TRANSPORTATION LAW

(5:30 – 7:30 – THURSDAY)

ASSIGNMENT:

1. Articles 1732 – 1766 of the New Civil Code

2. Constitutional Provisions Related to Transportation
a. Sec. 11, Art. XII
b. Sec. 16, Art. XII
c. Sec. 17, Art. XII
d. Sec. 18, Art. XII
e. Sec. 19, Art. XII
f. Sec. 11, Art. XVI
 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.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. — Article 1732 of the
Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is "whether the given undertaking is a part of
the business engaged in by the carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted." . . . The holding of the Court in De Guzman vs. Court of
Appeals is instructive. In referring to Article 1732 of the Civil Code, it held thus: "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 distinguished between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1732 deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN PRESUMPTION OF
NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN PRESUMPTION MADE ABSOLUTE. — Common
carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them.
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. There are very few instances when the presumption of negligence does not attach
and these instances are enumerated in Article 1734. In those cases where the presumption is applied, the
common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption . .
. The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus,
contrary to her assertion, private respondent need not introduce any evidence to prove her negligence. Her
own failure to adduce sufficient proof of extraordinary diligence made the presumption conclusive against
her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED FROM LIABILITY.
— In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the provisions of
Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is
presumed to have been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he
must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with Article 1745 of the Civil Code which provides: "Art. 1745. Any of the following or similar
stipulations shall be considered unreasonable, unjust and contrary to public policy . . . (6) That the common
carrier's liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat,
violences or force, is dispensed with or diminished"; In the same case, the Supreme Court also held that:
"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 of irresistible threat, violence of 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."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In this case, petitioner herself has made
the admission that she was in the trucking business, offering her trucks to those with cargo to move. Judicial
admissions are conclusive and no evidence is required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. — Petitioner presented no other
proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS WITNESSES. — While the
affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in court, he
himself was a witness as could be gleaned from the contents of the petition. Affidavits are not considered the
best evidence if the affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE. — Granting that
the said evidence were not self-serving, the same were not sufficient to prove that the contract was one of
lease. It must be understood that a contract is what the law defines it to be and not what it is called by the
contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A. CIPRIANO,
doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M.
BASCOS, doing business under the name of BASCOS TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216,
the dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby affirmed in
toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling
contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's 2,000
m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation
in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with
Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from
the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the
said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost
goods in accordance with the contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-delivery
or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed a
complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of a contract of
carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5 which contained the
following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court, whereby a writ
of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to do so, with intent
to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of carriage since
CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE was liable
to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo was hijacked
along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was immediately
reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the hijacked properties;
that after preliminary investigation, an information for robbery and carnapping were filed against Jose
Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter to
pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS (P156,404.00) as an (sic)
for actual damages with legal interest of 12% per cent per annum to be counted from December 4, 1986 until
fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is
DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP BETWEEN
PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT THE
CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS
IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF
THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER'S
MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND
ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and (2) was
the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her answer
that she did business under the name A.M. Bascos Trucking and that said admission dispensed with the
presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner was a common carrier. The
respondent Court also adopted in toto the trial court's decision that petitioner was a common carrier,
Moreover, both courts appreciated the following pieces of evidence as indicators that petitioner was a
common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting of
400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the truck
helper, Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo was placed
in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she alleged
in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE, was lease of
the truck. She cited as evidence certain affidavits which referred to the contract as "lease". These affidavits
were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus Bascos confirmed in
his testimony his statement that the contract was a lease contract. 10 She also stated that: she was not
catering to the general public. Thus, in her answer to the amended complaint, she said that she does business
under the same style of A.M. Bascos Trucking, offering her trucks for lease to those who have cargo to move,
not to the general public but to a few customers only in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is "whether the
given undertaking is a part of the business engaged in by the carrier which he has held out to the general
public as his occupation rather than the quantity or extent of the business transacted." 12 In this case,
petitioner herself has made the admission that she was in the trucking business, offering her trucks to those
with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same. 13

But petitioner argues that there was only a contract of lease because they offer their services only to a select
group of people and because the private respondents, plaintiffs in the lower court, did not object to the
presentation of affidavits by petitioner where the transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is instructive. In
referring to Article 1732 of the Civil Code, it held thus:

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

Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the appellate court's
factual conclusions. Yet, granting that the said evidence were not self-serving, the same were not sufficient to
prove that the contract was one of lease. It must be understood that a contract is what the law defines it to be
and not what it is called by the contracting parties. 15 Furthermore, petitioner presented no other proof of
the existence of the contract of lease. He who alleges a fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to force
majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by
them. 17 Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are
lost, destroyed or deteriorated. 18 There are very few instances when the presumption of negligence does not
attach and these instances are enumerated in Article 1734. 19 In those cases where the presumption is
applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability for
the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being included
in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the
common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising
from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence,
or force. This is in accordance with Article 1745 of the Civil Code which provides:

"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary
to public policy;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave
or irresistible threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"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."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus Bascos'
affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court of Appeals have
concluded that these affidavits were not enough to overcome the presumption. Petitioner's affidavit about
the hijacking was based on what had been told her by Juanito Morden. It was not a first-hand account. While
it had been admitted in court for lack of objection on the part of private respondent, the respondent Court
had discretion in assigning weight to such evidence. We are bound by the conclusion of the appellate court. In
a petition for review on certiorari, We are not to determine the probative value of evidence but to resolve
questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking took place. Thirdly,
while the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in
court, he himself was a witness as could be gleaned from the contents of the petition. Affidavits are not
considered the best evidence if the affiants are available as witnesses. 25 The subsequent filing of the
information for carnapping and robbery against the accused named in said affidavits did not necessarily mean
that the contents of the affidavits were true because they were yet to be determined in the trial of the
criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus,
contrary to her assertion, private respondent need not introduce any evidence to prove her negligence. Her
own failure to adduce sufficient proof of extraordinary diligence made the presumption conclusive against
her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We find no reason to
disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has been rendered
moot and academic by the decision on the merits.
 In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained. The
petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

FIRST DIVISION

[G.R. No. 131621. September 28, 1999]

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA INSURANCE CO.,
INC., respondents.

DECISION
DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following:(a) the 30 January
 1997 decision[1] of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October
1991[2] of the Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay
private respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from
the filing of the complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its
resolution of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the vessel) the
following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks
including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn, was insured by Prudential Guarantee
& Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of
Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total
loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the
insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a
subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the
vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be
ordered to pay the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted
from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and claimed that the
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of
action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped as a party
defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the Court of Appeals, which, however, agreed with the trial court and affirmed its
decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on
that fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR
retained control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in
determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been
seaworthy, it could have withstood the natural and inevitable action of the sea on 20 November 1984,
when the condition of the sea was moderate. The vessel sank, not because of force majeure, but because
it was not seaworthy. LOADSTARS allegation that the sinking was probably due to the convergence of the
winds, as stated by a PAGASA expert, was not duly proven at the trial. The limited liability rule, therefore,
is not applicable considering that, in this case, there was an actual finding of negligence on the part of the
carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind
only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latters rights as against the carrier, LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached their
destination. LOADSTARs defense of diligence of a good father of a family in the training and selection of
its crew is unavailing because this is not a proper or complete defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered
on board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order
and condition, it then devolves upon the shipowner to both allege and prove that the goods were
 damaged by reason of some fact which legally exempts him from liability. Transportation of the
merchandise at the risk and venture of the shipper means that the latter bears the risk of loss or
deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless
otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not
issued a certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there
was only one shipper, one consignee for a special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not timely raised
below; hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood
products for delivery to one consignee, it was also carrying passengers as part of its regular
business. Moreover, the bills of lading in this case made no mention of any charter party but only a statement
that the vessel was a general cargo carrier. Neither was there any special arrangement between LOADSTAR
and the shipper regarding the shipment of the cargo. The singular fact that the vessel was carrying a particular
type of cargo for one shipper is not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have
been negligent, and the burden of proving otherwise devolved upon MIC.[8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the
maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these
precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessels seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force
majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather
was fine until the next day when the vessel sank due to strong waves. MICs witness, Gracelia Tapel, fully
established the existence of two typhoons, WELFRING and YOLING, inside the Philippine area of
responsibility. In fact, on 20 November 1984, signal no. 1 was declared over Eastern Visayas, which includes
Limasawa Island. Tapel also testified that the convergence of winds brought about by these two typhoons
strengthened wind velocity in the area, naturally producing strong waves and winds, in turn, causing the
vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what
transpired in this case, is valid. Since the cargo was being shipped at owners risk, LOADSTAR was not liable for
any loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the
bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion
runs counter to the Supreme Courts ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray &
Co., Inc.,[9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been instituted beyond
the period stated in the bills of lading for instituting the same suits based upon claims arising from shortage,
damage, or non-delivery of shipment shall be instituted within sixty days from the accrual of the right of
action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was
due to force majeure, because the same concurred with LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be
deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR was at fault or
negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its
knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
 Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the
carrier be issued a certificate of public convenience, and this public character is not altered by the fact that the
carriage of the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc.,[11] where this Court held that a common carrier transporting special cargo or
chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of the
Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the negligence
of its agent is void only if the strict policy governing common carriers is upheld. Such policy has no force where
the public at large is not involved, as in the case of a ship totally chartered for the use of a single
party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals[12] and National Steel Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason that the factual
settings are different. The records do not disclose that the M/V Cherokee, on the date in question, undertook
to carry a special cargo or was chartered to a special person only. There was no charter party. The bills of
lading failed to show any special arrangement, but only a general provision to the effect that the M/V
Cherokee was a general cargo carrier.[14] Further, the bare fact that the vessel was carrying a particular type of
cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel
from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also
carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,[15] the Court
juxtaposed the statutory definition of common carriers with the peculiar circumstances of that case, viz.:

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 anoccasional, 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.

xxx

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 backhauling was
done on a periodic or occasional rather than regular or scheduled manner, and even though private
respondents principal 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 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.

Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy when it
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number
of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. [16]
Neither do we agree with LOADSTARs argument that the limited liability theory should be applied in this
case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel
owner or agent.[17] LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having
allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of
any storm that may be deemed as force majeure, inasmuch as the wind condition in the area where it sank
was determined to be moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide
behind the limited liability doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter
disregard of this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co.,
Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc.[19] It was ruled in these two cases that
after paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely
to the rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the
latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the
provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations
and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a limitation on
the carriers liability to an amount fixed in the bill of lading which the parties may enter into, provided that the
same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in the case at
bar effectively reduces the common carriers liability for the loss or destruction of the goods to a degree less
than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at owners risk. Such stipulation is obviously null and void for being contrary to public
policy.[20] It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from
any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an
unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of
freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are
invalid as being contrary to public policy, but the third is valid and enforceable. [21]

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated
to all the rights which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MICs cause
of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code
of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)
which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during
transit may be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the
insurer of the good.[22] In this case, the period for filing the action for recovery has not yet elapsed. Moreover,
a stipulation reducing the one-year period is null and void;[23] it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court
of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.
 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 segment of the general population. We think that Article 1732 deliberately refrained from making such
distinctions.

So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly with the
notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the Civil Code. 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

od 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.

THIRD DIVISION

[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND
ASSURANCE, INC., respondents.

DECISION
PUNO, J.:
 On appeal is the Court of Appeals May 11, 2000 Decision[1] in CA-G.R. CV No. 49195 and February 21, 2001
Resolution[2] affirming with modification the April 6, 1994 Decision[3] of the Regional Trial Court of Manila
which found petitioner liable to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.35[4] was shipped by Marubeni American Corporation of Portland, Oregon on board the vessel
M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in Manila, evidenced by
Bill of Lading No. PTD/Man-4.[5] The shipment was insured by the private respondent Prudential Guarantee
and Assurance, Inc. against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.[6]
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the
petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to
deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 0364[7] for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off
Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges which arrived
ahead of it while weathering out the storm that night.A few days after, the barge developed a list because of a
hole it sustained after hitting an unseen protuberance underneath the water. The petitioner filed a Marine
Protest on August 28, 1990.[8] It likewise secured the services of Gaspar Salvaging Corporation which refloated
the barge.[9] The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on
September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong
current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three other
barges.[10]
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the
total loss of the remaining cargo.[11] A second Marine Protest was filed on September 7, 1990.[12]
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded
on the three other barges.[13] The total proceeds from the sale of the salvaged cargo was P201,379.75.[14]
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter
dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no
avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit.[16] Petitioner filed its answer with counterclaim.[17]
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision
states:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage &
Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum ofP4,104,654.22 with
interest from the date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded
as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED.With costs against defendant.[18]

Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court
affirmed the decision of the trial court with modification. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the salvage
value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against appellant.

SO ORDERED.
 Petitioners Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a
Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:[19]
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT
PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF
THE CONSIGNEES CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care
and custody of the consignees cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does not hold out
its services to the general public.[20]
We disagree.
In De Guzman vs. Court of Appeals,[21] we held that the definition of common carriers in Article 1732 of
the Civil Code makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity. We also did not distinguish
between a person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Further, we ruled that Article 1732 does
not distinguish between a carrier offering its services to the general public, and one who offers services or
solicits business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage [22] and it offers
its barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly a
common carrier. In De Guzman, supra,[23] we considered private respondent Ernesto Cendaa to be a common
carrier even if his principal occupation was not the carriage of goods for others, but that of buying used bottles
and scrap metal in Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have
fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of Appeals.[24] The
test to determine a common carrier is whether the given undertaking is a part of the business engaged in by
the carrier which he has held out to the general public as his occupation rather than the quantity or extent of
the business transacted.[25] In the case at bar, the petitioner admitted that it is engaged in the business of
shipping and lighterage,[26] offering its barges to the public, despite its limited clientele for carrying or
transporting goods by water for compensation.[27]
 On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignees goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.[28] They are presumed to have been at fault or to have acted negligently if the goods are
lost, destroyed or deteriorated.[29] To overcome the presumption of negligence in the case of loss, destruction
or deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. There
are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

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

2) Act of the public enemy in war, whether international or civil;

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

4) The character of the goods or defects in the packing or in the containers;

5) Order or act of competent public authority.

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

CROSS-EXAMINATION BY ATTY. DONN LEE:[31]

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

DIRECT-EXAMINATION BY ATTY. LEE:[33]

 xxxxxxxxx
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie where she was
instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the consignee) as I have
said was in a hurry for their goods to be delivered at their Wharf since they needed badly the wheat that
was loaded in PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxxxxxxxx

CROSS-EXAMINATION BY ATTY. IGNACIO:[34]

xxxxxxxxx

q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I correct?

a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.

q - Despite of the threats of an incoming typhoon as you testified a while ago?

a - It is already in an inner portion of Pasig River. The typhoon would be coming and it would be dangerous if we are
in the vicinity of Manila Bay.

q - But the fact is, the typhoon was incoming? Yes or no?

a - Yes.

q - And yet as a standard operating procedure of your Company, you have to secure a sort of Certification to
determine the weather condition, am I correct?

a - Yes, sir.

q - So, more or less, you had the knowledge of the incoming typhoon, right?

a - Yes, sir.

q - And yet you proceeded to the premises of the GMC?

a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are already inside the vicinity or
inside Pasig entrance, it is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape
liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due
diligence required from a common carrier. More importantly, the officers/employees themselves of petitioner
admitted that when the towing bits of the vessel broke that caused its sinking and the total loss of the cargo
upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is not the
proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 49195
dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
 FIRST DIVISION

[G.R. No. 138334. August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., respondents.

DECISION
YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and
Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed
Jewels of Europe. The package tour included the countries of England, Holland, Germany, Austria,
Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on the
amount, which included airfare, and the booking fee was also waived because petitioners niece, Meriam
Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to deliver
petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two
hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the
flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she discovered that the
flight she was supposed to take had already departed the previous day. She learned that her plane ticket was
for the flight scheduled on June 14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which included
England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay
US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent US$300 or
P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of P61,421.70,
representing the difference between the sum she paid for Jewels of Europe and the amount she owed
respondent for the British Pageant tour. Despite several demands, respondent company refused to reimburse
the amount, contending that the same was non-refundable.[1] Petitioner was thus constrained to file a
complaint against respondent for breach of contract of carriage and damages, which was docketed as Civil
Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to respondents
fault since it did not clearly indicate the departure date on the plane ticket.Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She insisted that the British Pageant
 was merely a substitute for the Jewels of Europe tour, such that the cost of the former should be properly set-
off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was informed of the
correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were
given to petitioner two days ahead of the scheduled trip.Petitioner had only herself to blame for missing the
flight, as she did not bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe, considering
that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already
billed the same even if petitioner did not join the tour. Lotus European tour organizer, Insight International
Tours Ltd., determines the cost of a package tour based on a minimum number of projected participants. For
this reason, it is accepted industry practice to disallow refund for individuals who failed to take a booked
tour.[3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package tour that
petitioner missed. This tour was independently procured by petitioner after realizing that she made a mistake
in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial payment of only US$300.00
for the second tour because her niece was then an employee of the travel agency. Consequently, respondent
prayed that petitioner be ordered to pay the balance of P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision,[4] the dispositive part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand Nine Hundred
Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at the rate of twelve
percent (12%) per annum starting January 16, 1992, the date when the complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for reasonable
attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.[5]

The trial court held that respondent was negligent in erroneously advising petitioner of her departure
date through its employee, Menor, who was not presented as witness to rebut petitioners testimony.
However, petitioner should have verified the exact date and time of departure by looking at her ticket and
should have simply not relied on Menors verbal representation. The trial court thus declared that petitioner
was guilty of contributory negligence and accordingly, deducted 10% from the amount being claimed as
refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However,
the appellate court held that petitioner is more negligent than respondent because as a lawyer and well-
traveled person, she should have known better than to simply rely on what was told to her. This being so, she
is not entitled to any form of damages. Petitioner also forfeited her right to the Jewels of Europe tour and
must therefore pay respondent the balance of the price for the British Pageant tour. The dispositive portion of
the judgment appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed
from the time the counterclaim was filed until the finality of this decision. After this decision becomes final
and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the
total obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs against the
plaintiff-appellee.
SO ORDERED.[6]

Upon denial of her motion for reconsideration,[7] petitioner filed the instant petition under Rule 45 on the
following grounds:
I

It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and
setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of
unavailed Jewels of Europe tour she being equally, if not more, negligent than the private respondent, for in
the contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence
which is higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner
and private respondent were both negligent, the petitioner cannot be considered to be equally, or worse,
more guilty than the private respondent. At best, petitioners negligence is only contributory while the private
respondent [is guilty] of gross negligence making the principle of pari delicto inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not indivisible and
the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of
breach of contract of carriage.[8]

Petitioner contends that respondent did not observe the standard of care required of a common carrier
when it informed her wrongly of the flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its
obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of the
damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its
employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another for a fixed
price.[9] Such person or association of persons are regarded as carriers and are classified as private or special
carriers and common or public carriers.[10] A common carrier is defined under Article 1732 of the Civil Code as
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent
did not undertake to transport petitioner from one place to another since its covenant with its customers is
simply to make travel arrangements in their behalf. Respondents services as a travel agency include procuring
tickets and facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this
does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of
the airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondents obligation to
petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the
appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the
airline.
The object of petitioners contractual relation with respondent is the latters service of arranging and
facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast, the object of a
contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between
the parties in this case was an ordinary one for services and not one of carriage. Petitioners submission is
premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree
of care required in the performance of the latters obligation under the contract. For reasons of public policy, a
common carrier in a contract of carriage is bound by law to carry passengers as far as human care and
foresight can provide using the utmost diligence of very cautious persons and with due regard for all the
circumstances.[11] As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus
not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner
claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code.[12] This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance of an
obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the
wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors alleged
negligent act since respondent did not call Menor to the witness stand to refute the allegation. The lower
court applied the presumption under Rule 131, Section 3 (e)[14] of the Rules of Court that evidence willfully
suppressed would be adverse if produced and thus considered petitioners uncontradicted testimony to be
sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that
petitioners assertion is belied by the evidence on record. The date and time of departure was legibly written
on the plane ticket and the travel papers were delivered two days in advance precisely so that petitioner could
prepare for the trip. It performed all its obligations to enable petitioner to join the tour and exercised due
diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to an
inference unfavorable to the former. Menor was already working in France at the time of the filing of the
complaint,[15] thereby making it physically impossible for respondent to present her as a witness. Then too,
even if it were possible for respondent to secure Menors testimony, the presumption under Rule 131, Section
3(e) would still not apply. The opportunity and possibility for obtaining Menors testimony belonged to both
parties, considering that Menor was not just respondents employee, but also petitioners niece. It was thus
error for the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule
131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted
but is simply unavailable, or when the same could have been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred with the
negligence of petitioner and resultantly caused damage to the latter. Menors negligence was not sufficiently
proved, considering that the only evidence presented on this score was petitioners uncorroborated narration
of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation
cannot take the place of evidence.[17] If the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense.[18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due diligence in
performing its obligations under the contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket[19] issued to petitioner clearly reflected
the departure date and time, contrary to petitioners contention. The travel documents, consisting of the tour
itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip.
Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured
the plane tickets. It arranged petitioners hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything
else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of
her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers
were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This
undoubtedly would require that she at least read the documents in order to assure herself of the important
details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for the
resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due
 care and prudence in the performance of the obligation as the nature of the obligation so demands.[20] There
is no fixed standard of diligence applicable to each and every contractual obligation and each case must be
determined upon its particular facts. The degree of diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is a question of fact that is to be determined after
taking into account the particulars of each case.[21]
The lower court declared that respondents employee was negligent. This factual finding, however, is not
supported by the evidence on record. While factual findings below are generally conclusive upon this court,
the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied
some facts or circumstances of weight and substance which will affect the result of the case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty diligently
and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-
G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of
P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the
finality of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be
imposed until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a
forbearance of credit.[23]
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

FIRST DIVISION

[G.R. No. 149038. April 9, 2003]

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS SHIPPING COMPANY, respondent.

DECISION
VITUG, J.:
 The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV No.
56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional Trial Court
(RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner insurance corporation
against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags of cement
worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the goods
for its full value with petitioner Philippine American General Insurance Company (Philamgen). The goods were
loaded aboard the dumb barge Limar I belonging to PKS Shipping. On the evening of 22 December 1988, about
nine oclock, while Limar I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of
miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000
bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly made
payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping
company refused to pay, prompting Philamgen to file suit against PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been caused
either by a fortuitous event, in which case the ship owner was not liable, or through the negligence of the
captain and crew of the vessel and that, under Article 587 of the Code of Commerce adopting the Limited
Liability Rule, the ship owner could free itself of liability by abandoning, as it apparently so did, the vessel with
all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the trial
court. The appellate court ruled that evidence to establish that PKS Shipping was a common carrier at the time
it undertook to transport the bags of cement was wanting because the peculiar method of the shipping
companys carrying goods for others was not generally held out as a business but as a casual occupation. It
then concluded that PKS Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The appellate court, moreover,
found that the loss of the goods was sufficiently established as having been due to fortuitous event, negating
any liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent error in ruling
that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject cargo. The fact
that respondent has a limited clientele, petitioner argues, does not militate against respondents being a
common carrier and that the only way by which such carrier can be held exempt for the loss of the cargo
would be if the loss were caused by natural disaster or calamity. Petitioner avers that typhoon "APIANG" has
not entered the Philippine area of responsibility and that, even if it did, respondent would not be exempt from
liability because its employees, particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen seeks is
not a review on points or errors of law but a review of the undisputed factual findings of the RTC and the
appellate court. In any event, PKS Shipping points out, the findings and conclusions of both courts find support
from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of whether
it is a private carrier or a common carrier and, in either case, to the other question of whether or not it has
observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common carrier) required of
it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent with
those of the trial court, may not at liberty be reviewed by this Court in a petition for review under Rule 45 of
the Rules of Court.[1] The conclusions derived from those factual findings, however, are not necessarily just
matters of fact as when they are so linked to, or inextricably intertwined with, a requisite appreciation of the
applicable law. In such instances, the conclusions made could well be raised as being appropriate issues in a
petition for review before this Court. Thus, an issue whether a carrier is private or common on the basis of the
facts found by a trial court or the appellate court can be a valid and reviewable question of law.
The Civil Code defines common carriers in the following terms:
 Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their
services to the public.

