G.R. No.

70462 August 11, 1988

PAN AMERICAN WORLD AIRWAYS, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS
and ARCHER PRODUCTIONS, respondents.

Guerrero & Torres for petitioner.

Jose B. Layug for private respondents.

CORTES, J.:

Before the Court is a petition filed by an international air carrier seeking to limit its liability
for lost baggage, containing promotional and advertising materials for films to be exhibited
in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount
specified in the airline ticket absent a declaration of a higher valuation and the payment of
additional charges.

The undisputed facts of the case, as found by the trial court and adopted by the appellate
court, are as follows:

On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of
the plaintiffs Sotang Bastos and Archer Production while in San Francisco,
Califonia and Primo Quesada of Prime Films, San Francisco, California,
entered into an agreement (Exh. A) whereby the former, for and in
consideration of the amount of US $2,500.00 per picture, bound himself to
supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big
Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in
the United States. It was also their agreement that plaintiffs would provide
the necessary promotional and advertising materials for said films on or
before May 30, 1978.

On his way home to the Philippines, plaintiff Pangan visited Guam where he
contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan
likewise entered into a verbal agreement with Slutchnick for the exhibition of
two of the films above-mentioned at the Hafa Adai Theater in Guam on May
30, 1978 for the consideration of P7,000.00 per picture (p. 11, tsn, June 20,
1979). Plaintiff Pangan undertook to provide the necessary promotional and
advertising materials for said films on or before the exhibition date on May
30,1978.

By virtue of the above agreements, plaintiff Pangan caused the preparation of

the requisite promotional handbills and still pictures for which he paid the
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 total sum of P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for
his trip abroad to comply with his contracts, plaintiff Pangan purchased
fourteen clutch bags, four capiz lamps and four barong tagalog, with a total
value of P4,400.00 (Exhs. D, D-1, E, and F).

On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila
Office, through the Your Travel Guide, an economy class airplane ticket with
No. 0269207406324 (Exh. G) for passage from Manila to Guam on
defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of
the regular fare. The Your Travel Guide is a tour and travel office owned and
managed by plaintiffs witness Mila de la Rama.

On May 27, 1978, two hours before departure time plaintiff Pangan was at
the defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his two luggages, for which he was given
baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two
luggages contained the promotional and advertising materials, the clutch
bags, barong tagalog and his personal belongings. Subsequently, Pangan was
informed that his name was not in the manifest and so he could not take
Flight No. 842 in the economy class. Since there was no space in the economy
class, plaintiff Pangan took the first class because he wanted to be on time in
Guam to comply with his commitment, paying an additional sum of $112.00.

When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two
luggages did not arrive with his flight, as a consequence of which his
agreements with Slutchnick and Quesada for the exhibition of the films in
Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a
written claim (Exh. J) for his missing luggages.

Upon arrival in the Philippines, Pangan contacted his lawyer, who made the
necessary representations to protest as to the treatment which he received
from the employees of the defendant and the loss of his two luggages (Exh. M,
O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances
would be investigated and given its immediate consideration (Exhs. N, P and
R). Due to the defendant's failure to communicate with Pangan about the
action taken on his protests, the present complaint was filed by the plaintiff.
(Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]

On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:

(1) Ordering defendant Pan American World Airways, Inc. to pay all the
plaintiffs the sum of P83,000.00, for actual damages, with interest thereon at
the rate of 14% per annum from December 6, 1978, when the complaint was
filed, until the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
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 (2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff
Rene V. Pangan the sum of P8,123.34, for additional actual damages, with
interest thereon at the rate of 14% per annum from December 6, 1978, until
the same is fully paid;

(3) Dismissing the counterclaim interposed by defendant Pan American

World Airways, Inc.; and

(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of
suit. [Rollo, pp. 106-107.]

On appeal, the then Intermediate Appellate Court affirmed the trial court decision.

Hence, the instant recourse to this Court by petitioner.

The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.

In assailing the decision of the Intermediate Appellate Court petitioner assigned the
following errors:

1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention and
the contract of carriage.

2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling concerning
special or consequential damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836
(1952).]

The assigned errors shall be discussed seriatim

1. The airline ticket (Exh. "G') contains the following conditions:

NOTICE

If the passenger's journey involves an ultimate destination or stop in a

country other than the country of departure the Warsaw Convention may be
applicable and the Convention governs and in most cases limits the liability of
carriers for death or personal injury and in respect of loss of or damage to
baggage. See also notice headed "Advice to International Passengers on
Limitation of Liability.

CONDITIONS OF CONTRACT

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 1. As used in this contract "ticket" means this passenger ticket and baggage
check of which these conditions and the notices form part, "carriage" is
equivalent to "transportation," "carrier" means all air carriers that carry or
undertake to carry the passenger or his baggage hereunder or perform any
other service incidental to such air carriage. "WARSAW CONVENTION" means
the convention for the Unification of Certain Rules Relating to International
Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as
amended at The Hague, 28th September 1955, whichever may be applicable.

2. Carriage hereunder is subject to the rules and limitations relating to liability

established by the Warsaw Convention unless such carriage is not
"international carriage" as defined by that Convention.

3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this
ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and related
regulations which are made part hereof (and are available on application at
the offices of carrier), except in transportation between a place in the United
States or Canada and any place outside thereof to which tariffs in force in
those countries apply.

xxx xxx xxx

NOTICE OF BAGGAGE LIABILITY LIMITATIONS

Liability for loss, delay, or damage to baggage is limited as follows unless a

higher value is declared in advance and additional charges are paid: (1)for
most international travel (including domestic portions of international
journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked
baggage and $400 per passenger for unchecked baggage: (2) for travel
wholly between U.S. points, to $750 per passenger on most carriers (a few
have lower limits). Excess valuation may not be declared on certain types of
valuable articles. Carriers assume no liability for fragile or perishable articles.
Further information may be obtained from the carrier. [Emphasis supplied.].

On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
contends that its liability for the lost baggage of private respondent Pangan is limited to
$600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and
pay the corresponding additional charges.

To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No.
L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed
stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage
to a specified amount and ruled that the carrier's liability was limited to said amount since
the passenger did not declare a higher value, much less pay additional charges.

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We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court,
through Justice Melencio Herrera, stated:

Petitioner further contends that respondent Court committed grave error

when it limited PAL's carriage liability to the amount of P100.00 as stipulated
at the back of the ticket....

We agree with the foregoing finding. The pertinent Condition of Carriage

printed at the back of the plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for

lost or damage baggage of the passenger is LIMITED TO
P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a
total valuation of Pl,000.00 and additional charges are paid
pursuant to Carrier's tariffs.

There is no dispute that petitioner did not declare any higher value for his
luggage, much less (lid he pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he
had actually entered into a contract with PAL limiting the latter's liability for
loss or delay of the baggage of its passengers, and that Article 1750 * of the
Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh.
"12"), he is nevertheless bound by the provisions thereof. "Such provisions
have been held to be a part of the contract of carriage, and valid and binding
upon the passenger regardless of the latter's lack of knowledge or assent to
the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176
N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v.
Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the
plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr.
Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in
Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878;
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting
liability upon an agreed valuation does not offend against the policy of the
law forbidding one from contracting against his own negligence."

Considering, therefore, that petitioner had failed to declare a higher value for
his baggage, he cannot be permitted a recovery in excess of P100.00....

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On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July
2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's
liability to a specified amount was invalid, finds no application in the instant case, as the
ruling in said case was premised on the finding that the conditions printed at the back of
the ticket were so small and hard to read that they would not warrant the presumption that
the passenger was aware of the conditions and that he had freely and fairly agreed thereto.
In the instant case, similar facts that would make the case fall under the exception have not
been alleged, much less shown to exist.

In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.

At this juncture, in order to rectify certain misconceptions the Court finds it necessary to
state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v.
Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to
apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or
US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is
utterly misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:

Petitioner argues that pursuant to those provisions, an air "carrier is liable

only" in the event of death of a passenger or injury suffered by him, or of
destruction or loss of, or damages to any checked baggage or any goods, or of
delay in the transportation by air of passengers, baggage or goods. This
pretense is not borne out by the language of said Articles. The same merely
declare the carrier liable for damages in enumerated cases, if the conditions
therein specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other breaches of
contract by the carrier. Under petitioner's theory, an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in
bad faith, to comply with a contract of carriage, which is absurd.

it prefaced this statement by explaining that:

...The case is now before us on petition for review by certiorari, upon the
ground that the lower court has erred: (1) in holding that the Warsaw
Convention of October 12, 1929, relative to transportation by air is not in
force in the Philippines: (2) in not holding that respondent has no cause of
action; and (3) in awarding P20,000 as nominal damages.

We deem it unnecessary to pass upon the First assignment of error because the
same is the basis of the second assignment of error, and the latter is devoid of
merit, even if we assumed the former to be well taken. (Emphasis supplied.)

Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the
validity of provisions of the Warsaw Convention. Consequently, by no stretch of the
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imagination may said quotation from Northwest be considered as supportive of the
appellate court's statement that the provisions of the Warsaw Convention limited a
carrier's liability are against public policy.

2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by
the Court of Appeals, awarding private respondents damages as and for lost profits when
their contracts to show the films in Guam and San Francisco, California were cancelled.

The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be
any clearer:

...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant
herein, may be held liable only for damages that were foreseen or might have
been foreseen at the time the contract of transportation was entered into. The
trial court correctly found that the defendant company could not have foreseen
the damages that would be suffered by Mendoza upon failure to deliver the can
of film on the 17th of September, 1948 for the reason that the plans of
Mendoza to exhibit that film during the town fiesta and his preparations,
specially the announcement of said exhibition by posters and advertisement
in the newspaper, were not called to the defendant's attention.

In our research for authorities we have found a case very similar to the one under
consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in
Troy, New York, delivered motion picture films to the defendant Fargo, an express company,
consigned and to be delivered to him in Utica. At the time of shipment the attention of the
express company was called to the fact that the shipment involved motion picture films to
be exhibited in Utica, and that they should be sent to their destination, rush. There was
delay in their delivery and it was found that the plaintiff because of his failure to exhibit the
film in Utica due to the delay suffered damages or loss of profits. But the highest court in
the State of New York refused to award him special damages. Said appellate court observed:

But before defendant could be held to special damages, such as the present
alleged loss of profits on account of delay or failure of delivery, it must have
appeared that he had notice at the time of delivery to him of the particular
circumstances attending the shipment, and which probably would lead to such
special loss if he defaulted. Or, as the rule has been stated in another form, in
order to purpose on the defaulting party further liability than for damages
naturally and directly, i.e., in the ordinary course of things, arising from a
breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of
breach at the time of or prior to contracting. Generally, notice then of any
special circumstances which will show that the damages to be anticipated from
a breach would be enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason
that the attention of the common carrier in said case was called to the nature of the articles
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shipped, the purpose of shipment, and the desire to rush the shipment, circumstances and
facts absent in the present case. [Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a
showing that petitioner's attention was called to the special circumstances requiring
prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable
for the cancellation of private respondents' contracts as it could not have foreseen such an
eventuality when it accepted the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid
down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for
damages based on the finding that "[tlhe undisputed fact is that the contracts of the
plaintiffs for the exhibition of the films in Guam and California were cancelled because of
the loss of the two luggages in question." [Rollo, p. 36] The evidence reveals that the
proximate cause of the cancellation of the contracts was private respondent Pangan's
failure to deliver the promotional and advertising materials on the dates agreed upon. For
this petitioner cannot be held liable. Private respondent Pangan had not declared the value
of the two luggages he had checked in and paid additional charges. Neither was petitioner
privy to respondents' contracts nor was its attention called to the condition therein
requiring delivery of the promotional and advertising materials on or before a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount stated in the
ticket, the award of attorney's fees, which is grounded on the alleged unjustified refusal of
petitioner to satisfy private respondent's just and valid claim, loses support and must be set
aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment.

SO ORDERED.

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and
the COURT OF APPEALS Respondents.

DECISION

BERSAMIN, J.:

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound
to observe extraordinary diligence in the conduct of his business. He is presumed to be
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negligent when death occurs to a passenger. His liability may include indemnity for loss of
earning capacity even if the deceased passenger may only be an unemployed high school
student at the time of the accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal
the adverse decision promulgated on November 13, 2002, by which the Court of Appeals
(CA) affirmed with modification the decision rendered on December 3, 1999 by the
Regional Trial Court (RTC), Branch 260, in Paranñ aque City that had decreed them jointly
and severally liable with Philippine National Railways (PNR), their co-defendant, to Spouses
Nicolas and Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron John L.
Zarate (Aaron), then a high school student of Don Bosco Technical Institute (Don Bosco).

Antecedents

The Perenñ as were engaged in the business of transporting students from their respective
residences in Paranñ aque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Perenñ as used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be seated in the front
beside the driver, and the others in the rear, with six students on either side. They employed
Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Perenñ as to transport Aaron to and from Don Bosco.
On August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m.
from the Zarates’ residence. Aaron took his place on the left side of the van near the rear
door. The van, with its air-conditioning unit turned on and the stereo playing loudly,
ultimately carried all the 14 student riders on their way to Don Bosco. Considering that the
students were due at Don Bosco by 7:15 a.m., and that they were already running late
because of the heavy vehicular traffic on the South Superhighway, Alfaro took the van to an
alternate route at about 6:45 a.m. by traversing the narrow path underneath the Magallanes
Interchange that was then commonly used by Makati-bound vehicles as a short cut into
Makati. At the time, the narrow path was marked by piles of construction materials and
parked passenger jeepneys, and the railroad crossing in the narrow path had no railroad
warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302
(train), operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange
travelling northbound. As the train neared the railroad crossing, Alfaro drove the van
eastward across the railroad tracks, closely tailing a large passenger bus. His view of the
oncoming train was blocked because he overtook the passenger bus on its left side. The
train blew its horn to warn motorists of its approach. When the train was about 50 meters
away from the passenger bus and the van, Alano applied the ordinary brakes of the train.
He applied the emergency brakes only when he saw that a collision was imminent. The
passenger bus successfully crossed the railroad tracks, but the van driven by Alfaro did not.
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The train hit the rear end of the van, and the impact threw nine of the 12 students in the
rear, including Aaron, out of the van. Aaron landed in the path of the train, which dragged
his body and severed his head, instantaneously killing him. Alano fled the scene on board
the train, and did not wait for the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action
for damages against Alfaro, the Perenñ as, PNR and Alano. The Perenñ as and PNR filed their
respective answers, with cross-claims against each other, but Alfaro could not be served
with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(2) Spouses Zarate engaged the services of spouses Perenñ a for the adequate and
safe transportation carriage of the former spouses' son from their residence in
Paranñ aque to his school at the Don Bosco Technical Institute in Makati City;

(3) During the effectivity of the contract of carriage and in the implementation
thereof, Aaron, the minor son of spouses Zarate died in connection with a
vehicular/train collision which occurred while Aaron was riding the contracted
carrier Kia Ceres van of spouses Perenñ a, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided with the train of
PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;

(4) At the time of the vehicular/train collision, the subject site of the vehicular/train
collision was a railroad crossing used by motorists for crossing the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no appropriate
and safety warning signs and railings at the site commonly used for railroad
crossing;

(6) At the material time, countless number of Makati bound public utility and
private vehicles used on a daily basis the site of the collision as an alternative route
and short-cut to Makati;

(7) The train driver or operator left the scene of the incident on board the
commuter train involved without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the vehicular
collision;

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 (9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train collision;

(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and

(12) The site of the vehicular/train collision was within the vicinity or less than 100
meters from the Magallanes station of PNR.

