner
and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any
and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which though foreseen,
were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the
caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must
be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from
creating or entering into the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active intervention or neglect or failure
to act, the whole occurrence is then humanized and removed from the rules applicable to the
acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in the
form of contributory negligence by all the defendants resulted to the loss of the
cargoes,34 held that unloading outside the breakwater, instead of inside the breakwater, while
a storm signal was up constitutes negligence.35 It thus concluded that the proximate cause of
the loss was Black Seas negligence in deciding to unload the cargoes at an unsafe place
and while a typhoon was approaching.36
From a review of the records of the case, there is no indication that there was greater risk in
loading the cargoes outside the breakwater. As the defendants proffered, the weather on
October 26, 1991 remained normal with moderate sea condition such that port operations
continued and proceeded normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of
PAG-ASA and marked as a common exhibit of the parties, states that while typhoon signal
No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of
Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be
said that the defendants were negligent in not unloading the cargoes upon the barge on
October 26, 1991 inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded
by 12:30 in the morning39 is, however, a material fact which the appellate court failed to
properly consider and appreciate40 the proximate cause of the loss of the cargoes. Had the
barge been towed back promptly to the pier, the deteriorating sea conditions notwithstanding,
the loss could have been avoided. But the barge was left floating in open sea until big waves
set in at 5:30 a.m., causing it to sink along with the cargoes.41 The loss thus falls outside the
"act of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are
responsible therefor?
Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner
is a common carrier. For it undertook to transport the cargoes from the shipside of "M/V
Alexander Saveliev" to the consignees warehouse at Cainta, Rizal. As the appellate court
put it, "as long as a person or corporation holds [itself] to the public for the purpose of
transporting goods as [a] business, [it] is already considered a common carrier regardless if
[it] owns the vehicle to be used or has to hire one."42 That petitioner is a common carrier, the
testimony of its own Vice-President and General Manager Noel Aro that part of the services it
offers to its clients as a brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President
and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters, and
all other related functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell
the Honorable Court if you came to know the company by the name Little Giant Steel Pipe
Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you
perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are]
also in-charged of the delivery of the goods to their warehouses. We also handled the
clearances of their shipment at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation
with regards to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of
[the] cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to
perform, what equipment do (sic) you require or did you use in order to effect this unloading,
transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to
lighter, and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was]
in-charged (sic) of the barges. Also, in BASECO compound we are leasing cranes to have
the cargo unloaded from the barge to trucks, [and] then we used trucks to deliver [the
cargoes] to the consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to
contract for the barges of Transport Ventures Incorporated in this particular operation?
A: Firstly, we dont own any barges. That is why we hired the services of another firm whom
we know [al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis
supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common
carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
xxx
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation
of goods is an integral part of a customs broker, the customs broker is also a common
carrier. For to declare otherwise "would be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding the fact that the obligation to carry
goods for [its] customers, is part and parcel of petitioners business."47
As for petitioners argument that being the agent of Little Giant, any negligence it committed
was deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In
effecting the transportation of the cargoes from the shipside and into Little Giants
warehouse, however, petitioner was discharging its own personal obligation under a contact
of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler48 to provide the barge and the tugboat. In their Service Contract,49 while Little Giant
was named as the consignee, petitioner did not disclose that it was acting on commission
and was chartering the vessel for Little Giant.50 Little Giant did not thus automatically become
a party to the Service Contract and was not, therefore, bound by the terms and conditions
therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon
but it can maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper
and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have used in
the same situation exercised by TVI?52
This Court holds not.
TVIs failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the
loss. A man of ordinary prudence would not leave a heavily loaded barge floating for a
considerable number of hours, at such a precarious time, and in the open sea, knowing that
the barge does not have any power of its own and is totally defenseless from the ravages of
the sea. That it was nighttime and, therefore, the members of the crew of a tugboat would be
charging overtime pay did not excuse TVI from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 53 of the Civil
Code, prove that it exercised due diligence to prevent or minimize the loss, before, during
and after the occurrence of the storm in order that it may be exempted from liability for the
loss of the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the
operations of TVI, itfailed to take all available and reasonable precautions to avoid the loss.
After noting that TVI failed to arrange for the prompt towage of the barge despite the
deteriorating sea conditions, it should have summoned the same or another tugboat to
extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable 56 for the loss of the cargoes.
The following pronouncement of the Supreme Court is instructive:
The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify
the victim arises from the breach of that contract by reason of its failure to exercise the high
diligence required of the common carrier. In the discharge of its commitment to ensure the
safety of passengers, a carrier may choose to hire its own employees or avail itself of the
services of an outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil
Code. x x x [O]ne might ask further, how then must the liability of the common carrier, on one
hand, and an independent contractor, on the other hand, be described? It would be solidary.
A contractual obligation can be breached by tort and when the same act or omission causes
the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of
the Civil Code can well apply. In fine, a liability for tort may arise even under a contract,
where tort is that which breaches the contract. Stated differently, when an act which
constitutes a breach of contract would have itself constituted the source of a quasi-delictual
liability had no contract existed between the parties, the contract can be said to have been
breached by tort, thereby allowing the rules on tort to apply.57
As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until
they were delivered actually or constructively to consignee Little Giant.58
Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering
the shipment provides that delivery be made "to the port of discharge or so near thereto as
she may safely get, always afloat."59 The delivery of the goods to the consignee was not from
"pier to pier" but from the shipside of "M/V Alexander Saveliev" and into barges, for which
reason the consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its
duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorneys fees in an amount over P1,000,000.00 to Industrial
Insurance, for lack of factual and legal basis, this Court sets it aside. While Industrial
Insurance was compelled to litigate its rights, such fact by itself does not justify the award of
attorneys fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous conviction of
the righteousness of his cause.61 To award attorneys fees to a party just because the
judgment is rendered in its favor would be tantamount to imposing a premium on ones right
to litigate or seek judicial redress of legitimate grievances.62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred
by Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost
cargo. They do not constitute actual damages.63
As for the court a quos award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that
when the demand cannot be reasonably established at the time the demand is made, the
interest shall begin to run not from the time the claim is made judicially or extrajudicially but
from the date the judgment of the court is made (at which the time the quantification of
damages may be deemed to have been reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &
Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable for
the amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per
annum of the amount due should be computed from the promulgation on November 24, 1997
of the decision of the trial court.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