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it defines public
service to be

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

The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs. Court of
Appeals.[2] Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public Service Act, this
Court has held:

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

So understood, the concept of `common carrier under Article 1732 may be seen to coincide neatly with the
notion of `public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the Civil Code.

Much of the distinction between a common or public carrier and a private or special carrier lies in the
character of the business, such that if the undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited
clientele, although involving the carriage of goods for a fee,[3] the person or corporation providing such service
could very well be just a private carrier. A typical case is that of a charter party which includes both the vessel
and its crew, such as in a bareboat or demise, where the charterer obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages[4] and gets the control of the vessel and its
crew.[5] Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS Shipping
has engaged itself in the business of carrying goods for others, although for a limited clientele, undertaking to
carry such goods for a fee. The regularity of its activities in this area indicates more than just a casual activity
on its part.[6] Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it easy for a
common carrier to escape liability by the simple expedient of entering into those distinct agreements with
clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence demanded of
common carriers, Article 1733 of the Civil Code requires common carriers to observe extraordinary diligence in
the vigilance over the goods they carry. In case of loss, destruction or deterioration of goods, common carriers
are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on
them.[7] The provisions of Article 1733, notwithstanding, common carriers are exempt from liability for loss,
destruction, or deterioration of the goods due to any of the following causes:

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

(2) Act of the public enemy in war, whether international or civil;

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

(4) The character of the goods or defects in the packing or in the containers; and

(5) Order or act of competent public authority.[8]

The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective
vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or the tugboats crew
could have prevented the sinking of Limar I. The vessel was suddenly tossed by waves of extraordinary height
of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the entry of water into the
barges hatches. The official Certificate of Inspection of the barge issued by the Philippine Coastguard and the
Coastwise Load Line Certificate would attest to the seaworthiness of Limar I and should strengthen the factual
findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized exceptions
from the rule - (1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (3) when the
inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is a grave abuse of discretion in the appreciation of facts; (5) when the appellate court, in
making its findings, went beyond the issues of the case and such findings are contrary to the admissions of
both appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice certain relevant facts which, if
properly considered, would justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of the specific evidence on which
they are based; and (10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record would appear to be clearly extant in
this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for the
loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
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.

DECISION
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 x x x x

"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 a writ of preliminary injunction against respondentsCity 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:

"xxx Plaintiff is either a contractor or other independent contractor.

xxx 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:
. That the exemption granted under Sec. 133 (j) encompasses only common 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."

. 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, x x x 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
20, 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.
Article 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 x x x 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.' "(Underscoring 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 a 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 x x and everything relating to
the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to
be a public utility." (Underscoring Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No.
069-83, it declared:

"x x x 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 x x x. 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:

"Section 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 :

xxxxxxxxx

(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." x x x

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. x x x[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, (Chairman), Puno, and Mendoza, JJ., concur.
 THIRD DIVISION

[G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees.The Court also
reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, are
binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons
Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals. [1] The Court of
Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as
follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on
both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of litigation. Except as thus
modified, the decision is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED. [3]

The Facts
 The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or
shipment for the general public. Its services are available only to specific persons who enter into a special
contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in this
capacity that its owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping,
Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit 1) whereby NSC
hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products at Iligan City and discharge
them at North Harbor, Manila, under the following terms and conditions, viz:

1. x x x x x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

3. x x x x x x

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading within
fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours,
Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.

10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter
Party Agreement shall form part of this Contract.

xxxxxxxxx

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI Charter
Party which stands for Freight In and Out including Stevedoring and Trading, which means that the handling,
loading and unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the
NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the cargo free of risk and expenses
to owners. x x x (Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage
and preservation. Owners shall not be liable for loss of or damage of the cargo arising or resulting
from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the vessel
seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds
and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation; xxx; perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk or
weight or any other loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency of
packing; xxx; latent defects not discoverable by due diligence; any other cause arising without the actual fault
or privity of Owners or without the fault of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence or default of the master and crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV VLASONS I
loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and 92 packages of hot
rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to
Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as
agent of the vessel[,] acknowledged receipt of the cargo on board and signed the corresponding bill of lading,
B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day,
August 13, 1974, when the vessels three (3) hatches containing the shipment were opened by plaintiffs
agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The
cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was completed only on
August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which interrupted the
unloading operations. (Exhibit E)

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by
the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit
G), MASCO made a report of its ocular inspection conducted on the cargo, both while it was still on board the
vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and
stored. MASCO reported that it found wetting and rusting of the packages of hot rolled sheets and metal
covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that container/metal
casings of the skids were rusting all over. MASCO ventured the opinion that rusting of the tinplates was caused
by contact with SEA WATER sustained while still on board the vessel as a consequence of the heavy weather
and rough seas encountered while en route to destination (Exhibit F). It was also reported that MASCOs
surveyors drew at random samples of bad order packing materials of the tinplates and delivered the same to
the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report
No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of packing materials xxx shows
that wetting was caused by contact with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its
claim for damages suffered due to the downgrading of the damaged tinplates in the amount
ofP941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant
VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result
of the act, neglect and default of the master and crew in the management of the vessel as well as the want of
due diligence on the part of the defendant to make the vessel seaworthy and to make the holds and all other
parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage and preservation -- all
in violation of defendants undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I was
seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common
carrier inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter
party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I encountered very rough
seas, strong winds and adverse weather condition, causing strong winds and big waves to continuously pound
against the vessel and seawater to overflow on its deck and hatch covers; that under the Contract of Voyage
Charter Hire, defendant shall not be responsible for losses/damages except on proven willful negligence of the
officers of the vessel, that the officers of said MV VLASONS I exercised due diligence and proper seamanship
and were not willfully negligent; that furthermore the Voyage Charter Party provides that loading and
discharging of the cargo was on FIOST terms which means that the vessel was free of risk and expense in
connection with the loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not
discoverable by due diligence or to any other cause arising without the actual fault or privity of defendant and
without the fault of the agents or servants of defendant; consequently, defendant is not liable; that the
stevedores of plaintiff who discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; and that the cargo was exposed to rain and seawater spray while on the pier or in
transit from the pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs claim was
highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that it had
complied with all its duties and obligations under the Voyage Charter Hire Contract and had no responsibility
whatsoever to plaintiff. In turn, it alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire
Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by
defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00
per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to
discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount
of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant
attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following findings which
were set forth in its decision:

(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is available for hire
only under special contracts of charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV VLASONS
I was covered by the required seaworthiness certificates including the Certification of Classification issued by
an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License from the Board of
Transportation (Exh. 5); International Loadline Certificate from the Philippine Coast Guard (Exh. 6); Cargo Ship
Safety Equipment Certificate also from the Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8);
Certificate of Inspection by the Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. 9). That being a vessel engaged in both overseas and coastwise trade,
the MV VLASONS I has a higher degree of seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire,
the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast
Guard. In fact, subject voyage was the vessels first voyage after the drydocking. The evidence shows that the
MV VLASONS I was seaworthy and properly manned, equipped and supplied when it undertook the voyage. It
had all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water
tight. Furthermore, under the hatchboards were steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The
provisions of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in
case of loss or damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly
due to the wetting and rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that
tinplates sweat by themselves when packed even without being in contract (sic) with water from outside
especially when the weather is bad or raining. The rust caused by sweat or moisture on the tinplates may be
considered as a loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the
Civil Case which exempts the carrier from responsibility for loss or damage arising from the character of the
goods x x x. All the 1,769 skids of the tinplates could not have been damaged by water as claimed by
plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining
and corrugated cardboards could not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the
hatch openings of the MV VLASONS I when rains occurred during the discharging of the cargo thus allowing
rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to resume work when the rains stopped by
just removing the tent or canvas. Because of this improper covering of the hatches by the stevedores during
the discharging and unloading operations which were interrupted by rains, rainwater drifted into the cargo
through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly
made part of the Contract of Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole
responsibility of the plaintiff charterer and defendant carrier has no liability for whatever damage may occur
or maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan
City to Manila causing sea water to splash on the ships deck on account of which the master of the vessel (Mr.
Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as
a force majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire
contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement, then it
could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party contract
when it loaded not only steel products, i.e. steel bars, angular bars and the like but also tinplates and hot
rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to ship high
grade cargo at a lower freight rate.

(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4 thereof, fixed
the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within
fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also
showed that the plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire
contract to pay demurrage of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted
to eleven (11) days thereby making plaintiff liable to pay defendant for demurrage in the amount
of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:

I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or character of
the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSCs
shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage
from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and
VSI filed separate motions for reconsideration. In a Resolution[5] dated October 20, 1993, the appellate court
denied both motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On
motion of VSI, the Court ordered on February 14, 1994 the consolidation of these petitions.[6]

The Issues

In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:
 Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by
weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12) were
admissible in evidence and constituted evidence of the vessels seaworthiness at the beginning of the
voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability for cargo
damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following alleged errors of
the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorneys
fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which
there exist[s] a presumption of negligence against the common carrier in case of loss or damage to the cargo
are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai
Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a
private carrier. The resolution of this preliminary question determines the law, standard of diligence and
burden of proof applicable to the present case.
 Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. It has been held that the true test of a common carrier is
the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its
transportation service for a fee. [11] A carrier which does not qualify under the above test is deemed a private
carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold himself
out to carry goods for the general public. The most typical, although not the only form of private carriage, is
the charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the
use and service of all or some part of a ship for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only for those it chose under a special contract of charter
party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons I was not a common but a private
carrier. [14] Consequently, the rights and obligations of VSI and NSC, including their respective liability for
damage to the cargo, are determined primarily by stipulations in their contract of private carriage or charter
party. [15]Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven
Brothers Shipping Corporation, [16] the Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the
general public cannot justifiably be applied to a ship transporting commercial goods as a private
carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party
that lessen or remove the protection given by law in contracts involving common carriers.[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be
responsible for losses except on proven willful negligence of the officers of the vessel. The NANYOZAI Charter
Party, which was incorporated in the parties contract of transportation, further provided that the shipowner
shall not be liable for loss of or damage to the cargo arising or resulting from unseaworthiness, unless the
same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was
properly manned, equipped and supplied, and to make the holds and all other parts of the vessel in which
cargo [was] carried, fit and safe for its reception, carriage and preservation. [18] The NANYOZAI Charter Party
also provided that [o]wners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew.[19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment
was caused by VSIs willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy
and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by
the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been
expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous
event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the
shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding
article if proofs against him show that they occurred on account of his negligence or his omission to take the
precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of lading,
making him to believe that the goods were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima
facie presumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that
the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the
carriers custody does not put the burden of proof on the carrier.

Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection of the
goods committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and
proof of loss of, or damage to, cargo while in the carriers possession does not cast on it the burden of proving
proper care and diligence on its part or that the loss occurred from an excepted cause in the contract or bill of
lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier is in a better
position to know the cause of the loss and that it was not one involving its liability, the law requires that it
come forward with the information available to it, and its failure to do so warrants an inference or
presumption of its liability. However, such inferences and presumptions, while they may affect the burden of
coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and, where the
carrier comes forward with evidence explaining the loss or damage, the burden of going forward with the
evidence is again on plaintiff.

Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a breach
thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the
goods were lost or damaged while in the carriers possession does not cast on it the burden of proving
seaworthiness. x x x Where the contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due diligence
to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not taken the correct position in
relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and
Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs] interpretation of Clause 12 is
not even correct), it argues that a careful examination of the evidence will show that VSI miserably failed to
comply with any of these obligations as if defendant-appellee [VSI] had the burden of proof.[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1)
whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the
charter party; (2) whether the damage to the cargo should be attributed to the willful negligence of the
officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates
was caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The findings
of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the
trial court and the Court of Appeals coincide, the same are binding on this Court. [22] We stress that, subject to
some exceptional instances, [23] only questions of law -- not questions of fact -- may be raised before this Court
in a petition for review under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find
no reason to disturb the lower courts factual findings, as indeed NSC has not successfully proven the
application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

 In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for
the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked and inspected
by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of
voyage charter hire. [24] The vessels voyage from Iligan to Manila was the vessels first voyage after
drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all
requirements for trading as cargo vessel. [25] The Court of Appeals itself sustained the conclusion of the trial
court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial
and the appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the
negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the
carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to
cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of
Appeals for failing to consider such claim as an uncontroverted fact [26] and denies that MV Vlasons I was
equipped with new canvas covers in tandem with the old ones as indicated in the Marine Protest xxx. [27] We
disagree.
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in addition to
the new one used primarily to make the ships hatches watertight. The foregoing are clear from the marine
protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ships boatswain, Jose
Pascua. The salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9,
1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough seas and
strong winds and Manila office was advised by telegram of the adverse weather conditions encountered; that
in the morning of August 10, 1974, the weather condition changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new canvass covering still
holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-
secured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching
Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same canvass
to give way and leaving the new canvass holding on;

xxx xxx xxx [28]

And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat
bar over the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could
not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch opening.
A: Forty-five feet by thirty-five feet, sir.
 xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give way
and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, xxx we
find no reason not to sustain the conclusion of the lower court based on overwhelming evidence, that the MV
VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-
appellants shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages from NSCs pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12,
1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew
of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in
unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a
passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly
inadequate for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of
VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel
upon notice from the National Steel Corporation in order to conduct the inspection of the cargo. During
the course of the investigation, did you chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but
majority of the tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the transcript of
stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the
hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed at the opening
of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents
constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with
the whole side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle
because of those weather and this can be used only to temporarily protect the cargo from getting wet by
rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was
not good enough to hold all of it to prevent the water soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the
canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its
stevedores in discharging the cargo particularly in this tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind
at all, so, I called the attention of the representative of the National Steel but nothing was done, just the
same. Finally, I wrote a letter to them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately
about the stevedores negligence on the first day of unloading, pointing out that he wrote his letter to
petitioner only seven days later. [32] The Court is not persuaded. Angliongtos candid answer in his aforequoted
testimony satisfactorily explained the delay. Seven days lapsed because he first called the attention of the
stevedores, then the NSCs representative, about the negligent and defective procedure adopted in unloading
the cargo. This series of actions constitutes a reasonable response in accord with common sense and ordinary
human experience. Vicente Angliongto could not be blamed for calling the stevedores attention first and then
the NSCs representative on location before formally informing NSC of the negligence he had observed,
because he was not responsible for the stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for the stevedores it had hired and the
performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this point, viz:
 In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC
were negligent in the unloading of NSCs shipment. We do not think so. Such negligence according to the trial
court is evident in the stevedores hired by [NSC], not closing the hatch of MV VLASONS I when rains occurred
during the discharging of the cargo thus allowing rain water and seawater spray to enter the hatches and to
drift to and fall on the cargo. It was proven that the stevedores merely set up temporary tents or canvas to
cover the hatch openings when it rained during the unloading operations so that it would be easier for them
to resume work after the rains stopped by just removing said tents or canvass. It has also been shown that on
August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores
hired by [NSC] were discharging the cargo on rainy days and the improper closing of the hatches which
allowed continuous heavy rain water to leak through and drip to the tinplates covers and [Vicente Angliongto]
also suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally closed
down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was received by [NSC] on 22
August 1974 while discharging operations were still going on (Exhibit 13-A). [33]

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may
seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the
discharge operations. A stevedore company engaged in discharging cargo xxx has the duty to load the cargo
xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence xxx and where
the officers and members and crew of the vessel do nothing and have no responsibility in the discharge of
cargo by stevedores xxx the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx [34] as in the instant case.

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by
themselves when packed even without being in contact with water from outside especially when the weather
is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage
to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the
stevedores negligently allowed to seep in during the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally
separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for damage
to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore,
NSCs failure to insure the cargo will not affect its right, as owner and real party in interest, to file an action
against VSI for damages caused by the latters willful negligence. We do not find anything in the charter party
that would make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSCs
obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the
certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]
 NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules
of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified true copies as
required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per
Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made in the
performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an original
certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect
that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent on board for inspection x x
x. After completion of drydocking and duly inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel,
is in seaworthy condition, meets all requirements, fitted and equipped for trading as a cargo vessel was
cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is
obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was not
seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a
common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the
willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing the
genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.

xxx xxx xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading
and unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the vessel. On the other
hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in running
days, this means days when the ship would be run continuously, and holidays are not excepted. A qualification
of weather permitting excepts only those days when bad weather reasonably prevents the work
contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included. [42] The running of laytime was thus
made subject to the weather, and would cease to run in the event unfavorable weather interfered with the
unloading of cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day laytime
allowed it did not lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC
qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to
have found and affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial
court arrived at this erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain which was August 22,
1974. Based on our previous discussion, such finding is a reversible error. As mentioned, the respondent
appellate court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by
half.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award of
attorneys fees under Article 2208 of the Civil Code when x x x 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
x x x. [44] Moreover, attorneys fees may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a premium on ones right to litigate or
seek judicial redress of legitimate grievances. [45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the
cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage was
brought about during the unloading process when rain and seawater seeped through the cargo due to the
fault or negligence of the stevedores employed by it.Basic is the rule that factual findings of the trial court,
when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled
exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between
the parties -- the Contract of Voyage Charter Hire -- placed the burden of proof for such loss or damage upon
the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the
parties entered into a contract of private charter, not one of common carriage. Basic too is the doctrine that
courts cannot relieve a party from the effects of a private contract freely entered into, on the ground that it is
allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial contract and its
stipulations are agreed upon in consideration of many factors, not the least of which is the transport price
which is determined not only by the actual costs but also by the risks and burdens assumed by the shipper in
regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated that
the shipper should insure the cargo to protect itself from the risks it undertook under the charter party. That
NSC failed or neglected to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned
Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, Melo, and Francisco, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 102316 June 30, 1997

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,

vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.

PANGANIBAN, J.:

Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, short-landing,
breakages and any kind of damages to the cargo" 1 valid? This is the main question raised in this petition for
review assailing the Decision of Respondent Court of Appeals 2 in CA-G.R. No. CV-20156 promulgated on
October 15, 1991. The Court of Appeals modified the judgment of the Regional Trial Court of Valenzuela,
Metro Manila, Branch 171, the dispositive portion of which reads:

WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff
the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal
interest thereon from the date of demand on February 2, 1984 until the amount is fully paid or in the
alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION
PESOS (2,000,000.00) representing the value of lost logs plus legal interest from the date of demand on April
24, 1984 until full payment thereof; the reasonable attorney's fees in the amount equivalent to five (5)
percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED
THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.

Defendant South Sea Surety and Insurance Company's counterclaim is hereby dismissed.

In its assailed Decision, Respondent Court of Appeals held:

WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven
Brothers Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3

The Facts

The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an
agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load
on board its vessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety
and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229
for P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr.
Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the
plaintiff's insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary
stamps due on the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety
and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the inception for non-payment
of the premium due in accordance with Section 77 of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment
of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal
claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied
the claim.

After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants.
Both defendants shipping corporation and the surety company appealed.

Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following
assignment of errors, to wit:

A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors,
was not due to fortuitous event but to the negligence of the captain in stowing and securing the logs on board,
causing the iron chains to snap and the logs to roll to the portside.

B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation
from logs (sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking
article 1745 of the New Civil Code.

C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the
alternative and ordering/directing it to pay plaintiff-appellee the amount of two million (2,000,000.00) pesos
representing the value of the logs plus legal interest from date of demand until fully paid.

D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee
reasonable attorney's fees in the amount equivalent to 5% of the amount of the claim and the costs of the
suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim
for attorney's fees.

F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:

A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety
and Insurance Company, Inc. and likewise erred in not holding that he was the representative of the insurance
broker Columbia Insurance Brokers, Ltd.

B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums
paid on the policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.

C. The trial court erred in not applying Section 77 of the Insurance Code.

D. The trial court erred in disregarding the "receipt of payment clause" attached to and forming part of the
Marine Cargo Insurance Policy No. 84/24229.

E. The trial court in disregarding the statement of account or bill stating the amount of premium and
documentary stamps to be paid on the policy by the plaintiff-appellee.

F. The trial court erred in disregarding the endorsement of cancellation of the policy due to non-payment of
premium and documentary stamps.

G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay
plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until
the amount is fully paid,

H. The trial court erred in not awarding to the defendant-appellant the attorney's fees alleged and proven in
its counterclaim.

The primary issue to be resolved before us is whether defendants shipping corporation and the surety
company are liable to the plaintiff for the latter's lost logs. 4

The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and
Insurance Company ("South Sea"), but modified it by holding that Seven Brothers Shipping Corporation
("Seven Brothers") was not liable for the lost cargo. 5 In modifying the RTC judgment, the respondent
appellate court ratiocinated thus:

It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability
in case of loss.

The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability
of the shipping corporation. The provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is
valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. 6

South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela") filed separate
petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of
South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the Court of
Appeals that Chua was indeed an authorized agent of South Sea when he received Valenzuela's premium
payment for the marine cargo insurance policy which was thus binding on the insurer. 8

The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision
which exempted Seven Brothers from any liability for the lost cargo.

The Issue

Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent Court (of
Appeals) committed a reversible error in upholding the validity of the stipulation in the charter party executed
between the petitioner and the private respondent exempting the latter from liability for the loss of
petitioner's logs arising from the negligence of its (Seven Brothers') captain." 9

The Court's Ruling

The petition is not meritorious.

Validity of Stipulation is Lis Mota

The charter party between the petitioner and private respondent stipulated that the "(o)wners shall not be
responsible for loss, split, short-landing, breakages and any kind of damages to the cargo." 10 The validity of
this stipulation is the lis mota of this case.

It should be noted at the outset that there is no dispute between the parties that the proximate cause of the
sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the "snapping of the iron chains and
the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing
the logs on board the vessel and not due to fortuitous event." 11 Likewise undisputed is the status of Private
Respondent Seven Brothers as a private carrier when it contracted to transport the cargo of Petitioner
Valenzuela. Even the latter admits this in its petition. 12

The trial court deemed the charter party stipulation void for being contrary to public policy, 13 citing Article
1745 of the Civil Code which provides:

Art. 1745. 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;

(3) That the common carrier need not observe any diligence in the custody of the goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or
of a man of ordinary prudence in the vigilance over the movables transported;

(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 do not act with grave
or irresistible threat, violence or force, is dispensed with or diminished;

(7) That the common carrier is 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.

Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of
Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of
the Civil Code, 15 petitioner further contends that said stipulation "gives no duty or obligation to the private
respondent to observe the diligence of a good father of a family in the custody and transportation of the
cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as
a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other Civil Code provisions on
common carriers which were cited by petitioner may not be applied unless expressly stipulated by the parties
in their charter party. 16

In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely
on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the
negligence of the ship captain. Pursuant to Article 1306 17 of the Civil Code, such stipulation is valid because it
is freely entered into by the parties and the same is not contrary to law, morals, good customs, public order,
or public policy. Indeed, their contract of private carriage is not even a contract of adhesion. We stress that in
a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve
the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the
general public cannot justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that
lessen or remove the protection given by law in contracts involving common carriers.

The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago
by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc. 18 In that case, the trial court
similarly nullified a stipulation identical to that involved in the present case for being contrary to public policy
based on Article 1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court
held the shipowner liable for damages resulting for the partial loss of the cargo. This Court reversed the trial
court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:

The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where
the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its agent would be void if the strict public policy governing
common carriers is applied. Such policy has no force where the public at large is not involved, as in this case of
a ship totally chartered for the used of a single party. 19(Emphasis supplied.)

Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a
contract of transportation with common carriers without a hand or a voice in the preparation thereof. The
riding public merely adheres to the contract; even if the public wants to, it cannot submit its own stipulations
for the approval of the common carrier. Thus, the law on common carriers extends its protective mantle
against one-sided stipulations inserted in tickets, invoices or other documents over which the riding public has
no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private
carriage is not similarly situated. It can — and in fact it usually does — enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's obligations and
liabilities over the shipment which, in turn, determine the price or consideration of the charter. Thus, a
charterer, in exchange for convenience and economy, may opt to set aside the protection of the law on
common carriers. When the charterer decides to exercise this option, he takes a normal business risk.

Petitioner contends that the rule in Home Insurance is not applicable to the present case because it "covers
only a stipulation exempting a private carrier from liability for the negligence of his agent, but it does not
apply to a stipulation exempting a private carrier like private respondent from the negligence of his employee
or servant which is the situation in this case." 20 This contention of petitioner is bereft of merit, for it raises a
distinction without any substantive difference. The case Home Insurance specifically dealt with "the liability of
the shipowner for acts or negligence of its captain and crew" 21 and a charter party stipulation which "exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect
or fault of the captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said paragraph." 22 Undoubtedly, Home
Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the
Philippines 23 deserves scant consideration. The Court there categorically held that said rule was "reasonable"
and proceeded to apply it in the resolution of that case. Petitioner miserably failed to show such
circumstances or arguments which would necessitate a departure from a well-settled rule. Consequently, our
ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of
the Civil Code which provides that "(j)udicial decisions applying or interpreting the laws or the Constitution
shall form part of the legal system of the Philippines."

In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agents is valid." 24

Other Arguments

On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will
discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.

Articles 586 and 587, Code of Commerce

Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code
of Commerce which confer on petitioner the right to recover damages from the shipowner and ship agent for
the acts or conduct of the captain. 25 We are not persuaded. Whatever rights petitioner may have under the
aforementioned statutory provisions were waived when it entered into the charter party.

Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to law, public
order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by law." As a
general rule, patrimonial rights may be waived as opposed to rights to personality and family rights which may
not be made the subject of waiver. 26 Being patently and undoubtedly patrimonial, petitioner's right conferred
under said articles may be waived. This, the petitioner did by acceding to the contractual stipulation that it is
solely responsible or any damage to the cargo, thereby exempting the private carrier from any responsibility
for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage binds petitioner
and private respondent alone; it is not imbued with public policy considerations for the general public or third
persons are not affected thereby.

Articles 1170 and 1173, Civil Code

Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles
1170 and 1173 of the Civil Code 27 which read:

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 2201, shall apply.

If the law 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.

The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to
perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for
this obligation to bear the loss was shifted to petitioner by virtue of the charter party. This shifting of
responsibility, as earlier observed, is not void. The provisions cited by petitioner are, therefore, inapplicable to
the present case.

Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article
1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the law or the
contract is silent. In the instant case, Article 362 of the Code of Commerce 28 provides the standard of ordinary
diligence for the carriage of goods by a carrier. The standard of diligence under this statutory provision may,
however, be modified in a contract of private carriage as the petitioner and private respondent had done in
their charter party.
Cases Cited by Petitioner Inapplicable

Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael & Co. vs. Gabino
Barreto & Co. 30 and argues that the public policy considerations stated there vis-a-vis contractual stipulations
limiting the carrier's liability be applied "with equal force" to this case. 31 It also cites Manila Railroad
Co. vs. Compañia Transatlantica 32 and contends that stipulations exempting a party from liability for damages
due to negligence "should not be countenanced" and should be "strictly construed" against the party claiming
its benefit. 33 We disagree.

The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the
application of such policy considerations and concomitantly stricter rules. As already discussed above, the
public policy considerations behind the rigorous treatment of common carriers are absent in the case of
private carriers. Hence, the stringent laws applicable to common carriers are not applied to private carries.
The case of Manila Railroad is also inapplicable because the action for damages there does not involve a
contract for transportation. Furthermore, the defendant therein made a "promise to use due care in the lifting
operations" and, consequently, it was "bound by its undertaking"'; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other unforseeable occurrences" not caused by its
"personal negligence." This promise was thus constructed to make sense together with the stipulation against
liability for damages. 34 In the present case, we stress that the private respondent made no such promise. The
agreement of the parties to exempt the shipowner from responsibility for any damage to the cargo and place
responsibility over the same to petitioner is the lone stipulation considered now by this Court.

Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs.Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta Development
Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco Steamship Co. 39 in support of its contention
that the shipowner be held liable for damages. 40 These however are not on all fours with the present case
because they do not involve a similar factual milieu or an identical stipulation in the charter party expressly
exempting the shipowner form responsibility for any damage to the cargo.

Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court
has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent submits
that petitioner is not legally entitled to collect twice for a single loss. 41 In view of the above disquisition
upholding the validity of the questioned charter party stipulation and holding that petitioner may not recover
from private respondent, the present issue is moot and academic. It suffices to state that the Resolution of
this Court dated June 2, 1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the
petitioner from proceeding against private respondent. An aggrieved party may still recover the deficiency for
the person causing the loss in the event the amount paid by the insurance company does not fully cover the
loss. Article 2207 of the Civil Code provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency form the person causing the loss or injury.

WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible
error on the part of Respondent Court. The assailed Decision is AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-31379 August 29, 1988

COMPAÑIA MARITIMA, petitioner,

vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.

Rafael Dinglasan for petitioner.

Benjamin J. Molina for private respondent.

FERNAN, C.J.:

Petitioner Compañia Maritima seeks to set aside through this petition for review on certiorari the decision 1 of
the Court of Appeals dated December 5, 1965, adjudging petitioner liable to private respondent Vicente E.
Concepcion for damages in the amount of P24,652.97 with legal interest from the date said decision shall have
become final, for petitioner's failure to deliver safely private respondent's payloader, and for costs of suit. The
payloader was declared abandoned in favor of petitioner.

The facts of the case are as follows:

Private respondent Vicente E. Concepcion, a civil engineer doing business under the name and style of
Consolidated Construction with office address at Room 412, Don Santiago Bldg., Taft Avenue, Manila, had a
contract with the Civil Aeronautics Administration (CAA) sometime in 1964 for the construction of the airport
in Cagayan de Oro City Misamis Oriental.

Being a Manila — based contractor, Vicente E. Concepcion had to ship his construction equipment to Cagayan
de Oro City. Having shipped some of his equipment through petitioner and having settled the balance of
P2,628.77 with respect to said shipment, Concepcion negotiated anew with petitioner, thru its collector,
Pacifico Fernandez, on August 28, 1964 for the shipment to Cagayan de Oro City of one (1) unit payloader, four
(4) units 6x6 Reo trucks and two (2) pieces of water tanks. He was issued Bill of Lading 113 on the same date
upon delivery of the equipment at the Manila North Harbor. 2
These equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left Manila on August 30,
1964 and arrived at Cagayan de Oro City in the afternoon of September 1, 1964. The Reo trucks and water
tanks were safely unloaded within a few hours after arrival, but while the payloader was about two (2) meters
above the pier in the course of unloading, the swivel pin of the heel block of the port block of Hatch No. 2 gave
way, causing the payloader to fall. 3 The payloader was damaged and was thereafter taken to petitioner's
compound in Cagayan de Oro City.

On September 7, 1964, Consolidated Construction, thru Vicente E. Concepcion, wrote Compañia Maritima to
demand a replacement of the payloader which it was considering as a complete loss because of the extent of
damage. 4 Consolidated Construction likewise notified petitioner of its claim for damages. Unable to elicit
response, the demand was repeated in a letter dated October 2, 1964. 5

Meanwhile, petitioner shipped the payloader to Manila where it was weighed at the San Miguel Corporation.
Finding that the payloader weighed 7.5 tons and not 2.5 tons as declared in the B-111 of Lading, petitioner
denied the claim for damages of Consolidated Construction in its letter dated October 7, 1964, contending
that had Vicente E. Concepcion declared the actual weight of the payloader, damage to their ship as well as to
his payloader could have been prevented. 6

To replace the damaged payloader, Consolidated Construction in the meantime bought a new one at
P45,000.00 from Bormaheco Inc. on December 3, 1964, and on July 6, 1965., Vicente E. Concepcion filed an
action for damages against petitioner with the then Court of First Instance of Manila, Branch VII, docketed as
Civil Case No. 61551, seeking to recover damages in the amount of P41,225.00 allegedly suffered for the
period of 97 days that he was not able to employ a payloader in the construction job at the rate of P450.00 a
day; P34,000.00 representing the cost of the damaged payloader; Pl 1, 000. 00 representing the difference
between the cost of the damaged payloader and that of the new payloader; P20,000.00 representing the
losses suffered by him due to the diversion of funds to enable him to buy a new payloader; P10,000.00 as
attorney's fees; P5,000.00 as exemplary damages; and cost of the suit. 7

After trial, the then Court of First Instance of Manila, Branch VII, dismissed on April 24, 1968 the complaint
with costs against therein plaintiff, herein private respondent Vicente E. Concepcion, stating that the
proximate cause of the fall of the payloader was Vicente E. Concepcion's act or omission in having
misrepresented the weight of the payloader as 2.5 tons instead of its true weight of 7.5 tons, which
underdeclaration was intended to defraud Compañia Maritima of the payment of the freight charges and
which likewise led the Chief Officer of the vessel to use the heel block of hatch No. 2 in unloading the
payloader. 8

From the adverse decision against him, Vicente E. Concepcion appealed to the Court of Appeals which, on
December 5, 1965 rendered a decision, the dispositive portion of which reads:

IN VIEW WHEREOF, judgment must have to be as it is hereby reversed; defendant is condemned to pay unto
plaintiff the sum in damages of P24,652.07 with legal interest from the date the present decision shall have
become final; the payloader is declared abandoned to defendant; costs against the latter. 9

Hence, the instant petition.

The principal issue in the instant case is whether or not the act of private respondent Vicente E. Concepcion in
furnishing petitioner Compañia Maritima with an inaccurate weight of 2.5 tons instead of the payloader's
actual weight of 7.5 tons was the proximate and only cause of the damage on the Oliver Payloader OC-12
when it fell while being unloaded by petitioner's crew, as would absolutely exempt petitioner from liability for
damages under paragraph 3 of Article 1734 of the Civil Code, which provides:

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 xxx xxx

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

Petitioner claims absolute exemption under this provision upon the reasoning that private respondent's act of
furnishing it with an inaccurate weight of the payloader constitutes misrepresentation within the meaning of
"act or omission of the shipper or owner of the goods" under the above- quoted article. It likewise faults the
respondent Court of Appeals for reversing the decision of the trial court notwithstanding that said appellate
court also found that by representing the weight of the payloader to be only 2.5 tons, private respondent had
led petitioner's officer to believe that the same was within the 5 tons capacity of the heel block of Hatch No. 2.
Petitioner would thus insist that the proximate and only cause of the damage to the payloader was private
respondent's alleged misrepresentation of the weight of the machinery in question; hence, any resultant
damage to it must be borne by private respondent Vicente E. Concepcion.

The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are presumed to have
been at fault or to have acted negligently in case the goods transported by them are lost, destroyed or had
deteriorated. To overcome the presumption of liability for the loss, destruction or deterioration of the goods
under Article 1735, the common carriers must prove that they observed extraordinary diligence as required in
Article 1733 of the Civil Code. The responsibility of observing extraordinary diligence in the vigilance over the
goods is further expressed in Article 1734 of the same Code, the article invoked by petitioner to avoid liability
for damages.

Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and of their
arrival at the place of destination in bad order, makes out prima facie case against the common carrier, so that
if no explanation is given as to how the loss, deterioration or destruction of the goods occurred, the common
carrier must be held responsible. 10 Otherwise stated, it is incumbent upon the common carrier to prove that
the loss, deterioration or destruction was due to accident or some other circumstances inconsistent with its
liability.

In the instant case, We are not persuaded by the proferred explanation of petitioner alleged to be the
proximate cause of the fall of the payloader while it was being unloaded at the Cagayan de Oro City pier.
Petitioner seems to have overlooked the extraordinary diligence required of common carriers in the vigilance
over the goods transported by them by virtue of the nature of their business, which is impressed with a special
public duty.

Thus, Article 1733 of the Civil Code provides:

Art. 1733. Common carriers, from the nature of their business and for reason of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 1735 and
1745, Nos. 5, 6 and 7, ...

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 safe 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." 11 Under Article 1736 of the Civil Code, the responsibility to observe extraordinary diligence
commences and lasts from the time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has the right to receive them without prejudice to the provisions of Article
1738.

Where, as in the instant case, petitioner, upon the testimonies of its own crew, failed to take the necessary
and adequate precautions for avoiding damage to, or destruction of, the payloader entrusted to it for safe
carriage and delivery to Cagayan de Oro City, it cannot be reasonably concluded that the damage caused to
the payloader was due to the alleged misrepresentation of private respondent Concepcion as to the correct
and accurate weight of the payloader. As found by the respondent Court of Appeals, the fact is that petitioner
used a 5-ton capacity lifting apparatus to lift and unload a visibly heavy cargo like a payloader. Private
respondent has, likewise, sufficiently established the laxity and carelessness of petitioner's crew in their
methods of ascertaining the weight of heavy cargoes offered for shipment before loading and unloading them,
as is customary among careful persons.
It must be noted that the weight submitted by private respondent Concepcion appearing at the left-hand
portion of Exhibit 8 12 as an addendum to the original enumeration of equipment to be shipped was entered
into the bill of lading by petitioner, thru Pacifico Fernandez, a company collector, without seeing the
equipment to be shipped. 13 Mr. Mariano Gupana, assistant traffic manager of petitioner, confirmed in his
testimony that the company never checked the information entered in the bill of lading. 14 Worse, the weight
of the payloader as entered in the bill of lading was assumed to be correct by Mr. Felix Pisang, Chief Officer of
MV Cebu. 15

The weights stated in a bill of lading are prima facie evidence of the amount received and the fact that the
weighing was done by another will not relieve the common carrier where it accepted such weight and entered
it on the bill of lading. 16 Besides, common carriers can protect themselves against mistakes in the bill of lading
as to weight by exercising diligence before issuing the same. 17

While petitioner has proven that private respondent Concepcion did furnish it with an inaccurate weight of
the payloader, petitioner is nonetheless liable, for the damage caused to the machinery could have been
avoided by the exercise of reasonable skill and attention on its part in overseeing the unloading of such a
heavy equipment. And circumstances clearly show that the fall of the payloader could have been avoided by
petitioner's crew. Evidence on record sufficiently show that the crew of petitioner had been negligent in the
performance of its obligation by reason of their having failed to take the necessary precaution under the
circumstances which usage has established among careful persons, more particularly its Chief Officer, Mr. Felix
Pisang, who is tasked with the over-all supervision of loading and unloading heavy cargoes and upon whom
rests the burden of deciding as to what particular winch the unloading of the payloader should be
undertaken. 18 While it was his duty to determine the weight of heavy cargoes before accepting them. Mr.
Felix Pisang took the bill of lading on its face value and presumed the same to be correct by merely "seeing"
it. 19 Acknowledging that there was a "jumbo" in the MV Cebu which has the capacity of lifting 20 to 25 ton
cargoes, Mr. Felix Pisang chose not to use it, because according to him, since the ordinary boom has a capacity
of 5 tons while the payloader was only 2.5 tons, he did not bother to use the "jumbo" anymore. 20

In that sense, therefore, private respondent's act of furnishing petitioner with an inaccurate weight of the
payloader upon being asked by petitioner's collector, cannot be used by said petitioner as an excuse to avoid
liability for the damage caused, as the same could have been avoided had petitioner utilized the "jumbo"
lifting apparatus which has a capacity of lifting 20 to 25 tons of heavy cargoes. It is a fact known to the Chief
Officer of MV Cebu that the payloader was loaded aboard the MV Cebu at the Manila North Harbor on August
28, 1964 by means of a terminal crane. 21 Even if petitioner chose not to take the necessary precaution to
avoid damage by checking the correct weight of the payloader, extraordinary care and diligence compel the
use of the "jumbo" lifting apparatus as the most prudent course for petitioner.

While the act of private respondent in furnishing petitioner with an inaccurate weight of the payloader cannot
successfully be used as an excuse by petitioner to avoid liability to the damage thus caused, said act
constitutes a contributory circumstance to the damage caused on the payloader, which mitigates the liability
for damages of petitioner in accordance with Article 1741 of the Civil Code, to wit:

Art. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the goods,
the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in damages,
which however, shall be equitably reduced.

We find equitable the conclusion of the Court of Appeals reducing the recoverable amount of damages by 20%
or 1/5 of the value of the payloader, which at the time the instant case arose, was valued at P34,000. 00,
thereby reducing the recoverable amount at 80% or 4/5 of P34,000.00 or the sum of P27,200.00. Considering
that the freight charges for the entire cargoes shipped by private respondent amounting to P2,318.40
remained unpaid.. the same would be deducted from the P27,000.00 plus an additional deduction of P228.63
representing the freight charges for the undeclared weight of 5 tons (difference between 7.5 and 2.5 tons)
leaving, therefore, a final recoverable amount of damages of P24,652.97 due to private respondent
Concepcion.

Notwithstanding the favorable judgment in his favor, private respondent assailed the Court of Appeals'
decision insofar as it limited the damages due him to only P24,652.97 and the cost of the suit. Invoking the
provisions on damages under the Civil Code, more particularly Articles 2200 and 2208, private respondent
further seeks additional damages allegedly because the construction project was delayed and that in spite of
his demands, petitioner failed to take any steps to settle his valid, just and demandable claim for damages.

We find private respondent's submission erroneous. It is well- settled that an appellee, who is not an
appellant, may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but
he may not do so if his purpose is to have the judgment modified or reversed, for, in such case, he must
appeal. 22 Since private respondent did not appeal from the judgment insofar as it limited the award of
damages due him, the reduction of 20% or 1/5 of the value of the payloader stands.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of Appeals is hereby
AFFIRMED in all respects with costs against petitioner. In view of the length of time this case has been
pending, this decision is immediately executory.

Gutierrez, Jr., Feliciano, Bidin and Cortes JJ., concur.

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 Court’s 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 charter6 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, attorney’s 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 petitioner’s operations manager, it is clear
that it was a contract of carriage petitioner signed with MCCII. It actively negotiated and solicited MCCII’s
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 (respondent’s 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 charterer’s 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

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION,respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD.,respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the
sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner
Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for
transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00
consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to
Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with
respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying
instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their
stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by
respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo.
The respective respondent Insurers paid the corresponding marine insurance values to the consignees
concerned and were thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for
short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner
Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of
Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous
event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of
P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs.
Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire &
Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner
Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila,
Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary
diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is
an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when
the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of
US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs.
On appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the
Trial Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per
package limitation of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division,
and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for
Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were
required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the
Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was
then pending resolution with the First Division. The same was granted; the Resolution of the Second Division
of September 25, 1985 was set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a
charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented
by various counsel representing various consignees or insurance companies. The common defendant in these
cases is petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's
pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one
action may be received in evidence against the pleader or his successor-in-interest on the trial of another
action to which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common
carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the
carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common carrier in
case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to
the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all
matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to
the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of
each case. 8 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;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural
disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or
calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does
not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural
lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to
such event, considering that the law adopts a protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the
Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to
have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported
goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is
upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this
regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the
vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that
where the smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our the
same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch
covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the
goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to
prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he
amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the
cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage.
Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the
Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to
prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack
of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by
law, Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the
"proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or
minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed
to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided
therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual
fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already
big; that the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the
cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage."
The foregoing suffices to show that the circumstances under which the fire originated and spread are such as
to show that Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section
4(5) of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in
connection with the transportation of goods in an amount exceeding $500 per package lawful money of the
United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of
that sum in other currency, unless the nature and value of such goods have been declared by the shipper
before shipment and inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima
facie evidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount
than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the
figure above named. In no event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the
bill of lading, unless the shipper or owner declares a greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount
per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is
suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory
provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the
shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much
a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting
the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the
goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at
the time of payment of the value of the goods lost, but in no case "more than the amount of damage actually
sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly
the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be
paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by
$500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be
P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of
P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit
"I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by
respondent Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of
P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by
Petitioner Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded
to DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability
per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN,
the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of
$46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure
of $64,000, and explained that "since this amount is more than the insured value of the goods, that is $46,583,
the Trial Court was correct in awarding said amount only for the 128 cartons, which amount is less than the
maximum limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the
shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the
shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots
and floor covering, which had been shipped in vessel — supplied containers. The U.S. District Court for the
Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United
States Court of Appeals, Second Division, modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container supplied by the carrier and
the number of such units is disclosed in the shipping documents, each of those units and not the container
constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage
of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be treated as packages, the interest in securing international
uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.
1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package
is inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge
Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It
gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted,
however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There is,
in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not warrant a distortion or artificial construction of
the statutory term "package." A ruling that these large reusable metal pieces of transport equipment qualify
as COGSA packages — at least where, as here, they were carrier owned and supplied — would amount to just
such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be
considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in
a carrier's container. I would liken these containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers'
packages are quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous
to those employed in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4
Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and
similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are
packed into cardboard cartons which are then placed in containers, the cartons and not the containers are the
packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then
placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier in
the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA
packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of
lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear
and unambiguous language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery
Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of
cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases
it is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to
the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not.
Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so
packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are
not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry
them in any type of container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading,
meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had
furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if
there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already
prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the
carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so.
On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when
its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was
conducted for the last time, the defendant had more than nine months to prepare its evidence. Its belated
notice to take deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on
August 25th, just two days before the hearing set for August 27th, knowing fully well that it was its
undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has told the Court since
February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until
August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant itself is
to blame for its failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it
was denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced.
What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award
by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and
P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of
P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay
the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28)
packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal
rate from the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the
costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not
the two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00
limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by
the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F.
2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that
carrier-furnished containers whose contents are fully disclosed are not "packages" within the meaning of
Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and
(2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly
be considered "packages" standing by themselves, they do not suddenly lose that character upon being
stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the
ship." Cartons or crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and
do not lose their character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in
containers. The other shipment involved in the case, consisting of surveying instruments, was packed in two
"cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate
that the shipment could fit in two containers, thereby showing that when the goods were delivered by the
shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the
goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit
A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of
the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper
which loaded and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number
of cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the
shipper. The freight paid to the carrier on the shipment was based on the measurement (by volume) of the
two containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using
containers for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation
of its liability under COGSA fixed on the number of cartons inside the containers, rather than on the containers
themselves, since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before
modern technological changes have revolutionized the shipping industry. There is need for the law itself to be
updated to meet the changes brought about by the container revolution, but this is a task which should be
addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence on the
subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the
parties concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on
the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have
entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by
insuring the shipment. As subrogee, the insurance company can recover from the carrier only what the
shipper itself is entitled to recover, not the amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package"
within the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is
concerned. If the container is not regarded as a "package" within the terms of COGSA, then, the $500.00
liability limitation should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of
goods not shipped in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit."
In the case at bar, the petitioner's liability for the shipment in question based on "freight unit" would be
$21,950.00 for the shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not
the two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00
limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by
the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F.
2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that
carrier-furnished containers whose contents are fully disclosed are not "packages" within the meaning of
Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and
(2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly
be considered "packages" standing by themselves, they do not suddenly lose that character upon being
stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the
ship." Cartons or crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and
do not lose their character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in
containers. The other shipment involved in the case, consisting of surveying instruments, was packed in two
"cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate
that the shipment could fit in two containers, thereby showing that when the goods were delivered by the
shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the
goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit
A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of
the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper
which loaded and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number
of cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the
shipper. The freight paid to the carrier on the shipment was based on the measurement (by volume) of the
two containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using
containers for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation
of its liability under COGSA fixed on the number of cartons inside the containers, rather than on the containers
themselves, since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before
modern technological changes have revolutionized the shipping industry. There is need for the law itself to be
updated to meet the changes brought about by the container revolution, but this is a task which should be
addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence on the
subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the
parties concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on
the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have
entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by
insuring the shipment. As subrogee, the insurance company can recover from the carrier only what the
shipper itself is entitled to recover, not the amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package"
within the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is
concerned. If the container is not regarded as a "package" within the terms of COGSA, then, the $500.00
liability limitation should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of
goods not shipped in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit."
In the case at bar, the petitioner's liability for the shipment in question based on "freight unit" would be
$21,950.00 for the shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 135377 October 7, 2003

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners,

vs.
FEDERAL PHOENIX ASSURANCE CO., INC., respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari1 assailing the Decision2 dated June 5, 1998 of the Court of
Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court (RTC), Manila City,
Branch 16, in Civil Case No. 94-69699, "Federal Phoenix Assurance Company, Inc. vs. DSR-Senator Lines and
C.F. Sharp & Co., Inc.," for damages arising from the loss of cargo while in transit.

Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and Company, Inc. (C.F.
Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for transportation and
delivery to the consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International
Bill of Lading No. SENU MNL-265483 for the cargo with an invoice value of $34,579.60. Under the Bill of Lading,
the port of discharge for the cargo was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi
Arabia, via Port Dammam. The cargo was loaded in M/S "Arabian Senator."

Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against all risks in the
amount of P941,429.61.4

On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia with the cargo on
board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator Lines’
feeder vessel, M/V "Kapitan Sakharov," bound for Port Dammam, Saudi Arabia. However, while in transit, the
vessel and all its cargo caught fire.

On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan Sakharov" with its cargo was
gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a certification to
that effect.

Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the amount of
insurance for the cargo. In turn Berde Plants executed in its favor a "Subrogation Receipt" 5 dated January 17,
1994.

On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment
of P941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such
liability was extinguished when the vessel carrying the cargo was gutted by fire.

Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a complaint for
damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to pay actual damages
ofP941,429.61, compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the dispositive
portion of which reads:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendants who are hereby ordered jointly and severally to pay plaintiff:

I. The amount of P941,439.61 (should be P941,429.616) with legal interest of 6% per annum from the date of
the letter of demand of February 8, 1993 (EXH. L) and 12% per annum from the date the judgment becomes
final and executory until its satisfaction (Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412, July 12,
1994);

II. The amount of P15,000.00 by way of reasonable attorney’s fees; and

III. To pay costs.

"The counterclaim of defendants is DISMISSED.

"SO ORDERED."7

On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC Decision, thus:

"In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that gutted
the feeder vessel and the consequent loss or destruction of the cargo. Hence, the appellant carrier is liable for
appellee’s claim under the New Civil Code of the Philippines.

"Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and remained until the cargo
was delivered to the consignee. The status of the appellant as ship agent subsisted and its liability as a ship
agent was co-terminous with and subsisted as long as the cargo was not delivered to the consignee under the
terms of the Bill of Lading.

"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision appealed from is
affirmed. With costs against the appellants.

"SO ORDERED."8

On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSR-Senator Lines and
C.F. Sharp, prompting them to file with this Court the instant petition.

We find the petition bereft of merit.

Article 1734 of the Civil Code provides:

"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

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

(2) Act of the public enemy in war, whether international or civil;

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

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority."

Fire is not one of those enumerated under the above provision which exempts a carrier from liability for loss
or destruction of the cargo.

In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,9 we ruled that since the peril of fire is not
comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law.

Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required under
Article 173910 of the same Code that the natural disaster must have been the proximate and only cause of the
loss, and that the carrier has exercised due diligence to prevent or minimize the loss before, during or after
the occurrence of the disaster.

We have held that a common carrier’s duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to or until the lapse of a reasonable time for their acceptance by
the person entitled to receive them. When the goods shipped either are 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.111awphi1.néts

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by
them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. There are very few instances when the presumption of negligence does not attach
and these instances are enumerated in Article 1734. In those cases where the presumption is applied, the
common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption. 12

Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners. However,
they failed to overcome it by sufficient proof of extraordinary diligence.

WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated June 5, 1998,
in CA-G.R. CV No. 50833 is hereby AFFIRMED.

SO ORDERED.

Puno, J., (Chairman), Panganiban, and Carpio Morales JJ., concur.

Corona, J., on leave.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 104685 March 14, 1996

SABENA BELGIAN WORLD AIRLINES, petitioner,

vs.
HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.

VITUG, J.:p

The appeal before the Court involves the issue of an airline's liability for lost luggage. The petition for review
assails the decision of the Court of Appeals, 1 dated 27 February 1992, affirming an award of damages made by
the trial court in a complaint filed by private respondent against petitioner.

The factual background of the case, narrated by the trial court and reproduced at length by the appellate
court, is hereunder quoted:

On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant airline originating from
Casablanca to Brussels, Belgium on her way back to Manila. Plaintiff checked in her luggage which contained
her valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00 shoes/bag $150; accessories $75;
luggage itself $10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She stayed overnight in
Brussels and her luggage was left on board Flight SN 284.

Plaintiff arrived at Manila International Airport on September 2, 1987 and immediately submitted her Tag No.
71423 to facilitate the release of her luggage but the luggage was missing. She was advised to accomplish and
submit a property Irregularity Report which she submitted and filed on the same day.

She followed up her claim on September 14, 1987 but the luggage remained to be missing.

On September 15, 1987, she filed her formal complaint with the office of Ferge Massed, defendant's Local
Manager, demanding immediate attention (Exh. "A").

On September 30, 1987, on the occasion of plaintiffs following up of her luggage claim, she was furnished
copies of defendant's telexes with an information that the Burssel's Office of defendant found the luggage and
that they have broken the locks for identification (Exhibit "B"). Plaintiff was assured by the defendant that it
has notified its Manila Office that the luggage will be shipped to Manila on October 27, 1987. But
unfortunately plaintiff was informed that the luggage was lost for the second time (Exhibits "C" and "C-1").

At the time of the filing of the complaint, the luggage with its content has not been found.

Plaintiff demanded from the defendant the money value of the luggage and its contents amounting to
$4,265.00 or its exchange value, but defendant refused to settle the claim.

Defendant asserts in its Answer and its evidence tend to show that while it admits that the plaintiff was a
passenger on board Flight No. SN 284 with a piece of checked in luggage bearing Tag No. 71423, the loss of the
luggage was due to plaintiff's sole if not contributory negligence; that she did not declare the valuable items in
her checked in luggage at the flight counter when she checked in for her flight from Casablanca to Brussels so
that either the representative of the defendant at the counter would have advised her to secure an insurance
on the alleged valuable items and required her to pay additional charges, or would have refused acceptance of
her baggage as required by the generally accepted practices of international carriers; that Section 9(a), Article
IX of General Conditions of carriage requiring passengers to collect their checked baggage at the place of stop
over, plaintiff neglected to claim her baggage at the Brussels Airport; that plaintiff should have retrieved her
undeclared valuables from her baggage at the Brussels Airport since her flight from Brussels to Manila will still
have to visit for confirmation inasmuch as only her flight from Casablanca to Brussels was confirmed; that
defendant incorporated in all Sabena Plane Tickets, including Sabena Ticket No. 082422-72502241 issued to
plaintiff in Manila on August 21, 1987, a warning that "Items of value should be carried on your person" and
that some carriers assume no liability for fragile, valuable or perishable articles and that further information
may be obtained from the carrier for guidance;' that granting without conceding that defendant is liable, its
liability is limited only to US $20.00 per kilo due to plaintiffs failure to declare a higher value on the contents of
her checked in luggage and pay additional charges thereon. 2

The trial court rendered judgment ordering petitioner Sabena Belgian World Airlines to pay private
respondent Ma. Paula San Agustin —

(a) . . . US $4,265.00 or its legal exchange in Philippine pesos;

(b) . . . P30,000.00 as moral damages;

(c) . . . P10,000.00 as exemplary damages;

(d) . . . P10,000.00 as attorney's fees; and

(e) (t)he costs of the suit. 3

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate court, in its
decision of 27 February 1992, affirmed in toto the trial court's judgment.

Petitioner airline company, in contending that the alleged negligence of private respondent should be
considered the primary cause for the loss of her luggage, avers that, despite her awareness that the flight
ticket had been confirmed only for Casablanca and Brussels, and that her flight from Brussels to Manila had
yet to be confirmed, she did not retrieve the luggage upon arrival in Brussels. Petitioner insists that private
respondent, being a seasoned international traveler, must have likewise been familiar with the standard
provisions contained in her flight ticket that items of value are required to be hand-carried by the passenger
and that the liability of the airline for loss, delay or damage to baggage would be limited, in any event, to only
US $20.00 per kilo unless a higher value is declared in advance and corresponding additional charges are paid
thereon. At the Casablanca International Airport, private respondent, in checking in her luggage, evidently did
not declare its contents or value. Petitioner cites Section 5(c), Article IX, of the General Conditions of Carriage,
signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955, generally
observed by International carriers, stating, among other things, that:

Passengers shall not include in his checked baggage, and the carrier may refuse to carry as checked baggage,
fragile or perishable articles, money, jewelry, precious metals, negotiable papers, securities or other
valuable. 4

Fault or negligence consists in the omission of that diligence which is demanded by the nature of an obligation
and corresponds with the circumstances of the person, of the time, and of the place. When the source of an
obligation is derived from a contract, the mere breach or non-fulfillment of the prestation gives rise to the
presumption of fault on the part of the obligor. This rule is no different in the case of common carriers in the
carriage of goods which, indeed, are bound to observe not just the due diligence of a good father of a family
but that of "extraordinary" care in the vigilance over the goods. The appellate court has aptly observed:

. . . Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reasons of public
policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. This extraordinary responsibility, according to Art. 1736, lasts from the time the goods
are unconditionally placed in the possession of and received by the carrier until they are delivered actually or
constructively to the consignee or person who has the right to receive them. Art. 1737 states that the
common carrier's duty to observe extraordinary diligence in the vigilance over the goods transported by them
remains in full force and effect even when they are temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that 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 had observed
extraordinary diligence as required in Article 1733.

The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the loss,
destruction, or deterioration of the goods is due to any of the following causes:

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

(2) Act of the public enemy in war, whether international or civil;

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

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Not one of the above excepted causes obtains in this case. 5

The above rules remain basically unchanged even when the contract is breached by tort 6 although
noncontradictory principles on quasi-delict may then be assimilated as also forming part of the governing law.
Petitioner is not thus entirely off track when it has likewise raised in its defense the tort doctrine of proximate
cause. Unfortunately for petitioner, however, the doctrine cannot, in this particular instance, support its case.
Proximate cause is that which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces injury and without which the result would not have occurred. The exemplification by the
Court in one case 7 is simple and explicit; viz:

(T)he proximate legal cause is that acting first and producing the injury, either immediately or by setting other
events in motion, all constituting a natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain immediately affecting the injury as a
natural and probable result of the cause which first acted, under such circumstances that the person
responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground
to expect at the moment of his act or default that an injury to some person might probably result therefrom.

It remained undisputed that private respondent's luggage was lost while it was in the custody of petitioner. It
was supposed to arrive on the same flight that private respondent took in returning to Manila on 02
September 1987. When she discovered that the luggage was missing, she promptly accomplished and filed a
Property Irregularity Report. She followed up her claim on 14 September 1987, and filed, on the following day,
a formal letter-complaint with petitioner. She felt relieved when, on 23 October 1987, she was advised that
her luggage had finally been found, with its contents intact when examined, and that she could expect it to
arrive on 27 October 1987. She then waited anxiously only to be told later that her luggage had been lost for
the second time. Thus, the appellate court, given all the facts before it, sustained the trial court in finding
petitioner ultimately guilty of "gross negligence" in the handling of private respondent's luggage. The "loss of
said baggage not only once but twice, said the appellate court, "underscores the wanton negligence and lack
of care" on the part of the carrier.

The above findings, which certainly cannot be said to be without basis, foreclose whatever rights petitioner
might have had to the possible limitation of liabilities enjoyed by international air carriers under the Warsaw
Convention (Convention for the Unification of Certain Rules Relating to International Carriage by Air, as
amended by the Hague Protocol of 1955, the Montreal Agreement of 1966, the Guatemala Protocol of 1971
and the Montreal Protocols of 1975). In Alitalia vs. Intermediate Appellate Court, 8 now Chief Justice Andres R.
Narvasa, speaking for the Court, has explained it well; he said:

The Warsaw Convention however denies to the carrier availment of the provisions which exclude or limit his
liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with
the law of the court seized of the case, is considered to be equivalent to wilful misconduct, or if the damage is
(similarly) caused . . . by any agent of the carrier acting within the scope of his employment. The Hague
Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary
steps to avoid the damage, it could exculpate itself completely, and declaring the stated limits of liability not
applicable if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents,
done with intent to cause damage or recklessly and with knowledge that damage would probably result. The
same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could
recover unlimited damages upon proof of wilful misconduct.

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

The Court thus sees no error in the preponderant application to the instant case by the appellate court, as well
as by the trial court, of the usual rules on the extent of recoverable damages beyond the Warsaw limitations.
Under domestic law and jurisprudence (the Philippines being the country of destination), the attendance of
gross negligence (given the equivalent of fraud or bad faith) holds the common carrier liable for all damages
which can be reasonably attributed, although unforeseen, to the non-performance of the
obligation, 9 including moral and exemplary damages. 10

WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.

SO ORDERED.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

 THIRD DIVISION

[G.R. No. 146018. June 25, 2003]

EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY, INC., respondent.

DECISION
PANGANIBAN, J.:

The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to
the value declared by the shipper. On the other hand, the liability of the insurer is determined by the actual
value covered by the insurance policy and the insurance premiums paid therefor, and not necessarily by the
value declared in the bill of lading.

The Case

Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the
August 31, 2000 Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR
SP No. 62751. The dispositive part of the Decision reads:

IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from
is REVERSED. [Petitioner] is hereby condemned to pay to [respondent] the total amount of P148,500.00, with
interest thereon, at the rate of 6% per annum, from date of this Decision of the Court. [Respondents] claim for
attorneys fees [is] DISMISSED. [Petitioners] counterclaims are DISMISSED.[5]

The assailed Resolution denied petitioners Motion for Reconsideration.

On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which was later reversed by
the CA, states:

WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.

No cost.[8]

The Facts

The facts of the case are summarized by the appellate court in this wise:

Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now
Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas dcor and
two (2) sacks of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled
to depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading
No. 58, freight prepaid, covering the cargo. Nestor Angelia was both the shipper and consignee of the cargo
valued, on the face thereof, in the amount of P6,500.00.Zosimo Mercado likewise delivered cargo to
[petitioner], consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and one
(1) bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del Sur,
on board the said vessel, and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which,
on the face thereof, was valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.

On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB
General Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 against all risks
under Open Policy No. 002/91/254 for which she was issued, by [respondent], Marine Risk Note No.
18409 on said date. She also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the
amount of P50,000.00, under Open Policy No. 002/91/254 on the basis of which [respondent] issued Marine
Risk Note No. 18410 on said date.

When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods
of Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and,
despite earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the requiredMarine Protest.

Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her
claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order
Slips purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount
of P110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB Check No.
612939, dated March 9, 1992, in the net amount of P99,000.00, in settlement of her claim after which she
executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the
value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] aReceipt, dated December
11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received from Feliciana
Legaspi valued at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net
amount of P49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].

On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount
of P148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered
in its favor and against the [petitioner] as follows:

WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered
ordering [petitioner] to pay [respondent] the following.

1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of filing
of this complaint until fully paid;

2. Attorneys fees in the amount of P10,000.00; and

3. Cost of suit.

[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and
equitable under the premises.

[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and
received by, [petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings, Annexes A and B
of the complaint; that the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana
Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after paying to her the value of
the cargo on account of the Marine Risk Notes it issued in her favor covering the cargo.

In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine
Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action against
[petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as stated in the Bill
of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo beyond the value thereof
declared in the Bill of Lading.

After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the
depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident
of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident
of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional Trial Court of Cebu
City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before the Court and declared inter
alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor Angelia had been doing
business with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester
Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for
the cargo described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively;
the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the
total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine Inquiry of the
Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any
responsibility on account of the fire, which Report of the Board was approved by the District Commander of
the Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi
Marketing filed claims for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the
shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the
shippers/consignees and the representative of the Legaspi Marketing that the cargo covered by Bill of Lading
No. 59 was owned by Legaspi Marketing and consigned to Zosimo Mercado while that covered by Bill of
Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing; that [petitioner] approved the
claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and remitted to Legaspi
Marketing the said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992,
in the amount of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379,
dated August 12, 1992, for the said amount of P14,000.00 in full payment of claims underBill of Lading No. 59;
that [petitioner] approved the claim of Nestor Angelia in the amount of P6,500.00 but that since the latter
owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off the amount due to Nestor
Angelia under Bill of Lading No. 58 against his account with Chester Marketing, Inc.;
[petitioner] lost/[misplaced] the original of the check after it was received by Legaspi Marketing, hence, the
production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner] never
knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo under both Bills of
Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value of the cargo with
[respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total amount
of P148,500.00 to her; [petitioner] came to know, for the first time, of the payments by [respondent] of the
claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after
settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit,
dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the
cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.

[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x[9] (Citations omitted)

Ruling of the Court of Appeals

The CA held that petitioner had failed to prove that the fire which consumed the vessel and its cargo was
caused by something other than its negligence in the upkeep, maintenance and operation of the vessel.[10]
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA,
however, held that the payment did not extinguish petitioners obligation to respondent, because there was no
evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also
pointed out the impropriety of treating the claim under Bill of Lading No. 58 -- covering cargo valued therein
at P6,500 -- as a setoff against Nestor Angelias account with Chester Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo under the Bills of Lading, x x
x nor is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in
the first place, the goods were insured with the [respondent] for the total amount of P150,000.00, which
amount may be considered as the face value of the goods.[11]
 Hence this Petition.[12]

Issues

Petitioner raises for our consideration the following alleged errors of the CA:
I

The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioners
liability should be based on the actual insured value of the goods and not from actual valuation declared by
the shipper/consignee in the bill of lading.

II

The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial
court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due
to force majeure and due diligence was [exercised] by petitioner prior to, during and immediately after the fire
on [petitioners] vessel.

III

The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action
against the petitioner.[13]

In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent
of its liability?

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Liability for Loss

Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds
that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V
Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted
out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack
was located on the side of the fuel oil tank, which had a mere two-inch gap from the engine room walling,
thus precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been
caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that
caused by a lightning, an earthquake, a tempest or a public enemy. [14] Hence, fire is not considered a natural
disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we explained:

x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall
within the category of an act of God unless caused by lighting or by other natural disaster or calamity. It may
even be caused by the actual fault or privity of the carrier.

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural
lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to
such event, considering that the law adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil
Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.

Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as
to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the
negligence of those officials.[16]
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the
first step in exercising the required vigilance. Petitioner did not present sufficient evidence showing what
measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show when the last
inspection and care of the auxiliary engine fuel oil service tank was made, what the normal practice was for its
maintenance, or some other evidence to establish that it had exercised extraordinary diligence. It merely
stated that constant inspection and care were not possible, and that the last time the vessel was dry-docked
was in November 1990. Necessarily, in accordance with Article 1735[17] of the Civil Code, we hold petitioner
responsible for the loss of the goods covered by Bills of Lading Nos. 58 and 59.

Second Issue:
Extent of Liability

Respondent contends that petitioners liability should be based on the actual insured value of the goods,
subject of this case. On the other hand, petitioner claims that its liability should be limited to the value
declared by the shipper/consignee in the Bill of Lading.
The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of
claim for loss or for damage to the shipped merchandise or property, [t]he liability of the common carrier x x x
shall not exceed the value of the goods as appearing in the bill of lading. [19] The attempt by respondent to
make light of this stipulation is unconvincing.As it had the consignees copies of the Bills of Lading, [20] it could
have easily produced those copies, instead of relying on mere allegations and suppositions. However, it
presented mere photocopies thereof to disprove petitioners evidence showing the existence of the above
stipulation.
A stipulation that limits liability is valid[21] as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals,[22] the Court stated:

A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo to a
certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code which provides:

Art. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the
bill of lading, unless the shipper or owner declares a greater value, is binding.

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

Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-
Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and
binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the
basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the
fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the
shipment in the bill of lading. To hold otherwise would amount to questioning the justness and fairness of the
law itself, and this the private respondent does not pretend to do. But over and above that consideration, the
just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the
nature and value of the shipment in the bill of lading.

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers
liability for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed
upon.

The bill of lading subject of the present controversy specifically provides, among others:

18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net
invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss
of possible profits or any consequential loss.

The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount
exceeding One Hundred Thousand Yen in Japanese Currency (100,000.00) or its equivalent in any other
currency per package or customary freight unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the
Bill of Lading and extra freight is paid as required.