B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the vehicular
collision, which resulted in the death of plaintiff spouses' son;

(2) Whether or not the defendant spouses Perenñ a being the employer of defendant
Alfaro are liable for any negligence which may be attributed to defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning
signs and railings in the area commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular collision which resulted in the
death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Perenñ a are liable for breach of the contract of
carriage with plaintiff-spouses in failing to provide adequate and safe transportation
for the latter's son;

(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;

(6) Whether or not defendants spouses Teodorico and Nanette Perenñ a observed the
diligence of employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of
Aaron John Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the commuter
train involved in the accident, in allowing or tolerating the motoring public to cross,
and its failure to install safety devices or equipment at the site of the accident for the
protection of the public;

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 (9) Whether or not defendant PNR should be made to reimburse defendant spouses
for any and whatever amount the latter may be held answerable or which they may
be ordered to pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the
amounts claimed by the latter in their Complaint by reason of its gross negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral
and exemplary damages and attorney's fees.2

The Zarates’ claim against the Perenñ as was upon breach of the contract of carriage for the
safe transport of Aaron; but that against PNR was based on quasi-delict under Article 2176,
Civil Code.

In their defense, the Perenñ as adduced evidence to show that they had exercised the
diligence of a good father of the family in the selection and supervision of Alfaro, by making
sure that Alfaro had been issued a driver’s license and had not been involved in any
vehicular accident prior to the collision; that their own son had taken the van daily; and
that Teodoro Perenñ a had sometimes accompanied Alfaro in the van’s trips transporting the
students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the
reckless crossing of the van whose driver had not first stopped, looked and listened; and
that the narrow path traversed by the van had not been intended to be a railroad crossing
for motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision,3 disposing:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

and against the defendants ordering them to jointly and severally pay the plaintiffs as
follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

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 (7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Perenñ as’ motion for reconsideration, 4 reiterating that
the cooperative gross negligence of the Perenñ as and PNR had caused the collision that led to
the death of Aaron; and that the damages awarded to the Zarates were not excessive, but
based on the established circumstances.

The CA’s Ruling

Both the Perenñ as and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and

severally liable together with defendant-appellants spouses Teodorico and Nanette
Perenñ a and defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the
death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees

witnesses despite overwhelming documentary evidence on record, supporting the
case of defendants-appellants Philippine National Railways.

The Perenñ as ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally liable for actual,
moral and exemplary damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Perenñ as against the
Philippine National Railways and in not holding the latter and its train driver primarily
responsible for the incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity
in the absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC,
but limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because
the RTC did not state the factual and legal bases, to wit: 6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court,
Branch 260 of Paranñ aque City is AFFIRMED with the modification that the award of Actual
13 | P a g e
Damages is reduced to ₱ 59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the
award for Attorney’s Fees is Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the
ruling in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, 7 wherein
the Court gave the heirs of Cariaga a sum representing the loss of the deceased’s earning
capacity despite Cariaga being only a medical student at the time of the fatal incident.
Applying the formula adopted in the American Expectancy Table of Mortality:–

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering
that the nature of his work and his salary at the time of Aaron’s death were unknown, it
used the prevailing minimum wage of ₱ 280.00/day to compute Aaron’s gross annual salary
to be ₱ 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by
Aaron’s life expectancy of 39.3 years, his gross income would aggregate to ₱ 4,351,164.30,
from which his estimated expenses in the sum of ₱ 2,189,664.30 was deducted to finally
arrive at P 2,161,500.00 as net income. Due to Aaron’s computed net income turning out to
be higher than the amount claimed by the Zarates, only ₱ 2,109,071.00, the amount
expressly prayed for by them, was granted.

On April 4, 2003, the CA denied the Perenñ as’ motion for reconsideration. 8

Issues

In this appeal, the Perenñ as list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners
jointly and severally liable to pay damages with Philippine National Railways and
dismissing their cross-claim against the latter.

II. The lower court erred in affirming the trial court’s decision awarding damages for loss of
earning capacity of a minor who was only a high school student at the time of his death in
the absence of sufficient basis for such an award.

III. The lower court erred in not reducing further the amount of damages awarded,
assuming petitioners are liable at all.

Ruling

The petition has no merit.

14 | P a g e
 1.
Were the Pereñas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Perenñ as and the
PNR, basing their claim against the Perenñ as on breach of contract of carriage and against
the PNR on quasi-delict.

The RTC found the Perenñ as and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Perenñ as’ defense was that they exercised the diligence of a good father of
the family in the selection and supervision of Alfaro, the van driver, by seeing to it that
Alfaro had a driver’s license and that he had not been involved in any vehicular accident
prior to the fatal collision with the train; that they even had their own son travel to and
from school on a daily basis; and that Teodoro Perenñ a himself sometimes accompanied
Alfaro in transporting the passengers to and from school. The RTC gave scant consideration
to such defense by regarding such defense as inappropriate in an action for breach of
contract of carriage.

We find no adequate cause to differ from the conclusions of the lower courts that the
Perenñ as operated as a common carrier; and that their standard of care was extraordinary
diligence, not the ordinary diligence of a good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded
as a private carrier,9primarily because he only caters to some specific or privileged
individuals, and his operation is neither open to the indefinite public nor for public use, the
exact nature of the operation of a school bus service has not been finally settled. This is the
occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or

persons from one place to another, gratuitously or for hire. The carrier is classified either as
a private/special carrier or as a common/public carrier. 10 A private carrier is one who,
without making the activity a vocation, or without holding himself or itself out to the public
as ready to act for all who may desire his or its services, undertakes, by special agreement
in a particular instance only, to transport goods or persons from one place to another either
gratuitously or for hire.11 The provisions on ordinary contracts of the Civil Code govern the
contract of private carriage.The diligence required of a private carrier is only ordinary, that
is, the diligence of a good father of the family. In contrast, a common carrier is a person,
corporation, firm or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering such services
to the public.12 Contracts of common carriage are governed by the provisions on common
carriers of the Civil Code, the Public Service Act,13 and other special laws relating to
transportation. A common carrier is required to observe extraordinary diligence, and is

15 | P a g e
presumed to be at fault or to have acted negligently in case of the loss of the effects of
passengers, or the death or injuries to passengers.14

In relation to common carriers, the Court defined public use in the following terms in
United States v. Tan Piaco,15viz:

"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public,
we must look not only to the character of the business to be done, but also to the proposed
mode of doing it. If the use is merely optional with the owners, or the public benefit is
merely incidental, it is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. There must be, in general, a right which the law compels the
owner to give to the general public. It is not enough that the general prosperity of the public
is promoted. Public use is not synonymous with public interest. The true criterion by which
to judge the character of the use is whether the public may enjoy it by right or only by
permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code
avoided any distinction between a person or an enterprise offering transportation on a
regular or an isolated basis; and has not distinguished a carrier offering his services to the
general public, that is, the general community or population, from one offering his services
only to a narrow segment of the general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil Code. Public service, according
to Section 13, paragraph (b) of the Public Service Act, includes:

x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clienteè le, whether permanent
or occasional, and done for the general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public
services. x x x.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators, 18 custom brokers and
warehousemen,19 and barge operators20 even if they had limited clienteè le.

16 | P a g e
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent
of the business actually transacted, or the number and character of the conveyances used in
the activity, but whether the undertaking is a part of the activity engaged in by the carrier
that he has held out to the general public as his business or occupation. If the undertaking
is a single transaction, not a part of the general business or occupation engaged in, as
advertised and held out to the general public, the individual or the entity rendering such
service is a private, not a common, carrier. The question must be determined by the
character of the business actually carried on by the carrier, not by any secret intention or
mental reservation it may entertain or assert when charged with the duties and obligations
that the law imposes.21

Applying these considerations to the case before us, there is no question that the Perenñ as as
the operators of a school bus service were: (a) engaged in transporting passengers
generally as a business, not just as a casual occupation; (b) undertaking to carry passengers
over established roads by the method by which the business was conducted; and (c)
transporting students for a fee. Despite catering to a limited clienteè le, the Perenñ as operated
as a common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where they
operated the service and for a fee.

The common carrier’s standard of care and vigilance as to the safety of the passengers is
defined by law. Given the nature of the business and for reasons of public policy, the
common carrier is 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."22 Article 1755 of the Civil Code specifies that the common
carrier should "carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or injury to a
passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently
would stand.23 No device, whether by stipulation, posting of notices, statements on tickets,
or otherwise, may dispense with or lessen the responsibility of the common carrier as
defined under Article 1755 of the Civil Code. 24

And, secondly, the Perenñ as have not presented any compelling defense or reason by which
the Court might now reverse the CA’s findings on their liability. On the contrary, an
examination of the records shows that the evidence fully supported the findings of the CA.

As earlier stated, the Perenñ as, acting as a common carrier, were already presumed to be
negligent at the time of the accident because death had occurred to their passenger. 25 The
presumption of negligence, being a presumption of law, laid the burden of evidence on their
shoulders to establish that they had not been negligent.26 It was the law no less that
required them to prove their observance of extraordinary diligence in seeing to the safe and
secure carriage of the passengers to their destination. Until they did so in a credible

17 | P a g e
manner, they stood to be held legally responsible for the death of Aaron and thus to be held
liable for all the natural consequences of such death.

There is no question that the Perenñ as did not overturn the presumption of their negligence
by credible evidence. Their defense of having observed the diligence of a good father of a
family in the selection and supervision of their driver was not legally sufficient. According
to Article 1759 of the Civil Code, their liability as a common carrier did not cease upon
proof that they exercised all the diligence of a good father of a family in the selection and
supervision of their employee. This was the reason why the RTC treated this defense of the
Perenñ as as inappropriate in this action for breach of contract of carriage.

The Perenñ as were liable for the death of Aaron despite the fact that their driver might have
acted beyond the scope of his authority or even in violation of the orders of the common
carrier.27 In this connection, the records showed their driver’s actual negligence. There was
a showing, to begin with, that their driver traversed the railroad tracks at a point at which
the PNR did not permit motorists going into the Makati area to cross the railroad tracks.
Although that point had been used by motorists as a shortcut into the Makati area, that fact
alone did not excuse their driver into taking that route. On the other hand, with his
familiarity with that shortcut, their driver was fully aware of the risks to his passengers but
he still disregarded the risks. Compounding his lack of care was that loud music was playing
inside the air-conditioned van at the time of the accident. The loudness most probably
reduced his ability to hear the warning horns of the oncoming train to allow him to
correctly appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake
a passenger bus on the left side as both vehicles traversed the railroad tracks. In so doing,
he lost his view of the train that was then coming from the opposite side of the passenger
bus, leading him to miscalculate his chances of beating the bus in their race, and of getting
clear of the train. As a result, the bus avoided a collision with the train but the van got
slammed at its rear, causing the fatality. Lastly, he did not slow down or go to a full stop
before traversing the railroad tracks despite knowing that his slackening of speed and going
to a full stop were in observance of the right of way at railroad tracks as defined by the
traffic laws and regulations.28He thereby violated a specific traffic regulation on right of
way, by virtue of which he was immediately presumed to be negligent. 29

The omissions of care on the part of the van driver constituted negligence, 30 which,
according to Layugan v. Intermediate Appellate Court,31 is "the omission to do something
which a reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do,32 or as Judge Cooley defines it, ‘(t)he failure to observe for
the protection of the interests of another person, that degree of care, precaution, and
vigilance which the circumstances justly demand, whereby such other person suffers
injury.’"33

The test by which to determine the existence of negligence in a particular case has been
aptly stated in the leading case of Picart v. Smith,34 thuswise:

18 | P a g e
The test by which to determine the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the
Roman law. The existence of negligence in a given case is not determined by reference to
the personal judgment of the actor in the situation before him. The law considers what
would be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation
must of course be always determined in the light of human experience and in view of the
facts involved in the particular case. Abstract speculation cannot here be of much value but
this much can be profitably said: Reasonable men govern their conduct by the
circumstances which are before them or known to them. They are not, and are not
supposed to be, omniscient of the future. Hence they can be expected to take care only
when there is something before them to suggest or warn of danger. Could a prudent man, in
the case under consideration, foresee harm as a result of the course actually pursued? If so,
it was the duty of the actor to take precautions to guard against that harm. Reasonable
foresight of harm, followed by the ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist. Stated in these terms, the proper
criterion for determining the existence of negligence in a given case is this: Conduct is said
to be negligent when a prudent man in the position of the tortfeasor would have foreseen
that an effect harmful to another was sufficiently probable to warrant his foregoing the
conduct or guarding against its consequences. (Emphasis supplied)

Pursuant to the Picart v. Smith test of negligence, the Perenñ as’ driver was entirely negligent
when he traversed the railroad tracks at a point not allowed for a motorist’s crossing
despite being fully aware of the grave harm to be thereby caused to his passengers; and
when he disregarded the foresight of harm to his passengers by overtaking the bus on the
left side as to leave himself blind to the approach of the oncoming train that he knew was
on the opposite side of the bus.

Unrelenting, the Perenñ as cite Phil. National Railways v. Intermediate Appellate

Court,35 where the Court held the PNR solely liable for the damages caused to a passenger
bus and its passengers when its train hit the rear end of the bus that was then traversing
the railroad crossing. But the circumstances of that case and this one share no similarities.
In Philippine National Railways v. Intermediate Appellate Court, no evidence of
contributory negligence was adduced against the owner of the bus. Instead, it was the
owner of the bus who proved the exercise of extraordinary diligence by preponderant
evidence. Also, the records are replete with the showing of negligence on the part of both
the Perenñ as and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated railroad
crossing when it was hit by the train, but the Perenñ as’ school van traversed the railroad
tracks at a point not intended for that purpose.