Footnotes
1
Rollo at 47-85.
2
Id. at 7-20.
3
Id. at 171-177.
4
Records at 301-303,
5
Id. at 290.
6
Rollo at 195.
7
Id. at 32.
8
Records at 472.
9
Transcript of Stenographic Notes (TSN), July 18, 1996 at 18.
10
Records at 333.
11
Id. at 332, 464.
12
Rollo at 125.
13
TSN, July 18, 1996 at 19.
14
Rollo at 125.
15
Records at 317.
16
Id. at 1-6.
17
Id. at 318-321.
18
Rollo at 176.
19
Id. at 177.
20
Records at 520-528.
21
Id. at 538.
22
Rollo at 69.
23
Id. at 53.
24
Id. at 63.
25
Id. at 69.
26
Id. at 55.
27
Id. at 7-20.
28
Id. at 119.
29
Id. at 181.
30
Id. at 204.
31
Id. at 225-226.
32
Yobido v. Court of Appeals, 281 SCRA 1, 9 (1997).
33
National Power Corporation v. Court of Appeals, 211 SCRA 162, 167 (1992).
34
Rollo at 69.
35
Id. at 59, 99.
36
Id. at 61.
37
Id. at 33, 225; CA Rollo at 33.
38
Records at 318-321.
39
TSN, July 18, 1996 at 19.
40
In Philippine American General Insurance Company v. PKS Shipping Company,
401 SCRA 222, 230 (2003), this Court has held that findings of fact of the Court of
Appeals are generally conclusive but one of the exceptions is when the Court of
Appeals failed to notice certain relevant facts which, if properly considered, would
justify a different conclusion.
41
Records at 332, 464.
42
Rollo at 63.
43
TSN, February 4, 1997 at 5-10.
44
G.R. No. 147079, December 15, 2004.
45
A.F. Sanchez Brokerage Inc. v. The Honorable Court of Appeals, G.R. No. 147079,
December 15, 2004.
46
379 SCRA 510 (2002).
47
Calvo v. UCPB General Insurance Co., Inc., 379 SCRA 510, 517 (2002).
48
Records at 521.
49
Rollo at 90.
50
Article 652 (5) of the Code of Commerce provides that the charter party shall
contain the name, surname, and domicile of the charterer; and if he states that he is
acting by commission, that of the person for whose account he makes the contract.
51
T. SCHOENBAUM, ADMIRALTY AND MARITIME LAW 330 (1987).
52
D. JURADO, COMMENTS AND JURISPRUDENCE ON OBLIGATIONS AND
CONTRACTS 66 (1993).
53
Art. 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize loss
before, during and after the occurrence of flood, storm or other natural disaster in
order that the common carrier may be exempted from liability for the loss, destruction,
or deterioration of the good. x x x
54
TSN, February 4, 1997 at 14-15.
55
Id. at 22.
56
CIVIL CODE, Art. 2194. The responsibility of two or more persons who are liable
for a quasi-delict is solidary.
57
Light Rail Transit Authority v. Navidad, 397 SCRA 75, 82-83 (2003).
58
CIVIL CODE, Art. 1736. The extraordinary responsibility of the common carriers
lasts from the time the goods are unconditionally laced in the possession of, and
received by the carrier for transportation until the same are delivered actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of Article 1738. Vide Eastern
Shipping Lines Inc. v. Hon. Court of Appeals, 234 SCRA 78 (1994).
59
Records at 7.
60
Vide A/S Dampskibsselskabet Torm v. McDermott, Inc., 788 F.2d 1103, 1987
A.M.C. 353 (May 5, 1986). Vide Proctor and Gamble, Limited v. M/T Stolt Llandaff,
664 F.2d 1285, 1982 A.M.C. 2517 (January 4, 1982).
61
National Steel Corporation v. Court of Appeals, 283 SCRA 45, 78-79 (1997).
62
Id. at 45, 79.
63
Iron Bulk Shipping Philippines, Cp. Ltd., v. Remington Industrial Sales Corporation,
417 SCRA 229, 240 (2003).
64
234 SCRA 78 (1994).
65
Eastern Shipping Lines, Inc. v. Court of Appeals, supra at 78, 96-97.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, respondent charged freight rates
which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized
dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with
respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General
Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December
1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to
his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600
cartons were placed on board the other truck which was driven by Manuel Estrada,
respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along
the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its
driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the undelivered
goods.
In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be
a common carrier and holding him liable for the value of the undelivered goods (P 22,150.00)
as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services
to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo,
p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their
services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:
... every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other
similar public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent'sprincipal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his
customers a fee for hauling their goods; that fee frequently fell below commercial freight
rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A
certificate of public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers. That liability arises the moment a person or firm
acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and
has been granted a certificate of public convenience or other franchise. To exempt private
respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable statutory
requirements. The business of a common carrier impinges directly and intimately upon the
safety and well being and property of those members of the general community who happen
to deal with such carrier. The law imposes duties and liabilities upon common carriers for the
safety and protection of those who utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held
to a very high degree of care and diligence ("extraordinary diligence") in the carriage of
goods as well as of passengers. The specific import of extraordinary diligence in the care of
goods transported by a common carrier is, according to Article 1733, "further expressed in
Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in
the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as required in
Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within any of
the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore,
that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article
1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown by
proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care
of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying the
600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the
standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives
of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts
or omissions of his or its employees;
(6) that the common carrier's liability for acts committed by
thieves, or of robbers who donot act with grave or
irresistible threat, violence or force, is dispensed with or
diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the
defective condition of the car vehicle, ship, airplane or other
equipment used in the contract of carriage. (Emphasis
supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be
allowed to divest or to diminish such responsibility even for acts of strangers like thieves
or robbers, except where such thieves or robbers in fact acted "with grave or irresistible
threat, violence or force." We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which
carried petitioner's cargo. The record shows that an information for robbery in band was filed
in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People
of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and
one John Doe." There, the accused were charged with willfully and unlawfully taking and
carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600
cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with
firearms. The robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them in another
province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery
in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded
as quite beyond the control of the common carrier and properly regarded as a fortuitous
event. It is necessary to recall that even common carriers are not made absolute insurers
against all risks of travel and of transport of goods, and are not held liable for acts or events
which cannot be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because
of an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of
the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes
1 Rollo, p. 14.
2 Article 1733, Civil Code.
3 Rollo, p. 22.
4 The evidence of the prosecution did not show that more than three (3) of the
five (5) hold-uppers were armed. Thus, the existence of a "band" within the
technical meaning of Article 306 of the Revised Penal Code, was not
affirmatively proved by the prosecution.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional
Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed
petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 1 and renewed by the Energy Regulatory Board in
1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order
not to hamper its operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is engaged
in the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such,
our Company is exempt from paying tax on gross receipts under Section
133 of the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h) of the
Local Government Code. Therefore, the authority to impose tax "on
contractors and other independent contractors" under Section 143,
Paragraph (e) of the Local Government Code does not include the power
to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said
 section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation, inspection,
and licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is violative of
the aforecited provision. The amount of P956,076.04 (P239,019.01 per
quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere
regulatory imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot
claim exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the transportation
by hire and common carriers by air, land and water." Respondents assert that
pipelines are not included in the term "common carrier" which refers solely to
ordinary carriers such as trucks, trains, ships and the like. Respondents further posit
that the term "common carrier" under the said code pertains to the mode or manner
by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is
a rule that tax exemptions are to be strictly construed against the
taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under
Republic Act 387. (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders
under Sec. 137 of the Local Tax Code. Such being the situation obtained
in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133
(j) encompasses onlycommon carriers so as
not to overburden the riding public or
commuters with taxes. Plaintiff is not a
common carrier, but a special carrier
extending its services and facilities to a
single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically
enacted to give more and effective local
autonomy to local governments than the
previous enactments, to make them
economically and financially viable to serve
the people and discharge their functions with
a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with
this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed
under Sec. 143 (e) and 151 of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review.
On February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10 On November 29, 1995, the respondent court
rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by
this Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the
public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of
carrying goods for others as a public
employment, and must hold himself out as
ready to engage in the transportation of
goods for person generally as a business
and not as a casual occupation;
2. He must undertake to carry goods of the
kind to which his business is confined;
3. He must undertake to carry by the method
by which his business is conducted and over
his established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all
persons indifferently, that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common carrier. In De
Guzman vs. Court of Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) makes no
distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local
idiom, as a "sideline"). Article 1732 . . . avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general
public," i.e., the general community or population, and one
who offers services or solicits business only from a
narrow segment of the general population. We think that
Article 1877 deliberately refrained from making such
distinctions.
So understood, the concept of "common carrier" under
Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the
Public Service Act, "public service" includes:
every person that now or hereafter may own,
operate. manage, or control in the
Philippines, for hire or compensation, with
general or limited clientele, whether
permanent, occasional or accidental, and
done for general business purposes, any
common carrier, railroad, street railway,
 traction railway, subway motor vehicle,
either for freight or passenger, or both, with
or without fixed route and whatever may be
its classification, freight or carrier service of
any class, express service, steamboat, or
steamship line, pontines, ferries and water
craft, engaged in the transportation
of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power,
water supply and power
petroleum, sewerage system, wire or
wireless communications systems, wire or
wireless broadcasting stations and other
similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j)
of the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is
erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods
should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered
a "common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A
pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation
capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have
been approved by the Secretary of Agriculture and Natural
Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion
of Article 7 thereof provides:
that everything relating to the exploration for and
exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public
utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier."
In BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is
engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 .
. . . Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as
amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j),
of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of
Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts
of transportation contractors
and persons engaged in the
transportation of passengers
or freight by hire and common
carriers by air, land or water,
 except as provided in this
Code.
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations
on the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business
of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the
local government units. May we know the reason why the
transportation business is being excluded from the taxing
powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception
contained in Section 121 (now Sec. 131), line 16, paragraph
5. It states that local government units may not impose
taxes on the business of transportation, except as
otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to
page 98 of Book II, one can see there that provinces have
the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent
of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the
imposition of taxes by local government units on the
carrier business. Local government units may impose
taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under
Section 125 [now Sec. 137] that a province may impose
this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr.
Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent
a duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on
its gross receipts in its transportation of petroleum business would defeat the
purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.
SO ORDERED.
Bellosillo, Puno and Mendoza, JJ., concur.
Footnotes
1 Rollo, pp. 90-94.
2 Decision of the Energy Regulatory Board in ERB Case No. 92-94,
renewing the Pipeline Concession of petitioner First Philippine Industrial
Corporation, formerly known as Meralco Securities Industrial
Corporation. (Rollo, pp. 95-100).
3 Sec. 143. Tax on Business. The municipality may impose taxes on the
following business:
xxx xxx xxx
(e) On contractors and other independent contractors, in accordance
with the following schedule:
With gross receipts for the preceding Amount of Tax Per Annum
calendar year in the amount of
......
P2, 000,000.00 or more at a rate not exceeding fifty
percent (50%) of one percent (1%)
 4 Letter Protest dated January 20, 1994, Rollo, pp. 110-111.
5 Letter of respondent City Treasurer, Rollo, p. 112.
6 Complaint, Annex "C", Rollo, pp. 51-56.
7 Rollo, pp. 51-57.
8 Answer, Annex "J", Rollo, pp. 122-127.
9 RTC Decision, Rollo, pp. 58-62.
10 Rollo, p. 84.
11 CA-G.R. SP No. 36801; Penned by Justice Jose C. De la Rama and
concurred in by Justice Jaime M. Lantin and Justice Eduardo G.
Montenegro; Rollo, pp. 33-47.
12 Rollo, p. 49.
13 Resolution dated November 11, 1996 excerpts of which are hereunder
quoted:
"The petition is unmeritorious
"As correctly ruled by respondent appellate court, petitioner is not a
common carrier as it is not offering its services to the public.
"Art. 1732 of the Civil Code defines Common Carriers as: persons,
corporations, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
"We sustain the view that petitioner is a special carrier. Based on the
facts on hand, it appears that petitioner is not offering its services to the
public.
"We agree with the findings of the appellate court that the claim for
exemption from taxation must be strictly construed against the taxpayer.
The present understanding of the concept of "common carries" does not
include carriers of petroleum using pipelines. It is highly unconventional
to say that the business of transporting petroleum through pipelines
involves "common carrier" business. The Local Government Code
intended to give exemptions from local taxation to common carriers
transporting goods and passengers through moving vehicles or vessels
and not through pipelines. The term common carrier under Section 133
(j) of the Local Government Code must be given its simple and ordinary
or generally accepted meaning which definitely not include operators of
pipelines."
14 G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of
Appeals, et. al.) Considering the grounds of the motion for
reconsideration, dated December 23, 1996, filed by counsel for
petitioner, of the resolution of November 11, 1996 which denied the
petition for review on certiorari, the Court Resolved:
(a) to GRANT the motion for reconsideration and to REINSTATE the
petition; and
(b) to require respondent to COMMENT on the petition, within ten (10)
days from notice.
15 Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.
16 168 SCRA 617-618 [1988].
17 Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v.
Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct 131.
18 Journal and Record of the House of Representatives, Fourth Regular
Session, Volume 2, pp. 87-89, September 6, 1990; Emphasis Ours.
19 Annex "D" of Petition, Rollo, pp. 101-109.