The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that
its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited
liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for
not complying with the stipulations. (Italics supplied)

In the present case, the stipulation limiting petitioners liability is not contrary to public policy. In fact, its
just and reasonable character is evident. The shippers/consignees may recover the full value of the goods by
the simple expedient of declaring the true value of the shipment in the Bill of Lading. Other than the payment
of a higher freight, there was nothing to stop them from placing the actual value of the goods therein. In fact,
they committed fraud against the common carrier by deliberately undervaluing the goods in their Bill of
Lading, thus depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common
carrier. Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the
latter may be liable for in case of loss of the goods. The common carrier can then take appropriate measures --
getting insurance, if needed, to cover or protect itself.This precaution on the part of the carrier is reasonable
and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it seeks to transport
does not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to make the
common carrier liable for more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their
respective Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and
from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance
company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than
what it was entitled to for transporting the goods that had been deliberately undervalued by the shippers in
the Bill of Lading. Between the two of them, the insurer should bear the loss in excess of the value declared in
the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the
goods shipped were declared and reflected in the bill of lading, like in the present case. The Court therein
considered this declaration as the basis of the carriers liability and ordered payment based on such
amount. Following this ruling, petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the owner of the goods
covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia
and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the
goods or, in case of loss, to compensation therefor. There is no evidence showing that petitioner paid her for
the loss of those goods. It does not even claim to have paid her.
 On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading
No. 59, for which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the
former was the owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who
owned those goods, and who was thus entitled to payment for their loss. Hence, the claim for the goods
under Bill of Lading No. 59 cannot be deemed to have been extinguished, because payment was made to a
person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500,
the parties have not convinced us to disturb the findings of the CA that compensation could not validly take
place. Thus, we uphold the appellate courts ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense
that petitioner is ORDERED to pay respondent the sums of P14,000 and P6,500, which represent the value of
the goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 119197 May 16, 1997

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW ZEALAND
INSURANCE CO., LTD., petitioners,
vs.
NORTH FRONT SHIPPING SERVICES, INC., and COURT OF APPEALS, respondents.

BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co., Ltd., in
this petition for review on certiorari, assail the 22 December 1994 decision of the Court of Appeals and its
Resolution of 16 February 1995 which affirmed the 1 June 1993 decision of the Regional Trial Court dismissing
their complaint for damages against North Front Shipping Services, Inc.

On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were shipped on board North
Front 777, a vessel owned by North Front Shipping Services, Inc. The cargo was consigned to Republic Flour
Mills Corporation in Manila under Bill of Lading No. 001 1 and insured with the herein mentioned insurance
companies. The vessel was inspected prior to actual loading by representatives of the shipper and was found
fit to carry the merchandise. The cargo was covered with tarpaulins and wooden boards. The hatches were
sealed and could only be opened by representatives of Republic Flour Mills Corporation.

The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16 August 1990. Republic Flour
Mills Corporation was advised of its arrival but it did not immediately commence the unloading operations.
There were days when unloading had to be stopped due to variable weather conditions and sometimes for no
apparent reason at all. When the cargo was eventually unloaded there was a shortage of 26.333 metric tons.
The remaining merchandise was already moldy, rancid and deteriorating. The unloading operations were
completed on 5 September 1990 or twenty (20) days after the arrival of the barge at the wharf of Republic
Flour Mills Corporation in Pasig City.

Precision Analytical Services, Inc., was hired to examine the corn grains and determine the cause of
deterioration. A Certificate of Analysis was issued indicating that the corn grains had 18.56% moisture content
and the wetting was due to contact with salt water. The mold growth was only incipient and not sufficient to
make the corn grains toxic and unfit for consumption. In fact the mold growth could still be arrested by drying.

Republic Flour Mills Corporation rejected the entire cargo and formally demanded from North Front Shipping
Services, Inc., payment for the damages suffered by it. The demands however were unheeded. The insurance
companies were perforce obliged to pay Republic Flour Mills Corporation P2,189,433.40.

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

North Front Shipping Services, Inc., averred in refutation that it could not be made culpable for the loss and
deterioration of the cargo as it was never negligent. Captain Solomon Villanueva, master of the vessel,
reiterated that the barge was inspected prior to the actual loading and was found adequate and seaworthy. In
addition, they were issued a permit to sail by the Coast Guard. The tarpaulins were doubled and brand new
and the hatches were properly sealed. They did not encounter big waves hence it was not possible for water
to seep in. He further averred that the corn grains were farm wet and not properly dried when loaded.

The court below dismissed the complaint and ruled that the contract entered into between North Front
Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement. As such,
only ordinary diligence in the care of goods was required of North Front Shipping Services, Inc. The inspection
of the barge by the shipper and the representatives of the shipping company before actual loading, coupled
with the Permit to Sailissued by the Coast Guard, sufficed to meet the degree of diligence required of the
carrier.

On the other hand, the Court of Appeals ruled that as a common carrier required to observe a higher degree
of diligence North Front 777 satisfactorily complied with all the requirements hence was issued a Permit to
Sail after proper inspection. Consequently, the complaint was dismissed and the motion for reconsideration
rejected.

The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills
Corporation did not in any way convert the common carrier into a private carrier. We have already resolved
this issue with finality in Planters Products, Inc. v. Court of Appeals 2 thus —

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment by which the owner of a ship
or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight . . . Contract of affreightment may either be time
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the
ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only,
either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the
ship's store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the
ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation . . .

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter is limited to the shin only, as in the case of a
time-charter or voyage-charter (emphasis supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo and offers
its services indiscriminately to the public. It is without doubt a common carrier. As such it is required to
observeextraordinary diligence in its vigilance over the goods it transports. 3 When goods placed in its care are
lost or damaged, the carrier is presumed to have been at fault or to have acted negligently. 4 North Front
Shipping Services, Inc., therefore has the burden of proving that it observed extraordinary diligence in order to
avoid responsibility for the lost cargo.

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

In Compania Maritima v. Court of Appeals 5 we ruled —

. . . Mere proof of delivery of the goods in good order to a common carrier, and of their arrival at the place of
destination in bad order, makes out prima facie case against the common carrier, so that if no explanation is
given as to how the loss, deterioration or destruction of the goods occurred, the common carrier must be held
responsible. Otherwise stated, it is incumbent upon the common carrier to prove that the loss, deterioration
or destruction was due to accident or some other circumstances inconsistent with its liability . . .

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 safe 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" (emphasis supplied).

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

It is not denied by the insurance companies that the vessel was indeed inspected before actual loading and
thatNorth Front 777 was issued a Permit to Sail. They proved the fact of shipment and its consequent loss or
damage while in the actual possession of the carrier. Notably, the carrier failed to volunteer any explanation
why there was spoilage and how it occurred. On the other hand, it was shown during the trial that the vessel
had rusty bulkheads and the wooden boards and tarpaulins bore heavy concentration of molds. The tarpaulins
used were not new, contrary to the claim of North Front Shipping Services, Inc., as there were already several
patches on them, hence, making it highly probable for water to enter.

Laboratory analysis revealed that the corn grains were contaminated with salt water. North Front Shipping
Services, Inc., failed to rebut all these arguments. It did not even endeavor to establish that the loss,
destruction or deterioration of the goods was due to the following: (a) flood, storm, earthquake, lightning, or
other natural disaster or calamity; (b) act of the public enemy in war, whether international or civil; (c) act or
omission of the shipper or owner of the goods; (d) the character of the goods or defects in the packing or in
the containers; (e) order or act of competent public authority. 6 This is a closed list. If the cause of destruction,
loss or deterioration is other than the enumerated circumstances, then the carrier is rightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of the cargo solely to the carrier. We find
the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was seasonably notified of
the arrival of the barge but did not immediately start the unloading operations. No explanation was proffered
by the consignee as to why there was a delay of six (6) days. Had the unloading been commenced immediately
the loss could have been completely avoided or at least minimized. As testified to by the chemist who
analyzed the corn samples, the mold growth was only at its incipient stage and could still be arrested by
drying. The corn grains were not yet toxic or unfit for consumption. For its contributory negligence, Republic
Flour Mills Corporation should share at least 40% of the loss. 7

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its Resolution of 16 February
1995 are REVERSED and SET ASIDE. Respondent North Front Shipping Services, Inc., is ordered to pay
petitioners Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co.
Ltd., P1,313,660.00 which is 60% of the amount paid by the insurance companies to Republic Flour Mills
Corporation, plus interest at the rate of 12% per annum from the time this judgment becomes final until full
payment.

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the
extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be
subrogated to the rights of the insured upon payment of the insurance claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated
by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles
to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu. 1 The shipment was insured with petitioner Philippine American General Insurance Co., Inc.
(PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day. At
around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del
Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink
bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV
Asilda." Respondent denied the claim thus prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed
any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of
money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due to
the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel
was improperly manned and that its officers were grossly negligent in failing to take appropriate measures to
proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce. 2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals
set aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a
petition forcertiorari with this Court but it was subsequently denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV Asilda" was
seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast
Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire
shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless
there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art.
587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not recover
from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the
vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong
and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so
as to permit it to bring an action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of
Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the
necessary Coast Guard certification indicating its seaworthiness with respect to the structure of the ship itself,
it was not seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of
PHILAMGEN on the ground that the assured's implied warranty of seaworthiness was not complied with.
Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper.
Furthermore, respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the port of
Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and, (c)
whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against
FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as
the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga.
According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of
seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded
the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck. 4 The ship captain stated that
around four o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that
the vessel had hit a floating log. At that time he noticed that the weather had deteriorated with strong
southeast winds inducing big waves. After thirty minutes he observed that the vessel was listing slightly to
starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift
the cargo from starboard to portside until the vessel was balanced. At about seven o'clock in the morning, the
master of the vessel stopped the engine because the vessel was listing dangerously to portside. He ordered his
crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the
engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his
next move, some of the cargo on deck were thrown overboard and seawater entered the engine room and
cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly
thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the entry of seawater through a hole in
the hull caused by the vessel's collision with a partially submerged log. 5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was
adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonable explanation for the series of lists experienced by
the vessel that eventually led to her capsizing and sinking, was that the vessel wastop-heavy which is to say
that while the vessel may not have been overloaded, yet the distribution or stowage of the cargo on board
was done in such a manner that the vessel was in top-heavy condition at the time of her departure and which
condition rendered her unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . . . and
it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly
that had her cargo been confined to those that could have been accommodated under deck, her stability
would not have been affected and the vessel would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered
unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased
the vessel's metacentric height as to cause it to become unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships
are precisely designed to be able to navigate safely even during heavy weather and frequently we hear of
ships safely and successfully weathering encounters with typhoons and although they may sustain some
amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to
occur unless they are inherently unstable and unseaworthy . . . .

We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her
condition of unseaworthiness arising from her having been top-heavy when she departed from the Port of
Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the category
of an inevitable occurrence (emphasis supplied). 6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of
the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations, evidence shows
that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after "MV Asilda" sank,
an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering
that the ship's hatches were properly secured, the empty Coca-Cola cases recovered could have come only
from the vessel's deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness
unless it can be shown that the deck cargo will not interfere with the proper management of the ship.
However, in this case it was established that "MV Asilda" was not designed to carry substantial amount of
cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric
height 7 thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary
vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply put, the
ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability
however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art.
587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable
despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the
captain. 9 The international rule is to the effect that the right of abandonment of vessels, as a legal limitation
of a shipowner's liability, does not apply to cases where the injury or average was occasioned by the
shipowner's own fault. 10 It must be stressed at this point that Art. 587 speaks only of situations where the
fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587
will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. 11

It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness even at
the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was
loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through the
expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.

Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances of each case . . ." In the event of
loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able
to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy with
reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered
the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim
of the bottling firm there was in effect a "voluntary payment" and no right of subrogation accrued in its favor.
In other words, when PHILAMGEN paid it did so at its own risk.

It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the
vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of
the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or
freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the
ship is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy." Thus it becomes the
obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full control in the selection of the common
carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a
particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed
out by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally
imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest
language. 13And where the policy stipulates that the seaworthiness of the vessel as between the assured and
the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without showing
concealment or misrepresentation by the assured. 14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG
reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent
Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the
Assured and the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the
Assured and the Assurers is hereby admitted." 15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states "(t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ." 16

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that
the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is
assumed by the insurance company. 17 The insertion of such waiver clauses in cargo policies is in recognition of
the realistic fact that cargo owners cannot control the state of the vessel. Thus it can be said that with such
categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action against
FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to the
assured operates as an equitable assignment to the assurer of all the remedies which the assured may have
against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of
the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers
Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and
Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial
demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 108897 October 2, 1997

SARKIES TOURS PHILIPPINES, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL A. FORTADES and
FATIMA MINERVA A. FORTADES, respondents.

ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 18979
promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying petitioner's motion
for reconsideration for being a mere rehash of the arguments raised in the appellant's brief.

The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all
surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.

On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on her way to Legazpi City. Her
brother Raul helped her load three pieces of luggage containing all of her optometry review books, materials
and equipment, trial lenses, trial contact lenses, passport and visa, as well as her mother Marisol's U.S.
immigration (green) card, among other important documents and personal belongings. Her belongings were
kept in the baggage compartment of the bus, but during a stopover at Daet, it was discovered that only one
bag remained in the open compartment. The others, including Fatima's things, were missing and might have
dropped along the way. Some of the passengers suggested retracing the route of the bus to try to recover the
lost items, but the driver ignored them and proceeded to Legazpi City.

Fatima immediately reported the loss to her mother who, in turn, went to petitioner's office in Legazpi City
and later at its head office in Manila. Petitioner, however, merely offered her P1,000.00 for each piece of
luggage lost, which she turned down. After returning to Bicol, disappointed but not defeated, mother and
daughter asked assistance from the radio stations and even from Philtranco bus drivers who plied the same
route on August 31st. The effort paid off when one of Fatima's bags was recovered. Marisol further reported
the incident to the National Bureau of Investigation's field office in Legazpi City and to the local police.

On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint
from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that "(a) team
has been sent out to Bicol for the purpose of recovering or at least getting the full detail" 1 of the incident.

After more than nine months of fruitless waiting, respondents decided to file the case below to recover the
value of the remaining lost items, as well as moral and exemplary damages, attorney's fees and expenses of
litigation. They claimed that the loss was due to petitioner's failure to observe extraordinary diligence in the
care of Fatima's luggage and that petitioner dealt with them in bad faith from the start. Petitioner, on the
other hand, disowned any liability for the loss on the ground that Fatima allegedly did not declare any excess
baggage upon boarding its bus.

On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of respondents, viz.:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and
against the herein defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the
following sums of money, to wit:

1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva
Fortades, etc. less the value of one luggage recovered;

2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;

3. The sum of P10,000.00 by way of exemplary damages;

4. The sum of P5,000.00 as attorney's fees; and

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from
receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial court's judgment, but deleted the award of moral and
exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses at
P30,000.00 and the deletion of the award for moral and exemplary damages, the decision appealed from is
AFFIRMED, with costs against defendant-appellant.

SO ORDERED.

Its motion for reconsideration was likewise rejected by the Court of Appeals, so petitioner elevated its case to
this Court for a review.

After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts
resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was
declared at the start of the trip. The documentary and testimonial evidence presented at the trial, however,
established that Fatima indeed boarded petitioner's De Luxe Bus No. 5 in the evening of August 31, 1984, and
she brought three pieces of luggage with her, as testified by her brother Raul, 2 who helped her pack her things
and load them on said bus. One of the bags was even recovered by a Philtranco bus driver. In its letter dated
October 1, 1984, petitioner tacitly admitted its liability by apologizing to respondents and assuring them that
efforts were being made to recover the lost items.

The records also reveal that respondents went to great lengths just to salvage their loss. The incident was
reported to the police, the NBI, and the regional and head offices of petitioner. Marisol even sought the
assistance of Philtranco bus drivers and the radio stations. To expedite the replacement of her mother's lost
U.S. immigration documents, Fatima also had to execute an affidavit of loss. 3 Clearly, they would not have
gone through all that trouble in pursuit of a fancied loss.

Fatima was not the only one who lost her luggage. Apparently, other passengers had suffered a similar fate:
Dr. Lita Samarista testified that petitioner offered her P1,000.00 for her lost baggage and she accepted
it; 4 Carleen Carullo-Magno lost her chemical engineering review materials, while her brother lost abaca
products he was transporting to Bicol. 5

Petitioner's receipt of Fatima's personal luggage having been thus established, it must now be determined if,
as a common carrier, it is responsible for their loss. Under the Civil Code, "(c)ommon carriers, from the nature
of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods . . . transported by them," 6 and this liability "lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to . . . the person who has a right to receive them," 7 unless the loss is
due to any of the excepted causes under Article 1734 thereof. 8

The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the
baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the
luggage was lost, to the prejudice of the paying passengers. As the Court of Appeals correctly observed:

. . . . Where the common carrier accepted its passenger's baggage for transportation and even had it placed in
the vehicle by its own employee, its failure to collect the freight charge is the common carrier's own lookout. It
is responsible for the consequent loss of the baggage. In the instant case, defendant appellant's employee
even helped Fatima Minerva Fortades and her brother load the luggages/baggages in the bus' baggage
compartment, without asking that they be weighed, declared, receipted or paid for (TSN, August 4, 1986, pp.
29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this required of the other passengers (TSN, August
4, 1986, p. 104; February 5, 1988; p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree
with the trial and appellate courts' conclusions. There is no dispute that of the three pieces of luggage of
Fatima, only one was recovered. The other two contained optometry books, materials, equipment, as well as
vital documents and personal belongings. Respondents had to shuttle between Bicol and Manila in their
efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel from the United
States just to be able to testify. Expenses were also incurred in reconstituting their lost documents. Under
these circumstances, the Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and
P30,000.00 for the transportation expenses, but disagrees with the deletion of the award of moral and
exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of
petitioner having been duly established, should be granted to respondents in the amount of P20,000.00 and
P5,000.00, respectively.

WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution dated
February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to pay
respondents an additional P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs against
petitioner.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,

vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.

RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993,
affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay herein
private respondent the amount of P700,000.00, plus legal interest thereon, another sum of P100,000.00 as
attorney's fees and the cost of the suit.

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with
Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an unknown
sunken object. The forward buoyancy compartment was damaged, and water gushed in through a hole "two
inches wide and twenty-two inches long" 1 As a consequence, the molasses at the cargo tanks were
contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales, Inc.
to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the
insurer of its lost cargo, herein private respondent, Philippine General Insurance Company (PhilGen, for short)
and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied the claim and it
was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value
of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila,
seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo.
PhilGen now claims to be subrogated to all the contractual rights and claims which the consignee may have
against the carrier, which is presumed to have violated the contract of carriage.

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of
Appeals, the award was affirmed.

Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage was
transformed into a private carrier, by virtue of the contract of affreightment which it entered into with the
consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise the
ordinary diligence to which a private carrier is in turn bound? Second, whether or not the insurer was
subrogated into the rights of the consignee against the carrier, upon payment by the insurer of the value of
the consignee's goods lost while on board one of the carrier's vessels.

On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a
common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of
molasses from Negros Oriental to Manila and refers to this contract as a "charter agreement". It then
proceeds to cite the case of Home Insurance Company vs. American Steamship Agencies, Inc. 2 wherein this
Court held: ". . . a common carrier undertaking to carry a special cargo or chartered to a special person only
becomes a private carrier."

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are
as follows:

Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As
such, the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence
of stipulation. 3

The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein we ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for
the voyage or service stipulated. The charterer mans the vessel with his own people and becomes 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.

On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of its
space to haul goods for others. It is a contract for special service to be rendered by the owner of the vessel
and under such contract the general owner 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 the charter
hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading and unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is not true in
a contract of affreightment on account of the aforementioned distinctions between the two.

Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We agree.
Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one point to another,
but the possession, command and navigation of the vessels remained with petitioner Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a common carrier and was still liable as
such.

The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good
order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order makes
for aprima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is overcome
only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its hitting
an unknown sunken object as it was heading for Pier 18. The object turned out to be a submerged derelict
vessel. Petitioner contends that this navigational hazard was the efficient cause of the accident. Further it
asserts that the fact that the Philippine Coastguard "has not exerted any effort to prepare a chart to indicate
the location of sunken derelicts within Manila North Harbor to avoid navigational accidents" 6 effectively
contributed to the happening of this mishap. Thus, being unaware of the hidden danger that lies in its path, it
became impossible for the petitioner to avoid the same. Nothing could have prevented the event, making it
beyond the pale of even the exercise of extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from having
rendered service with the greatest skill and utmost foresight, and being free from fault, the carrier was
culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The Code of
Commerce, which subsidiarily governs common carriers (which are primarily governed by the provisions of the
Civil Code) provides:

Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract in
accordance with this code, and prove the skill capacity and qualifications necessary to command and direct
the vessel, as established by marine and navigation laws, ordinances or regulations, and must not be
disqualified according to the same for the discharge of the duties of the position. . . .

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this rule.
It cannot safely claim to have exercised extraordinary diligence, by placing a person whose navigational skills
are questionable, at the helm of the vessel which eventually met the fateful accident. It may also logically,
follow that a person without license to navigate, lacks not just the skill to do so, but also the utmost familiarity
with the usual and safe routes taken by seasoned and legally authorized ones. Had the patron been licensed,
he could be presumed to have both the skill and the knowledge that would have prevented the vessel's hitting
the sunken derelict ship that lay on their way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome the
presumption of negligence with the loss and destruction of goods it transported, by proof of its exercise of
extraordinary diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule against
the petitioner. We have already found petitioner liable for breach of the contract of carriage it entered into
with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo which petitioner-carrier
was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's
insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who violated
the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line of cases
including Compania Maritima v. Insurance Company of North America; 7 Fireman's Fund Insurance Company v.
Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of Appeals, 9 wherein this Court
explained:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is
destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer,
upon payment to the assured will be subrogated to the rights of the assured to recover from the wrongdoer to
the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operated as an
equitable assignment to the former of all remedies which the latter may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales,
Inc., the consignee of the cargo of molasses totally damaged while being transported by petitioner Coastwise
Lighterage, the former was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the
carrier, herein petitioner Coastwise Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the order of
Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay respondent
Philippine General Insurance Company the "principal amount of P700,000.00 plus interest thereon at the legal
rate computed from March 29, 1989, the date the complaint was filed until fully paid and another sum of
P100,000.00 as attorney's fees and costs" 10 is likewise hereby AFFIRMED

SO ORDERED.

Feliciano, Romero, Melo and Vitug, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 119706 March 14, 1996

PHILIPPINE AIRLINES, INC., petitioner,

vs.
COURT OF APPEALS and GILDA C. MEJIA, respondents.

REGALADO, J.:p

This is definitely not a case of first impression. The incident which eventuated in the present controversy is a
drama of common contentious occurrence between passengers and carriers whenever loss is sustained by the
former. Withal, the exposition of the factual ambience and the legal precepts in this adjudication may
hopefully channel the assertiveness of passengers and the intransigence of carriers into the realization that at
times a bad extrajudicial compromise could be better than a good judicial victory.

Assailed in this petition for review is the decision of respondent Court of Appeals in CA-G.R. CV No.
42744 1 which affirmed the decision of the lower court 2 finding petitioner Philippine Air Lines, Inc. (PAL) liable
as follows:

ACCORDINGLY, judgment is hereby rendered ordering defendant Philippine Air Lines, Inc., to pay plaintiff Gilda
C. Mejia:

(1) P30,000.00 by way of actual damages of the microwave oven;

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

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

(4) P10,000.00 as attorney's fee;

all in addition to the costs of the suit.

Defendant's counterclaim is hereby dismissed for lack of merit. 3

The facts as found by respondent Court of Appeals are as follows:

On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit
microwave oven, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon
arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front glass door was broken
and the damage rendered it unserviceable. Demands both oral and written were made by plaintiff against the
defendant for the reimbursement of the value of the damaged microwave oven, and transportation charges
paid by plaintiff to defendant company. But these demands fell on deaf ears.

On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action for damages against defendant in the
lower court.