19 | P a g e
At any rate, the lower courts correctly held both the Perenñ as and the PNR "jointly and
severally" liable for damages arising from the death of Aaron. They had been impleaded in
the same complaint as defendants against whom the Zarates had the right to relief, whether
jointly, severally, or in the alternative, in respect to or arising out of the accident, and
questions of fact and of law were common as to the Zarates. 36 Although the basis of the right
to relief of the Zarates (i.e., breach of contract of carriage) against the Perenñ as was distinct
from the basis of the Zarates’ right to relief against the PNR (i.e., quasi-delict under Article
2176, Civil Code), they nonetheless could be held jointly and severally liable by virtue of
their respective negligence combining to cause the death of Aaron. As to the PNR, the RTC
rightly found the PNR also guilty of negligence despite the school van of the Perenñ as
traversing the railroad tracks at a point not dedicated by the PNR as a railroad crossing for
pedestrians and motorists, because the PNR did not ensure the safety of others through the
placing of crossbars, signal lights, warning signs, and other permanent safety barriers to
prevent vehicles or pedestrians from crossing there. The RTC observed that the fact that a
crossing guard had been assigned to man that point from 7 a.m. to 5 p.m. was a good
indicium that the PNR was aware of the risks to others as well as the need to control the
vehicular and other traffic there. Verily, the Perenñ as and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aaron’s earning capacity proper?

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with
the RTC on the liability, the CA modified the amount. Both lower courts took into
consideration that Aaron, while only a high school student, had been enrolled in one of the
reputable schools in the Philippines and that he had been a normal and able-bodied child
prior to his death. The basis for the computation of Aaron’s earning capacity was not what
he would have become or what he would have wanted to be if not for his untimely death,
but the minimum wage in effect at the time of his death. Moreover, the RTC’s computation
of Aaron’s life expectancy rate was not reckoned from his age of 15 years at the time of his
death, but on 21 years, his age when he would have graduated from college.

We find the considerations taken into account by the lower courts to be reasonable and
fully warranted.

Yet, the Perenñ as submit that the indemnity for loss of earning capacity was speculative and
unfounded.1âwphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted the
indemnity for victim Jussi Leino’s loss of earning capacity as a pilot for being speculative
due to his having graduated from high school at the International School in Manila only two
years before the shooting, and was at the time of the shooting only enrolled in the first
semester at the Manila Aero Club to pursue his ambition to become a professional pilot.
That meant, according to the Court, that he was for all intents and purposes only a high
school graduate.

We reject the Perenñ as’ submission.

20 | P a g e
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that
Aaron would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a
physician, or a lawyer). Instead, the computation of Aaron’s earning capacity was premised
on him being a lowly minimum wage earner despite his being then enrolled at a prestigious
high school like Don Bosco in Makati, a fact that would have likely ensured his success in his
later years in life and at work.

And, secondly, the fact that Aaron was then without a history of earnings should not be
taken against his parents and in favor of the defendants whose negligence not only cost
Aaron his life and his right to work and earn money, but also deprived his parents of their
right to his presence and his services as well. Our law itself states that the loss of the
earning capacity of the deceased shall be the liability of the guilty party in favor of the heirs
of the deceased, and shall in every case be assessed and awarded by the court "unless the
deceased on account of permanent physical disability not caused by the defendant, had no
earning capacity at the time of his death."38 Accordingly, we emphatically hold in favor of the
indemnification for Aaron’s loss of earning capacity despite him having been unemployed,
because compensation of this nature is awarded not for loss of time or earnings but for loss
of the deceased’s power or ability to earn money. 39

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company,40 fourth-year medical student
Edgardo Carriaga’s earning capacity, although he survived the accident but his injuries
rendered him permanently incapacitated, was computed to be that of the physician that he
dreamed to become. The Court considered his scholastic record sufficient to justify the
assumption that he could have finished the medical course and would have passed the
medical board examinations in due time, and that he could have possibly earned a modest
income as a medical practitioner. Also, in People v. Sanchez, 41 the Court opined that murder
and rape victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed
good-paying jobs had they graduated in due time, and that their jobs would probably pay
them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their graduation. Their
earning capacities were computed at rates higher than the minimum wage at the time of
their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Banñ os, the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Perenñ as plead for the reduction of the moral and exemplary damages awarded to the
Zarates in the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that
such amounts were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’
21 | P a g e
deep mental anguish over their son’s unexpected and violent death, and their moral shock
over the senseless accident. That amount would not be too much, considering that it would
help the Zarates obtain the means, diversions or amusements that would alleviate their
suffering for the loss of their child. At any rate, reducing the amount as excessive might
prove to be an injustice, given the passage of a long time from when their mental anguish
was inflicted on them on August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount
if only to render effective the desired example for the public good. As a common carrier, the
Perenñ as needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again. Only by an award
of exemplary damages in that amount would suffice to instill in them and others similarly
situated like them the ever-present need for greater and constant vigilance in the conduct
of a business imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

G.R. No. 138334 August 25, 2003

ESTELA L. CRISOSTOMO, Petitioner,

vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., Respondents.

DECISION

YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe". The package tour included the
countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at
a total cost of P74,322.70. Petitioner was given a 5% discount on the amount, which
included airfare, and the booking fee was also waived because petitioner’s niece, Meriam
Menor, was respondent company’s ticketing manager.

Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a
Wednesday – to deliver petitioner’s travel documents and plane tickets. Petitioner, in turn,
gave Menor the full payment for the package tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on Saturday, two hours before her flight on board
British Airways.

22 | P a g e
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15,
1991, to take the flight for the first leg of her journey from Manila to Hongkong. To
petitioner’s dismay, she discovered that the flight she was supposed to take had already
departed the previous day. She learned that her plane ticket was for the flight scheduled on
June 14, 1991. She thus called up Menor to complain.

Subsequently, Menor prevailed upon petitioner to take another tour – the "British Pageant"
– which included England, Scotland and Wales in its itinerary. For this tour package,
petitioner was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing
exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment and
commenced the trip in July 1991.

Upon petitioner’s return from Europe, she demanded from respondent the reimbursement
of P61,421.70, representing the difference between the sum she paid for "Jewels of Europe"
and the amount she owed respondent for the "British Pageant" tour. Despite several
demands, respondent company refused to reimburse the amount, contending that the same
was non-refundable.1 Petitioner was thus constrained to file a complaint against respondent
for breach of contract of carriage and damages, which was docketed as Civil Case No. 92-
133 and raffled to Branch 59 of the Regional Trial Court of Makati City.

In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to
respondent’s fault since it did not clearly indicate the departure date on the plane ticket.
Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the "British Pageant" was merely a substitute for the
"Jewels of Europe" tour, such that the cost of the former should be properly set-off against
the sum paid for the latter.

For its part, respondent company, through its Operations Manager, Concepcion Chipeco,
denied responsibility for petitioner’s failure to join the first tour. Chipeco insisted that
petitioner was informed of the correct departure date, which was clearly and legibly
printed on the plane ticket. The travel documents were given to petitioner two days ahead
of the scheduled trip. Petitioner had only herself to blame for missing the flight, as she did
not bother to read or confirm her flight schedule as printed on the ticket.

Respondent explained that it can no longer reimburse the amount paid for "Jewels of
Europe", considering that the same had already been remitted to its principal in Singapore,
Lotus Travel Ltd., which had already billed the same even if petitioner did not join the tour.
Lotus’ European tour organizer, Insight International Tours Ltd., determines the cost of a
package tour based on a minimum number of projected participants. For this reason, it is
accepted industry practice to disallow refund for individuals who failed to take a booked
tour.3

Lastly, respondent maintained that the "British Pageant" was not a substitute for the
package tour that petitioner missed. This tour was independently procured by petitioner
after realizing that she made a mistake in missing her flight for "Jewels of Europe".
Petitioner was allowed to make a partial payment of only US$300.00 for the second tour
23 | P a g e
because her niece was then an employee of the travel agency. Consequently, respondent
prayed that petitioner be ordered to pay the balance of P12,901.00 for the "British Pageant"
package tour.

After due proceedings, the trial court rendered a decision, 4 the dispositive part of which
reads:

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

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

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

3. Dismissing the defendant’s counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.5

The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut
petitioner’s testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menor’s verbal
representation. The trial court thus declared that petitioner was guilty of contributory
negligence and accordingly, deducted 10% from the amount being claimed as refund.

Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent
because as a lawyer and well-traveled person, she should have known better than to simply
rely on what was told to her. This being so, she is not entitled to any form of damages.
Petitioner also forfeited her right to the "Jewels of Europe" tour and must therefore pay
respondent the balance of the price for the "British Pageant" tour. The dispositive portion of
the judgment appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated October
26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED
requiring the plaintiff-appellee to pay to the defendant-appellant the amount of P12,901.00,
representing the balance of the price of the British Pageant Package Tour, the same to earn
legal interest at the rate of SIX PERCENT (6%) per annum, to be computed from the time
the counterclaim was filed until the finality of this decision. After this decision becomes
final and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be

24 | P a g e
additionally imposed on the total obligation until payment thereof is satisfied. The award of
attorney’s fees is DELETED. Costs against the plaintiff-appellee.

SO ORDERED.6

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

It is respectfully submitted that the Honorable Court of Appeals committed a

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

II

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

III

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

Petitioner contends that respondent did not observe the standard of care required of a
common carrier when it informed her wrongly of the flight schedule. She could not be
deemed more negligent than respondent since the latter is required by law to exercise
extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the
same is merely contributory and not the proximate cause of the damage she suffered. Her
loss could only be attributed to respondent as it was the direct consequence of its
employee’s gross negligence.

Petitioner’s contention has no merit.

By definition, a contract of carriage or transportation is one whereby a certain person or

association of persons obligate themselves to transport persons, things, or news from one
place to another for a fixed price.9 Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. 10 A
25 | P a g e
common carrier is defined under Article 1732 of the Civil Code as persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to the public.

It is obvious from the above definition that respondent is not an entity engaged in the
business of transporting either passengers or goods and is therefore, neither a private nor a
common carrier. Respondent did not undertake to transport petitioner from one place to
another since its covenant with its customers is simply to make travel arrangements in
their behalf. Respondent’s services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.

While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most,
respondent acted merely as an agent of the airline, with whom petitioner ultimately
contracted for her carriage to Europe. Respondent’s obligation to petitioner in this regard
was simply to see to it that petitioner was properly booked with the airline for the
appointed date and time. Her transport to the place of destination, meanwhile, pertained
directly to the airline.

The object of petitioner’s contractual relation with respondent is the latter’s service of
arranging and facilitating petitioner’s booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary
one for services and not one of carriage. Petitioner’s submission is premised on a wrong
assumption.

The nature of the contractual relation between petitioner and respondent is determinative
of the degree of care required in the performance of the latter’s obligation under the
contract. For reasons of public policy, a common carrier in a contract of carriage is bound
by law to carry passengers as far as human care and foresight can provide using the utmost
diligence of very cautious persons and with due regard for all the circumstances. 11 As
earlier stated, however, respondent is not a common carrier but a travel agency. It is thus
not bound under the law to observe extraordinary diligence in the performance of its
obligation, as petitioner claims.

Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil
Code.12 This connotes reasonable care consistent with that which an ordinarily prudent
person would have observed when confronted with a similar situation. The test to
determine whether negligence attended the performance of an obligation is: did the
defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence.13

In the case at bar, the lower court found Menor negligent when she allegedly informed
petitioner of the wrong day of departure. Petitioner’s testimony was accepted as
26 | P a g e
indubitable evidence of Menor’s alleged negligent act since respondent did not call Menor
to the witness stand to refute the allegation. The lower court applied the presumption
under Rule 131, Section 3 (e)14 of the Rules of Court that evidence willfully suppressed
would be adverse if produced and thus considered petitioner’s uncontradicted testimony to
be sufficient proof of her claim.

On the other hand, respondent has consistently denied that Menor was negligent and
maintains that petitioner’s assertion is belied by the evidence on record. The date and time
of departure was legibly written on the plane ticket and the travel papers were delivered
two days in advance precisely so that petitioner could prepare for the trip. It performed all
its obligations to enable petitioner to join the tour and exercised due diligence in its
dealings with the latter.

We agree with respondent.

Respondent’s failure to present Menor as witness to rebut petitioner’s testimony could not
give rise to an inference unfavorable to the former. Menor was already working in France at
the time of the filing of the complaint,15 thereby making it physically impossible for
respondent to present her as a witness. Then too, even if it were possible for respondent to
secure Menor’s testimony, the presumption under Rule 131, Section 3(e) would still not
apply. The opportunity and possibility for obtaining Menor’s testimony belonged to both
parties, considering that Menor was not just respondent’s employee, but also petitioner’s
niece. It was thus error for the lower court to invoke the presumption that respondent
willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would
logically be inoperative if the evidence is not intentionally omitted but is simply
unavailable, or when the same could have been obtained by both parties. 16

In sum, we do not agree with the finding of the lower court that Menor’s negligence
concurred with the negligence of petitioner and resultantly caused damage to the latter.
Menor’s negligence was not sufficiently proved, considering that the only evidence
presented on this score was petitioner’s uncorroborated narration of the events. It is well-
settled that the party alleging a fact has the burden of proving it and a mere allegation
cannot take the place of evidence.17 If the plaintiff, upon whom rests the burden of proving
his cause of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense. 18

Contrary to petitioner’s claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure
in rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket19 issued to petitioner clearly reflected the departure date and time, contrary to
petitioner’s contention. The travel documents, consisting of the tour itinerary, vouchers and
instructions, were likewise delivered to petitioner two days prior to the trip. Respondent
also properly booked petitioner for the tour, prepared the necessary documents and
procured the plane tickets. It arranged petitioner’s hotel accommodation as well as food,
land transfers and sightseeing excursions, in accordance with its avowed undertaking.

27 | P a g e
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised
due diligence in the conduct of her affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were delivered to petitioner, it became
incumbent upon her to take ordinary care of her concerns. This undoubtedly would require
that she at least read the documents in order to assure herself of the important details
regarding the trip.

The negligence of the obligor in the performance of the obligation renders him liable for
damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance of the
obligation as the nature of the obligation so demands.20 There is no fixed standard of
diligence applicable to each and every contractual obligation and each case must be
determined upon its particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been negligent is a question of
fact that is to be determined after taking into account the particulars of each
case.21 1âwphi1

The lower court declared that respondent’s employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are
generally conclusive upon this court, the rule is subject to certain exceptions, as when the
trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight
and substance which will affect the result of the case. 22

In the case at bar, the evidence on record shows that respondent company performed its
duty diligently and did not commit any contractual breach. Hence, petitioner cannot
recover and must bear her own damage.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay
respondent the amount of P12,901.00 representing the balance of the price of the British
Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be
computed from the time the counterclaim was filed until the finality of this Decision. After
this Decision becomes final and executory, the rate of 12% per annum shall be imposed
until the obligation is fully settled, this interim period being deemed to be by then an
equivalent to a forbearance of credit.23

SO ORDERED.

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

NATIONAL STEEL CORPORATION, Petitioner, v. COURT OF APPEALS AND VLASONS

SHIPPING, INC., Respondents.

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

28 | P a g e
 VLASONS SHIPPING, INC., Petitioner, v. COURT OF APPEALS and NATIONAL STEEL
CORPORATION, Respondents.