SECOND DIVISION
[G.R. No. 161833. July 8, 2005]
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, 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 Decision[1] dated 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. SH9410306[2] 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. NSGPBSML512565[3] 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
DTD[5] 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.[8] It was 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 Receipt[23] for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a
Complaint for Damages[24] against 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
certification[30] 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 appealed[31] 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 aprima 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 flooring was not made of good
materials, which caused the middle portion thereof to give way when it was lifted. The
shipper also failed to indicate signs to notify the stevedores 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: With regard to crates, what do you do with the crates?
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 the slings, what do
you do with these crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with the crates?
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

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?
A: At the corner of the crate, Maam.
Q: How many arrows did you see?
A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?
A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?
A: Nothing more, Maam.
Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts
where there are no arrows?
A: You can not place slings if there are no arrows, Maam.
Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea
without defect, the fault should be 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 facie presumption 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.
 Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

[1]
Penned by Associate Justice Romeo A. Brawner (now Presiding Justice of the Court of
Appeals), with Associate Justices Rebecca De Guia-Salvador and Jose C. Reyes, Jr.,
concurring.
[2]
Records, p. 160.
[3]
Id. at 222.
[4]
Records, pp. 226-227.
[5]
Id. at 161.
[6]
Id. at 162.
[7]
TSN, 19 September 1996, pp. 12-13.
[8]
Records, p. 161.
[9]
TSN, 11 July 1996, p. 11.
[10]
Records, p. 163.
[11]
TSN, 26 September 1996, p. 34.
[12]
TSN, 18 October 1996, p. 5.
[13]
TSN, 19 September 1996, pp. 5-6.
[14]
Id. at 7.
[15]
Id. at 10.
[16]
Id.
[17]
TSN, 18 October 1996, pp. 13-15.
[18]
Records, p. 166.
[19]
Exhibits G to G-2.
[20]
Records, p. 184.
[21]
Id. at 183.
[22]
Id. at 187.
[23]
Id. at 185.
[24]
Id. at 1-6.
[25]
Records, p. 4.
[26]
TSN, 26 September 1996, p. 43.
[27]
Id. at 24-27.
[28]
Exhibit 4.
[29]
Records, p. 294.
[30]
Exhibit K.
[31]
Records, p. 295.
[32]
Rollo, pp. 32-33.
[33]
Rollo, pp. 30-31.
[34]
Id. at 32.
[35]
Id. at 30.
[36]
Id. at 13-14.
[37]
Rollo, p. 20.
[38]
G.R. No. 97412, 12 July 1994, 234 SCRA 78.
[39]
Rollo, pp. 41-42.
[40]
Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, 28 April
2004, 428 SCRA 79.
[41]
Article 1733 of the New Civil Code.
[42]
Calvo v. UCPB General Insurance Co., Inc., G.R. No. 148496, 19 March 2002, 379 SCRA
510.
[43]
Articles 1736-1738 of the New Civil Code.
[44]
Article 1735 of the New Civil Code.
[45]
Article 1735 of the New Civil Code.
[46]
De Guzman v. Court of Appeals, G.R. No. L-47822, 22 December 1988, 168 SCRA 612.
[47]
Ynchausti Steamship Co. v. Dexter and Unison, 41 Phil. 289 (1920); Mirasol v. Robot
Dollar Co., 53 Phil. 125 (1929).
[48]
Blacks Law Dictionary, 5th Edition, p. 376.
[49]
Websters Third New International Dictionary, p. 1158.
[50]
Records, p. 292.
[51]
Rollo, pp. 30-32.
[52]
TSN, 19 September 1996, p. 14.
[53]
Minneapolis Fire & Marine Ins. Co. v. Baltimore & O.R. Co., 53 N.W.2d 828 (1952);
Bingham v. Osaka Shosen Kaisha, 12 F.Supp. 35 (1935); The L. Hirschberg & Co. v.
SS Caterina Gerolimich, 54 F.2d 1080 (1931); Bronstein Bros. & Co. v. Societa
Anomina Co-op Fra Lavoratori Del, 25 F.2d 122 (1928).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 147079 December 21, 2004
A.F. SANCHEZ BROKERAGE INC., petitioners,
vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts Decision1 of August 10,
2000 reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati
City, in Civil Case No. 93-76B which dismissed the complaint of respondent FGU Insurance
Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal
tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to
Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were
placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed
together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in two
pallets, each of which contained 30 cartons.3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine
Risk Note No. 4995 pursuant to Marine Open Policy No. 138.4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport
(NAIA),5 it was discharged "without exception"6 and delivered to the warehouse of the
Philippine Skylanders, Inc. (PSI) located also at the NAIA for safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs,
Wyeth-Suaco engaged the services of Sanchez Brokerage which had been its licensed
broker since 1984.8 As its customs broker, Sanchez Brokerage calculates and pays the
customs duties, taxes and storage fees for the cargo and thereafter delivers it to Wyeth-
Suaco.9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez
Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt
No. 016992,10 was issued. On the receipt, another representative of Sanchez Brokerage, M.
Sison,11 acknowledged that he received the cargoes consisting of three pieces in good
condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the
cargoes13 which were thereupon stripped from the aluminum containers14 and loaded inside
two transport vehicles hired by Sanchez Brokerage.15
Among those who witnessed the release of the cargoes from the PSI warehouse were
Ruben Alonso and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite
Surveyors), a marine and cargo surveyor and insurance claim adjusters firm engaged by
Wyeth-Suaco on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.17 The delivery receipt, bearing No. 07037 dated July
29, 1992, indicated that the delivery consisted of one container with 144 cartons of Femenal
and Nordiol and 1 pallet containing Trinordiol.18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the
delivery of the cargoes by affixing his signature on the delivery receipt.19 Upon inspection,
however, he, together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons
containing Femenal and Nordiol tablets were in bad order.20 He thus placed a note above his
signature on the delivery receipt stating that 44 cartons of oral contraceptives were in bad
order. The remaining 160 cartons of oral contraceptives were accepted as complete and in
good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report 21 dated
July 31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were
"wetted" (sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an
"Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the
brokers trucks at the NAIA, they were inspected and found to be in "apparent good
condition."24 Also noted was that at the time of delivery to the warehouse of Hizon
Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets.25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that
38 x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x
700 blister packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of
Femenal and 3 cartons of Nordiol on the ground that they were "delivered to Hizon
Laboratories with heavy water damaged (sic) causing the cartons to sagged (sic) emitting a
foul order and easily attracted flies."28
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the
payment ofP191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance
claim against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in
settlement of its claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-
Suaco, Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the
damaged goods, positing that the damage was due to improper and insufficient export
packaging; that when the sealed containers were opened outside the PSI warehouse, it was
discovered that some of the loose cartons were wet,32 prompting its (Sanchez Brokerages)
representative Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir
Calicdan, about the condition of the cargoes but that the latter advised to still deliver them to
Hizon Laboratories where an adjuster would assess the damage.33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial
Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the
Survey Report prepared by the Elite Surveyors is bereft of any evidentiary support and a
mere product of pure guesswork.35