In its answer, defendant Airlines alleged inter alia, by way of special and affirmative defenses, that the court
has no jurisdiction over the case; that plaintiff has no valid cause of action against defendant since it acted
only in good faith and in compliance with the requirements of the law, regulations, conventions and
contractual commitments; and that defendant had always exercised the required diligence in the selection,
hiring and supervision of its employees. 4

What had theretofore transpired at the trial in the court a quo is narrated as follows:

Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she took defendant's plane from San
Francisco, U.S.A. for Manila, Philippines (Exh. "F"). Amongst her baggages (sic) was a slightly used microwave
oven with the brand name "Sharp" under PAL Air Waybill No. 0-79-1013008-3 (Exh. "A"). When shipped,
defendant's office at San Francisco inspected it. It was in good condition with its front glass intact. She did not
declare its value upon the advice of defendant's personnel at San Francisco.

When she arrived in Manila, she gave her sister Concepcion C. Diño authority to claim her baggag(e) (Exh. "G")
and took a connecting flight for Bacolod City.

When Concepcion C. Diño claimed the baggag(e) (Exh. "B") with defendant, then with the Bureau of Customs,
the front glass of the microwave oven was already broken and cannot be repaired because of the danger of
radiation. They demanded from defendant thru Atty. Paco P30,000.00 for the damages although a brand new
one costs P40,000.00, but defendant refused to pay.

Hence, plaintiff engaged the services of counsel. Despite demand (Exh. "E") by counsel, defendant still refused
to pay.
The damaged oven is still with defendant. Plaintiff is engaged in (the) catering and restaurant business. Hence,
the necessity of the oven. Plaintiff suffered sleepless nights when defendant refused to pay her (for) the
broken oven and claims P10,000.00 moral damages, P20,000.00 exemplary damages, P10,000.00 attorney's
fees plus P300.00 per court appearance and P15,000.00 monthly loss of income in her business beginning
February, 1990.

Defendant Philippine Airlines thru its employees Rodolfo Pandes and Vicente Villaruz posited that plaintiff's
claim was not investigated until after the filing of the formal claim on August 13, 1990 (Exh. "6" also Exh. "E").
During the investigations, plaintiff failed to submit positive proof of the value of the cargo. Hence her claim
was denied.

Also plaintiff's claim was filed out of time under paragraph 12, a (1) of the Air Waybill (Exh. "A", also Exh. "1")
which provides: "(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1)
of visible damage to the goods, immediately after discovery of the damage and at the latest within 14 days
from the receipt of the goods. 5

As stated at the outset, respondent Court of Appeals similarly ruled in favor of private respondent by affirming
in full the trial court's judgment in Civil Case No. 6210, with costs against petitioner. 6 Consequently, petitioner
now impugns respondent appellate court's ruling insofar as it agrees with (1) the conclusions of the trial court
that since the air waybill is a contract of adhesion, its provisions should be strictly construed against herein
petitioner; (2) the finding of the trial court that herein petitioner's liability is not limited by the provisions of
the air waybill; and (3) the award by the trial court to private respondent of moral and exemplary damages,
attorney's fees and litigation expenses.

The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De Songco, et al. 7 in
finding that the provisions of the air waybill should be strictly construed against petitioner. More particularly,
the court below stated its findings thus:

In this case, it is seriously doubted whether plaintiff had read the printed conditions at the back of the Air
Waybill (Exh. "1"), or even if she had, if she was given a chance to negotiate on the conditions for loading her
microwave oven. Instead she was advised by defendant's employee at San Francisco, U.S.A., that there is no
need to declare the value of her oven since it is not brand new. Further, plaintiff testified that she immediately
submitted a formal claim for P30,000.00 with defendant. But their claim was referred from one employee to
another th(e)n told to come back the next day, and the next day, until she was referred to a certain Atty. Paco.
When they got tired and frustrated of coming without a settlement of their claim in sight, they consulted a
lawyer who demanded from defendant on August 13, 1990 (Exh. "E", an[d] Exh. "6").

The conclusion that inescapably emerges from the above findings of fact is to concede it with credence. . . . . 8

Respondent appellate court approved said findings of the trial court in this manner:

We cannot agree with defendant-appellant's above contention. Under our jurisprudence, the Air Waybill is a
contract of adhesion considering that all the provisions thereof are prepared and drafted only by the carrier
(Sweet Lines v. Teves, 83 SCRA 361). The only participation left of the other party is to affix his signature
thereto (BPI Credit Corporation vs. Court of Appeals, 204 SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498; Maersk
vs. Court of Appeals, 222 SCRA 108, among the recent cases). In the earlier case of Angeles v. Calasanz, 135
SCRA 323, the Supreme Court ruled that "the terms of a contract [of adhesion] must be interpreted against
the party who drafted the same." . . . . 9

Petitioner airlines argues that the legal principle enunciated in Fieldmen's Insurance does not apply to the
present case because the provisions of the contract involved here are neither ambiguous nor obscure. The
front portion of the air waybill contains a simple warning that the shipment is subject to the conditions of the
contract on the dorsal portion thereof regarding the limited liability of the carrier unless a higher valuation is
declared, as well as the reglementary period within which to submit a written claim to the carrier in case of
damage or loss to the cargo. Granting that the air waybill is a contract of adhesion, it has been ruled by the
Court that such contracts are not entirely prohibited and are in fact binding regardless of whether or not
respondent herein read the provisions thereof. Having contracted the services of petitioner carrier instead of
other airlines, private respondent in effect negotiated the terms of the contract and thus became bound
thereby. 10
Counsel for private respondent refutes these arguments by saying that due to her eagerness to ship the
microwave oven to Manila, private respondent assented to the terms and conditions of the contract without
any opportunity to question or change its terms which are practically on a "take-it-or-leave-it" basis, her only
participation therein being the affixation of her signature. Further, reliance on the Fieldmen's Insurance case is
misplaced since it is not the ambiguity or obscurity of the stipulation that renders necessary the strict
interpretation of a contract of adhesion against the drafter, but the peculiarity of the transaction wherein one
party, normally a corporation, drafts all the provisions of the contract without any participation whatsoever on
the part of the other party other than affixment of signature. 11

A review of jurisprudence on the matter reveals the consistent holding of the Court that contracts of adhesion
are not invalid per se and that it has on numerous occasions upheld the binding effect thereof. 12 As explained
in Ong Yiu vs. Court of Appeals, et al., supra:

. . . . Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or assent to the regulation. It is what is known as a
contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party
imposes a ready-made form of contract on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. . . , a contract limiting liability upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own negligence.

As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:

. . . , it should be borne in mind that a contract of adhesion may be struck down as void and unenforceable, for
being subversive of public policy, only when the weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. . . . .

but subject to the caveat that —

. . . . Just because we have said that Condition No. 5 of the airway bill is binding upon the parties to and fully
operative in this transaction, it does not mean, and let this serve as fair warning to respondent carriers, that
they can at all times whimsical seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 . .
..

The peculiar nature of such contracts behooves the Court to closely scrutinize the factual milieu to which the
provisions are intended to apply. Thus, just as consistently and unhesitatingly, but without categorically
invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of
contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the
operative facts and surrounding circumstances. 13

We find nothing objectionable about the lower court's reliance upon the Fieldmen's Insurance case, the
principles wherein squarely apply to the present petition. The parallelism between the aforementioned case
and this one is readily apparent for, just as in the instant case, it is the binding effect of the provisions in a
contract of adhesion (an insurance policy in Fieldmen's Insurance) that is put to test.

A judicious reading of the case reveals that what was pivotal in the judgment of liability against petitioner
insurance company therein, and necessarily interpreting the provisions of the insurance policy as ineffective,
was the finding that the representations made by the agent of the insurance company rendered it impossible
to comply with the conditions of the contract in question, rather than the mere ambiguity of its terms. The
extended pronouncements regarding strict construction of ambiguous provisions in an adhesion contract
against its drafter, which although made by the Court as an aside but has perforce evolved into a judicial tenet
over time, was actually an incidental statement intended to emphasize the duty of the court to protect the
weaker, as against the more dominant, party to a contract, as well as to prevent the iniquitous situation
wherein the will of one party is imposed upon the other in the course of negotiation.

Thus, there can be no further question as to the validity of the terms of the air waybill, even if the same
constitutes a contract of adhesion. Whether or not the provisions thereof particularly on the limited liability of
the carrier are binding on private respondent in this instance must be determined from the facts and
circumstances involved vis-a-vis the nature of the provisions sought to be enforced, taking care that equity
and fair play should characterize the transaction under review.

On petitioner's insistence that its liability for the damage to private respondent's microwave oven, if any,
should be limited by the provisions of the air waybill, the lower court had this to say:

By and large, defendant's evidence is anchored principally on plaintiff's alleged failure to comply with
paragraph 12, a(1) (Exh. "1-C-2") of the Air waybill (Exh. "A," also Exh. "1"), by filing a formal claim immediately
after discovery of the damage. Plaintiff filed her formal claim only on August 13, 1990 (Exh. "6", also Exh. "E").
And, failed to present positive proof on the value of the damaged microwave oven. Hence, the denial of her
claim.

This Court has misgivings about these pretensions of defendant.

xxx xxx xxx

Finally, the Court finds no merit to defendant's contention that under the Warsaw Convention, its liability if
any, cannot exceed U.S. $20.00 based on weight as plaintiff did not declare the contents of her baggage nor
pay additional charges before the flight. 14

The appellate court declared correct the non-application by the trial court of the limited liability of therein
defendant-appellant under the "Conditions of the Contract" contained in the air waybill, based on the ruling
inCathay Pacific Airways, Ltd. vs. Court of Appeals, et al., 15 which substantially enunciates the rule that while
the Warsaw Convention has the force and effect of law in the Philippines, being a treaty commitment by the
government and as a signatory thereto, the same does not operate as an exclusive enumeration of the
instances when a carrier shall be liable for breach of contract or as an absolute limit of the extent of liability,
nor does it preclude the operation of the Civil Code or other pertinent laws.

Petitioner insists that both respondent court and the trial court erred in finding that petitioner's liability, if
any, is not limited by the provisions of the air waybill, for, as evidence of the contract of carriage between
petitioner and private respondent, it substantially states that the shipper certifies to the correctness of the
entries contained therein and accepts that the carrier's liability is limited to US $20 per kilogram of goods lost,
damaged or destroyed unless a value is declared and a supplementary charge paid. Inasmuch as no such
declaration was made by private respondent, as she admitted during cross-examination, the liability of
petitioner, if any, should be limited to 28 kilograms multiplied by US $20, or $560. Moreover, the validity of
these conditions has been upheld in the leading case of Ong Yiu vs. Court of Appeals, et al., supra, and
subsequent cases, for being a mere reiteration of the limitation of liability under the Warsaw Convention,
which treaty has the force and effect of law.16

It is additionally averred that since private respondent was merely advised, not ordered, that she need not
declare a higher value for her cargo, the final decision of refraining from making such a declaration fell on
private respondent and should not put the petitioner in estoppel from invoking its limited liability. 17

In refutation, private respondent explains that the reason for the absence of a declaration of a higher value
was precisely because petitioner's personnel in San Francisco, U.S.A. advised her not to declare the value of
her cargo, which testimony has not at all been rebutted by petitioner. This being so, petitioner is estopped
from faulting private respondent for her failure to declare the value of the microwave oven. 18

The validity of provisions limiting the liability of carriers contained in bills of lading have been consistently
upheld for the following reason:

. . . . The stipulation in the bill of lading limiting the common carrier's liability to the value of goods appearing
in the bill, unless the shipper or owner declares a greater value, is valid and binding. The limitation of the
carrier's liability is sanctioned by the freedom of the contracting parties to establish such stipulations, clauses,
terms, or conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs and public policy. . . . . 19

However, the Court has likewise cautioned against blind reliance on adhesion contracts where the facts and
circumstances warrant that they should be disregarded. 20
In the case at bar, it will be noted that private respondent signified an intention to declare the value of the
microwave oven prior to shipment, but was explicitly advised against doing so by PAL's personnel in San
Francisco, U.S.A., as borne out by her testimony in court:

xxx xxx xxx

Q Did you declare the value of the shipment?

A No. I was advised not to.

Q Who advised you?

A At the PAL Air Cargo. 21

It cannot be denied that the attention of PAL through its personnel in San Francisco was sufficiently called to
the fact that private respondent's cargo was highly susceptible to breakage as would necessitate the
declaration of its actual value. Petitioner had all the opportunity to check the condition and manner of packing
prior to acceptance for shipment, 22 as well as during the preparation of the air waybill by PAL's Acceptance
Personnel based on information supplied by the shipper, 23 and to reject the cargo if the contents or the
packing did not meet the company's required specifications. Certainly, PAL could not have been otherwise
prevailed upon to merely accept the cargo.

While Vicente Villaruz, officer-in-charge of the PAL Import Section at the time of incident, posited that there
may have been inadequate and improper packing of the cargo, 24 which by itself could be a ground for refusing
carriage of the goods presented for shipment, he nonetheless admitted on cross-examination that private
respondent's cargo was accepted by PAL in its San Francisco office:

ATTY. VINCO

So that, be that as it may, my particular concern is that, it is the PAL personnel that accepts the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

Also, if he comes from abroad like in this particular case, it is the PAL personnel who accepts the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

And the PAL personnel may or may not accept the baggage?

WITNESS

Yes, sir.

ATTY. VINCO

According to what is stated as in the acceptance of the cargo, it is to the best interest of the airlines, that is, he
want(s) also that the airlines would be free from any liability. Could that be one of the grounds for not
admitting a baggage?

WITNESS

Safety is number one (1)

 xxx xxx xxx

ATTY. VINCO

So, this baggage was accepted and admitted in San Francisco?

WITNESS

Yes, sir.

ATTY. VINCO

And you could not show any document to the Court that would suggest that this baggage was denied
admittance by your office at San Francisco?

WITNESS

No, I cannot show.

ATTY. VINCO

Now, can you show any document that would suggest that there was insufficient pac(k)aging on this particular
baggage from abroad?

WITNESS

No, sir. 25

In response to the trial court's questions during the trial, he also stated that while the passenger's declaration
regarding the general or fragile character of the cargo is to a certain extent determinative of its classification,
PAL nevertheless has and exercises discretion as to the manner of handling required by the nature of the
cargo it accepts for carriage. He further opined that the microwave oven was only a general, not a fragile,
cargo which did not require any special handling. 26

There is no absolute obligation on the part of a carrier to accept a cargo. Where a common carrier accepts a
cargo for shipment for valuable consideration, it takes the risk of delivering it in good condition as when it was
loaded. And if the fact of improper packing is known to the carrier or its personnel, or apparent upon
observation but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or
injury resulting therefrom. 27

The acceptance in due course by PAL of private respondent's cargo as packed and its advice against the need
for declaration of its actual value operated as an assurance to private respondent that in fact there was no
need for such a declaration. Petitioner can hardly be faulted for relying on the representations of PAL's own
personnel.

In other words, private respondent Mejia could and would have complied with the conditions stated in the air
waybill, i.e., declaration of a higher value and payment of supplemental transportation charges, entitling her
to recovery of damages beyond the stipulated limit of US $20 per kilogram of cargo in the event of loss or
damage, had she not been effectively prevented from doing so upon the advice of PAL's personnel for reasons
best known to themselves.

As pointed out by private respondent, the aforestated facts were not denied by PAL in any of its pleadings nor
rebutted by way of evidence presented in the course of the trial, and thus in effect it judicially admitted that
such an advice was given by its personnel in San Francisco, U.S.A. Petitioner, therefore, is estopped from
blaming private respondent for not declaring the value of the cargo shipped and which would have otherwise
entitled her to recover a higher amount of damages. The Court's bidding in the Fieldmen's Insurance case once
again rings true:
. . . As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall an
innocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of
justice.

We likewise uphold the lower court's finding that private respondent complied with the requirement for the
immediate filing of a formal claim for damages as required in the air waybill or, at least, we find that there was
substantial compliance therewith.

Private respondent testified that she authorized her sister, Concepcion Diño, to claim her cargo consisting of a
microwave oven since the former had to take a connecting flight to Bacolod City on the very same afternoon
of the day of her arrival. 28 As instructed, Concepcion Diño promptly proceeded to PAL's Import Section the
next day to claim the oven. Upon discovering that the glass door was broken, she immediately filed a claim by
way of the baggage freight claim 29 on which was duly annotated the damage sustained by the oven. 30

Her testimony relates what took place thereafter:

ATTY. VINCO

So, after that inspection, what did you do?

WITNESS

After that annotation placed by Mr. Villaruz, I went home and I followed it up the next day with the Clerk of
PAL cargo office.

ATTY. VINCO

What did the clerk tell you?

WITNESS

She told me that the claim was being processed and I made several phone calls after that. I started my follow-
ups February up to June 1990.

ATTY. VINCO

And what results did those follow-ups produce?

WITNESS

All they said (was) that the document was being processed, that they were waiting for Atty. Paco to report to
the office and they could refer the matter to Atty. Paco.

ATTY. VINCO

Who is this Atty. Paco?

WITNESS

He was the one in-charge of approving our claim.

ATTY. VINCO

Were you able to see Atty. Paco?

WITNESS

Yes, sir. I personally visited Atty. Paco together with my auntie who was a former PAL employee.

xxx xxx xxx

ATTY. VINCO

So, what did you do, did you make a report or did you tell Atty. Paco of your scouting around for a possible
replacement?

WITNESS

I did call him back at his office. I made a telephone call.

ATTY. VINCO

And what answer did Atty. Paco make after you have reported back to him?

WITNESS

They told me that they were going to process the claim based on the price that I gave them but there was no
definite result.

ATTY. VINCO

How many times did you go and see Atty. Paco regarding the claim of your sister?

WITNESS

I made one personal visit and several follow-up calls. With Atty. Paco, I made one phone call but I made
several phone calls with his secretary or the clerk at PAL cargo office and I was trying to locate him but
unfortunately, he was always out of his office. 31

PAL claims processor, Rodolfo Pandes, * confirmed having received the baggage freight claim on January 30,
1990 32 and the referral to and extended pendency of the private respondent's claim with the office of Atty.
Paco, to wit:

ATTY. VINCO:

Q And you did instruct the claimant to see the Claim Officer of the company, right?

WITNESS:

A Yes, sir.

ATTY. VINCO:

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

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q And you know that the plaintiff thru her authorized representative Concepcion Diño, who is her sister had
many times gone to Atty. Paco, in connection with this claim of her sister?

WITNESS:

A Yes, sir.

ATTY. VINCO:
Q As a matter of fact even when the complaint was already filed here in Court the claimant had continued to
call about the settlement of her claim with Atty. Paco, is that correct?

xxx xxx xxx

WITNESS:

A Yes, sir.

ATTY. VINCO:

Q You know this fact because a personnel saw you in one of the pre-trial here when this case was heard
before the sala of Judge Moscardon, is that correct?

WITNESS:

A Yes.

ATTY. VINCO:

Q In other words, the plaintiff rather had never stop(ped) in her desire for your company to settle this claim,
right?

WITNESS:

A Yes, sir. 33

Considering the abovementioned incidents and private respondent Mejia's own zealous efforts in following up
the claim, 34 it was clearly not her fault that the letter of demand for damages could only be filed, after
months of exasperating follow-up of the claim, on August 13, 1990. 35 If there was any failure at all to file the
formal claim within the prescriptive period contemplated in the air waybill, this was largely because of PAL's
own doing, the consequences of which cannot, in all fairness, be attributed to private respondent.

Even if the claim for damages was conditioned on the timely filing of a formal claim, under Article 1186 of the
Civil Code that condition was deemed fulfilled, considering that the collective action of PAL's personnel in
tossing around the claim and leaving it unresolved for an indefinite period of time was tantamount to
"voluntarily preventing its fulfillment." On grounds of equity, the filing of the baggage freight claim, which
sufficiently informed PAL of the damage sustained by private respondent's cargo, constituted substantial
compliance with the requirement in the contract for the filing of a formal claim.

All told, therefore, respondent appellate court did not err in ruling that the provision on limited liability is not
applicable in this case. We, however, note in passing that while the facts and circumstances of this case do not
call for the direct application of the provisions of the Warsaw Convention, it should be stressed that, indeed,
recognition of the Warsaw Convention does not preclude the operation of the Civil Code and other pertinent
laws in the determination of the extent of liability of the common carrier. 36

The Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part of Philippine
law as the Civil Code, Code of Commerce and other municipal special laws. 37 The provisions therein
contained, specifically on the limitation of carrier's liability, are operative in the Philippines but only in
appropriate situations.

Petitioner ascribes ultimate error in the award of moral and exemplary damages and attorney's fees in favor
of private respondent in that other than the statement of the trial court that petitioner acted in bad faith in
denying private respondent's claim, which was affirmed by the Court of Appeals, there is no evidence on
record that the same is true. The denial of private respondent's claim was supposedly in the honest belief that
the same had prescribed, there being no timely formal claim filed; and despite having been given an
opportunity to submit positive proof of the value of the damaged microwave oven, no such proof was
submitted. Petitioner insists that its failure to deliver the oven in the condition in which it was shipped could
hardly be considered as amounting to bad faith. 38
Private respondent counters that petitioner's failure to deliver the microwave oven in the condition in which it
was received can be described as gross negligence amounting to bad faith, on the further consideration that it
failed to prove that it exercised the extraordinary diligence required by law, and that no explanation
whatsoever was given as to why the front glass of the oven was broken. 39

The trial court justified its award of actual, moral and exemplary damages, and attorney's fees in favor of
private respondent in this wise:

Since the plaintiff's baggage destination was the Philippines, Philippine law governs the liability of the
defendant for damages for the microwave oven.

The provisions of the New Civil Code on common carriers are Article(s) 1733, 1735 and 1753 . . . .

xxx xxx xxx

In this case, defendant failed to overcome, not only the presumption but more importantly, plaintiff's
evidence that defendant's negligence was the proximate cause of the damages of the microwave oven.
Further plaintiff has established that defendant acted in bad faith when it denied the former's claim on the
ground that the formal claim was filed beyond the period as provided in paragraph 12 (a-1) (Exh. "1-C-2") of
the Air Waybill (Exh. "1", also Exh. "A"), when actually, Concepcion Diño, sister of plaintiff has immediately
filed the formal claim upon discovery of the damage. 40

Respondent appellate court was in full agreement with the trial court's finding of bad faith on the part of
petitioner as a basis for the award of the aforestated damages, declaring that:

As to the last assigned error, a perusal of the facts and law of the case reveals that the lower court's award of
moral and exemplary damages, attorney's fees and costs of suit to plaintiff-appellee is in accordance with
current laws and jurisprudence on the matter. Indeed, aside from the fact that defendant-appellant acted in
bad faith in breaching the contract and in denying plaintiff's valid claim for damages, plaintiff-appellee
underwent profound distress, sleepless nights, and anxiety upon knowledge of her damaged microwave oven
in possession of defendant-appellant, entitling her to the award of moral and exemplary damages (Cathay
Pacific Airways, Ltd. vs. C.A., supra; Arts. 2219 & 2221, New Civil Code), and certainly plaintiff-appellant's
unjust refusal to comply with her valid demand for payment, thereby also entitling her to reasonable
attorney's fees [Art. 2208 (2) and (11),id.]. 41

It will be noted that petitioner never denied that the damage to the microwave oven was sustained while the
same was in its custody. The possibility that said damage was due to causes beyond the control of PAL has
effectively been ruled out since the entire process in handling of the cargo — from the unloading thereof from
the plane, the towing and transfer to the PAL warehouse, the transfer to the Customs examination area, and
its release thereafter to the shipper — was done almost exclusively by, and with the intervention or, at the
very least, under the direct supervision of a responsible PAL personnel. 42

The very admissions of PAL, through Vicente Villaruz of its Import Section, as follows:

ATTY. VINCO

So that, you now claim, Mr. Witness, that from the time the cargo was unloaded from the plane until the time
it reaches the Customs counter where it was inspected, all the way, it was the PAL personnel who did all these
things?