DECISION

PANGANIBAN, J.:

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

The Case

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

"WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff
dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the
defendant on the counterclaim as follows:chanrob1es virtual 1aw library

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;

2. Attorney’s fees and expenses of litigation in the sum of P100,000.00; and

3. Cost of suit.

SO ORDERED." 2

On the other hand, the Court of Appeals ruled:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, the decision appealed from is modified by reducing

the award for demurrage to P44,000.00 and deleting the award for attorney’s fees and
expenses of litigation. Except as thus modified, the decision is AFFIRMED. There is no
pronouncement as to costs.

SO ORDERED." 3
29 | P a g e
 The Facts

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

The facts as found by Respondent Court of Appeals are as follows:jgc:chanrobles.com.ph

"(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire
(Exhibit ‘B’; also Exhibit ‘1’) whereby NSC hired VSI’s vessel, the MV ‘VLASONS I’ to make
one (1) voyage to load steel products at Iligan City and discharge them at North Harbor,
Manila, under the following terms and conditions, viz:chanrob1es virtual 1aw library

‘1. . . .

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

3. . . .

4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of

Lading within fifteen (15) days.

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

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24

consecutive hours, Sundays and Holidays Included).

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

8. . . .

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

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

x x x’

30 | P a g e
The terms ‘F.I.O.S.T.’ which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for ‘Freight In and Out including Stevedoring and
Trading’, which means that the handling, loading and unloading of the cargoes are the
responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states,
‘Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . .’
(Emphasis supplied).

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

Paragraph 12 of said NANYOZAI Charter Party also provides that ‘(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default
of the master and crew.’

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the
MV ‘VLASONS I’ loaded at plaintiffs pier at Iligan City, the NSC’s shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total
weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the
three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the corresponding bill of lading,
B.L.P.P. No. 0233 (Exhibit ‘D’) on August 8, 1974.

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

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey
of the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the
NSC dated March 17, 1975 (Exhibit ‘G’), MASCO made a report of its ocular inspection

31 | P a g e
conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO
reported that it found wetting and rusting of the packages of hot rolled sheets and metal
covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over. MASCO ventured the opinion
that ‘rusting of the tinplates was caused by contact with SEA WATER sustained while still
on board the vessel as a consequence of the heavy weather and rough seas encountered
while en route to destination (Exhibit ‘F’). It was also reported that MASCO’s surveyors
drew at random samples of bad order packing materials of the tinplates and delivered the
same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit ‘I’) which in part, states, ‘The analysis of bad
order samples of packing materials . . . shows that wetting was caused by contact with SEA
WATER’.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with
the defendant its claim for damages suffered due to the downgrading of the damaged
tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally
demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed
its complaint against defendant on April 21, 1976 which was docketed as Civil Case No.
23317, CFI, Rizal.

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

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
‘VLASONS I’ was seaworthy in all respects for the carriage of plaintiff’s cargo; that said
vessel was not a ‘common carrier’ inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course of the voyage from
Iligan City to Manila, the MV ‘VLASONS I’ encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and big waves to continuously pound
against the vessel and seawater to overflow on its deck and hatch covers; that under the
Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the vessel, that the officers of said MV
‘VLASONS I’ exercised due diligence and proper seamanship and were not willfully
negligent; that furthermore the Voyage Charter Party provides that loading and discharging
of the cargo was on FIOST terms which means that the vessel was free of risk and expense
in connection with the loading and discharging of the cargo; that the damage, if any, was
due to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof
or to latent defect of the cargo not discoverable by due diligence or to any other cause
arising without the actual fault or privity of defendant and without the fault of the agents or
servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff

32 | P a g e
who discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; and that the cargo was exposed to rain and seawater spray while on
the pier or in transit from the pier to plaintiff’s warehouse after discharge from the vessel;
and that plaintiff’s claim was highly speculative and grossly exaggerated and that the small
stain marks or sweat marks on the edges of the tinplates were magnified and considered
total loss of the cargo. Finally, defendant claimed that it had complied with all its duties and
obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever
to plaintiff. In turn, it alleged the following counterclaim:chanrob1es virtual 1aw library

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

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

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

(8) From the evidence presented by both parties, the trial court came out with the following
findings which were set forth in its decision:chanrob1es virtual 1aw library

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

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

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of
Voyage Charter Hire, the MV ‘VLASONS I’ underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the vessel’s
first voyage after the drydocking. The evidence shows that the MV ‘VLASONS I’ was

33 | P a g e
seaworthy and properly manned, equipped and supplied when it undertook the voyage. It
had all the required certificates of seaworthiness.

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

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

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

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

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage
Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff
complied with the requirement, then it could have recovered its loss or damage from the
insurer. Plaintiff also violated the charter party contract when it loaded not only ‘steel

34 | P a g e
products’, i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets
which are high grade cargo commanding a higher freight. Thus plaintiff was able to ship
high grade cargo at a lower freight rate.

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

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:chanrob1es
virtual 1aw library

"I

The trial court erred in finding that the MV ‘VLASONS I’ was seaworthy, properly manned,
equipped and supplied, and that there is no proof of willful negligence of the vessel’s
officers.

"II

The trial court erred in finding that the rusting of NSC’s tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.

"III

The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSC’s shipment.

"IV

The trial court erred in exempting VSI from liability on the ground of force majeure.

"V

The trial court erred in finding that NSC violated the contract of voyage charter hire.

"VI

35 | P a g e
The trial court erred in ordering NSC to pay freight, demurrage and attorney’s fees, to VSI."
4

As earlier stated, the Court of Appeals modified the decision of the trial court by reducing
the demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and
expenses of litigation. NSC and VSI filed separate motions for reconsideration. In a
Resolution 5 dated October 20, 1993, the appellate court denied both motions. Undaunted,
NSC and VSI filed their respective petitions for review before this Court. On motion of VSI,
the Court ordered on February 14, 1994 the consolidation of these petitions. 6

The Issues

In its petition 7 and memorandum, 8 NSC raises the following questions of law and
fact:chanrob1es virtual 1aw library

Questions of Law

"1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;

2. Whether or not the alleged ‘seaworthiness certificates’ (Exhibits ‘3’, ‘4’, ‘5’, ‘6’, ‘7’, ‘8’, ‘9’,
‘11’ and ‘12’) were admissible in evidence and constituted evidence of the vessel’s
seaworthiness at the beginning of the voyages; and

3. Whether or not a charterer’s failure to insure its cargo exempts the shipowner from
liability for cargo damage."cralaw virtua1aw library

Questions of Fact

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

2. Whether or not vessel’s officers and crew were negligent in handling and caring for NSC’s
cargo;

3. Whether or not NSC’s cargo of tinplates did sweat during the voyage and, hence, rusted
on their own; and

4. Whether or not NSC’s stevedores were negligent and caused the wetting[/]rusting of
NSC’s tinplates."cralaw virtua1aw library

In its separate petition, 9 VSI submits for the consideration of this Court the following
alleged errors of the CA:jgc:chanrobles.com.ph

36 | P a g e
"A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of
P10,000 for attorney’s fees and expenses of litigation."cralaw virtua1aw library

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

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

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties."cralaw
virtua1aw library

The foregoing issues raised by the parties will be discussed under the following
headings:chanrob1es virtual 1aw library

1. Questions of Fact

2. Effect of NSC’s Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

4. Demurrage and Attorney’s Fees.

The Court’s Ruling

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

Preliminary Matter : Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common
carrier or as a private carrier. The resolution of this preliminary question determines the
law, standard of diligence and burden of proof applicable to the present case.

Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public." It has
been held that the true test of a common carrier is the carriage of passengers or goods,
provided it has space, for all who opt to avail themselves of its transportation service for a
fee. 11 A carrier which does not qualify under the above test is deemed a private carrier.
"Generally, private carriage is undertaken by special agreement and the carrier does not
37 | P a g e
hold himself out to carry goods for the general public. The most typical, although not the
only form of private carriage, is the charter party, a maritime contract by which the
charterer, a party other than the shipowner, obtains the use and service of all or some part
of a ship for a period of time or a voyage or voyages." 12

In the instant case, it is undisputed that VSI did not offer its services to the general public.
As found by the Regional Trial Court, it carried passengers or goods only for those it chose
under a "special contract of charter party." 13 As correctly concluded by the Court of
Appeals, the MV Vlasons I "was not a common but a private carrier." 14 Consequently, the
rights and obligations of VSI and NSC, including their respective liability for damage to the
cargo, are determined primarily by stipulations in their contract of private carriage or
charter party. 15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., v. Court of
Appeals and Seven Brothers Shipping Corporation, 16 the Court
ruled:jgc:chanrobles.com.ph

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

Extent of VSI’s Responsibility and

Liability Over NSC’s Cargo

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

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to
its shipment was caused by VSI’s willful negligence or failure to exercise due diligence in
making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo.

38 | P a g e
Ineluctably, the burden of proof was placed on NSC by the parties’ agreement.

This view finds further support in the Code of Commerce which pertinently
provides:jgc:chanrobles.com.ph

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

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

The burden of proof of these accidents is on the carrier."cralaw virtua1aw library

"Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading, making him to believe that
the goods were of a class or quality different from what they really were."cralaw virtua1aw
library

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

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

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

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

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

First Issue : Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the
intended purpose under the charter party; (2) whether the damage to the cargo should be
attributed to the willful negligence of the officers and crew of the vessel or of the
stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own
"sweat" or by contact with seawater.chanrobles.com:cralaw:red

These questions of fact were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties’ conflicting claims and to carefully weigh their
respective evidence. The findings of the trial court were subsequently affirmed by the Court
of Appeals. Where the factual findings of both the trial court and the Court of Appeals
coincide, the same are binding on this Court. 22 We stress that, subject to some exceptional
instances, 23 only questions of law — not questions of fact — may be raised before this
Court in a petition for review under Rule 45 of the Rules of Court. After a thorough review
of the case at bar, we find no reason to disturb the lower courts’ factual findings, as indeed
NSC has not successfully proven the application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

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

40 | P a g e
or reverse this finding of both the trial and the appellate courts.

Who Were Negligent :chanrob1es virtual 1aw library

Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was
caused by the negligence of the officers and the crew of MV Vlasons I in making their vessel
seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn
tarpaulin or canvas to cover the hatches through which the cargo was loaded into the cargo
hold of the ship. It faults the Court 26 of Appeals for failing to consider such claim as an
"uncontroverted fact and denies that MV Vlasons I "was equipped with new canvas covers
in tandem with the old ones as indicated in the Marine Protest . . ." 27 We disagree.

The records sufficiently support VSI’s contention that the ship used the old tarpaulin, only
in addition to the new one used primarily to make the ship’s hatches watertight. The
foregoing are clear from the marine protest of the master of the MV Vlasons I, Antonio C.
Dumlao, and the deposition of the ship’s boatswain, Jose Pascua. The salient portions of
said marine protest read:jgc:chanrobles.com.ph

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

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

x x x" 28

And the relevant portions of Jose Pascua’s deposition are as follows:jgc:chanrobles.com.ph

"q What is the purpose of the canvas cover?

41 | P a g e
a So that the cargo would not be soaked with water.

q And will you describe how the canvas cover was secured on the hatch opening?

WITNESS

a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and
we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a
stopper so that the canvas could not be removed.

ATTY. DEL ROSARIO

q And will you tell us the size of the hatch opening? The length and the width of the hatch
opening.

a Forty-five feet by thirty-five feet, sir.

x x x

q How was the canvas supported in the middle of the hatch opening?

a There is a hatch board.

ATTY. DEL ROSARIO

q What is the hatch board made of?

a It is made of wood, with a handle.

q And aside from the hatch board, is there any other material there to cover the hatch?

a There is a beam supporting the hatch board.

q What is this beam made of?

a It is made of steel, sir.

q Is the beam that was placed in the hatch opening covering the whole hatch opening?

a No, sir.

q How many hatch beams were there placed across the opening?

a There are five beams in one hatch opening.

42 | P a g e
ATTY. DEL ROSARIO

q And on top of the beams you said there is a hatch board. How many pieces of wood are
put on top?

a Plenty, sir, because there are several pieces on top of the hatch beam.

q And is there a space between the hatch boards?

a There is none, sir.

q They are tight together?

a Yes, sir.

q How tight?

a Very tight, sir.

q Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas
covers?

a Two, sir." 29

That due diligence was exercised by the officers and the crew of the MV Vlasons I was
further demonstrated by the fact that, despite encountering rough weather twice, the new
tarpaulin did not give way and the ship’s hatches and cargo holds remained waterproof. As
aptly stated by the Court of Appeals,." . . we find no reason not to sustain the conclusion of
the lower court based on overwhelming evidence, that the MV ‘VLASONS I’ was seaworthy
when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-
appellant’s shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a
total of 1,769 packages from NSC’s pier in Iligan City arriving safely at North Harbor, Port
Area, Manila, on August 12, 1974; . . ." 30

Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and
the crew of MV Vlasons I, On the contrary, the records reveal that it was the stevedores of
NSC who were negligent in unloading the cargo from the ship.chanroblesvirtuallawlibrary

The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the loading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of
the ship. Vicente Angliongto, an officer of VSI, testified thus:jgc:chanrobles.com.ph

"ATTY. ZAMORA:chanrob1es virtual 1aw library

43 | P a g e
Q Now, during your testimony on November 5, 1979, you stated on August 14 you went on
board the vessel upon notice from the National Steel Corporation in order to conduct the
inspection of the cargo. During the course of the investigation, did you chance to see the
discharging operation?

WITNESS:chanrob1es virtual 1aw library

A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on
the pier but majority of the tinplates were inside the hall, all the hatches were opened.

Q In connection with these cargoes which were unloaded, where is the place.

A At the Pier.

Q What was used to protect the same from weather?

ATTY. LOPEZ:chanrob1es virtual 1aw library

We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct examination.

ATTY. ZAMORA:chanrob1es virtual 1aw library

Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.

COURT:chanrob1es virtual 1aw library

All right, witness may answer.

ATTY. LOPEZ:chanrob1es virtual 1aw library

Q What was used in order to protect the cargo from the weather?

A A base of canvas was used as cover on top of the tinplates, and tents were built at the
opening of the hatches.

Q You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now, will you
describe [to] the Court the tents constructed.

A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high
at the middle with the whole side separated down to the hatch, the size of the hatch and it
is soaks [sic] at the middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.

44 | P a g e
Q Now, is this procedure adopted by the stevedores of covering tents proper?

A No sir, at the time they were discharging the cargo, there was a typhoon passing by and
the hatch tent was not good enough to hold all of it to prevent the water soaking through
the canvas and enter the cargo.

Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvas and tinplates.

A Yes, sir, the second time I went there, I saw it.

Q As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?

