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. 8Common 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.

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
for certiorari 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
was top-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. 13 And
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.

Padilla, J., is on leave.

G.R. No. 168402 August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

DECISION

REYES, R.T., J.:

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee,
the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the
wrongdoer who caused the damage.

Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which reversed the
Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum
of P280,176.92 plus interest and attorney's fees in favor of respondent Insurance Company of North America (ICNA).

The Facts

Culled from the records, the facts are as follows:

On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured
a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP),
Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:

This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon,
does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the
title holder: - Loss, if any, payable to the Assured or order.5

The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S
Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.

The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993,
the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On
July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized
booking representative, Aboitiz Transport System. The bill of lading 7 issued by Aboitiz contained the notation "grounded
outside warehouse."

The container van was stripped and transferred to another crate/container van without any notation on the condition of the
cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded on board petitioner's vessel,
MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International
Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report9 dated August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at
the bottom.

On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement
Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr.
Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig
informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded
warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the
container van and other cargoes stuffed there were completely dry and showed no sign of wetness. 10

Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely
dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He
further explained that the "grounded outside warehouse" notation in the bill of lading referred only to the container van
bearing the cargo.11

In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. 12 The letter
stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches
were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate
was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all
the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of
the crate.

The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen
Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the
goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee.13

On September 21, 1993, the consignee filed a formal claim 14 with Aboitiz in the amount of P276,540.00 for the damaged
condition of the following goods:

ten (10) wooden workbenches

three (3) carbide-tipped saw blades

one (1) set of ball-bearing guides

one (1) set of overarm router bits

twenty (20) rolls of sandpaper for stroke sander

In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official weather report from the
Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July
28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse
of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the
warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation "grounded outside
warehouse." It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to
Cebu.

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A
subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt
executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.

RTC Disposition

ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and
attorney's fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by
the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.

Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint
stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the
suit was premature there being no claim made upon Aboitiz.

On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision 17 states:

WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the
complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendant's
counterclaims are, likewise, DISMISSED for lack of basis.18

The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial
court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime
Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its
predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it
had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for
being hearsay evidence. The RTC reasoned:

While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.)
Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been
adduced which would show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance
Company of North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts.,
Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to ICNA. Second, the assured
in the Marine Policy appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's
witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or
took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement
of the marine policy has no probative value as it is hearsay.

Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement
Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching
Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the
Subrogation Form is self-serving and has no probative value.19 (Emphasis supplied)

The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do
business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:

Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly
authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in
the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has
legal capacity to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must
obtain licenses/authority to do business in the Philippines. These licenses/authority are obtained from the
Securities and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to
obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot sue before
Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)

CA Disposition

ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the
right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as
made known in the dorsal portion of the Open Policy.20

On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed
within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the
representative of the consignee.

On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the
Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new
judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-
appellant Insurance Company of North America the sum of P280,176.92 with interest thereon at the legal rate
from the date of the institution of this case until fully paid, and attorney's fees in the sum of P50,000, plus the
costs of suit.21

The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:

At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming
arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar
it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance
and as recognized by Philippine courts. x x x
 xxxx

Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as
subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to bring
this suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in
Cebu City. x x x22

The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.

Issues

The following issues are up for Our consideration:

(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA
HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT
WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF
STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF
COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.

(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS
AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").

(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE
WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS
CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE
SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT
THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR
FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE
SAME.

(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR
NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest
that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the
notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim
for damages?

Our Ruling

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a
suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be
necessary before it can institute suits.24 It may, however, bring suits on isolated business transactions, which is not
prohibited under Philippine law.25 Thus, this Court has held that a foreign insurance company may sue in Philippine courts
upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine
carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed
license, and not the lack of license per se, which bars a foreign corporation from access to our courts.26

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy,
the present suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought
the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA
office in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS,
the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the
company who issued the insurance, or against any of its listed agents worldwide.27 MSAS accepted said provision when it
signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a
formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the
insurer.