On appeal, the appellate court reversed the decision of the trial court, it holding that the
Sanchez Brokerage engaged not only in the business of customs brokerage but also in the
transportation and delivery of the cargo of its clients, hence, a common carrier within the
context of Article 1732 of the New Civil Code.36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in
good order and condition but were in a damaged state when delivered to Wyeth-Suaco, the
appellate court held that Sanchez Brokerage is presumed negligent and upon it rested the
burden of proving that it exercised extraordinary negligence not only in instances when
negligence is directly proven but also in those cases when the cause of the damage is not
known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED.
The Decision of the Court a quo is REVERSED. Another Decision is hereby rendered
in favor of the Appellant and against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of
P181, 431.49, with interest thereupon at the rate of 6% per annum, from the
date of the Decision of the Court, until the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of
P20,000.00 as and by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate
courts Resolution of December 8, 2000 which was received by petitioner on January 5,
2001, it comes to this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the
context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole office
of a writ of certiorari is the correction of errors of jurisdiction including the commission of
grave abuse of discretion amounting to lack or excess of jurisdiction and does not include
correction of the appellate courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier,
failed to overcome the presumption of negligence, it being documented that petitioner
withdrew from the warehouse of PSI the subject shipment entirely in good order and
condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to
this Court by filing a petition for review, which would be but a continuation of the appellate
process over the original case.40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5,
2001. Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the
appellate courts decision had become final and executory. The filing by petitioner of a
petition for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of
appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must
prove not merely reversible error but also grave abuse of discretion amounting to lack or
excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of
the trial court based on its finding that petitioner is liable for the damage to the cargo as a
common carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which
is properly the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the
decision not the jurisdiction of the court to render said decision the same is beyond the
province of a petition for certiorari.41The supervisory jurisdiction of this Court to issue
a cert writ cannot be exercised in order to review the judgment of lower courts as to its
intrinsic correctness, either upon the law or the facts of the case.42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of the
consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those
upon approval of the importer, we prepare the entry together for processing and
claims from customs and finally deliver the goods to the warehouse of the importer.43
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. 44 The
contention, therefore, of petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of
the Civil Code, extraordinary diligence in the vigilance over the goods it transports according
to all the circumstances of each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted negligently, unless it
proves that it observed extraordinary diligence.46
The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of
Appeals:47
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 characteristics
of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."48
In the case at bar, it was established that petitioner received the cargoes from the PSI
warehouse in NAIA in good order and condition;49 and that upon delivery by petitioner to
Hizon Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the
Delivery Receipt50 issued by petitioner, and as indicated in the Survey Report of Elite
Surveyors51 and the Destruction Report of Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits
that they were damaged due to the fault or negligence of the shipper for failing to properly
pack them and to the inherent characteristics of the goods53; and that it should not be faulted
for following the instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite
information conveyed to the latter that some of the cartons, on examination outside the PSI
warehouse, were found to be wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packing or
in the containers, the rule is that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for
the resulting damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it
were true, then it should naturally have received the cargo under protest or with reservations
duly noted on the receipt issued by PSI. But it made no such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioners employees only
examined the cargoes outside the PSI warehouse and found some to be wet, they would
certainly have gone back to PSI, showed to the warehouseman the damage, and demanded
then and there for Bad Order documents or a certification confirming the damage. 58 Or,
petitioner would have presented, as witness, the employees of the PSI from whom Morales
and Domingo took delivery of the cargo to prove that, indeed, part of the cargoes was
already damaged when the container was allegedly opened outside the warehouse.59
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day.
Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside the
PSI warehouse but such notwithstanding Calicdan directed Morales to proceed with the
delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29,
1992, he failed to specifically declare what time he received the call. As to whether the call
was made at the PSI warehouse when the shipment was stripped from the airport containers,
or when the cargoes were already in transit to Antipolo, it is not determinable. Aside from that
phone call, petitioner admitted that it had no documentary evidence to prove that at the time
it received the cargoes, a part of it was wet, damaged or in bad condition.60
The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely
then. Sanchez himself testified that in the past, there was a similar instance when the
shipment of Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that
arrived at the NAIA were damaged and claimed by the Wyeth-Suaco without any
question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-
Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were
turned over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a
portion thereof was found to be in bad order, it was incumbent on petitioner to prove that it
exercised extraordinary diligence in the carriage of the goods. It did not, however. Hence, its
presumed negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.
Corona, J., on leave.

Footnotes
1
Rollo at 22-43.
2
Records of the Regional Trial Court at 92, 94-95.
3
Id. at 93.
4
Id. at 96-99.
5
TSN, November 10, 1994 at 16.
6
Records at 35.
7
Rollo at 18.
8
TSN, November 10, 1994 at 10.
9
Id. at 9.
10
Records at 132.
11
Rollo at 23.
12
Records at 132.
13
TSN, January 10, 1995 at 5.
14
TSN, November 10, 1994 at 15, T.S.N. January 10, 1995 at 6-7.
15
Rollo at 23.
16
TSN, March 24, 1994 at 12.
17
Id. at 17.
18
Records at 32.
19
TSN, March 24, 1994 at 26-27.
20
Records at 33.
21
Ibid.
22
Ibid.
23
Id. at 34-36.
24
Id. at 36.
25
Id. at 35-36.
26
Id. at 37.
27
Id. at 38-39.
28
Ibid.
29
Id. at 40.
30
Id. at 109.
31
Id. at 134-135.
32
Id. at 134.
33
TSN, January 10, 1995 at 8-9.
34
Rollo at 18-20.
35
Id. at 19.
36
Id. at 29.
37
Id. at 31-32.
38
Id. at 42.
39
Id. at 51.
40
Heirs of Marcelino Pagobo v. Court of Appeals, 280 SCRA 870, 883 (1997).
41
Land bank of the Philippines v. Court of Appeals, 409 SCRA 455, 482 (2003).
42
Id. at 482-483.
43
TSN, November 10, 1994 at 9.
44
De Guzman v. Court of Appeals, 168 SCRA 612, 617 (1988).
45
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
xxx
46
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required on Article 1733.
47
164 SCRA 685 (1988).
48
Id. at 692.
49
Records at 132.
50
Id. at 32.
51
Id. at 102-104.
52
Id. at 105-107.
53
Rollo at 10.
54
Id. at 9.
55
Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:
xxx
(4) The character of the goods or defects in the packing or in the containers;
56
Calvo v. UCPB General Insurance Co. Inc., 379 SCRA 510, 520 (2002).
57
Rollo at 34.
58
Id. at 36.
59
Ibid.
60
TSN, December 2, 1994 at 25.
61
Exh. "1-A," Records at 127-131.
62
T.S.N. November 10, 1994 at 19.
 THIRD DIVISION