A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the National
Steel but nothing was done, just the same. Finally, I wrote a letter to them." 31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to

complain immediately about the stevedores’ negligence on the first day of unloading,
pointing out that he wrote his letter to petitioner only seven days later. 32 The Court is not
persuaded. Angliongto’s candid answer in his aforequoted testimony satisfactorily
explained the delay. Seven days lapsed because he first called the attention of the
stevedores, then the NSC’s representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response in
accord with common sense and ordinary human experience. Vicente Angliongto could not
be blamed for calling the stevedores’ attention first and then the NSC’s representative on
location before formally informing NSC of the negligence he had observed, because he was
not responsible for the stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for the stevedores it had
hired and the performance of their task to unload the cargo.

We see no reason to reverse the trial and the appellate courts’ findings and conclusions on
this point, viz:jgc:chanrobles.com.ph

"In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSC’s shipment. We do not
think so. Such negligence according to the trial court is evident in the stevedores hired by
[NSC], not closing the hatch of MV ‘VLASONS I’ when rains occurred during the discharging
of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to
and fall on the cargo. It was proven that the stevedores merely set up temporary tents or
canvas to cover the hatch openings when it rained during the unloading operations so that
it would be easier for them to resume work after the rains stopped by just removing said

45 | P a g e
tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente
Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were
discharging the cargo on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tinplates’ covers and [Vicente
Angliongto] also suggesting that due to four (4) days continuous rains with strong winds
that the hatches be totally closed down and covered with canvas and the hatch tents
lowered. (Exh ‘13’). This letter was received by [NSC] on 22 August 1974 while discharging
operations were still going on (Exhibit ‘13-A’)" 33

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

Do Tinplates "Sweat" ?

The trial court relied on the testimony of Vicente Angliongto in finding that." . . tinplates
‘sweat’ by themselves when packed even without being in contact with water from outside
especially when the weather is bad or raining . . ." 35 The Court of Appeals affirmed the trial
court’s finding.

A discussion of this issue appears inconsequential and unnecessary. As previously

discussed, the damage to the tinplates was occasioned not by airborne moisture but by
contact with rain and seawater which the stevedores negligently allowed to seep in during
the unloading.

Second Issue : Effect of NSC’s Failure to Insure the Cargo

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

Third Issue : Admissibility of Certificates Proving Seaworthiness

46 | P a g e
NSC’s contention that MV Vlasons I was not seaworthy is anchored on the alleged
inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said
certificates include the following:chanrob1es virtual 1aw library

1. Certificate of Inspection of the Philippine Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard

3. International Load Line Certificate from the Philippine Coast Guard

4. Coastwise License from the Board of Transportation

5. Certificate of Approval for Conversion issued by the Bureau of Customs 36

NSC argues that the certificates are hearsay for not having been presented in accordance
with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written
records or acts of public officers" ; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced
by official publications or certified true copies" as required by Sections 25 and 26, Rule 132,
of the Rules of Court. 37

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9
and 12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and
4 are certificates issued by private parties, but they have not been proven by one who saw
the writing executed, or by evidence of the genuineness of the handwriting of the maker, or
by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission
under the best evidence rule have not been demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled exception to the

hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that" (e)ntries
in official records made in the performance of a duty by a public officer of the Philippines,
or by a person in the performance of a duty specially enjoined by law, are prima facie
evidence of the facts therein stated." 38 Exhibit 11 is an original certificate of the Philippine
Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the
vessel ‘VLASONS I’, was drydocked . . . and PCG Inspectors were sent on board for inspection
. . . After completion of drydocking and duly inspected by PCG Inspectors, the vessel
‘VLASONS I’, a cargo vessel, is in seaworthy condition, meets all requirements, fitted and
equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed
for Cebu Port on July 10, 1974." (sic) NSC’s Claim, therefore, is obviously misleading and
erroneous.

At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was
not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not
have the obligation of a common carrier to show that it was seaworthy. Indeed, NSC
glaringly failed to discharge its duty of proving the willful negligence of VSI in making the
ship seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate

47 | P a g e
of seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue : Demurrage and Attorney’s Fees

The contract of voyage charter hire provides inter alia:jgc:chanrobles.com.ph

"x x x

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

x x x

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

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

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

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

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

Attorney’s Fees

48 | P a g e
VSI assigns as error of law the Court of Appeals’ deletion of the award of attorney’s fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not
justify an award of attorney’s fees under Article 2208 of the Civil Code when." . . no
sufficient showing of bad faith would be reflected in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause . . ." 44 Moreover, attorney’s
fees may not be awarded to a party for the reason alone that the judgment rendered was
favorable to the latter, as this is tantamount to imposing a premium on one’s right to litigate
or seek judicial redress of legitimate grievances. 45

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the
damage to the cargo? Ranged against NSC are two formidable truths. First, both lower
courts found that such damage was brought about during the unloading process when rain
and seawater seeped through the cargo due to the fault or negligence of the stevedores
employed by it. Basic is the rule that factual findings of the trial court, when affirmed by the
Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions,
NSC has not satisfactorily shown that this case is one of them. Second, the agreement
between the parties — the Contract of Voyage Charter Hire — placed the burden of proof
for such loss or damage upon the shipper, not upon the shipowner. Such stipulation, while
disadvantageous to NSC, is valid because the parties entered into a contract of private
charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a
party from the effects of a private contract freely entered into, on the ground that it is
allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial
contract and its stipulations are agreed upon in consideration of many factors, not the least
of which is the transport price which is determined not only by the actual costs but also by
the risks and burdens assumed by the shipper in regard to possible loss or damage to the
cargo. In recognition of such factors, the parties even stipulated that the shipper should
insure the cargo to protect itself from the risks it undertook under the charter party. That
NSC failed or neglected to protect itself with such insurance should not adversely affect VSI,
which had nothing to do with such failure or neglect.

WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED.
The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that
the demurrage awarded to VSI is deleted. No pronouncement as to costs.

SO ORDERED.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and

49 | P a g e
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals
dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of
Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as

amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 19671 and renewed by the Energy Regulatory Board in
1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the
amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent

City Treasurer, the pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a

government concession granted under the Petroleum Act. It is engaged
in the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such,
our Company is exempt from paying tax on gross receipts under Section
133 of the Local Government Code of 1991 . . . .

Moreover, Transportation contractors are not included in the

enumeration of contractors under Section 131, Paragraph (h) of the
Local Government Code. Therefore, the authority to impose tax "on
contractors and other independent contractors" under Section 143,
Paragraph (e) of the Local Government Code does not include the power
to levy on transportation contractors.

50 | P a g e
 The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation, inspection,
and licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is violative of
the aforecited provision. The amount of P956,076.04 (P239,019.01 per
quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere
regulatory imposition.4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot
claim exemption under Section 133 (j) of the Local Government Code.5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation
contractors; and, (3) the City Treasurer illegally and erroneously imposed and
collected the said tax, thus meriting the immediate refund of the tax paid. 7

Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents
assert that pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination.8

On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:

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

. . . the exemption to tax claimed by the plaintiff has become unclear. It is

a rule that tax exemptions are to be strictly construed against the
taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.

51 | P a g e
 Plaintiff claims that it is a grantee of a pipeline concession under
Republic Act 387. (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders

under Sec. 137 of the Local Tax Code. Such being the situation obtained
in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:

1. That the exemption granted under Sec. 133

(j) encompasses only common carriers so as
not to overburden the riding public or
commuters with taxes. Plaintiff is not a
common carrier, but a special carrier
extending its services and facilities to a single
specific or "special customer" under a
"special contract."

2. The Local Tax Code of 1992 was basically

enacted to give more and effective local
autonomy to local governments than the
previous enactments, to make them
economically and financially viable to serve
the people and discharge their functions with
a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with
this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed
under Sec. 143 (e) and 151 of the Code.9

Petitioner assailed the aforesaid decision before this Court via a petition for review.
On February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10 On November 29, 1995, the respondent court
rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13Petitioner moved for a reconsideration which was granted by
this Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.

There is merit in the petition.

52 | P a g e
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the
public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of

carrying goods for others as a public
employment, and must hold himself out as
ready to engage in the transportation of
goods for person generally as a business and
not as a casual occupation;

2. He must undertake to carry goods of the

kind to which his business is confined;

3. He must undertake to carry by the method

by which his business is conducted and over
his established roads; and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is
a common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all
persons indifferently, that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition of a common carrier. In De
Guzman vs. Court of Appeals 16we ruled that:

The above article (Art. 1732, Civil Code) makes no

distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local
idiom, as a "sideline"). Article 1732 . . . avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general
public," i.e., the general community or population, and one
53 | P a g e
 who offers services or solicits business only from a narrow
segment of the general population. We think that Article
1877 deliberately refrained from making such
distinctions.

So understood, the concept of "common carrier" under

Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set
forth in the Civil Code. Under Section 13, paragraph (b) of
the Public Service Act, "public service" includes:

every person that now or hereafter may own,

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

Also, respondent's argument that the term "common carrier" as used in Section 133
(j) of the Local Government Code refers only to common carriers transporting goods
and passengers through moving vehicles or vessels either by land, sea or water, is
erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods

54 | P a g e
should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. — A

pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for
transport, and to charge without discrimination such rates
as may have been approved by the Secretary of Agriculture
and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent
portion of Article 7 thereof provides:

that everything relating to the exploration for and

exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public
utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common

carrier." In BIR Ruling No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that is

engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No.
387 . . . . Such being the case, it is not subject to
withholding tax prescribed by Revenue Regulations No.
13-78, as amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common

carrier" and, therefore, exempt from the business tax as provided for in Section 133
(j), of the Local Government Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of

Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:

xxx xxx xxx

55 | P a g e
 (j) Taxes on the gross receipts of
transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common
carriers by air, land or water,
except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local

Government Code of 1991 are illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations

on the Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business

of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the local
government units. May we know the reason why the
transportation business is being excluded from the taxing
powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception

contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not
impose taxes on the business of transportation, except as
otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to

page 98 of Book II, one can see there that provinces have
the power to impose a tax on business enjoying a franchise
at the rate of not more than one-half of 1 percent of the
gross annual receipts. So, transportation contractors who
are enjoying a franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the

imposition of taxes by local government units on the
carrier business. Local government units may impose
taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called
56 | P a g e
 "common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under Section
125 [now Sec. 137] that a province may impose this tax at a
specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr.

Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to
prevent a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again
on its gross receipts in its transportation of petroleum business would defeat the
purpose of the Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.

SO ORDERED.

Bellosillo, Puno and Mendoza, JJ., concur.

Footnotes

1 Rollo, pp. 90-94.

2 Decision of the Energy Regulatory Board in ERB Case No. 92-94,

renewing the Pipeline Concession of petitioner First Philippine
Industrial Corporation, formerly known as Meralco Securities Industrial
Corporation. (Rollo, pp. 95-100).

3 Sec. 143. Tax on Business. The municipality may impose taxes on the
following business:

xxx xxx xxx

(e) On contractors and other independent contractors, in accordance

with the following schedule:

With gross receipts for the preceding Amount of Tax Per Annum

calendar year in the amount of

57 | P a g e
......

P2, 000,000.00 or more at a rate not exceeding fifty

percent (50%) of one percent (1%)

4 Letter Protest dated January 20, 1994, Rollo, pp. 110-111.

5 Letter of respondent City Treasurer, Rollo, p. 112.

6 Complaint, Annex "C", Rollo, pp. 51-56.

7 Rollo, pp. 51-57.

8 Answer, Annex "J", Rollo, pp. 122-127.

9 RTC Decision, Rollo, pp. 58-62.

10 Rollo, p. 84.

11 CA-G.R. SP No. 36801; Penned by Justice Jose C. De la Rama and

concurred in by Justice Jaime M. Lantin and Justice Eduardo G.
Montenegro; Rollo, pp. 33-47.

12 Rollo, p. 49.

13 Resolution dated November 11, 1996 excerpts of which are

hereunder quoted:

"The petition is unmeritorious

"As correctly ruled by respondent appellate court, petitioner is not a

common carrier as it is not offering its services to the public.

"Art. 1732 of the Civil Code defines Common Carriers as: persons,
corporations, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.

"We sustain the view that petitioner is a special carrier. Based on the
facts on hand, it appears that petitioner is not offering its services to the
public.

"We agree with the findings of the appellate court that the claim for
exemption from taxation must be strictly construed against the
taxpayer. The present understanding of the concept of "common
58 | P a g e
 carries" does not include carriers of petroleum using pipelines. It is
highly unconventional to say that the business of transporting
petroleum through pipelines involves "common carrier" business. The
Local Government Code intended to give exemptions from local taxation
to common carriers transporting goods and passengers through moving
vehicles or vessels and not through pipelines. The term common carrier
under Section 133 (j) of the Local Government Code must be given its
simple and ordinary or generally accepted meaning which definitely not
include operators of pipelines."

14 G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of

Appeals, et. al.) — Considering the grounds of the motion for
reconsideration, dated December 23, 1996, filed by counsel for
petitioner, of the resolution of November 11, 1996 which denied the
petition for review on certiorari, the Court Resolved:

(a) to GRANT the motion for reconsideration and to REINSTATE the

petition; and

(b) to require respondent to COMMENT on the petition, within ten (10)

days from notice.

15 Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.

16 168 SCRA 617-618 [1988].

17 Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v.
Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct 131.

18 Journal and Record of the House of Representatives, Fourth Regular

Session, Volume 2, pp. 87-89, September 6, 1990; Emphasis Ours.

19 Annex "D" of Petition, Rollo, pp. 101-109.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

59 | P a g e
FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered
to differing establishments in Pangasinan. For that service, respondent charged freight
rates which were commonly lower than regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized

dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted
with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of
General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent
himself, while 600 cartons were placed on board the other truck which was driven by
Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes
never reached petitioner, since the truck which carried these boxes was hijacked
somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with
them the truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the undelivered
goods.

In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to
be a common carrier and holding him liable for the value of the undelivered goods (P
22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking
services to the public; in not exempting him from liability on the ground of force
majeure; and in ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
60 | P a g e
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their
services to the public.