Likewise, the Open Policy expressly provides that:

The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon,
does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title
holder: - Loss, if any, payable to the Assured or Order.

The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the
assured. This is in keeping with Section 57 of the Insurance Code which states:

A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may
become the owner of the interest insured. (Emphasis added)

Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged
shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:

Article 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. (Emphasis added)

As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the insurer to the
assured operates as an equitable assignment of all remedies the assured may have against the third party who caused
the damage. 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. 29

Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation
equipped it with a cause of action against petitioner in case of a contractual breach or negligence. 30 This right of
subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual
stipulations under the bill of lading.31 Second, the insurer can be subrogated only to the rights as the insured may have
against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer
who caused the loss from liability, the insurer loses its claim against the latter.32

The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to
enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement
was complied with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this
notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim while the matter
is still fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if
the damage is not apparent from the outside of the package. For damages that are visible from the outside of the
package, the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for
damages or average which may be found therein upon opening the packages, may be made, provided that the
indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the time of receipt.
 After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis
supplied)

The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the
contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim
under the bill of lading issued by petitioner for the goods.

The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated
August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But
petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company,
was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the
delivery site to inspect the goods in behalf of petitioner.34

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the notice was
allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a
notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was
timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the carrier.

As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the
PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.

Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier
must be given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and
their application is limited to cases falling fairly within their object and purpose. 36

Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered
goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez.
Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already
corroded.

Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and
practical, rather than a strict construction.37 We give due consideration to the fact that the final destination of the damaged
cargo was a school institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be made before the package was
opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through
the proper channels before it could be finalized and endorsed by the institution to the claims department of the shipping
company.

The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have
corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was
able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed
time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.

To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the
claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.

We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in Article 1735 of
the Civil Code is that in cases where 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 required by law.38 Extraordinary diligence is that extreme measure of care and caution which persons of
unusual prudence and circumspection use for securing and preserving their own property rights.39 This standard is
intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been entrusted to
the latter for shipment.40

Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that
petitioner failed to overturn this presumption:

x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from
Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage
 due to "wettage" although by then they were already physically dry. Appellee carrier having failed to discharge the
burden of proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for
carriage, the presumption of fault or negligence on its part from the time the goods were unconditionally placed in
its possession (July 26, 1993) up to the time the same were delivered to the consignee (August 11, 1993),
therefore stands. The presumption that the carrier was at fault or that it acted negligently was not overcome by
any countervailing evidence. x x x41 (Emphasis added)

The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day,
it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On
August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the
shipment was outside a container van and kept in storage by petitioner.

The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting
that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila
during the same period, We can conclude that this was when the shipment sustained water damage.

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 the goods tendered for transport and that it exercised due care in handling them.42 Extraordinary
diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall.

Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but only to the
carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show
that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply
explained by the CA:

On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that
seeped into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of
Manila from July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of
appellee carrier from the time it was delivered by the shipper on July 26, 1993 until it was stuffed inside Container
No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing
established facts that damage from "wettage" suffered by the subject cargo was caused by the negligence of
appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes.

Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject goods by
claiming that the notation "GROUNDED OUTSIDE WHSE." actually refers to the container and not the contents
thereof or the cargoes. And yet it presented no evidence to explain where did they place or store the subject
goods from the time it accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or
transferred from the container van to another container and loaded into the vessel M/V Supercon Carrier I on
August 1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded
outside prior to shipment to Cebu City, appellee provided no explanation as to where said cargo was stored from
July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from the container
van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellee's vessel
bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not
indicate any such defect or damage, but when the container was stripped upon arrival in Cebu City port after
being discharged from appellee's vessel, it was noted that only one (1) slab was slightly broken at the bottom
allegedly hit by a forklift blade (Exhibit "F").43 (Emphasis added)

Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it
exercised the extraordinary diligence required of common carriers.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

SO ORDERED.
G.R. No. 200289 November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

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

G.R. No. 200314

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

DECISION

PERALTA, J.:

These two consolidated cases challenge, by way of petition for certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, September 13, 2011 Decision1 and January 19, 2012 Resolution2 of the Court of Appeals (CA) in CA-
G.R. CV No. 86752, which reversed and set aside the January 27, 2006 Decision3 of the Manila City Regional Trial
Court Branch (RTC) 30. The facts, as established by the records, are as follows:

On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197 metal containers/skids
of tin-free steel for delivery to the consignee, San Miguel Corporation (SMC). The shipment, covered by Bill of
Lading No. KBMA-1074,4 was loaded and received clean on board M/V Golden Harvest Voyage No. 66, a vessel
owned and operated by Westwind Shipping Corporation (Westwind).

SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc. (UCPB) for US Dollars: One
Hundred Eighty-Four Thousand Seven Hundred Ninety-Eight and Ninety-Seven Centavos (US$184,798.97), which,
at the time, was equivalent to Philippine Pesos: Six Million Two Hundred Nine Thousand Two Hundred Forty-Five
and Twenty-Eight Centavos (₱6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and was discharged in the custody of the arrastre
operator, Asian Terminals, Inc. (ATI), formerly Marina Port Services, Inc.5 During the unloading operation, however,
six containers/skids worth Philippine Pesos: One Hundred Seventeen Thousand Ninety-Three and Twelve Centavos
(₱117,093.12) sustained dents and punctures from the forklift used by the stevedores of Ocean Terminal Services,
Inc. (OTSI) in centering and shuttling the containers/skids. As a consequence, the local ship agent of the vessel,
Baliwag Shipping Agency, Inc., issued two Bad Order Cargo Receipt dated September 1, 1993.

On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC, withdrew from ATI the
197 containers/skids, including the six in damaged condition, and delivered the same at SMC’s warehouse in
Calamba, Laguna through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge that additional nine
containers/skids valued at Philippine Pesos: One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine and
Sixty-Eight Centavos (₱175,639.68) were also damaged due to the forklift operations; thus, making the total number
of 15 containers/skids in bad order.

Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and OFII to recover the
amount corresponding to the damaged 15 containers/skids. When UCPB paid the total sum of Philippine Pesos:
Two Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and Eighty Centavos (₱292,732.80), SMC signed
the subrogation receipt. Thereafter, in the exercise of its right of subrogation, UCPB instituted on August 30, 1994 a
complaint for damages against Westwind, ATI, and OFII.6

After trial, the RTC dismissed UCPB’s complaint and the counterclaims of Westwind, ATI, and OFII. It ruled that the
right, if any, against ATI already prescribed based on the stipulation in the 16 Cargo Gate Passes issued, as well as
the doctrine laid down in International Container Terminal Services, Inc. v. Prudential Guarantee & Assurance Co.
Inc.7 that a claim for reimbursement for damaged goods must be filed within 15 days from the date of consignee’s
knowledge. With respect to Westwind, even if the action against it is not yet barred by prescription, conformably with
Section 3 (6) of the Carriage of Goods by Sea Act (COGSA) and Our rulings in E.E. Elser, Inc., et al. v. Court of
Appeals, et al.8 and Belgian Overseas Chartering and Shipping N.V. v. Phil. First Insurance Co., Inc.,9 the court a
quo still opined that Westwind is not liable, since the discharging of the cargoes were done by ATI personnel using
forklifts and that there was no allegation that it (Westwind) had a hand in the conduct of the stevedoring operations.
Finally, the trial court likewise absolved OFII from any liability, reasoning that it never undertook the operation of the
forklifts which caused the dents and punctures, and that it merely facilitated the release and delivery of the shipment
as the customs broker and representative of SMC.

On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of its September 13, 2011 Decision
directed:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The Decision dated January 27, 2006
rendered by the court a quo is REVERSED AND SET ASIDE. Appellee Westwind Shipping Corporation is hereby
ordered to pay to the appellant UCPB General Insurance Co., Inc., the amount of One Hundred Seventeen
Thousand and Ninety-Three Pesos and Twelve Centavos (Php117,093.12), while Orient Freight International, Inc. is
hereby ordered to pay to UCPB the sum of One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine Pesos
and Sixty-Eight Centavos (Php175,639.68). Both sums shall bear interest at the rate of six (6%) percent per annum,
from the filing of the complaint on August 30, 1994 until the judgment becomes final and executory. Thereafter, an
interest rate of twelve (12%) percent per annum shall be imposed from the time this decision becomes final and
executory until full payment of said amounts.