LEA MER INDUSTRIES, INC., G.R. No. 161745

Petitioner,
Present

Panganiban, J.,
Chairman,
- versus - Sandoval-Gutierrez,
Corona,
Carpio Morales, and
Garcia, JJ

Promulgated:
MALAYAN INSURANCE CO., INC.,*
Respondent. September 30, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

C ommon carriers are bound to observe extraordinary diligence in their vigilance over the
goods entrusted to them, as required by the nature of their business and for reasons of
public policy. Consequently, the law presumes that common carriers are at fault or negligent
for any loss or damage to the goods that they transport. In the present case, the evidence
submitted by petitioner to overcome this presumption was sorely insufficient.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the
October 9, 2002 Decision[2] and the December 29, 2003 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 66028. The challenged Decision disposed as follows:

WHEREFORE, the appeal is GRANTED. The December 7, 1999

decision of the Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-
63159 is herebyREVERSED and SET ASIDE. [Petitioner] is ordered to pay
the [herein respondent] the value of the lost cargo in the amount
of P565,000.00. Costs against the [herein petitioner].[4]

The assailed Resolution denied reconsideration.

The Facts

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for
the shipment of 900 metric tons of silica sand valued at P565,000.[5] Consigned to Vulcan
Industrial and Mining Corporation, the cargo was to be transported from Palawan to Manila.
On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by Lea
Mer.[6] During the voyage, the vessel sank, resulting in the loss of the cargo.[7]

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. [8] To
recover the amount paid and in the exercise of its right of subrogation, Malayan demanded
reimbursement from Lea Mer, which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for the
collection of P565,000 representing the amount that respondent had paid Vulcan.[9]
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the
cause of the loss was a fortuitous event.[10] The RTC noted that the vessel had sunk
because of the bad weather condition brought about by Typhoon Trining. The court ruled
that petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
been cleared by the Philippine Coast Guard to travel from Palawan to Manila.[11]

Ruling of the Court of Appeals

Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed
for Manila. Thus, the loss of the cargo was occasioned by petitioners fault, not by a
fortuitous event.[12]

Hence, this recourse.[13]

The Issues

Petitioner states the issues in this wise:

A. Whether or not the survey report of the cargo surveyor, Jesus Cortez,
who had not been presented as a witness of the said report during the trial of
this case before the lower court can be admitted in evidence to prove the
alleged facts cited in the said report.

B. Whether or not the respondent, Court of Appeals, had validly or legally

reversed the finding of fact of the Regional Trial Court which clearly and
unequivocally held that the loss of the cargo subject of this case was caused
by fortuitous event for which herein petitioner could not be held liable.

C. Whether or not the respondent, Court of Appeals, had committed

serious error and grave abuse of discretion in disregarding the testimony of
the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that
the vessel Judy VII was seaworthy at the time of incident and further in
disregarding the testimony of the PAG-ASA weather specialist, Ms. Rosa
Barba y Saliente, to the effect that typhoon Trining did not hit Metro Manila or
Palawan.[14]

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the
cargo, and (2) whether the survey report of Jesus Cortez is admissible in evidence.

The Courts Ruling

The Petition has no merit.

First Issue:
Liability for Loss of Cargo

Question of Fact

The resolution of the present case hinges on whether the loss of the cargo was due to
a fortuitous event. This issue involves primarily a question of fact, notwithstanding
petitioners claim that it pertains only to a question of law. As a general rule, questions of
fact may not be raised in a petition for review.[15] The present case serves as an exception to
this rule, because the factual findings of the appellate and the trial courts vary. [16] This Court
meticulously reviewed the records, but found no reason to reverse the CA.

Rule on Common Carriers

Common carriers are persons, corporations, firms or associations engaged in the

business of carrying or transporting passengers or goods, or both -- by land, water, or air --
when this service is offered to the public for compensation.[17] Petitioner is clearly a common
carrier, because it offers to the public its business of transporting goods through its
vessels.[18]

Thus, the Court corrects the trial courts finding that petitioner became a private carrier
when Vulcan chartered it.[19] Charter parties are classified as contracts of demise (or
bareboat) and affreightment, which are distinguished as follows:

Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes, in effect, the
owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer; anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all. [20]

The distinction is significant, because a demise or bareboat charter indicates a

business undertaking that is private in character. [21] Consequently, the rights and obligations
of the parties to a contract of private carriage are governed principally by their stipulations,
not by the law on common carriers.[22]

The Contract in the present case was one of affreightment, as shown by the fact that
it was petitioners crew that manned the tugboat M/V Ayalit and controlled the barge Judy
VII.[23] Necessarily, petitioner was a common carrier, and the pertinent law governs the
present factual circumstances.

Extraordinary Diligence Required

Common carriers are bound to observe extraordinary diligence in their vigilance over
the goods and the safety of the passengers they transport, as required by the nature of their
business and for reasons of public policy.[24] Extraordinary diligence requires rendering
service with the greatest skill and foresight to avoid damage and destruction to the goods
entrusted for carriage and delivery.[25]

Common carriers are presumed to have been at fault or to have acted negligently for
loss or damage to the goods that they have transported.[26] This presumption can be
rebutted only by proof that they observed extraordinary diligence, or that the loss or damage
was occasioned by any of the following causes:[27]

(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.[28]

Rule on Fortuitous Events

Article 1174 of the Civil Code provides that no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable.
Thus, if the loss or damage was due to such an event, a common carrier is exempted from
liability.
Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause
of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with
their obligations, must have been independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors to
fulfill their obligation in a normal manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the creditor.[29]

To excuse the common carrier fully of any liability, the fortuitous event must have
been the proximate and only cause of the loss.[30] Moreover, it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.[31]

Loss in the Instant Case

There is no controversy regarding the loss of the cargo in the present case. As the
common carrier, petitioner bore the burden of proving that it had exercised extraordinary
diligence to avoid the loss, or that the loss had been occasioned by a fortuitous event -- an
exempting circumstance.

It was precisely this circumstance that petitioner cited to escape liability. Lea Mer
claimed that the loss of the cargo was due to the bad weather condition brought about by
Typhoon Trining.[32] Evidence was presented to show that petitioner had not been informed
of the incoming typhoon, and that the Philippine Coast Guard had given it clearance to begin
the voyage.[33] On October 25, 1991, the date on which the voyage commenced and the
barge sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was
only Signal No. 1.[34]
The evidence presented by petitioner in support of its defense of fortuitous event was
sorely insufficient. As required by the pertinent law, it was not enough for the common
carrier to show that there was an unforeseen or unexpected occurrence. It had to show that
it was free from any fault -- a fact it miserably failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent

the loss before, during or after the alleged fortuitous event.[35] Its witness, Joey A. Draper,
testified that he could no longer remember whether anything had been done to minimize loss
when water started entering the barge.[36] This fact was confirmed during his cross-
examination, as shown by the following brief exchange:

Atty. Baldovino, Jr.:

Other than be[a]ching the barge Judy VII, were there other
precautionary measure[s] exercised by you and the crew of Judy VII so
as to prevent the los[s] or sinking of barge Judy VII?

xxx xxx xxx

Atty. Baldovino, Jr.:

Your Honor, what I am asking [relates to the] action taken by the
officers and crew of tugboat Ayalit and barge Judy VII x x x to
prevent the sinking of barge Judy VII?

xxx xxx xxx

Court:
Mr. witness, did the captain of that tugboat give any instruction on how
to save the barge Judy VII?