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population.
We think that Article 1733 deliberaom making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the law on
common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:

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

It appears to the Court that private respondent is properly characterized as a common

carrier even though he merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such back-hauling was done on a periodic or occasional rather than
regular or scheduled manner, and even though private respondent's principal occupation
was not the carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable error. A
certificate of public convenience is not a requisite for the incurring of liability under the
Civil Code provisions governing common carriers. That liability arises the moment a person
or firm acts as a common carrier, without regard to whether or not such carrier has also
complied with the requirements of the applicable regulatory statute and implementing
regulations and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be offensive to sound public
policy; that would be to reward private respondent precisely for failing to comply with
applicable statutory requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities
upon common carriers for the safety and protection of those who utilize their services and
the law cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are
held to a very high degree of care and diligence ("extraordinary diligence") in the carriage
of goods as well as of passengers. The specific import of extraordinary diligence in the care
of goods transported by a common carrier is, according to Article 1733, "further expressed
in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:

(1) Flood, storm, earthquake, lightning or other natural

disaster or calamity;
(2) Act of the public enemy in war, whether international or
civil;
62 | P a g e
 (3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in
the containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the

preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article
1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case — the hijacking of the carrier's truck — does not fall within any
of the five (5) categories of exempting causes listed in Article 1734. It would follow,
therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions
of Article 1735, in other words, that the private respondent as common carrier is presumed
to have been at fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the
care of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying
the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case,
the standard of extraordinary diligence required private respondent to retain a security
guard to ride with the truck and to engage brigands in a firelight at the risk of his own life
and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable,

unjust and contrary to public policy:

xxx xxx xxx

63 | P a g e
 (5) that the common carrier shall not be responsible for the
acts or omissions of his or its employees;

(6) that the common carrier's liability for acts committed by

thieves, or of robbers who donot act with grave or
irresistible threat, violence or force, is dispensed with or
diminished; and

(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the
defective condition of the car vehicle, ship, airplane or other
equipment used in the contract of carriage. (Emphasis
supplied)

Under Article 1745 (6) above, a common carrier is held responsible — and will not be
allowed to divest or to diminish such responsibility — even for acts of strangers like thieves
or robbers, except where such thieves or robbers in fact acted "with grave or irresistible
threat, violence or force." We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent
which carried petitioner's cargo. The record shows that an information for robbery in band
was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled
"People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria
and one John Doe." There, the accused were charged with willfully and unlawfully taking
and carrying away with them the second truck, driven by Manuel Estrada and loaded with
the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force.3 Three (3) of the five (5) hold-uppers were armed with
firearms. The robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them in another
province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery
in band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded as a
fortuitous event. It is necessary to recall that even common carriers are not made absolute
insurers against all risks of travel and of transport of goods, and are not held liable for acts
or events which cannot be foreseen or are inevitable, provided that they shall have
complied with the rigorous standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise which was
lost because of an event entirely beyond private respondent's control.
64 | P a g e
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of
the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 179446 January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,

vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
assailing the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and
Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs Services,
Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the
amount of ₱1,896,789.62 representing the insurance indemnity which R&B Insurance
Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).

THE FACTS:

On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All
Risks. On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey"
from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from
the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to
Columbia’s warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of
copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6)
truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads
for Lawang Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks
en route to Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck,
loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.

65 | P a g e
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the
copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of ₱1,903,335.39. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount of ₱1,896,789.62 as insurance
indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No.
02-103040. It sought reimbursement of the amount it had paid to Columbia for the loss of
the subject cargo. It claimed that it had been subrogated "to the right of the consignee to
recover from the party/parties who may be held legally liable for the loss." 2

On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for
the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The dispositive portion of the decision reads:

WHEREFORE, all premises considered, the plaintiff having established by preponderance of

evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:

1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual

and compensatory damages, with interest from the date of complaint until fully
paid;

2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
principal amount recovered as and for attorney’s fees plus ₱1,500.00 per
appearance in Court;

3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation

expenses.

WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages
and attorney’s fees against plaintiff are hereby dismissed.

With costs against defendant Glodel Brokerage Corporation.

SO ORDERED.4

Both R&B Insurance and Glodel appealed the RTC decision to the CA.

On August 24, 2007, the CA rendered the assailed decision which reads in part:

Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes
to appellant R&B Insurance Corporation as insurance indemnity must likewise be the
amount it shall be paid by appellee Loadmasters.

66 | P a g e
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the
appellee Loadmasters is likewise held liable to appellant Glodel in the amount of
₱1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable
to appellant R&B Insurance Corporation.

Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED.

SO ORDERED.5

Hence, Loadmasters filed the present petition for review on certiorari before this Court
presenting the following

ISSUES

1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of

the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?

2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel?6

To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it
cannot be considered an agent of Glodel because it never represented the latter in its
dealings with the consignee. At any rate, it further contends that Glodel has no recourse
against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2, Rule 9 of the
1997 Rules of Civil Procedure.

Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim
because the latter was grossly negligent in the transportation of the subject cargo. With
respect to Loadmasters’ claim that it is already estopped from filing a cross-claim, Glodel
insists that it can still do so even for the first time on appeal because there is no rule that
provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of
Charter wherein the transporter (Loadmasters) is only hired for the specific job of
delivering the merchandise. Thus, the diligence required in this case is merely ordinary
diligence or that of a good father of the family, not the extraordinary diligence required of
common carriers.

R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
against Loadmasters because it was not prevented from presenting evidence to prove its
position even without amending its Answer. As to the relationship between Loadmasters
and Glodel, it contends that a contract of agency existed between the two corporations. 8

Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. 9 Doubtless, R&B Insurance

67 | P a g e
is subrogated to the rights of the insured to the extent of the amount it paid the consignee
under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:

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 wrong-doer 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.

As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or
tort.

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for
the amount of the indemnity it paid Columbia.

At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of
the Civil Code, common carriers are persons, corporations, firms, or associations engaged
in the business of carrying or transporting passenger or goods, or both by land, water or air
for compensation, offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged

in the business of transporting goods by land, through its trucking service. It is a common
carrier as distinguished from a private carrier wherein the carriage is generally undertaken
by special agreement and it does not hold itself out to carry goods for the general
public.10 The distinction is significant in the sense that "the rights and obligations of the
parties to a contract of private carriage are governed principally by their stipulations, not
by the law on common carriers."11

In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters
solely and exclusively rendered services to Glodel.

In fact, Loadmasters admitted that it is a common carrier.12

In the same vein, Glodel is also considered a common carrier within the context of Article
1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing
under the laws of the Republic of the Philippines and is engaged in the business of customs
brokering." It cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc., 14 a customs broker is also
regarded as a common carrier, the transportation of goods being an integral part of its
business.

68 | P a g e
Loadmasters and Glodel, being both common carriers, are mandated from the nature of
their business and for reasons of public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the circumstances of such
case, as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary
diligence, it is that extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving their own property or
rights.15 This exacting standard imposed on common carriers in a contract of carriage of
goods is intended to tilt the scales in favor of the shipper who is at the mercy of the
common carrier once the goods have been lodged for shipment. 16 Thus, in case of loss of the
goods, the common carrier is presumed to have been at fault or to have acted
negligently.17 This presumption of fault or negligence, however, may be rebutted by proof
that the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides
that the exercise of extraordinary diligence 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.18

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly
and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194
of the New Civil Code, "the responsibility of two or more persons who are liable for a quasi-
delict is solidary."

Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of
Article 2176 of the Civil Code on quasi-delicts which expressly provide:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.

Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service,
Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc. 19 where this Court held
that a tort may arise despite the absence of a contractual relationship, to wit:

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

In connection therewith, Article 2180 provides:

ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own
acts or omissions, but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused
by its employees who acted within the scope of their assigned task of delivering the goods
safely to the warehouse.

Whenever an employee’s negligence causes damage or injury to another, there instantly

arises a presumption juris tantum that the employer failed to exercise diligentissimi patris
families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its
employees.20 To avoid liability for a quasi-delict committed by its employee, an employer
must overcome the presumption by presenting convincing proof that he exercised the care
and diligence of a good father of a family in the selection and supervision of his
employee.21 In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to
ensure that Loadmasters would fully comply with the undertaking to safely transport the
subject cargo to the designated destination. It should have been more prudent in entrusting
the goods to Loadmasters by taking precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.

At this juncture, the Court clarifies that there exists no principal-agent relationship
between Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil
Code provides: "By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority of
the latter." The elements of a contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
70 | P a g e
relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.22

Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a
settled rule that the basis for agency is representation, that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. On the part of the
principal, there must be an actual intention to appoint or an intention naturally inferable
from his words or actions, while on the part of the agent, there must be an intention to
accept the appointment and act on it.23 Such mutual intent is not obtaining in this case.

What then is the extent of the respective liabilities of Loadmasters and Glodel? Each
wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are
several causes for the resulting damages, a party is not relieved from liability, even partially.
It is sufficient that the negligence of a party is an efficient cause without which the damage
would not have resulted. It is no defense to one of the concurrent tortfeasors that the
damage would not have resulted from his negligence alone, without the negligence or
wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals,24

X x x. Where several causes producing an injury are concurrent and each is an efficient
cause without which the injury would not have happened, the injury may be attributed to
all or any of the causes and recovery may be had against any or all of the responsible
persons although under the circumstances of the case, it may appear that one of them was
more culpable, and that the duty owed by them to the injured person was not the same. No
actor's negligence ceases to be a proximate cause merely because it does not exceed the
negligence of other actors. Each wrongdoer is responsible for the entire result and is liable
as though his acts were the sole cause of the injury.

There is no contribution between joint tortfeasors whose liability is solidary since both of
them are liable for the total damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the
direct and proximate cause of a single injury to a third person, it is impossible to determine
in what proportion each contributed to the injury and either of them is responsible for
the whole injury. Where their concurring negligence resulted in injury or damage to a
third party, they become joint tortfeasors and are solidarily liable for the resulting damage
under Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having
failed to file a cross-claim against the latter.1avvphi1

Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of
contract of service as the latter is primarily liable for the loss of the subject cargo. In this
case, however, it cannot succeed in seeking judicial sanction against Loadmasters because
the records disclose that it did not properly interpose a cross-claim against the latter.
71 | P a g e
Glodel did not even pray that Loadmasters be liable for any and all claims that it may be
adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or
a cross-claim, not set up shall be barred.25Thus, a cross-claim cannot be set up for the first
time on appeal.

For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’
is applied only in the absence of, and never against, statutory law or judicial rules of
procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been at
fault or negligent.

WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the
Court of Appeals is MODIFIED to read as follows:

WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services,

Inc. and respondent Glodel Brokerage Corporation jointly and severally liable to respondent
R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire
& Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance
Corporation a] the amount of ₱1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of
₱22,427.18 for litigation expenses.

The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against
petitioner Loadmasters Customs Services, Inc. is DENIED.

SO ORDERED.

G.R. No. 157481 January 24, 2006

LOADSTAR SHIPPING CO., INC., Petitioner,

vs.
PIONEER ASIA INSURANCE CORP., Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are (1) the Decision1 dated October 15, 2002 and (2)
the Resolution2 dated February 27, 2003, of the Court of Appeals in CA-G.R. CV No. 40999,
which affirmed with modification the Decision3 dated February 15, 1993 of the Regional
Trial Court of Manila, Branch 8 in Civil Case No. 86-37957.

The pertinent facts are as follows:

Petitioner Loadstar Shipping Co., Inc. (Loadstar for brevity) is the registered owner and
operator of the vessel M/V Weasel. It holds office at 1294 Romualdez St., Paco, Manila.
72 | P a g e
On June 6, 1984, Loadstar entered into a voyage-charter with Northern Mindanao
Transport Company, Inc. for the carriage of 65,000 bags of cement from Iligan City to
Manila. The shipper was Iligan Cement Corporation, while the consignee in Manila was
Market Developers, Inc.

On June 24, 1984, 67,500 bags of cement were loaded on board M/V Weasel and stowed in
the cargo holds for delivery to the consignee. The shipment was covered by petitioner’s Bill
of Lading4 dated June 23, 1984.

Prior to the voyage, the consignee insured the shipment of cement with respondent Pioneer
Asia Insurance Corporation for P1,400,000, for which respondent issued Marine Open
Policy No. MOP-006 dated September 17, 1980, covering all shipments made on or after
September 30, 1980.5

At 12:50 in the afternoon of June 24, 1984, M/V Weasel left Iligan City for Manila in good
weather. However, at 4:31 in the morning of June 25, 1984, Captain Vicente C. Montera,
master of M/V Weasel, ordered the vessel to be forced aground. Consequently, the entire
shipment of cement was good as gone due to exposure to sea water. Petitioner thus failed to
deliver the goods to the consignee in Manila.

The consignee demanded from petitioner full reimbursement of the cost of the lost
shipment. Petitioner, however, refused to reimburse the consignee despite repeated
demands.

Nonetheless, on March 11, 1985, respondent insurance company paid the

consignee P1,400,000 plus an additional amount of P500,000, the value of the lost
shipment of cement. In return, the consignee executed a Loss and Subrogation Receipt in
favor of respondent concerning the latter’s subrogation rights against petitioner.

Hence, on October 15, 1986, respondent filed a complaint docketed as Civil Case No. 86-
37957, against petitioner with the Regional Trial Court of Manila, Branch 8. It alleged that:
(1) the M/V Weasel was not seaworthy at the commencement of the voyage; (2) the
weather and sea conditions then prevailing were usual and expected for that time of the
year and as such, was an ordinary peril of the voyage for which the M/V Weasel should have
been normally able to cope with; and (3) petitioner was negligent in the selection and
supervision of its agents and employees then manning the M/V Weasel.

In its Answer, petitioner alleged that no fault nor negligence could be attributed to it
because it exercised due diligence to make the ship seaworthy, as well as properly manned
and equipped. Petitioner insisted that the failure to deliver the subject cargo to the
consignee was due to force majeure. Petitioner claimed it could not be held liable for an act
or omission not directly attributable to it.

On February 15, 1993, the RTC rendered a Decision in favor of respondent, to wit:

73 | P a g e
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff and
against defendant Loadstar Shipping Co., Inc. ordering the latter to pay as follows:

1. To pay plaintiff the sum of P1,900,000.00 with legal rate of interest per annum
from date of complaint until fully paid;

2. To pay the sum equal to 25% of the claim as and for attorney’s fees and litigation
expenses; and,

3. To pay the costs of suit.

IT IS SO ORDERED.6

The RTC reasoned that petitioner, as a common carrier, bears the burden of proving that it
exercised extraordinary diligence in its vigilance over the goods it transported. The trial
court explained that in case of loss or destruction of the goods, a statutory presumption
arises that the common carrier was negligent unless it could prove that it had observed
extraordinary diligence.

Petitioner’s defense of force majeure was found bereft of factual basis. The RTC called
attention to the PAG-ASA report that at the time of the incident, tropical storm "Asiang" had
moved away from the Philippines. Further, records showed that the sea and weather
conditions in the area of Hinubaan, Negros Occidental from 8:00 p.m. of June 24, 1984 to
8:00 a.m. the next day were slight and smooth. Thus, the trial court concluded that the
cause of the loss was not tropical storm "Asiang" or any other force majeure, but gross
negligence of petitioner.

Petitioner appealed to the Court of Appeals.

In its Decision dated October 15, 2002, the Court of Appeals affirmed the RTC Decision with
modification that Loadstar shall only pay the sum of 10% of the total claim for attorney’s
fees and litigation expenses. It ruled,

WHEREFORE, premises considered, the Decision dated February 15, 1993, of the Regional
Trial Court of Manila, National Capital Judicial Region, Branch 8, in Civil Case No. 86-37957
is hereby AFFIRMED with the MODIFICATION that the appellant shall only pay the sum of
10% of the total claim as and for attorney’s fees and litigation expenses. Costs against the
appellant.