SO ORDERED.10

While the CA sustained the RTC judgment that the claim against ATI already prescribed, it rendered a contrary view
as regards the liability of Westwind and OFII. For the appellate court, Westwind, not ATI, is responsible for the six
damaged containers/skids at the time of its unloading. In its rationale, which substantially followed Philippines First
Insurance Co., Inc. v. Wallem Phils. Shipping, Inc.,11 it concluded that the common carrier, not the arrastre operator,
is responsible during the unloading of the cargoes from the vessel and that it is not relieved from liability and is still
bound to exercise extraordinary diligence at the time in order to see to it that the cargoes under its possession
remain in good order and condition. The CA also considered that OFII is liable for the additional nine damaged
containers/skids, agreeing with UCPB’s contention that OFII is a common carrier bound to observe extraordinary
diligence and is presumed to be at fault or have acted negligently for such damage. Noting the testimony of OFII’s
own witness that the delivery of the shipment to the consignee is part of OFII’s job as a cargo forwarder, the
appellate court ruled that Article 1732 of the New Civil Code (NCC) does not distinguish between one whose
principal business activity is the carrying of persons or goods or both and one who does so as an ancillary activity.
The appellate court further ruled that OFII cannot excuse itself from liability by insisting that JBL undertook the
delivery of the cargoes to SMC’s warehouse. It opined that the delivery receipts signed by the inspector of SMC
showed that the containers/skids were received from OFII, not JBL. At the most, the CA said, JBL was engaged by
OFII to supply the trucks necessary to deliver the shipment, under its supervision, to SMC.

Only Westwind and OFII filed their respective motions for reconsideration, which the CA denied; hence, they
elevated the case before Us via petitions docketed as G.R. Nos. 200289 and 200314, respectively.

Westwind argues that it no longer had actual or constructive custody of the containers/skids at the time they were
damaged by ATI’s forklift operator during the unloading operations. In accordance with the stipulation of the bill of
lading, which allegedly conforms to Article 1736 of the NCC, it contends that its responsibility already ceased from
the moment the cargoes were delivered to ATI, which is reckoned from the moment the goods were taken into the
latter’s custody. Westwind adds that ATI, which is a completely independent entity that had the right to receive the
goods as exclusive operator of stevedoring and arrastre functions in South Harbor, Manila, had full control over its
employees and stevedores as well as the manner and procedure of the discharging operations.

As for OFII, it maintains that it is not a common carrier, but only a customs broker whose participation is limited to
facilitating withdrawal of the shipment in the custody of ATI by overseeing and documenting the turnover and
counterchecking if the quantity of the shipments were in tally with the shipping documents at hand, but without
participating in the physical withdrawal and loading of the shipments into the delivery trucks of JBL. Assuming that it
is a common carrier, OFII insists that there is no need to rely on the presumption of the law – that, as a common
carrier, it is presumed to have been at fault or have acted negligently in case of damaged goods – considering the
undisputed fact that the damages to the containers/skids were caused by the forklift blades, and that there is no
evidence presented to show that OFII and Westwind were the owners/operators of the forklifts. It asserts that the
loading to the trucks were made by way of forklifts owned and operated by ATI and the unloading from the trucks at
the SMC warehouse was done by way of forklifts owned and operated by SMC employees. Lastly, OFII avers that
neither the undertaking to deliver nor the acknowledgment by the consignee of the fact of delivery makes a person
or entity a common carrier, since delivery alone is not the controlling factor in order to be considered as such.

Both petitions lack merit.