Joey Draper:
I can no longer remember sir, because that happened [a] long time
ago.[37]

Second, the alleged fortuitous event was not the sole and proximate cause of the
loss. There is a preponderance of evidence that the barge was not seaworthy when it sailed
for Manila.[38] Respondent was able to prove that, in the hull of the barge, there were holes
that might have caused or aggravated the sinking.[39] Because the presumption of
negligence or fault applied to petitioner, it was incumbent upon it to show that there were no
holes; or, if there were, that they did not aggravate the sinking.
 Petitioner offered no evidence to rebut the existence of the holes. Its witness,
Domingo A. Luna, testified that the barge was in tip-top or excellent condition,[40] but that he
had not personally inspected it when it left Palawan.[41]

The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII,
dated July 31, 1991, did not conclusively prove that the barge was seaworthy.[42] The
regularity of the issuance of the Certificate is disputably presumed. [43] It could be
contradicted by competent evidence, which respondent offered. Moreover, this evidence did
not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.[44]

Second Issue:
Admissibility of the Survey Report

Petitioner claims that the Survey Report[45] prepared by Jesus Cortez, the cargo
surveyor, should not have been admitted in evidence. The Court partly agrees. Because he
did not testify during the trial,[46] then the Report that he had prepared was hearsay and
therefore inadmissible for the purpose of proving the truth of its contents.

The Survey Report Not the Sole Evidence

The facts reveal that Cortezs Survey Report was used in the testimonies of
respondents witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine
surveyor and the vice-president of Toplis and Harding Company.[47] Soriano testified that the
Survey Report had been used in preparing the final Adjustment Report conducted by their
company.[48] The final Report showed that the barge was not seaworthy because of the
existence of the holes. Manlapig testified that he had prepared that Report after taking into
account the findings of the surveyor, as well as the pictures and the sketches of the place
where the sinking occurred.[49] Evidently, the existence of the holes was proved by the
testimonies of the witnesses, not merely by Cortez Survey Report.

Rule on Independently
Relevant Statement

That witnesses must be examined and presented during the trial,[50] and that their
testimonies must be confined to personal knowledge is required by the rules on evidence,
from which we quote:

Section 36. Testimony generally confined to personal knowledge;

hearsay excluded. A witness can testify only to those facts which he knows
of his personal knowledge; that is, which are derived from his own perception,
except as otherwise provided in these rules.[51]

On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which
respondent had offered as evidence.[52] Well-settled is the rule that, unless the affiant is
presented as a witness, an affidavit is considered hearsay.[53]

An exception to the foregoing rule is that on independently relevant statements. A

report made by a person is admissible if it is intended to prove the tenor, not the truth, of the
statements.[54] Independent of the truth or the falsity of the statement given in the report, the
fact that it has been made is relevant. Here, the hearsay rule does not apply.[55]

In the instant case, the challenged Survey Report prepared by Cortez was admitted
only as part of the testimonies of respondents witnesses. The referral to Cortezs Report
was in relation to Manlapigs final Adjustment Report. Evidently, it was the existence of the
Survey Report that was testified to. The admissibility of that Report as part of the
testimonies of the witnesses was correctly ruled upon by the trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome
the presumption of fault that applies to common carriers.

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
 W E C O N C U R:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice
ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans
Attestation, it is hereby certified that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the Courts
Division.

HILARIO G. DAVIDE, JR.