SO ORDERED.7

Petitioner’s Motion for Reconsideration was denied.8

The instant petition is anchored now on the following assignments of error:

I
74 | P a g e
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS A
COMMON CARRIER UNDER ARTICLE 1732 OF THE CIVIL CODE.

II

ASSUMING ARGUENDO THAT PETITIONER IS A COMMON CARRIER, THE HONORABLE

COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE LOSS OF
CARGO WAS NOT A FORTUITOUS EVENT BUT WAS ALLEGEDLY DUE TO THE FAILURE OF
PETITIONER TO EXERCISE EXTRAORDINARY DILIGENCE.

III

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD BY THE TRIAL
COURT OF ATTORNEY’S FEES AND LITIGATION EXPENSES IN FAVOR OF HEREIN
RESPONDENT.9

On the first and second issues, petitioner contends that at the time of the voyage the
carrier’s voyage-charter with the shipper converted it into a private carrier. Thus, the
presumption of negligence against common carriers could not apply. Petitioner further
avers that the stipulation in the voyage-charter holding it free from liability is valid and
binds the respondent. In any event, petitioner insists that it had exercised extraordinary
diligence and that the proximate cause of the loss of the cargo was a fortuitous event.

With regard to the third issue, petitioner points out that the award of attorney’s fees and
litigation expenses appeared only in the dispositive portion of the RTC Decision with nary a
justification. Petitioner maintains that the Court of Appeals thus erred in affirming the
award.

For its part, respondent dismisses as factual issues the inquiry on (1) whether the loss of
the cargo was due to force majeure or due to petitioner’s failure to exercise extraordinary
diligence; and (2) whether respondent is entitled to recover attorney’s fees and expenses of
litigation.

Respondent further counters that the Court of Appeals was correct when it held that
petitioner was a common carrier despite the charter of the whole vessel, since the charter
was limited to the ship only.

Prefatorily, we stress that the finding of fact by the trial court, when affirmed by the Court
of Appeals, is not reviewable by this Court in a petition for review on certiorari. However,
the conclusions derived from such factual finding are not necessarily pure issues of fact
when they are inextricably intertwined with the determination of a legal issue. In such
instances, the conclusions made may be raised in a petition for review before this Court. 10

The threshold issues in this case are: (1) Given the circumstances of this case, is petitioner a
common or a private carrier? and (2) In either case, did petitioner exercise the required

75 | P a g e
diligence i.e., the extraordinary diligence of a common carrier or the ordinary diligence of a
private carrier?

Article 1732 of the Civil Code defines a "common carrier" as follows:

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

Petitioner is a corporation engaged in the business of transporting cargo by water and for
compensation, offering its services indiscriminately to the public. Thus, without doubt, it is
a common carrier. However, petitioner entered into a voyage-charter with the Northern
Mindanao Transport Company, Inc. Now, had the voyage-charter converted petitioner into a
private carrier?

We think not. The voyage-charter agreement between petitioner and Northern Mindanao
Transport Company, Inc. did not in any way convert the common carrier into a private
carrier. We have already resolved this issue with finality in Planters Products, Inc. v. Court of
Appeals11 where we ruled that:

It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when
the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party
is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer.12

Conformably, petitioner remains a common carrier notwithstanding the existence of the

charter agreement with the Northern Mindanao Transport Company, Inc. since the said
charter is limited to the ship only and does not involve both the vessel and its crew. As
elucidated in Planters Products, its charter is only a voyage-charter, not a bareboat charter.

As a common carrier, petitioner is required to observe extraordinary diligence in the

vigilance over the goods it transports.13 When the goods placed in its care are lost,
petitioner is presumed to have been at fault or to have acted negligently. Petitioner
therefore has the burden of proving that it observed extraordinary diligence in order to
avoid responsibility for the lost cargo.14

In Compania Maritima v. Court of Appeals,15 we said:

… it is incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent with its liability.

...
76 | P a g e
The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to,
or destruction of the goods entrusted to it for safe carriage and delivery. It requires
common carriers to render service with the greatest skill and foresight and "to use all
reasonable means to ascertain the nature and characteristics of goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires."16

Article 1734 enumerates the instances when a carrier might be exempt from liability for the
loss of the goods. These are:

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

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

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

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

(5) Order or act of competent public authority.17

Petitioner claims that the loss of the goods was due to a fortuitous event under paragraph 1.
Yet, its claim is not substantiated. On the contrary, we find supported by evidence on record
the conclusion of the trial court and the Court of Appeals that the loss of the entire
shipment of cement was due to the gross negligence of petitioner.

Records show that in the evening of June 24, 1984, the sea and weather conditions in the
vicinity of Negros Occidental were calm. The records reveal that petitioner took a shortcut
route, instead of the usual route, which exposed the voyage to unexpected hazard.
Petitioner has only itself to blame for its misjudgment.

Petitioner heavily relies on Home Insurance Co. v. American Steamship Agencies,

Inc.18 and Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals.19 The said
cases involved a private carrier, not a common carrier. Moreover, the issue in both cases is
not the effect of a voyage-charter on a common carrier, but the validity of a stipulation
absolving the private carrier from liability in case of loss of the cargo attributable to the
negligence of the private carrier.

Lastly, on the third issue, we find consistent with law and prevailing jurisprudence the
Court of Appeals’ award of attorney’s fees and expenses of litigation equivalent to ten
percent (10%) of the total claim. The contract between the parties in this case contained a
stipulation that in case of suit, attorney’s fees and expenses of litigation shall be limited to
only ten percent (10%) of the total monetary award. Given the circumstances of this case,
we deem the said amount just and equitable.

77 | P a g e
WHEREFORE, the petition is DENIED. The assailed Decision dated October 15, 2002 and
the Resolution dated February 27, 2003, of the Court of Appeals in CA-G.R. CV No. 40999,
are AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. 149038 April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,

vs.
PKS SHIPPING COMPANY, respondent.

VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of Appeals in C.A.
G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment
of the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for
damages filed by petitioner insurance corporation against respondent shipping company.

Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five
thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five
Thousand Pesos (P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods were loaded
aboard the dumb barge Limar I belonging to PKS Shipping. On the evening of 22 December
1988, about nine o’clock, while Limar Iwas being towed by respondent’s tugboat, MT Iron
Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del
Sur, bringing down with it the entire cargo of 75,000 bags of cement.

DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen
promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid
to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against
PKS Shipping with the Makati RTC.

The RTC dismissed the complaint after finding that the total loss of the cargo could have
been caused either by a fortuitous event, in which case the ship owner was not liable, or
through the negligence of the captain and crew of the vessel and that, under Article 587 of
the Code of Commerce adopting the "Limited Liability Rule," the ship owner could free itself
of liability by abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision
of the trial court. The appellate court ruled that evidence to establish that PKS Shipping was
a common carrier at the time it undertook to transport the bags of cement was wanting
78 | P a g e
because the peculiar method of the shipping company’s carrying goods for others was not
generally held out as a business but as a casual occupation. It then concluded that PKS
Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The appellate
court, moreover, found that the loss of the goods was sufficiently established as having been
due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent
error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss
of the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does
not militate against respondent’s being a common carrier and that the only way by which
such carrier can be held exempt for the loss of the cargo would be if the loss were caused by
natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the
Philippine area of responsibility and that, even if it did, respondent would not be exempt
from liability because its employees, particularly the tugmaster, have failed to exercise due
diligence to prevent or minimize the loss.

PKS Shipping, in its comment, urges that the petition should be denied because what
Philamgen seeks is not a review on points or errors of law but a review of the undisputed
factual findings of the RTC and the appellate court. In any event, PKS Shipping points out,
the findings and conclusions of both courts find support from the evidence and applicable
jurisprudence.

The determination of possible liability on the part of PKS Shipping boils down to the
question of whether it is a private carrier or a common carrier and, in either case, to the
other question of whether or not it has observed the proper diligence (ordinary, if a private
carrier, or extraordinary, if a common carrier) required of it given the circumstances.

The findings of fact made by the Court of Appeals, particularly when such findings are
consistent with those of the trial court, may not at liberty be reviewed by this Court in a
petition for review under Rule 45 of the Rules of Court.1The conclusions derived from those
factual findings, however, are not necessarily just matters of fact as when they are so linked
to, or inextricably intertwined with, a requisite appreciation of the applicable law. In such
instances, the conclusions made could well be raised as being appropriate issues in a
petition for review before this Court. Thus, an issue whether a carrier is private or common
on the basis of the facts found by a trial court or the appellate court can be a valid and
reviewable question of law.

The Civil Code defines "common carriers" in the following terms:

"Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public."

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service
Act; it defines "public service" to be –
79 | P a g e
 "x x x every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or
wireless communication systems, wire or wireless broadcasting stations and other
similar public services. x x x. (Underscoring supplied)."

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

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

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

Much of the distinction between a "common or public carrier" and a "private or special
carrier" lies in the character of the business, such that if the undertaking is an isolated
transaction, not a part of the business or occupation, and the carrier does not hold itself out
to carry the goods for the general public or to a limited clientele, although involving the
carriage of goods for a fee,3 the person or corporation providing such service could very
well be just a private carrier. A typical case is that of a charter party which includes both the
vessel and its crew, such as in a bareboat or demise, where the charterer obtains the use
and service of all or some part of a ship for a period of time or a voyage or voyages 4 and gets
the control of the vessel and its crew.5 Contrary to the conclusion made by the appellate
court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods
for a fee. The regularity of its activities in this area indicates more than just a casual activity

80 | P a g e
on its part.6 Neither can the concept of a common carrier change merely because individual
contracts are executed or entered into with patrons of the carrier. Such restrictive
interpretation would make it easy for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with clients.

Addressing now the issue of whether or not PKS Shipping has exercised the proper
diligence demanded of common carriers, Article 1733 of the Civil Code requires common
carriers to observe extraordinary diligence in the vigilance over the goods they carry. In
case of loss, destruction or deterioration of goods, common carriers are presumed to have
been at fault or to have acted negligently, and the burden of proving otherwise rests on
them.7 The provisions of Article 1733, notwithstanding, common carriers are exempt from
liability for loss, destruction, or deterioration of the goods due to any of the following
causes:

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

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

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

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

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

The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the
barge’s or the tugboat’s crew could have prevented the sinking of Limar I. The vessel was
suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by
strong winds of 1.5 knots resulting in the entry of water into the barge’s hatches. The
official Certificate of Inspection of the barge issued by the Philippine Coastguard and the
Coastwise Load Line Certificate would attest to the seaworthiness of Limar I and should
strengthen the factual findings of the appellate court.

Findings of fact of the Court of Appeals generally conclude this Court; none of the
recognized exceptions from the rule - (1) when the factual findings of the Court of Appeals
and the trial court are contradictory; (2) when the conclusion is a finding grounded entirely
on speculation, surmises, or conjectures; (3) when the inference made by the Court of
Appeals from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when
there is a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such findings are
contrary to the admissions of both appellant and appellee; (6) when the judgment of the
Court of Appeals is premised on a misapprehension of facts; (7) when the Court of Appeals
failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings
of fact are conclusions without citation of the specific evidence on which they are based;
and (10) when the findings of fact of the Court of Appeals are premised on the absence of
81 | P a g e
evidence but such findings are contradicted by the evidence on record – would appear to be
clearly extant in this instance.

All given then, the appellate court did not err in its judgment absolving PKS Shipping from
liability for the loss of the DUMC cargo.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

G.R. No. 147246 August 19, 2003

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.

PUNO, J.:

On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and
February 21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of
the Regional Trial Court of Manila which found petitioner liable to pay private respondent
the amount of indemnity and attorney's fees.

First, the facts.

On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on
board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling
Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4. 5The shipment was
insured by the private respondent Prudential Guarantee and Assurance, Inc. against loss or
damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90. 6

On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted
by the consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong,
Pasig City.

On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III,
evidenced by Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not
reach its destination.

It appears that on August 17, 1990, the transport of said cargo was suspended due to a
warning of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the
barge to Engineering Island off Baseco to seek shelter from the approaching typhoon. PSTSI
III was tied down to other barges which arrived ahead of it while weathering out the storm
82 | P a g e
that night. A few days after, the barge developed a list because of a hole it sustained after
hitting an unseen protuberance underneath the water. The petitioner filed a Marine Protest
on August 28, 1990.8 It likewise secured the services of Gaspar Salvaging Corporation which
refloated the barge.9 The hole was then patched with clay and cement.

The barge was then towed to ISLOFF terminal before it finally headed towards the
consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge
again ran aground due to strong current. To avoid the complete sinking of the barge, a
portion of the goods was transferred to three other barges. 10

The next day, September 6, 1990, the towing bits of the barge broke. It sank completely,
resulting in the total loss of the remaining cargo.11 A second Marine Protest was filed on
September 7, 1990.12

On September 14, 1990, a bidding was conducted to dispose of the damaged wheat
retrieved and loaded on the three other barges.13 The total proceeds from the sale of the
salvaged cargo was P201,379.75.14

On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and
another letter dated September 18, 1990 to the private respondent for the value of the lost
cargo.

On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the
petitioner, but to no avail.

On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery
of the amount of indemnity, attorney's fees and cost of suit. 16 Petitioner filed its answer
with counterclaim.17

The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of
its Decision states:

WHEREFORE, premises considered, judgment is hereby rendered ordering

defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the
date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED.
With costs against defendant.18

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

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

SO ORDERED.

Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the
appellate court in a Resolution promulgated on February 21, 2001.

Hence, this petition. Petitioner submits the following errors allegedly committed by the
appellate court, viz:19

(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER.

(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE
BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN
ALL CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED."

(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEE'S CARGO.

The issues to be resolved are:

(1) Whether the petitioner is a common carrier; and,

(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary

diligence in its care and custody of the consignee's cargo.

On the first issue, we rule that petitioner is a common carrier.

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

Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no
fixed and publicly known route, maintains no terminals, and issues no tickets. It points out
that it is not obliged to carry indiscriminately for any person. It is not bound to carry goods
unless it consents. In short, it does not hold out its services to the general public. 20
84 | P a g e
We disagree.

In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in
Article 1732 of the Civil Code makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity. We also did not distinguish between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Further, we ruled that Article 1732 does not
distinguish between a carrier offering its services to the general public, and one who offers
services or solicits business only from a narrow segment of the general population.

In the case at bar, the principal business of the petitioner is that of lighterage and
drayage22 and it offers its barges to the public for carrying or transporting goods by water
for compensation. Petitioner is clearly a common carrier. In De Guzman, supra,23 we
considered private respondent Ernesto Cendanñ a to be a common carrier even if his
principal occupation was not the carriage of goods for others, but that of buying used
bottles and scrap metal in Pangasinan and selling these items in Manila.

We therefore hold that petitioner is a common carrier whether its carrying of goods is done
on an irregular rather than scheduled manner, and with an only limited clientele. A
common carrier need not have fixed and publicly known routes. Neither does it have to
maintain terminals or issue tickets.