The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc.12 applies, as it settled the query on
which between a common carrier and an arrastre operator should be responsible for damage or loss incurred by the
shipment during its unloading. We elucidated at length:

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. Subject to certain exceptions
enumerated under Article 1734 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.

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, the Court interpreted the ship captain’s liability as ultimately that of the shipowner by
regarding the captain as the representative of the shipowner.

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. 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.

xxxx
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. 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.

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.

In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., 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 Appeals 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, it was ruled that like the duty of
seaworthiness, the duty of care of the cargo is non-delegable, 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. 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.

xxxx

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of
the carrier x x x.13

In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines), Inc.14 and Asian
Terminals, Inc. v. Philam Insurance Co., Inc.,15 the Court echoed the doctrine that cargoes, while being unloaded,
generally remain under the custody of the carrier. We cannot agree with Westwind’s disputation that "the carrier in
Wallem clearly exercised supervision during the discharge of the shipment and that is why it was faulted and held
liable for the damage incurred by the shipment during such time." What Westwind failed to realize is that the
extraordinary responsibility of the common carrier lasts until the time the goods are actually or constructively
delivered by the carrier to the consignee or to the person who has a right to receive them. 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.16 In this case, since the discharging of the
containers/skids, which were covered by only one bill of lading, had not yet been completed at the time the damage
occurred, there is no reason to imply that there was already delivery, actual or constructive, of the cargoes to ATI.
Indeed, the earlier case of Delsan Transport Lines, Inc. v. American Home Assurance Corp.17 serves as a useful
guide, thus:
Delsan’s argument that it should not be held liable for the loss of diesel oil due to backflow because the same had
already been actually and legally delivered to Caltex at the time it entered the shore tank holds no water. It had been
settled that the subject cargo was still in the custody of Delsan because the discharging thereof has not yet been
finished when the backflow occurred. Since the discharging of the cargo into the depot has not yet been completed
at the time of the spillage when the backflow occurred, there is no reason to imply that there was actual delivery of
the cargo to the consignee. Delsan is straining the issue by insisting that when the diesel oil entered into the tank of
Caltex on shore, there was legally, at that moment, a complete delivery thereof to Caltex. To be sure, the
extraordinary responsibility of common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to a person who has the right to receive them. The discharging of oil products to
Caltex Bulk Depot has not yet been finished, Delsan still has the duty to guard and to preserve the cargo. The
carrier still has in it the responsibility to guard and preserve the goods, a duty incident to its having the goods
transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. The mere proof of delivery of goods in good order to the
carrier, and their arrival in the place of destination in bad order, make out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent
upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent with its
liability.18

The contention of OFII is likewise untenable. A customs broker has been regarded as a common carrier because
transportation of goods is an integral part of its business.19 In Schmitz Transport & Brokerage Corporation v.
Transport Venture, Inc.,20 the Court already reiterated: It is settled that under a given set of facts, a customs broker
may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
1âw phi 1

Appeals held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under
Article 1732 of the Civil Code, to wit, Art. 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.

xxxx

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one
who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common
carrier but a customs broker whose principal function is to prepare the correct customs declaration and proper
shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods
for pecuniary consideration.

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of goods is an integral
part of a customs broker, the customs broker is also a common carrier. For to declare otherwise "would be to
deprive those with whom [it] contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of petitioner’s business."21

That OFII is a common carrier is buttressed by the testimony of its own witness, Mr. Loveric Panganiban Cueto, that
part of the services it offers to clients is cargo forwarding, which includes the delivery of the shipment to the
consignee.22 Thus, for undertaking the transport of cargoes from ATI to SMC’s warehouse in Calamba, Laguna, OFII
is considered a common carrier. As long as a person or corporation holds itself to the public for the purpose of
transporting goods as a business, it is already considered a common carrier regardless of whether it owns the
vehicle to be used or has to actually hire one.