Chief Justice

*
The Petition included the Court of Appeals as a respondent. However, the CA was
omitted by the Court from the title of the case because, under Section 4 of Rule 45 of
the Rules of Court, the appellate court need not be impleaded in petitions for review.
[1]
Rollo, pp. 12-27.
[2]
Id., pp. 36-41. Tenth Division. Penned by Justice Elvi John S. Asuncion, with the
concurrence of Justices Portia Alio-Hormachuelos (Division chairperson) and Juan
Q. Enriquez Jr. (member).
[3]
Id., p. 48.
[4]
Assailed Decision, pp. 5-6; rollo, pp. 40-41.
[5]
Id., pp. 1 & 36.
[6]
The barge was allegedly owned by J. T. Lighterage Services. (TSN dated
September 27, 1995, p. 3) It was non-propelled therefore, it could only operate
through its towing by petitioners tugboat M/T Ayalit. (TSN dated April 26, 1995, p.
12; TSN dated April 25, 1996, p. 19)
[7]
Assailed Decision, p. 1; rollo, p. 36.
[8]
Id., pp. 2 & 37.
[9]
Ibid. The case was docketed as Civil Case No. 92-63159 and raffled to Branch 42.
[10]
Ibid.
[11]
RTC Decision dated December 7, 1999, p. 9; rollo, p. 58.
[12]
Assailed Decision, p. 4; rollo, p. 39.
[13]
The case was deemed submitted for decision on October 25, 2004, upon this
Courts receipt of petitioners sparse, 6-page (with only two pages of argument)
Memorandum, signed by Atty. Romualdo M. Jubay. Respondents Memorandum,
signed by Atty. Frederick C. Angel, was received by this Court on October 7, 2004.
[14]
Petition, p. 8; rollo, p. 19. Original in uppercase.
[15]
1 of Rule 45 of the Rules of Court.
[16]
Menchavez v. Teves Jr., 449 SCRA 380, 395, January 26, 2005; Philippine
American General Insurance Company v. PKS Shipping Company, 401 SCRA 222,
230, April 9, 2003; Commissioner of Internal Revenue v. Embroidery and Garments
Industries (Phil.), Inc., 364 Phil. 541, 546, March 22, 1999.
[17]
Art. 1732 of the Civil Code.
[18]
Petition, pp. 4-5; rollo, pp. 14-15.
[19]
RTC Decision dated December 7, 1999, p. 7; rollo, p. 56.
[20]
Puromines, Inc. v. Court of Appeals, 220 SCRA 281, 288, per Nocon J. See
also National Food Authority v. Court of Appeals, 370 Phil. 735, 743, August 4, 1999.
[21]
Philippine American General Insurance Company v. PKS Shipping Company, supra,
p. 228; Coastwise Lighterage Corporation v. Court of Appeals, 316 Phil. 13, 19, July
12, 1995.
[22]
National Steel Corporation v. Court of Appeals, 347 Phil. 345, 362, December 12,
1997; Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals, 274
SCRA 642, 654, June 30, 1997.
[23]
RTC Decision dated December 7, 1999, pp. 4-6; rollo, pp. 53-55.
[24]
Art. 1733 of the Civil Code.
[25]
Calvo v. UCPB General Insurance Co., Inc., 429 Phil. 244, 252, March 19,
2002; Compania Maritima v. Court of Appeals, 164 SCRA 685, 692, August 29, 1988.
[26]
Art. 1735 of the Civil Code.
[27]
Ibid. See also National Trucking and Forwarding Corp. v. Lorenzo Shipping
Corporation, GR No. 153563, February 7, 2005; Asia Lighterage and Shipping, Inc. v.
Court of Appeals, 409 SCRA 340, 346, August 19, 2003; Philippine American
General Insurance Company v. PKS Shipping Company, supra, p. 229; Coastwise
Lighterage Corporation v. Court of Appeals, supra, p. 20; Basco v. Court of
Appeals, 221 SCRA 318, 323, April 7, 1993.
[28]
Art. 1734 of the Civil Code.
[29]
Mindex Resources Development v. Morillo, 428 Phil. 934, 944, March 12,
2002; Philippine American General Insurance Co. Inc. v. MGG Marine Services,
Inc., 428 Phil. 705, 714, March 8, 2002; Metal Forming Corp. v. Office of the
President, 317 Phil. 853, 859, August 28, 1995; Vasquez v. Court of Appeals, 138
SCRA 553, 557, September 13, 1985; Republic v. Luzon Stevedoring Corp., 128 Phil.
313, 318, September 29, 1967.
[30]
Art. 1739 of the Civil Code.
[31]
Ibid.
[32]
RTC Decision dated December 7, 1999, p. 9; rollo p. 58 (citing the testimony of
Rosa S. Barba). See also Petitioners Memorandum, p. 2; rollo, p. 157.
[33]
Ibid. (citing the testimony of Domingo A. Luna).
[34]
The testimony of Rosa S. Barba, weather specialist of Philippine Atmosphere
(PAGASA), was summarized by the RTC as follows:
In May 1993, upon the request of [petitioners] counsel, she
issued a weather bureau report or certification, an official record of
Pagasa, which weather report is based on their weather station at
Puerto Princesa, Palawan. x x x The report on the weather condition
on October 21, 1991 at around 11:00 am to 2:00 pm was weathercast
sky. The bad weather condition on October 25, 26, and 27, 1991 was
caused by typhoon Trining but said typhoon then was far from
Palawan, which was only signal No. 1. Tropical storm Trining entered
the Philippine area of responsibility on October 24. Pagasa did issue a
warning that said storm was approaching the Philippines. Storm
Trining was classified, as super typhoon with a maximum of 185
kilometer[s] per hour and the coverage was big. On October 24, 1991,
typhoon Trining hit Batangas, the Ilocos Provinces, Isabela, but not
Metro Manila or Palawan. Maybe Palawan was affected but if ever it
was affected it was only minimal. RTC Decision dated December 7,
1999, p. 6; rollo, p. 55.
[35]
See Art. 1739 of the Civil Code.
[36]
The testimony of Joey A. Draper, the quarter master in charge of steering the
tugboat, was summarized by the RTC as follows:
On October 25, 1991, he was assigned in the tugboat M/T
Ayalit. x x x [The tugboat] was towing the barge Judy VII which was
carrying silica sand. x x x He was an ordinary seaman in 1991 and it
was his first year as a seaman, although he made several trips to
Palawan and Manila. x x x He does not know the qualification[s] of a
seaman but he was then a second year high school [student] and
though he did not take any examination, he knew about navigation.
 When the incident happened in 1991[,] he had no seaman book as it
was not yet strict at the time and the seaman book can be dispensed
with. He was only 18 years and has an actual training of the work
when he boarded the tugboat. Even if he has no formal schooling, the
master allowed him to handle the wheel of the tugboat. When they left
San Vicente, Palawan for Manila on said date at around 4:00 pm, the
weather was fair. When they passed by Linapakan Island, the waves
were quite big and the wind was a little bit strong. At that point in time,
the barge patrol of Judy VII wave[d] his hand [at] them. Their captain
decided to approach the barge. They noticed that [there was] water
already inside the barge. About two (2) days later, their captain
decided to beach the barge. The said barge then sank and only the
barges house at the back portion of the barge (the puppa) was above
water. He could only remember that they save[d] the bargemen and
proceeded to El Nido, Palawan where they secured themselves to
save the tugboat. But he could no longer remember how long a time
they stayed thereat nor if they went back to the barge Judy VII. RTC
Decision, p. 6; rollo, p. 55.
[37]
TSN dated November 22, 1995, pp. 27-29.
[38]
In civil cases, parties who carry the burden of proof must establish their case by a
preponderance of evidence. 1 of Rule 133 of the Rules of Court.
[39]
Respondent proved this allegation through the testimony of its witnesses and
submission of documentary evidence. Unseaworthiness was also the finding of the
appellate court. Assailed Decision, p. 4; rollo, p. 39.
[40]
TSN dated April 26, 1995, p. 44.
[41]
TSN dated September 27, 1995, pp. 17-21.
[42]
Petitioners Exhibit 4.
[43]
3(m) of Rule 131 of the Rules of Court.
[44]
Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834, November 15,
2001.
[45]
Exhibit H. See Respondents Offer of Evidence, p. 2; records, p. 159.
[46]
Petitioners Memorandum, p. 3; rollo, p. 160.
Respondents witness, Federico S. Manlapig, testified that Jesus Cortez --
who had already migrated to Australia -- could no longer testify. TSN dated
December 15, 1994, p. 9.
[47]
RTC Decision dated December 7, 1999, p. 4; rollo, p. 53.
[48]
Ibid.
[49]
TSN dated December 15, 1994, pp. 9-13.
[50]
1 of Rule 132 of the Rules of Court.
[51]
Rule 130 of the Rules of Court.
[52]
RTC Order dated March 17, 1995; records, p. 165.
[53]
Melchor v. Gironella, GR No. 151138, February 16, 2005; People v. Crispin, 383
Phil. 919, 931, March 2, 2000; People v. Villeza, 127 SCRA 349, 359, January 31,
1984; Paa v. Chan, 128 Phil. 815, 821, October 31, 1967.
[54]
Country Bankers Insurance v. Lianga Bay and Community Multi-purpose
Cooperative, 425 Phil. 511, 521, January 25, 2002. See also Presidential
Commission on Good Government v. Desierto, 445 Phil. 154, 191, February 10,
2003; People v. Mallari, 369 Phil. 872, 884, July 20, 1999; People v. Cloud, 333 Phil.
306, 322, December 10, 1996.
[55]
People v. Velasquez, 352 SCRA 455, 476, February 21, 2001; Gotesco Investment
Corporation v. Chatto, 210 SCRA 18, 32, June 16, 1992.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 150403 January 25, 2007
CEBU SALVAGE CORPORATION, Petitioner,
vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does
not own?
This is the issue presented for the Courts resolution in this petition for review on
certiorari1 assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27,
1989 decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter 6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc.8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the
next day.9 The shipment never reached its destination, however, because the M/T Espiritu
Santo sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental,
resulting in the total loss of the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12 Thereafter, it filed a case in the RTC13 against petitioner
for reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance of goods,
in consideration of the payment of freight.14 Under a voyage charter, the shipowner retains
the possession, command and navigation of the ship, the charterer or freighter merely having
use of the space in the vessel in return for his payment of freight. 15 An owner who retains
possession of the ship remains liable as carrier and must answer for loss or non-delivery of
the goods received for transportation.16
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter
it entered into with MCCII was a contract of carriage.17 It insists that the agreement was
merely a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber
Enterprises (ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have
control and supervision over the vessel, its master and crew.19 Thus, it could not be held
liable for the loss of the shipment caused by the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of petitioners operations
manager, it is clear that it was a contract of carriage petitioner signed with MCCII. It actively
negotiated and solicited MCCIIs account, offered its services to ship the silica quartz and
proposed to utilize the M/T Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as
previously agreed upon in the voyage charter) since these vessels had broken down.20
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo,
it was engaged in the business of carrying and transporting goods by water, for
compensation, and offered its services to the public.21
From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence over the goods they transport according to the
circumstances of each case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by the causes specified in
Article 1734 of the Civil Code.23 In all other cases, common carriers are presumed to be at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had
control over what vessel it would use. All throughout its dealings with MCCII, it represented
itself as a common carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and duties as a common
carrier. The MCCII (respondents subrogor) could not be reasonably expected to inquire
about the ownership of the vessels which petitioner carrier offered to utilize. As a practical
matter, it is very difficult and often impossible for the general public to enforce its rights of
action under a contract of carriage if it should be required to know who the actual owner of
the vessel is.25 In fact, in this case, the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel.26
Petitioner next contends that if there was a contract of carriage, then it was between MCCII
and ALS as evidenced by the bill of lading ALS issued.27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed
by the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract
directly with ALS. While it is true that a bill of lading may serve as the contract of carriage
between the parties,29 it cannot prevail over the express provision of the voyage charter that
MCCII and petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard
a vessel under a charter party, and the charterer is also the holder of the bill of lading, "the
bill of lading operates as the receipt for the goods, and as document of title passing the
property of the goods, but not as varying the contract between the charterer and the
shipowner." The Bill of Lading becomes, therefore, only a receipt and not the contract of
carriage in a charter of the entire vessel, for the contract is the Charter Party, and is the law
between the parties who are bound by its terms and condition provided that these are not
contrary to law, morals, good customs, public order and public policy. 30
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account. 31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach of its contract of
carriage. The law, in fact, prohibits it and condemns it as unjust and contrary to public
policy.32
To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on
board the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove
that it exercised extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of affreightment, the
carrier was answerable for the loss of the goods received for transportation.33
The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does
not own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the carrier
and the supposed owner and to the possible shifting of liability from the carrier to one without
any financial capability to answer for the resulting damages.34
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA
Associate Justice Asscociate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
Under Rule 45 of the Rules of Court.
2
Penned by Associate Justice Ramon A. Barcelona (retired) and concurred in by
Associate Justices Rodrigo V. Cosico and Alicia L. Santos (retired) of the Seventh
Division of the Court of Appeals; rollo, pp. 34-46.
3
Id., pp. 32-33.
4
RTC records, pp. 414-419.
5
Now, Makati City.
6
MCCII was represented by its marketing manager Tessie Cu while petitioner was
represented by its operations manager Eduardo Y. Romeo; rollo, p. 24.
 7
Originally, the vessels named were M/T Seebees IV and M/T Shirley but these were
erased (a line put over the words) and replaced with M/T Espiritu Santo; RTC
records, p. 5.
8
Id., pp. 5-6; rollo, p. 24 and records, pp. 70-71, 414.
9
Rollo, pp. 24-25.
10
Records, p. 2; rollo, p. 25.
11
Under marine risk note no. FD-14331; id.
12
Id.
13
Docketed as Civil Case No. 11915. Judge Job B. Madayag, Branch 145, RTC of
Makati.
14
Caltex (Philippines), Inc. v. Sulpicio Lines, Inc., 374 Phil. 325, 333 (1999). Citations
omitted.
15
Puromines, Inc. v. Court of Appeals, G.R. No. 91228, 22 March 1993, 220 SCRA
281, 288, citing US v. Shea, 152 US 178, 38 Led 403, 14 S ct 579.
16
Id., p. 289.
17
Rollo, pp. 16-17. A contract of carriage is a contract by which the carrier assumes
the express obligation to transport the passenger or goods to his/her/its destination. A
voyage charter is a type of contract of carriage of goods wherein the owner of the
ship leases the whole or part of the ship to another for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight.
18
Id.
19
Id.
20
Id., p. 26.
21
Civil Code, Article 1732.
22
Id., Article 1733.
23
Article 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
24
Article 1735, Civil Code.
25
See Benedicto v. Intermediate Appellate Court, G.R. No. 70876, 19 July 1990, 187
SCRA 547, 553, citations omitted.
26
RTC records, p. 5.
27
Rollo, p. 17.
28
RTC records, p. 70.
29
Keng Hua Paper Products Co., Inc. v. CA, 349 Phil. 925, 932-933 (1998).
30
National Union Fire Insurance Company Of Pittsburg v. Stolt-Nielsen Philippines,
Inc., G.R. No. 87958, 26 April 1990, 184 SCRA 682, 688-689, citations omitted.
31
Rollo, pp. 17-18; RTC records, p. 5.
32
Article 1745 of the Civil Code states:
Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction,
or deterioration of the goods;
xxx xxx xxx
33
Supra note 15, at 288-289.
34
Supra note 25, at 554.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 186312 June 29, 2010
SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,
vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort (Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to and
from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for another
night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.
The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the
death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected,
alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B Coco
Beach III to sail notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as
5:00 a.m. of September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm on September 11, 2000
as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to
capacity and had sufficient life jackets for its passengers. By way of Counterclaim,
respondent alleged that it is entitled to an award for attorneys fees and litigation expenses
amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there
is clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resorts assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of
its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to
prove that it is a common carrier; that the Resorts ferry services for guests cannot be
considered as ancillary to its business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed before allowing M/B Coco
Beach III to sail; that the incident was caused by a fortuitous event without any contributory
negligence on its part; and that the other case wherein the appellate court held it liable for
damages involved different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent
as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public
service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger,
or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other similar
public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry services, may be availed of by anyone
who can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment.
It would be imprudent to suppose that it provides said services at a loss. The Court is aware
of the practice of beach resort operators offering tour packages to factor the transportation
fee in arriving at the tour package price. That guests who opt not to avail of respondents
ferry services pay the same amount is likewise inconsequential. These guests may only be
deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods is
the carriers principal business, whether it is offered on a regular basis, or whether it is
offered to the general public. The intent of the law is thus to not consider such distinctions.
Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the legal
obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. 19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances. 20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed
that the common carrier is at fault or negligent. In fact, there is even no need for the court to
make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions
of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents
position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical
depressions in Northern Luzon which would also affect the province of Mindoro. 22 By the
testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be
expected under such weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of
the resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The incident
was, therefore, not completely free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of
its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings
or income and less living and other incidental expenses.32 The loss is not equivalent to the
entire earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping
Agency Corp. v. Borja34teaches that when, as in this case, there is no showing that the living
expenses constituted the smaller percentage of the gross income, the living expenses are
fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
 Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange rate
of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net earning capacity is thus computed
as follows:
Net Earning = life expectancy x (gross annual income - reasonable and
Capacity necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning
= P8,316,000
Capacity
Respecting the award of moral damages, since respondent common carriers breach of
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as
moral damages andP100,000 as exemplary damages.381avvphi1
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the
rate of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners
the following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as
indemnity for Ruelitos loss of earning capacity; (3) P100,000 as moral damages;
(4) P100,000 as exemplary damages; (5) 10% of the total amount adjudged against
respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per
annum computed from the finality of this decision until full payment.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
WE CONCUR:
ARTURO D. BRION LUCAS P. BERSAMIN
Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
Additional member per Special Order No. 843 dated May 17, 2010.
1
Records, pp. 2-6.
2
TSN of September 12, 2002, pp. 2-22.
3
Vide TSN of May 2, 2002, pp. 5-7; records, p. 4.
4
Records, pp. 19-20.
5
Id. at 21-22.
6
Vide Complaint, supra note 1.
7
Records, pp. 28-35.
8
Vide TSN of February 4, 2003, pp. 6-7.
9
Id. at 8.
10
TSN of March 4, 2003, pp. 5-6.
11
Records, pp. 488-496.
12
Id. at 581-585.
13
Penned by Associate Justice Normandie B. Pizarro, with the concurrence of
Associate Justices Edgardo P. Cruz and Fernanda Lampas Peralta; CA rollo, pp.
135-147.
14
Id. at 190-191.
15
Rollo, pp. 18-31.
16
Vide Comment, id. at 60-81.
17
G.R. No. L-47822, December 22, 1988,168 SCRA 612.
18
Id. at 617-618.
19
Civil Code, Art. 1733.
20
Id., Art. 1755.
21
Diaz v. Court of Appeals, G.R. No. 149749, July 25, 2006, 496 SCRA 468, 472.
22
Vide records, pp. 268-276.
23
Vide TSN of December 13, 2001, pp. 3-19.
24
Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., G.R. No. 161745,
September 30, 2005, 471 SCRA 698, 707-708.
25
Ibid.
26
Records, pp. 279-280.
27
Art. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book concerning Damages. Article 2206 shall also
apply to the death of a passenger caused by the breach of contract by a common
carrier.
28
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall
be at least three thousand pesos, even though there may have been mitigating
circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter; such
indemnity shall in every case be assessed and awarded by the court, unless
the deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of
article 291, the recipient who is not an heir called to the decedent's inheritance
by the law of testate or intestate succession, may demand support from the
 person causing the death, for a period not exceeding five years, the exact
duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the
death of the deceased.
29
Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004, 437 SCRA 426, 451-452.
30
Candano Shipping Lines, Inc. v. Sugata-on, G.R. No. 163212, March 13, 2007, 578
SCRA 221, 235.
31
Lambert v. Heirs of Ray Castillon, G.R. No. 160709, February 23, 2005, 452 SCRA
285, 294.
32
Ibid.
33
Magbanua v. Tabusares, Jr., G.R. No. 152134, June 4, 2004, 431 SCRA 99, 104.
34
G.R. No. 143008, June 10, 2002, 383 SCRA 341, 351.
35
Vide records, pp. 258-259.
36
For reference, vide Bangko Sentral ng Pilipinas Treasury Department
Reference Exchange Rate Bulletins at
www.bsp.gov.ph/dbank_reports/ExchangeRates.
37
Vide Yobido v. Court of Appeals, 346 Phil. 1, 13 (1997).
38
Vide Victory Liner, Inc. v. Gammad, G.R. No. 159636, November 25, 2004, 444
SCRA 355, 370.
39
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
40
G.R. No. 97412, July 12, 1994, 234 SCRA 78, 9597.