WITNESS

Yes, however, there is also what we call the Customs storekeeper and the Customs guard along with the
cargo.

ATTY. VINCO

You made mention about a locator?

WITNESS
Yes, sir.

ATTY. VINCO

This locator, is he an employee of the PAL or the Customs?

WITNESS

He is a PAL employee. 43

lead to the inevitable conclusion that whatever damage may have been sustained by the cargo is due to
causes attributable to PAL's personnel or, at all events, under their responsibility.

Moreover, the trial court underscored the fact that petitioner was not able to overcome the statutory
presumption of negligence in Article 1735 which, as a common carrier, it was laboring under in case of loss,
destruction or deterioration of goods, through proper showing of the exercise of extraordinary diligence.
Neither did it prove that the damage to the microwave oven was because of any of the excepting causes
under Article 1734, all of the same Code. Inasmuch as the subject item was received in apparent good
condition, no contrary notation or exception having been made on the air waybill upon its acceptance for
shipment, the fact that it was delivered with a broken glass door raises the presumption that PAL's personnel
were negligent in the carriage and handling of the cargo. 44

Furthermore, there was glaringly no attempt whatsoever on the part of petitioner to explain the cause of the
damage to the oven. The unexplained cause of damage to private respondent's cargo constitutes gross
carelessness or negligence which by itself justifies the present award of damages. 45 The equally unexplained
and inordinate delay in acting on the claim upon referral thereof to the claims officer, Atty. Paco, and the
noncommittal responses to private respondent's entreaties for settlement of her claim for damages belies
petitioner's pretension that there was no bad faith on its part. This unprofessional indifference of PAL's
personnel despite full and actual knowledge of the damage to private respondent's cargo, just to be
exculpated from liability on pure technicality and bureaucratic subterfuge, smacks of willful misconduct and
insensitivity to a passenger's plight tantamount to bad faith 46 and renders unquestionable petitioner's liability
for damages. In sum, there is no reason to disturb the findings of the trial court in this case, especially with its
full affirmance by respondent Court of Appeals.

On this note, the case at bar goes into the annals of our jurisprudence after six years and recedes into the
memories of our legal experience as just another inexplicable inevitability. We will never know exactly how
many man-hours went into the preparation, litigation and adjudication of this simple dispute over an oven,
which the parties will no doubt insist they contested as a matter of principle. One thing, however, is certain.
As long as the first letter in "principle" is somehow outplaced by the peso sign, the courts will always have to
resolve similar controversies although mutual goodwill could have dispensed with judicial recourse.

IN VIEW OF ALL OF THE FOREGOING, the assailed judgment of respondent Court of Appeals is AFFIRMED in
toto.

SO ORDERED.

Romero, Puno and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 162467 May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,

vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.

DECISION

TINGA, J.:

Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of the 29 October
20032 Decision of the Court of Appeals and the 26 February 2004 Resolution3 of the same court denying
petitioner’s motion for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc.
(Mindanao Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green
Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International,
Inc. (Del Monte Produce) into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of
Davao City and the goods were to be transported by it to the port of Inchon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under an "open cargo policy" with private respondent
Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private respondent McGee
& Co. Inc. (McGee), the underwriting manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of
Davao City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo
was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its
representative Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report,
it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so
damaged that they no longer had commercial value.5

Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine
Claims Insurance Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43 be
made. A check for the recommended amount was sent to Del Monte Produce; the latter then issued a subrogation
receipt6 to Phoenix and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the Regional Trial Court (RTC)
of Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October 1999, held that the only participation
of Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the direction and supervision of
the ship’s officers, who would not have accepted the cargoes on board the vessel and signed the foreman’s report
unless they were properly arranged and tightly secured to withstand voyage across the open seas. Accordingly,
Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had loaded and stowed
them. Moreover, citing the survey report, it was found by the RTC that the cargoes were damaged on account of a
typhoon which M/V Mistrau had encountered during the voyage. It was further held that Phoenix and McGee had
no cause of action against Mindanao Terminal because the latter, whose services were contracted by Del Monte, a
distinct corporation from Del Monte Produce, had no contract with the assured Del Monte Produce. The RTC
dismissed the complaint and awarded the counterclaim of Mindanao Terminal in the amount of P83,945.80 as
actual damages and P100,000.00 as attorney’s fees.9 The actual damages were awarded as reimbursement for the
expenses incurred by Mindanao Terminal’s lawyer in attending the hearings in the case wherein he had to travel all
the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside 10 the decision of
the RTC in its 29 October 2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee
"the total amount of $210,265.45 plus legal interest from the filing of the complaint until fully paid and attorney’s
fees of 20% of the claim."11 It sustained Phoenix’s and McGee’s argument that the damage in the cargoes was the
result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the
cargo, the duty to exercise extraordinary diligence in loading and stowing the cargoes. It further held that even
with the absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the cause of
action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26 February
200414 resolution. Hence, the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and negligent in the
loading and stowage of the cargoes onboard M/V Mistrau making it liable for damages; and, whether Phoenix and
McGee has a cause of action against Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict. To
resolve the petition, three questions have to be answered: first, whether Phoenix and McGee have a cause of
action against Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring company, is under
obligation to observe the same extraordinary degree of diligence in the conduct of its business as required by law
for common carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of
diligence required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal,
from which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising
from the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even
assuming that both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not
a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have
a cause of action in light of the Court’s consistent ruling that the act that breaks the contract may be also a
tort.17 In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract 18 .
In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes
belonging to Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and
Mindanao Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a
cause of action arising from quasi-delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is
to be observed in the performance of an obligation then that which is expected of a good father of a family or
ordinary diligence shall be required. Mindanao Terminal, a stevedoring company which was charged with the
loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider
in the case at bar. There is no specific provision of law that imposes a higher degree of diligence than ordinary
diligence for a stevedoring company or one who is charged only with the loading and stowing of cargoes. It was
neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore conclude that
following Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading and stowing
the cargoes of Del Monte Produce aboard M/V Mistrau.

imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes. The case
ofSumma Insurance Corporation v. CA, which involved the issue of whether an arrastre operator is legally liable for
the loss of a shipment in its custody and the extent of its liability, is inapplicable to the factual circumstances of the
case at bar. Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal
Corporation (Semirara) as "notify party." The shipment, including a bundle of PC 8 U blades, was discharged from
the vessel to the custody of the private respondent, the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's checker and a
representative of private respondent. When Semirara inspected the shipment at house, it discovered that the
bundle of PC8U blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and the arrastre operator must be examined. This
relationship is much akin to that existing between the consignee or owner of shipped goods and the common
carrier, or that between a depositor and a warehouseman[22 ]. In the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts
Law, respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to
take good care of the goods and to turn them over to the party entitled to their possession. (Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers to hauling of
cargo, comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper
and the ship's tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the
consignee. The service is usually performed by longshoremen. On the other hand, stevedoring refers to the
handling of the cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel.1avvphi1

It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private
respondent in the Summa case was performing arrastre function. In the present case, Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it
was never the custodian of the shipment of Del Monte Produce. A stevedore is not a common carrier for it does
not transport goods or passengers; it is not akin to a warehouseman for it does not store goods for profit. The
loading and stowing of cargoes would not have a far reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not
present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao Terminal had
acted negligently. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that issue. That is to say, if the evidence
touching a disputed fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must fail.261avvphi1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of Appeals did not
make any new findings of fact when it reversed the decision of the trial court. The only participation of Mindanao
Terminal was to load the cargoes on board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the
materials, such as ropes, pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry standard.30

It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard
the M/V Mistrau in accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s
hold, prepared by Del Monte Produce and the officers of M/V Mistrau.31 The loading and stowing was done under
the direction and supervision of the ship officers. The vessel’s officer would order the closing of the hatches only if
the loading was done correctly after a final inspection.32 The said ship officers would not have accepted the cargoes
on board the vessel if they were not properly arranged and tightly secured to withstand the voyage in open seas.
They would order the stevedore to rectify any error in its loading and stowing. A foreman’s report, as proof of work
done on board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by the Chief
Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey report35 of the
damage to the cargoes. Byeong, whose testimony was refreshed by the survey report,36 found that the cause of the
damage was improper stowage37 due to the manner the cargoes were arranged such that there were no spaces
between cartons, the use of cardboards as support system, and the use of small rope to tie the cartons together
but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by
Phoenix and McGee in their Comment38 before us, the latter is merely a stevedoring company which was tasked by
Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V
Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the shipper and the
officers of the vessel. In other words, the work of the stevedore was under the supervision of the shipper and
officers of the vessel. Even the materials used for stowage, such as ropes, pallets, and cardboards, are provided for
by the vessel. Even the survey report found that it was because of the boisterous stormy weather due to the
typhoon Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo hold to
collapse, shift and bruise in extensive extent.39 Even the deposition of Byeong was not supported by the conclusion
in the survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage occurred aboard the carrying
vessel during sea transit, being caused by ship’s heavy rolling and pitching under boisterous weather while
proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October, 1994 as described in the sea protest.40

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the
cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition is in order.
However, the Court finds no basis for the award of attorney’s fees in favor of petitioner.lawphil.net None of the
circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the mere purpose of vexation or injury. It
is not sound public policy to set a premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages to Mindanao Terminal. Although
actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other
miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is no showing that
Phoenix and McGee made a false claim against Mindanao Terminal resulting in the protracted trial of the case
necessitating the incurrence of expenditures.42

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE
and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is
herebyREINSTATED MINUS the awards of P100,000.00 as attorney’s fees and P83,945.80 as actual damages.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 84680 February 5, 1996

SUMMA INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and METRO PORT SERVICE, INC., respondents.

DECISION

PANGANIBAN, J.:

Is an arrastre operator legally liable for the loss of a shipment in its custody? If so, what is the extent of its
liability? These are the two questions that this Court faced in this petition for review on certiorari of the
Decision1 of the Court of Appeals2 in CA-G.R. No. CV 04964 promulgated on April 27, 1988, which affirmed
with modification the decision of the Court of First Instance of Manila in Civil Case No. 82-13988, ordering
petitioner to pay private respondent a sum of money, with legal interest, attorney's fees and the costs of the
suit.

The Facts

On November 22, 1981, the S/S "Galleon Sapphire", a vessel owned by the National Galleon Shipping
Corporation (NGSC), arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order of
Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as "notify party". The shipment, including a
bundle of PC 8 U blades, was covered by marine insurance under Certificate No. 82/012-FEZ issued by
petitioner and Bill of Lading No. SF/MLA 1014. The shipment was discharged from the vessel to the custody of
private respondent, formerly known as E. Razon, Inc., the exclusive arrastre operator at the South Harbor.
Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by the ship's checker and a
representative of private respondent.
On February 24, 1982, the forwarder, Sterling International Brokerage Corporation, withdrew the shipment
from the pier and loaded it on the barge "Semirara 8104". The barge arrived at its port of destination,
Semirara Island, on March 9, 1982. When Semirara inspected the shipment at its warehouse, it discovered
that the bundle of PC8U blades was missing.

On March 15, 1982, private respondent issued a short-landed certificate-stating that the bundle of PC8U
blades was already missing when it received the shipment from the NGSC vessel. Semirara then filed with
petitioner, private respondent and NGSC its claim for P280,969.68, the alleged value of the lost bundle.

On September 29, 1982, petitioner paid Semirara the invoice value of the lost shipment. Semirara thereafter
executed a release of claim and subrogation receipt. Consequently, petitioner filed its claims with NGSC and
private respondent but it was unsuccessful.

Petitioner then filed a complaint (Civil Case No. 8213988) with the Regional Trial Court, Branch XXIV, Manila,
against NGSC and private respondent for collection of a sum of money, damages and attorney's fees.

On August 2, 1984, the trial court rendered a decision absolving NGSC from any liability but finding private
respondent liable to petitioner. The dispositive portion of the decision reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered ordering defendant Metro Port Service, Inc. to pay
plaintiff Summa Insurance Corporation the sum of P280,969.68with legal interest from November 22, 1982,
the date of the filing of the complaint, until full payment, and attorney's fees in the sum of P20,000.00, with
costs of suit.

The complaint as against defendant National Galleon Shipping Corporation and the counterclaim interposed
by said defendant are hereby dismissed. (Rollo, p. 32).

In resolving the issue as to who had custody of the shipment when it was lost, the trial court relied more on
the good-order cargo receipts issued by NGSC than on the short-landed certificate issued by private
respondent. The trial court held:

As between the aforementioned two documentary exhibits, the Court is more inclined to give credence to the
cargo receipts. Said cargo receipts were signed by a checker of defendant NGSC and a representative of Metro
Port. It is safe to presume that the cargo receipts accurately describe the quantity and condition of the
shipment when it was discharged from the vessel. Metro Port's representative would not have signed the
cargo receipts if only four (4) packages were discharged from the vessel and given to the possession and
custody of the arrastre operator. Having been signed by its representative, the Metro Port is bound by the
contents of the cargo receipts.

On the other hand, the Metro Port's shortlanded certificate could not be given much weight considering that,
as correctly argued by counsel for defendant NGSC, it was issued by Metro Port alone and was not
countersigned by the representatives of the shipping company and the consignee. Besides, the certificate was
prepared by Atty. Servillano V. Dolina, Second Deputy General Manager of Metro Port, and there is no proof
on record that he was present at the time the subject shipment was unloaded from the vessel and received by
the arrastre operator. Moreover, the shortlanded certificate bears the date of March 15, 1982, more than
three months after the discharge of the cargo from the carrying vessel.

Neither could the Court give probative value to the marine report (Exhibit "J", also Exhibit "l"-Razon). The
attending surveyor who attended the unloading of the shipment did not take the witness stand to testify on
said report. Although Transnational Adjustment Co.'s general manager, Mariano C. Remorin, was presented as
a witness, his testimony is not competent because he was not present at the time of the discharge of the
cargo.

Under the foregoing considerations, the Court finds that the one (1) bundle of PC8U blade in question was not
lost while the cargo was in the custody of the carrying vessel. Considering that the missing bundle was
discharged from the vessel unto the custody of defendant arrastre operator and considering further that the
consignee did not receive this cargo from the arrastre operator, it is safe to conclude from these facts that said
missing cargo was lost while same was in the possession and control of defendant Metro Port. Defendant
Metro Port has not introduced competent evidence to prove that the loss was not due to its fault or
negligence. Consequently, only the Metro Port must answer for the value of the missing cargo. Defendant
NGSC is absolved of any liability for such loss.

On appeal, the Court of Appeals modified the decision of the trial court and reduced private respondent's
liability to P3,500.00 as follows3:

WHEREFORE, the judgment appealed from is MODIFIED in that defendant Metro Port Service, Inc., is ordered
to pay plaintiff Summa Insurance Corporation:

(1) the sum of P3,500.00, with legal interest from November 22, 1982, until fully paid; and

(2) the sum of P7,000.00, as and for attorney's fees.

Costs against defendant Metro Port Service, Inc.

Petitioner moved for reconsideration of the said decision but the Court of Appeals denied the same. Hence,
the instant petition.

The Issues

The issues brought by the parties could be stated as follows:

(1) Is the private respondent legally liable for the loss of the shipment in question?

(2) If so, what is the extent of its liability?

The First Issue: Liability for Loss of Shipment

Petitioner was subrogated to the rights of the consignee. The relationship therefore between the consignee
and the arrastre operator must be examined. This relationship is much akin to that existing between the
consignee or owner of shipped goods and the common carrier, or that between a depositor and a
warehouseman4. In the performance of its obligations, an arrastre operator should observe the same degree
of diligence as that required of a common carrier and a warehouseman as enunciated under Article 1733 of
the Civil Code and Section 3(8) of the Warehouse Receipts Law, respectively. Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over
to the party entitled to their possession.

In this case, it has been established that the shipment was lost while in the custody of private respondent. We
find private respondent liable for the loss. This is an issue of fact determined by the trial court and respondent
Court, which is not reviewable in a petition under Rule 45 of the Rules of Court.

The Second Issue: Extent of Liability

In the performance of its job, an arrastre operator is bound by the management contract it had executed with
the Bureau of Customs. However, a management contract, which is a sort of a stipulation pour autrui within
the meaning of Article 1311 of the Civil Code, is also binding on a consignee because it is incorporated in the
gate pass and delivery receipt which must be presented by the consignee before delivery can be effected
to5 .The insurer, as successor-in-interest of the consignee, is likewise bound by the management contract6.
Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in-interest) tacitly accepts
the provisions of the management contract, including those which are intended to limit the liability of one of
the contracting parties, the arrastre operator.7

However, a consignee who does not avail of the services of the arrastre operator is not bound by the
management contract8. Such an exception to the rule does not obtain here as the consignee did in fact accept
delivery of the cargo from the arrastre operator.

Section 1, Article VI of the Management Contract between private respondent and the Bureau of
Customs9provides:
1. Responsibility and Liability for Losses and Damages The CONTRACTOR shall, at its own expense handle all
merchandise in the piers and other designated places and at its own expense perform all work undertaken by
it hereunder diligently and in a skillful workmanlike and efficient manner; that the CONTRACTOR shall be
solely responsible as an independent CONTRACTOR, and hereby agrees to accept liability and to promptly
pay to the steamship company, consignee, consignor or other interested party or parties for the loss, damage,
or non-delivery of cargoes to the extent of the actual invoice value of each package which in no case shall be
more than Three Thousand Five Hundred Pesos (P3,500.00) for each package unless the value of the
importation is otherwise specified or manifested or communicated in writing together with the invoice value
and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the
discharge of the goods, as well as all damage that may be suffered on account of loss, damage, or destruction
of any merchandise while in custody or under the control of the CONTRACTOR in any pier, shed, warehouse,
facility or other designated place under the supervision of the BUREAU, . . . (Emphasis supplied).

Interpreting a similar provision in the management contract between private respondent's predecessor, E.
Razon, Inc. and the Bureau of Customs, the Court said in E. Razon Inc. vs. Court of Appeals 10:

Indeed, the provision in the management contract regarding the declaration of the actual invoice value
"before the arrival of the goods" must be understood to mean a declaration before the arrival of the goods in
the custody of the arrastre operator, whether it be done long before the landing of the shipment at port, or
immediately before turn-over thereof to the arrastre operator's custody. What is essential is knowledge
beforehand of the extent of the risk to be undertaken by the arrastre operator, as determined by the value of
the property committed to its care that it may define its responsibility for loss or damage to such cargo and to
ascertain compensation commensurate to such risk assumed . . . .

In the same case, the Court added that the advance notice of the actual invoice of the goods entrusted to the
arrastre operator is "for the purpose of determining its liability, that it may obtain compensation
commensurable to the risk it assumes, (and) not for the purpose of determining the degree of care or
diligence it must exercise as a depository or warehouseman" 11 since the arrastre operator should not
discriminate between cargoes of substantial and small values, nor exercise care and caution only for the
handling of goods announced to it beforehand to be of sizeable value, for that would be spurning the public
service nature of its business.

On the same provision limiting the arrastre operator's liability, the Court held in Northern Motors,
Inc. v. Prince Line12:

Appellant claims that the above quoted provision is null and void, as it limits the liability of appellee for the
loss, destruction or damage of any merchandise, to P500.00 per package, contending that to sustain the
validity of the limitation would be to encourage acts of conversion and unjust enrichment on the part of the
arrastre operator. Appellant, however, overlooks the fact that the limitation of appellee's liability under said
provision, is not absolute or unqualified, for if the value of the merchandise is specified or manifested by the
consignee, and the corresponding arrastre charges are paid on the basis of the declared value, the limitation
does not apply. Consequently, the questioned provision is neither unfair nor abitrary, as contended, because
the consignee has it in his hands to hold, if he so wishes, the arrastre operator responsible for the full value of
his merchandise by merely specifying it in any of the various documents required of him, in clearing the
merchandise from the customs. For then, the appellee arrastre operator, by reasons of the payment to it of a
commensurate charge based on the higher declared value of the merchandise, could and should take
extraordinary care of the special or valuable cargo. In this manner, there would be mutuality. What would,
indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after
the consignee has paid the arrastre charges only (on) a basis much lower than the true value of the goods.

In this case, no evidence was offered by petitioner proving the amount of arrastre fees paid to private
respondent so as to put the latter on notice of the value of the cargo. While petitioner alleged that prior to the
loss of the package, its value had been relayed to private respondent through the documents the latter had
processed, petitioner does not categorically state that among the submitted documents were the pro forma
invoice value and the certified packing list. Neither does petitioner pretend that these two documents were
prerequisites to the issuance of a permit to deliver or were attachments thereto. Even the permit to deliver,
upon which petitioner anchors its arguments, may not be considered by the Court because it was not
identified and formally offered in evidence 13.
In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on either side.
Said party must establish his case by a preponderance of evidence, which means that the evidence as a whole
adduced by one side is superior to that of the other 14. Petitioner having asserted the affirmative of the issue
in this case, it should have presented evidence required to obtain a favorable judgment.

On the other hand, on top of its denial that it had received the invoice value and the packing list before the
discharge of the shipment, private respondent was able to prove that it was apprised of the value of the cargo
only after its discharge from the vessel, ironically through petitioner's claim for the lost package to which were
attached the invoice and packing list. All told, petitioner failed to convince the Court that the requirement of
the management contract had been complied with to entitle it to recover the actual invoice value of the lost
shipment.

Anent the attorney 's fees, we find the award to be proper considering that the acts and omissions of private
respondent have compelled petitioner to litigate or incur expenses to protect its rights 15. However, as to the
amount of the award, we find no reason to re-examine the appellate court's determination thereon in view of
the amount of the principal obligation. Otherwise, we would be disregarding the doctrine that discretion,
when well exercised, should not be disturbed.

WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 165647 March 26, 2009

PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,

vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S
"OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS COMPANY," Respondents.

DECISION

TINGA, J.:

Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the Court of
Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision4 of the Regional Trial Court (RTC) of
Manila, Branch 55 in Civil Case No. 96-80298, dismissing the complaint for sum of money.

The facts of the case follow.5

On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore
Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. (shipment), complete
and in good order for transportation to and delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of Lading reflects the gross weight of the
total cargo at 500,200 kilograms.6 The Owner and/or Charterer of M/V Offshore Master is unknown while the
shipper of the shipment is Shanghai Fareast Ship Business Company. Both are foreign firms doing business in
the Philippines, thru its local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem). 7

On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S Offshore
Master from which it was subsequently discharged. It was disclosed during the discharge of the shipment from
the carrier that 2,426 poly bags (bags) were in bad order and condition, having sustained various degrees of
spillages and losses. This is evidenced by the Turn Over Survey of Bad Order Cargoes (turn-over survey) of the
arrastre operator, Asian Terminals, Inc. (arrastre operator).8 The bad state of the bags is also evinced by the
arrastre operator’s Request for Bad Order Survey.9

Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the consignee’s
warehouse in Quezon City,10 while the final inspection was conducted jointly by the consignee’s
representative and the cargo surveyor. During the unloading, it was found and noted that the bags had been
discharged in damaged and bad order condition. Upon inspection, it was discovered that 63,065.00 kilograms
of the shipment had sustained unrecovered spillages, while 58,235.00 kilograms had been exposed and
contaminated, resulting in losses due to depreciation and downgrading.11

On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged shipment, to
no avail. Since the shipment was insured with petitioner Philippines First Insurance Co., Inc. against all risks in
the amount of P2,470,213.50,12 the consignee filed a formal claim13 with petitioner for the damage and losses
sustained by the shipment. After evaluating the invoices, the turn-over survey, the bad order certificate and
other documents,14 petitioner found the claim to be in order and compensable under the marine insurance
policy. Consequently, petitioner paid the consignee the sum of P397,879.69 and the latter signed a
subrogation receipt.

Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery of the
amount paid by petitioner to the consignee. However, despite receipt of the letter, Wallem did not settle nor
even send a response to petitioner’s claim.15

Consequently, petitioner instituted an action before the RTC for damages against respondents for the
recovery ofP397,879.69 representing the actual damages suffered by petitioner plus legal interest thereon
computed from the time of the filing of the complaint until fully paid and attorney’s fees equivalent to 25% of
the principal claim plus costs of suit.

In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner P397,879.69 with 6%
interest plus attorney’s fees and costs of the suit. It attributed the damage and losses sustained by the
shipment to the arrastre operator’s mishandling in the discharge of the shipment. Citing Eastern Shipping
Lines, Inc. v. Court of Appeals,17 the RTC held the shipping company and the arrastre operator solidarily liable
since both the arrastre operator and the carrier are charged with and obligated to deliver the goods in good
order condition to the consignee. It also ruled that the ship functioned as a common carrier and was obliged
to observe the degree of care required of a common carrier in handling cargoes. Further, it held that a notice
of loss or damage in writing is not required in this case because said goods already underwent a joint
inspection or survey at the time of receipt thereof by the consignee, which dispensed with the notice
requirement.

The Court of Appeals reversed and set aside the RTC’s decision.18 According to the appellate court, there is no
solidary liability between the carrier and the arrastre operator because it was clearly established by the
court a quo that the damage and losses of the shipment were attributed to the mishandling by the arrastre
operator in the discharge of the shipment. The appellate court ruled that the instant case falls under an
exception recognized inEastern

Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.

Petitioner raises the following issues:

1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the carrier’s duties
extend to the obligation to safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of the damaged shipment;

3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner for the cost of the
lost/damaged shipment is an implied admission of the former’s liability for said goods;

4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.

It is beyond question that respondent’s vessel is a common carrier.20 Thus, the standards for determining the
existence or absence of the respondent’s liability will be gauged on the degree of diligence required of a
common carrier. Moreover, as the shipment was an exercise of international trade, the provisions of the
Carriage of Goods

by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22

The first and second issues raised in the petition will be resolved concurrently since they are interrelated.

It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The damage to
the shipment was documented by the turn-over survey23 and Request for Bad Order Survey.24 The turn-over
survey, in particular, expressly stipulates that 2,426 bags of the shipment were received by the arrastre
operator in damaged condition. With these documents, petitioner insists that the shipment incurred damage
or losses while still in the care and responsibility of Wallem and before it was turned over and delivered to the
arrastre operator.

The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo surveyor of
Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to the cargo were caused by the
mishandling of the arrastre operator. Specifically, that the torn cargo bags resulted from the use of steel
hooks/spikes in piling the cargo bags to the pallet board and in pushing the bags by the stevedores of the
arrastre operator to the tug boats then to the ports.25 The appellate court affirmed the finding of mishandling
in the discharge of cargo and it served as its basis for exculpating respondents from liability, rationalizing that
with the fault of the arrastre operator in the unloading of the cargo established it should bear sole liability for
the cost of the damaged/lost cargo.

While it is established that damage or losses were incurred by the shipment during the unloading, it is
disputed who should be liable for the damage incurred at that point of transport. To address this issue, the
pertinent laws and jurisprudence are examined.

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them.26 Subject to certain exceptions
enumerated under Article 173427 of the Civil Code, common carriers are responsible for the loss, destruction,
or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right
to receive them.28

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo
from the time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he
delivers it on the shore or on the discharging wharf at the port of unloading, unless agreed otherwise.
In Standard Oil Co. of New York v. Lopez Castelo,29 the Court interpreted the ship captain’s liability as
ultimately that of the shipowner by regarding the captain as the representative of the ship owner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in
relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be
subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the
Act.30 Section 3 (2) thereof then states that among the carriers’ responsibilities are to properly and carefully
load, handle, stow, carry, keep, care for, and discharge the goods carried.

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper Shanghai
Fareast Business Co., and the consignee, to wit:

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time when the goods
are loaded on board the vessel and shall cease when they are discharged from the vessel.

The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging from the
vessel, howsoever such loss or damage arises.31

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf
or between the establishment of the consignee or shipper and the ship's tackle. 32 Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them
over to the party entitled to their possession.33

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and damage to shipments under its
custody.34

In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the relationship and
responsibility of an arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that
are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves
upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee.(Emphasis supplied) (Citations omitted)

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of Appeals36 with
the clarification that the arrastre operator and the carrier are not always and necessarily solidarily liable as the
facts of a case may vary the rule.

Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may
not be held solidarily liable at all times. But the precise question is which entity had custody of the shipment
during its unloading from the vessel?

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

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that like the duty
of seaworthiness, the duty of care of the cargo is non-delegable,38 and the carrier is accordingly responsible
for the acts of the master, the crew, the stevedore, and his other agents. It has also been held that it is
ordinarily the duty of the master of a vessel to unload the cargo and place it in readiness for delivery to the
consignee, and there is an implied obligation that this shall be accomplished with sound machinery,
competent hands, and in such manner that no unnecessary injury shall be done thereto.39 And the fact that a
consignee is required to furnish persons to assist in unloading a shipment may not relieve the carrier of its
duty as to such unloading.40

The exercise of the carrier’s custody and responsibility over the subject shipment during the unloading actually
transpired in the instant case during the unloading of the shipment as testified by Mr. Talens, the cargo
surveyor, to quote:

Atty. Repol:

- Do you agree with me that Wallem Philippines is a shipping [company]?

A Yes, sir.

Q And, who hired the services of the stevedores?

A The checker of the vessel of Wallem, sir.41

xxx

Q Mr. Witness, during the discharging operation of this cargo, where was the master of the vessel?

A On board the vessel, supervising, sir.

Q And, observed the discharging operation?

A Yes, sir.

Q And, what did the master of the vessel do when the cargo was being unloaded from the vessel?

A He would report to the head checker, sir.

Q He did not send the stevedores to what manner in the discharging of the cargo from the vessel?

A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir. 42

xxx

Q Is he [the head checker] an employee of the company?

A He is a contractor/checker of Wallem Philippines, sir.43

Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order Inspection, to wit:

"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo to [the]
pallet board at the vessel’s cargo holds and at the pier designated area before and after discharged that cause
the bags to torn [sic]."44 (Emphasis supplied)

The records are replete with evidence which show that the damage to the bags happened before and after
their discharge45 and it was caused by the stevedores of the arrastre operator who were then under the
supervision of Wallem.1awphi1.net

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the
custody of the carrier. In the instant case, the damage or losses were incurred during the discharge of the
shipment while under the supervision of the carrier. Consequently, the carrier is liable for the damage or
losses caused to the shipment. As the cost of the actual damage to the subject shipment has long been
settled, the trial court’s finding of actual damages in the amount of P397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of witnesses is
well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to the
highest respect because it is more competent to so conclude, having had the opportunity to observe the
witnesses' demeanor and deportment on the stand, and the manner in which they gave their testimonies. The
trial judge therefore can better determine if such witnesses were telling the truth, being in the ideal position
to weigh conflicting testimonies. Therefore, unless the trial judge plainly overlooked certain facts of substance
and value which, if considered, might affect the result of the case, his assessment on credibility must be
respected.46

Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter does not
constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter containing the statements that he wishes to prove.
He does not make the letter evidence by sending it to the party against whom he wishes to prove the facts
[stated therein]. He no more can impose a duty to answer a charge than he can impose a duty to pay by
sending goods. Therefore a failure to answer such adverse assertions in the absence of further circumstances
making an answer requisite or natural has no effect as an admission.47

With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this matter to protect
its interest. The RTC’s award of P20,000.00 as attorney’s fees is reasonable.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004 and its
Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner the sum
of P397,879.69, with interest thereon at 6% per annum from the filing of the complaint on 7 October 1996
until the judgment becomes final and executory. Thereafter, an interest rate of 12% per annum shall be
imposed.48Respondents are also ordered to pay petitioner the amount of P20,000.00 for and as attorney’s
fees, together with the costs of the suit.

SO ORDERED.

DANTE O. TINGA
Acting Chairperson
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 125524 August 25, 1999

BENITO MACAM doing business under the name and style BEN-MAC ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES SHIPPING,
INC.,respondents.

BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac Enterprises,
shipped on board the vessel Nen Jiang, owned and operated by respondent China Ocean Shipping Co.,
through local agent respondent Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of
watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG 99012 and exported through Letter of
Credit No. HK 1031/30 issued by National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611
boxes of fresh mangoes with a value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported
through Letter of Credit No. HK 1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the
following pertinent provision: "One of the Bills of Lading must be surrendered duly endorsed in exchange for
the goods or delivery order.1 The shipment was bound for Hongkong with PAKISTAN BANK as consignee and
Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.

On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were
submitted to petitioner's depository bank, Consolidated Banking Corporation (hereinafter SOLIDBANK), which
paid petitioner in advance the total value of the shipment of US$20,223.46.1âwphi1.nêt

Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to
PAKISTAN BANK, and without the required bill of lading having been surrendered. Subsequently, GPC failed to
pay PAKISTAN BANK such that the latter, still in possession of the original bills of lading, refused to pay
petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid petitioner the value of the shipment, it
demanded payment from respondent WALLEM through five (5) letters but was refused. Petitioner was thus
allegedly constrained to return the amount involved to SOLIDBANK, then demanded payment from
respondent WALLEM in writing but to no avail.

On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or its
equivalent of P546,033.42 from respondents before the Regional Trial Court of Manila, based on delivery of
the shipment to GPC without presentation of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the bills of lading
and bank guarantee per request of petitioner himself because the shipment consisted of perishable goods.
The telex dated 5 April 1989 conveying such request read —

AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE CNEES WITHOUT
PRESENTATION OF OB/L2 and bank guarantee since for prepaid shipt ofrt charges already fully paid our end . . .
.3

Respondents explained that it is a standard maritime practice, when immediate delivery is of the essence, for
the shipper to request or instruct the carrier to deliver the goods to the buyer upon arrival at the port of
destination without requiring presentation of the bill of lading as that usually takes time. As proof thereof,
respondents apprised the trial court that for the duration of their two-year business relationship with
petitioner concerning similar shipments to GPC deliveries were effected without presentation of the bills of
lading.4 Respondents advanced next that the refusal of PAKISTAN BANK to pay the letters of credit to
SOLIDBANK was due to the latter's failure to submit a Certificate of Quantity and Quality. Respondents
counterclaimed for attorney's fees and costs of suit.

On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following amounts: (1)
P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as attorney's fees; and, (3)
the costs. The counterclaims were dismissed for lack of merit.5 The trial court opined that respondents
breached the provision in the bill of lading requiring that "one of the Bills of Lading must be surrendered duly
endorsed in exchange for the goods or delivery order," when they released the shipment to GPC without
presentation of the bills of lading and the bank guarantee that should have been issued by PAKISTAN BANK in
lieu of the bills of lading. The trial court added that the shipment should not have been released to GPC at all
since the instruction contained in the telex was to arrange delivery to the respective consignees and not to
any party. The trial court observed that the only role of GPC in the transaction as notify party was precisely to
be notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.

Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as established
by previous similar transactions between the parties, shipped cargoes were sometimes actually delivered not
to the consignee but to notify party GPC without need of the bills of lading or bank guarantee.6 Moreover, the
bills of lading were viewed by respondent court to have been properly superseded by the telex instruction and
to implement the instruction, the delivery of the shipment must be to GPC, the real importer/buyer of the
goods as shown by the export invoices,7 and not to PAKISTAN BANK since the latter could very well present
the bills of lading in its possession; likewise, if it were the PAKISTAN BANK to which the cargoes were to be
strictly delivered it would no longer be proper to require a bank guarantee. Respondent court noted that
besides, GPC was listed as a consignee in the telex. It observed further that the demand letter of petitioner to
respondents never complained of misdelivery of goods. Lastly, respondent court found that petitioner's claim
of having reimbursed the amount involved to SOLIDBANK was unsubstantiated. Thus, on 13 March 1996
respondent court set aside the decision of the trial court and dismissed the complaint together with the
counterclaims.8 On 5 July 1996 reconsideration was denied.9

Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the bill of
lading or to a party designated or named by the consignee constitutes a misdelivery thereof. Moreover,
petitioner argues that from the text of the telex, assuming there was such an instruction, the delivery of the
shipment without the required bill of lading or bank guarantee should be made only to the designated
consignee, referring to PAKISTAN BANK.

We are not persuaded. The submission of petitioner that "the fact that the shipment was not delivered to the
consignee as stated in the Bill of Lading or to a party designated or named by the consignee constitutes a
misdelivery thereof" is a deviation from his cause of action before the trial court. It is clear from the allegation
in his complaint that it does not deal with misdelivery of the cargoes but of delivery to GPC without the
required bills of lading and bank guarantee —

6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the buyer/notify
party, Great Prospect Company and not to the consignee, the National Bank of Pakistan, Hongkong, without
the required bills of lading and bank guarantee for the release of the shipment issued by the consignee of the
goods . . . .10
Even going back to an event that transpired prior to the filing of the present case or when petitioner wrote
respondent WALLEM demanding payment of the value of the cargoes, misdelivery of the cargoes did not
come into the picture —

We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of Lading No.
99012 and 99013 with a total value of US$20,223.46 were released to Great Prospect, Hongkong without the
necessary bank guarantee. We were further informed that the consignee of the goods, National Bank of
Pakistan, Hongkong, did not release or endorse the original bills of lading. As a result thereof, neither the
consignee, National Bank of Pakistan, Hongkong, nor the importer, Great Prospect Company, Hongkong, paid
our client for the goods . . . .11

At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion on the imputed
liability of respondents concerning the shipped goods. Article 1736 of the Civil Code provides —

Art. 1736. The extraordinary responsibility of the common carriers 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 a right to
receive them, without prejudice to the provisions of article 1738.12

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or constructive
delivery of the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK was
indicated in the bills of lading as consignee whereas GPC was the notify party. However, in the export invoices
GPC was clearly named as buyer/importer. Petitioner also referred to GPC as such in his demand letter to
respondent WALLEM and in his complaint before the trial court. This premise draws us to conclude that the
delivery of the cargoes to GPC as buyer/importer which, conformably with Art. 1736 had, other than the
consignee, the right to receive them14 was proper.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without the bills
of lading or bank guarantee.

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to GPC
without the bills of lading and bank guarantee. The telex instructed delivery of various shipments to the
respective consignees without need of presenting the bill of lading and bank guarantee per the respective
shipper's request since "for prepaid shipt ofrt charges already fully paid." Petitioner was named therein as
shipper and GPC as consignee with respect to Bill of Lading Nos. HKG 99012 and HKG 99013. Petitioner
disputes the existence of such instruction and claims that this evidence is self-serving.

From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for
around two (2) or three (3) years already. When mangoes and watermelons are in season, his shipment to GPC
using the facilities of respondents is twice or thrice a week. The goods are released to GPC. It has been the
practice of petitioner to request the shipping lines to immediately release perishable cargoes such as
watermelons and fresh mangoes through telephone calls by himself or his "people." In transactions covered
by a letter of credit, bank guarantee is normally required by the shipping lines prior to releasing the goods. But
for buyers using telegraphic transfers, petitioner dispenses with the bank guarantee because the goods are
already fully paid. In his several years of business relationship with GPC and respondents, there was not a
single instance when the bill of lading was first presented before the release of the cargoes. He admitted the
existence of the telex of 3 July 1989 containing his request to deliver the shipment to the consignee without
presentation of the bill of lading15 but not the telex of 5 April 1989 because he could not remember having
made such request.

Consider pertinent portions of petitioner's testimony —

Q: Are you aware of any document which would indicate or show that your request to the defendant Wallem
for the immediate release of your fresh fruits, perishable goods, to Great Prospect without the presentation of
the original Bill of Lading?

A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested immediate release of the
cargo because there was immediate payment.
Q: And you are referring, therefore, to this copy Telex release that you mentioned where your Company's
name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading referring to SKG (sic)
93023 and 93026 with Great Prospect Company.

Atty. Ventura:

Q: Is that the telegraphic transfer?

A: Yes, actually, all the shippers partially request for the immediate release of the goods when they are
perishable. I thought Wallem Shipping Lines is not neophyte in the business. As far as LC is concerned, Bank
guarantee is needed for the immediate release of the goods . . . .15

Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable goods to ask the shipping
lines to release immediately the shipment. Is that correct?

A: Yes, sir.

Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable goods to the
importer of goods without a Bill of Lading or Bank guarantee?

A: No, it cannot be without the Bank Guarantee.

Atty. Hernandez:

Q: Can you tell us an instance when you will allow the release of the perishable goods by the shipping lines to
the importer without the Bank guarantee and without the Bill of Lading?

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic transfer is?

A: Telegraphic transfer, it means advance payment that I am already fully paid . . . .

Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall that any of
your shipment was released to Great Prospect by Wallem through telegraphic transfer?

A: I could not recall but there were so many instances sir.

Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods through Wallem,
you requested Wallem to release immediately your perishable goods to the buyer?

A: Yes, that is the request of the shippers of the perishable goods . . . . 16

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately even without
the presentation of OBL, how do you course it?

A: Usually, I call up the Shipping Lines, sir . . . .17

Q: You also testified you made this request through phone calls. Who of you talked whenever you made such
phone call?

A: Mostly I let my people to call, sir. (sic)

Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . .18

Against petitioner's claim of "not remembering" having made a request for delivery of subject cargoes to GPC
without presentation of the bills of lading and bank guarantee as reflected in the telex of 5 April 1989 are
damaging disclosures in his testimony. He declared that it was his practice to ask the shipping lines to
immediately release shipment of perishable goods through telephone calls by himself or his "people." He no
longer required presentation of a bill of lading nor of a bank guarantee as a condition to releasing the goods in
case he was already fully paid. Thus, taking into account that subject shipment consisted of perishable goods
and SOLIDBANK pre-paid the full amount of the value thereof, it is not hard to believe the claim of respondent
WALLEM that petitioner indeed requested the release of the goods to GPC without presentation of the bills of
lading and bank guarantee.

The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective consignees." And so
petitioner argues that, assuming there was such an instruction, the consignee referred to was PAKISTAN
BANK. We find the argument too simplistic. Respondent court analyzed the telex in its entirety and correctly
arrived at the conclusion that the consignee referred to was not PAKISTAN BANK but GPC —

There is no mistake that the originals of the two (2) subject Bills of Lading are still in the possession of the
Pakistani Bank. The appealed decision affirms this fact. Conformably, to implement the said telex instruction,
the delivery of the shipment must be to GPC, the notify party or real importer/buyer of the goods and not the
Pakistani Bank since the latter can very well present the original Bills of Lading in its possession. Likewise, if it
were the Pakistani Bank to whom the cargoes were to be strictly delivered, it will no longer be proper to
require a bank guarantee as a substitute for the Bill of Lading. To construe otherwise will render meaningless
the telex instruction. After all, the cargoes consist of perishable fresh fruits and immediate delivery thereof to
the buyer/importer is essentially a factor to reckon with. Besides, GPC is listed as one among the several
consignees in the telex (Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M shipment
(not any party) to respective consignees without presentation of OB/L and bank guarantee . . . .20

Apart from the foregoing obstacles to the success of petitioner's cause, petitioner failed to substantiate his
claim that he returned to SOLIDBANK the full amount of the value of the cargoes. It is not far-fetched to
entertain the notion, as did respondent court, that he merely accommodated SOLIDBANK in order to recover
the cost of the shipped cargoes from respondents. We note that it was SOLIDBANK which initially demanded
payment from respondents through five (5) letters. SOLIDBANK must have realized the absence of privity of
contract between itself and respondents. That is why petitioner conveniently took the cudgels for the bank.

In view of petitioner's utter failure to establish the liability of respondents over the cargoes, no reversible
error was committed by respondent court in ruling against him.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March 1996 dismissing
the complaint of petitioner Benito Macam and the counterclaims of respondents China Ocean Shipping Co.
and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is
AFFIRMED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,

vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila,
finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue
raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading
covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1)
crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant
NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the
aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order
and condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by,
the consignee at the port of destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee,
filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against
the former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants
brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff
by enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only
the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which
should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only
proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the
goods; and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a
contract, it is the law between the parties thereto 3 who are bound by its terms and conditions 4 provided that
these are not contrary to law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was
received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight
had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the carrier
undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-
Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of
discharge of goods The stipulation is plainly indicated on the face of the bill which contains the following phrase
printed below the space provided for the port of discharge from ship", thus: têñ.£îhqwâ£

if goods are to be transshipped at port of discharge, show destination under the column for "description of
contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents": têñ.£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the
custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations
contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the
goods from Manila to their port of destination-Davao. The word "transship" means: têñ.£îhqwâ£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are
spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods
enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ...
(Emphasis supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqwâ£

Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's
disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may,
without notice, forward the whole or any part of the goods before or after loading at the original port of shipment,
... This carrier, in making arrangements for any transshipping or forwarding vessels or means of transportation not
operated by this carrier shall be considered solely the forwarding agent of the shipper and without any other
responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper
and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts,
neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling or any
service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the
same in full and good condition unto the custody of AMCYL at the port of discharge from ship — Manila, and
therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo
had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability
for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy
not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading
concerned. As if to underline their awesome likeness, the goods in question in both cases were destined for Davao,
but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject
stipulations before Us, provides: têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are
not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection with all transshipping or
forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by
the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility
whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We
sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the
Court concluded that: têñ.£îhqwâ£

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but
that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the
long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were
unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the shipper and
consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in
conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third
paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from
liability for loss or damage to the goods while the same are not in the latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign
country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code,
the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV)
directs our attention to Article 1736 thereof, which reads: têñ.£îhqwâ£

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the 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.
Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the
goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of
the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of
them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation
where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The
subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a
third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said
article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive
delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales,
actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of
corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative
for the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport
of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable
time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee
through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared
embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from
Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is
the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that
of agent of the consignee. Thus, the character of appellant's possession also changes, from possession in its own
name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in
effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon
such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall
the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It
is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However,
appellant had commenced said performance, the completion of which was aborted by circumstances beyond its
control. An agent who carries out the orders and instructions of the principal without being guilty of negligence,
deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the
agency, 21 This can be gleaned from the following provisions of the New Civil Code on the obligations of the
agent: têñ.£îhqwâ£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the
principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall
be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the person appointed was notoriously
incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or
less rigor by the courts, according to whether the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the
Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which
acted as appellant's substitute in storing the goods awaiting transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful
stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common
carriers, agency and contracts, they incur no liability for the loss of the goods in question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED.

No costs.

SO ORDERED.