As a common carrier, OFII is mandated to observe, under Article 1733 of the Civil Code,23 extraordinary diligence in
the vigilance over the goods24 it transports according to the peculiar circumstances of each case. In the event that
the goods are lost, destroyed or deteriorated, it is presumed to have been at fault or to have acted negligently
unless it proves that it observed extraordinary diligence.25 In the case at bar it was established that except for the six
containers/skids already damaged OFII received the cargoes from ATI in good order and condition; and that upon its
delivery to SMC additional nine containers/skids were found to be in bad order as noted in the Delivery Receipts
issued by OFII and as indicated in the Report of Cares Marine Cargo Surveyors. Instead of merely excusing itself
from liability by putting the blame to ATI and SMC it is incumbent upon OFII to prove that it actively took care of the
goods by exercising extraordinary diligence in the carriage thereof. It failed to do so. Hence its presumed negligence
under Article 1735 of the Civil Code remains unrebutted.

WHEREFORE, premises considered the petitions of Westwind and OFII in G.R. Nos. 200289 and 200314
respectively are DENIED. The September 13 2011 Decision and January 19 2012 Resolution of the Court of
Appeals in CA-G.R. CV No. 86752 which reversed and set aside the January 27 2006 Decision of the Manila City
Regional Trial Court Branch 30 are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

G.R. No. 146018 June 25, 2003

EDGAR COKALIONG SHIPPING LINES, INC., Petitioner,

vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.

DECISION

PANGANIBAN, J.:

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

The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August 31,
2000 Decision2 and the November 17, 2000 Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No. 62751. The
dispositive part of the Decision reads:

"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED.
[Petitioner] is hereby condemned to pay to [respondent] the total amount of ₱148,500.00, with interest thereon, at
the rate of 6% per annum, from date of this Decision of the Court. [Respondent’s] claim for attorney’s fees
[is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED."5

The assailed Resolution denied petitioner’s Motion for Reconsideration.

On the other hand, the disposition of the Regional Trial Court’s6 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 décor 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 ₱6,500.00. 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 ₱14,000.00. 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 ₱100,000.00 ‘against all risks’ under Open
Policy No. 002/9 1/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She
also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the amount of ₱50,000.00,
under Open Policy No. 002/9 1/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on
said date.

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

"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
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 ₱110,056.00. [Respondent]
approved the claim of Feliciana Legaspi and drew and issued UCPB Check No. 612939, dated March 9, 1992, in
the net amount of ₱99,000.00, in settlement of her claim after which she executed a Subrogation Receipt/Deed,
for said amount, in favor of [respondent]. She also filed a claim for the value of the cargo covered by Bill of Lading
No. 58. She submitted to [respondent] a Receipt, dated December 11, 1991 and Order Slips, purportedly signed
by Nestor Angelia for the goods he received from Feliciana Legaspi valued at ₱60,338.00. [Respondent] approved
her claim and remitted to Feliciana Legaspi the net amount of ₱49,500.00, 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
₱148,500.00, 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 ₱148,500.00 plus interest thereon at the legal rate from the time of filing
of this complaint until fully paid;

2. Attorney’s fees in the amount of ₱10,000.00; 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 ₱14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated
August 12, 1992, for the said amount of ₱14,000.00 in full payment of claims under Bill of Lading No. 59; that
[petitioner] approved the claim of Nestor Angelia in the amount of ₱6,500.00 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 ₱148,500.00 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 ₱14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however,
held that the payment did not extinguish petitioner’s 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 ₱6,500 -- as a setoff
against Nestor Angelia’s 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 ₱150,000.00, 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 petitioner’s 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
[petitioner’s] 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 Court’s 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 173517 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 petitioner’s 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 records18 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 petitioner’s evidence showing the existence of the above stipulation.

A stipulation that limits liability is valid21 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 carrier’s liability for loss or destruction of a cargo to a certain
sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750
of the Civil Code which provides:

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

‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been 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 carrier’s
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 shipper’s 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
1avvphi1

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 petitioner’s 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 carrier’s 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 CA’s 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 ₱14,000. 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 ₱6,500, 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 court’s 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 ₱14,000 and ₱6,500, which represent the value of the goods
stated in Bills of Lading Nos. 59 and 58, respectively. No costs.

SO ORDERED.