To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a
part of the business engaged in by the carrier which he has held out to the general public as
his occupation rather than the quantity or extent of the business transacted." 25 In the case
at bar, the petitioner admitted that it is engaged in the business of shipping and
lighterage,26 offering its barges to the public, despite its limited clientele for carrying or
transporting goods by water for compensation.27

On the second issue, we uphold the findings of the lower courts that petitioner failed to
exercise extraordinary diligence in its care and custody of the consignee's goods.

Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them.28 They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 29 To overcome the presumption
of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence. There are, however, exceptions
to this rule. Article 1734 of the Civil Code enumerates the instances when the presumption
of negligence does not attach:

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

85 | P a g e
 (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

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

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

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

(5) Order or act of competent public authority.

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

CROSS-EXAMINATION BY ATTY. DONN LEE:31

xxx xxx xxx

q - Can you tell us what else transpired after that incident?

a - After the first accident, through the initiative of the barge owners, they tried
to pull out the barge from the place of the accident, and bring it to the anchor
terminal for safety, then after deciding if the vessel is stabilized, they tried to pull it
to the consignee's warehouse, now while on route another accident occurred, now
this time the barge totally hitting something in the course.

q - You said there was another accident, can you tell the court the nature of the
second accident?

a - The sinking, sir.

q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?

a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.
86 | P a g e
 xxx xxx xxx

This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an
incoming typhoon. During the time that the barge was heading towards the consignee's
wharf on September 5, 1990, typhoon "Loleng" has already entered the Philippine area of
responsibility.32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor of the
petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE:33

xxx xxx xxx

q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the
Barge to lie where she was instead of towing it?

a - Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods to be
delivered at their Wharf since they needed badly the wheat that was loaded in
PSTSI-3. It was needed badly by the consignee.

q - And this is the reason why you towed the Barge as you did?

a - Yes, sir.

xxx xxx xxx

CROSS-EXAMINATION BY ATTY. IGNACIO:34

xxx xxx xxx

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

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

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

a - It is already in an inner portion of Pasig River. The typhoon would be coming

and it would be dangerous if we are in the vicinity of Manila Bay.

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

a - Yes.

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

a - Yes, sir.

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

a - Yes, sir.

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

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

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to
escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon
head-on falls short of due diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the towing bits of the
vessel broke that caused its sinking and the total loss of the cargo upon reaching the Pasig
River, it was no longer affected by the typhoon. The typhoon then is not the proximate
cause of the loss of the cargo; a human factor, i.e., negligence had intervened.

IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby
AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 111127 July 26, 1996

MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC.,
AMYLINE ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI
CORDOVA, ARLENE GOJOCCO, ALBERTO ROXAS CORDERO, RICHARD BAUTISTA,
JOCELYN GARCIA, YOLANDA CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO
NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPES, JULIUS CAESAR, GARCIA,
ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA,
TERESITA REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA CABATINGAN,
MARA NADOC, DIANE MAYO, TESS PLATA, MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA
MAYO, CARLOS RANARIO, ROSAMARIA T. RADOC and BERNADETTE
FERRER, respondents.

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MENDOZA, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals1 in CA-GR
No. 28245, dated September 30, 1992, which affirmed with modification the decision of the
Regional Trial Court of Makati, Branch 58, ordering petitioners jointly and severally to pay
damages to private respondent Amyline Antonio, and its resolution which denied
petitioners' motion for reconsideration for lack of merit.

Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus.
They used the bus principally in connection with a bus service for school children which
they operated in Manila. The couple had a driver, Porfirio J. Cabil, whom they hired in 1981,
after trying him out for two weeks, His job was to take school children to and from the St.
Scholastica's College in Malate, Manila.

On November 2, 1984 private respondent Word for the World Christian Fellowship Inc.
(WWCF) arranged with petitioners for the transportation of 33 members of its Young
Adults Ministry from Manila to La Union and back in consideration of which private
respondent paid petitioners the amount of P3,000.00.

The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon.
However, as several members of the party were late, the bus did not leave the Tropical Hut
at the corner of Ortigas Avenue and EDSA until 8:00 o'clock in the evening. Petitioner
Porfirio Cabil drove the minibus.

The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at
Carmen was under repair, sot hat petitioner Cabil, who was unfamiliar with the area (it
being his first trip to La Union), was forced to take a detour through the town of Baay in
Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp curve on the
highway, running on a south to east direction, which he described as "siete." The road was
slippery because it was raining, causing the bus, which was running at the speed of 50
kilometers per hour, to skid to the left road shoulder. The bus hit the left traffic steel brace
and sign along the road and rammed the fence of one Jesus Escano, then turned over and
landed on its left side, coming to a full stop only after a series of impacts. The bus came to
rest off the road. A coconut tree which it had hit fell on it and smashed its front portion.

Several passengers were injured. Private respondent Amyline Antonio was thrown on the
floor of the bus and pinned down by a wooden seat which came down by a wooden seat
which came off after being unscrewed. It took three persons to safely remove her from this
portion. She was in great pain and could not move.

The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he
was not familiar with the area and he could not have seen the curve despite the care he took
in driving the bus, because it was dark and there was no sign on the road. He said that he
saw the curve when he was already within 15 to 30 meters of it. He allegedly slowed down
to 30 kilometers per hour, but it was too late.

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The Lingayen police investigated the incident the next day, November 3, 1984. On the basis
of their finding they filed a criminal complaint against the driver, Porfirio Cabil. The case
was later filed with the Lingayen Regional Trial Court. Petitioners Fabre paid Jesus Escano
P1,500.00 for the damage to the latter's fence. On the basis of Escano's affidavit of
desistance the case against petitioners Fabre was dismissed.

Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro
Manila. As a result of the accident, she is now suffering from paraplegia and is permanently
paralyzed from the waist down. During the trial she described the operations she
underwent and adduced evidence regarding the cost of her treatment and therapy.
Immediately after the accident, she was taken to the Nazareth Hospital in Baay, Lingayen.
As this hospital was not adequately equipped, she was transferred to the Sto. Ninñ o Hospital,
also in the town of Ba-ay, where she was given sedatives. An x-ray was taken and the
damage to her spine was determined to be too severe to be treated there. She was therefore
brought to Manila, first to the Philippine General Hospital and later to the Makati Medical
Center where she underwent an operation to correct the dislocation of her spine.

In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for travel to a
long distance trip and that the driver was properly screened and tested before being
admitted for employment. Indeed, all the evidence presented have shown the negligent act
of the defendants which ultimately resulted to the accident subject of this case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline
Antonio were the only ones who adduced evidence in support of their claim for damages,
the Court is therefore not in a position to award damages to the other plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment against defendants
Mr. & Mrs. Engracio Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180
of the Civil Code of the Philippines and said defendants are ordered to pay jointly and
severally to the plaintiffs the following amount:

1) P93,657.11 as compensatory and actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of

plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorney's fees;

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 6) Costs of suit.

SO ORDERED.

The Court of Appeals affirmed the decision of the trial court with respect to Amyline
Antonio but dismissed it with respect to the other plaintiffs on the ground that they failed
to prove their respective claims. The Court of Appeals modified the award of damages as
follows:

1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;

3) P50,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) P10,000.00 as attorney's fees; and

6) Costs of suit.

The Court of Appeals sustained the trial court's finding that petitioner Cabil failed to
exercise due care and precaution in the operation of his vehicle considering the time and
the place of the accident. The Court of Appeals held that the Fabres were themselves
presumptively negligent. Hence, this petition. Petitioners raise the following issues:

I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II. WHETHER OF NOT PETITIONERS WERE LIABLE FOR THE

INJURIES SUFFERED BY PRIVATE RESPONDENTS.

III WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN

THE POSITIVE, UP TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages in the amount of
P600,000.00. It is insisted that, on the assumption that petitioners are liable an award of
P600,000.00 is unconscionable and highly speculative. Amyline Antonio testified that she
was a casual employee of a company called "Suaco," earning P1,650.00 a month, and a
dealer of Avon products, earning an average of P1,000.00 monthly. Petitioners contend that
as casual employees do not have security of tenure, the award of P600,000.00, considering
Amyline Antonio's earnings, is without factual basis as there is no assurance that she would
be regularly earning these amounts.

With the exception of the award of damages, the petition is devoid of merit.

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First, it is unnecessary for our purpose to determine whether to decide this case on the
theory that petitioners are liable for breach of contract of carriage or culpa contractual or
on the theory of quasi delict or culpa aquiliana as both the Regional Trial Court and the
Court of Appeals held, for although the relation of passenger and carrier is "contractual
both in origin and nature," nevertheless "the act that breaks the contract may be also a
tort." 2 In either case, the question is whether the bus driver, petitioner Porfirio Cabil, was
negligent.

The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned
the bus, failed to exercise the diligence of a good father of the family in the selection and
supervision of their employee is fully supported by the evidence on record. These factual
findings of the two courts we regard as final and conclusive, supported as they are by the
evidence. Indeed, it was admitted by Cabil that on the night in question, it was raining, and
as a consequence, the road was slippery, and it was dark. He averred these facts to justify
his failure to see that there lay a sharp curve ahead. However, it is undisputed that Cabil
drove his bus at the speed of 50 kilometers per hour and only slowed down when he
noticed the curve some 15 to 30 meters ahead. 3 By then it was too late for him to avoid
falling off the road. Given the conditions of the road and considering that the trip was
Cabil's first one outside of Manila, Cabil should have driven his vehicle at a moderate speed.
There is testimony 4 that the vehicles passing on that portion of the road should only be
running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a
very high speed.

Considering the foregoing — the fact that it was raining and the road was slippery, that it
was dark, that he drove his bus at 50 kilometers an hour when even on a good day the
normal speed was only 20 kilometers an hour, and that he was unfamiliar with the terrain,
Cabil was grossly negligent and should be held liable for the injuries suffered by private
respondent Amyline Antonio.

Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the
presumption that his employers, the Fabres, were themselves negligent in the selection and
supervisions of their employee.

Due diligence in selection of employees is not satisfied by finding that the applicant
possessed a professional driver's license. The employer should also examine the applicant
for his qualifications, experience and record of service. 5 Due diligence in supervision, on
the other hand, requires the formulation of rules and regulations for the guidance of
employees and issuance of proper instructions as well as actual implementation and
monitoring of consistent compliance with the rules.6

In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did
not consider the fact that Cabil had been driving for school children only, from their homes
to the St. Scholastica's College in Metro Manila. 7They had hired him only after a two-week
apprenticeship. They had hired him only after a two-week apprenticeship. They had tested
him for certain matters, such as whether he could remember the names of the children he

92 | P a g e
would be taking to school, which were irrelevant to his qualification to drive on a long
distance travel, especially considering that the trip to La Union was his first. The existence
of hiring procedures and supervisory policies cannot be casually invoked to overturn the
presumption of negligence on the part of an employer. 8

Petitioners argue that they are not liable because (1) an earlier departure (made
impossible by the congregation's delayed meeting) could have a averted the mishap and (2)
under the contract, the WWCF was directly responsible for the conduct of the trip. Neither
of these contentions hold water. The hour of departure had not been fixed. Even if it had
been, the delay did not bear directly on the cause of the accident. With respect to the
second contention, it was held in an early case that:

[A] person who hires a public automobile and gives the driver directions as to the place to
which he wishes to be conveyed, but exercises no other control over the conduct of the
driver, is not responsible for acts of negligence of the latter or prevented from recovering
for injuries suffered from a collision between the automobile and a train, caused by the
negligence or the automobile driver. 9

As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres,
did not have to be engaged in the business of public transportation for the provisions of the
Civil Code on common carriers to apply to them. As this Court has held: 10

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.

The above article makes no distinction between one whose principal

business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as "a
sideline"). Article 1732 also carefully avoids making any distinction between
a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions.

As common carriers, the Fabres were found to exercise "extraordinary

diligence" for the safe transportation of the passengers to their destination.
This duty of care is not excused by proof that they exercise the diligence of a
good father of the family in the selection and supervision of their employee.
As Art. 1759 of the Code provides:

93 | P a g e
 Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the former's employees although such
employees may have acted beyond the scope of their authority or in violation
of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.

The same circumstances detailed above, supporting the finding of the trial court and of the
appellate court that petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully
justify findings them guilty of breach of contract of carriage under Arts. 1733, 1755 and
1759 of the Civil Code.

Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think
the Court of Appeals erred in increasing the amount of compensatory damages because
private respondents did not question this award as inadequate. 11 To the contrary, the
award of P500,000.00 for compensatory damages which the Regional Trial Court made is
reasonable considering the contingent nature of her income as a casual employee of a
company and as distributor of beauty products and the fact that the possibility that she
might be able to work again has not been foreclosed. In fact she testified that one of her
previous employers had expressed willingness to employ her again.

With respect to the other awards, while the decisions of the trial court and the Court of
Appeals do not sufficiently indicate the factual and legal basis for them, we find that they
are nevertheless supported by evidence in the records of this case. Viewed as an action
for quasi delict, this case falls squarely within the purview of Art. 2219(2) providing for the
payment of moral damages in cases of quasi delict. On the theory that petitioners are liable
for breach of contract of carriage, the award of moral damages is authorized by Art. 1764, in
relation to Art. 2220, since Cabil's gross negligence amounted to bad faith. 12 Amyline
Antonio's testimony, as well as the testimonies of her father and copassengers, fully
establish the physical suffering and mental anguish she endured as a result of the injuries
caused by petitioners' negligence.

The award of exemplary damages and attorney's fees was also properly made. However, for
the same reason that it was error for the appellate court to increase the award of
compensatory damages, we hold that it was also error for it to increase the award of moral
damages and reduce the award of attorney's fees, inasmuch as private respondents, in
whose favor the awards were made, have not appealed. 13

As above stated, the decision of the Court of Appeals can be sustained either on the theory
of quasi delict or on that of breach of contract. The question is whether, as the two courts
below held, petitioners, who are the owners and driver of the bus, may be made to respond
jointly and severally to private respondent. We hold that they may be. In Dangwa
Trans. Co. Inc. v. Court of Appeals, 14 on facts similar to those in this case, this Court held the
bus company and the driver jointly and severally liable for damages for injuries suffered by
94 | P a g e
a passenger. Again, in Bachelor Express, Inc. v. Court of
Appeals 15 a driver found negligent in failing to stop the bus in order to let off passengers
when a fellow passenger ran amuck, as a result of which the passengers jumped out of the
speeding bus and suffered injuries, was held also jointly and severally liable with the bus
company to the injured passengers.

The same rule of liability was applied in situations where the negligence of the driver of the
bus on which plaintiff was riding concurred with the negligence of a third party who was
the driver of another vehicle, thus causing an accident. In Anuran v. Buño, 16 Batangas
Laguna Tayabas Bus Co. v. Intermediate Appellate Court, 17 and Metro Manila Transit
Corporation v. Court of Appeals, 18 the bus company, its driver, the operator of the other
vehicle and the driver of the vehicle were jointly and severally held liable to the injured
passenger or the latters' heirs. The basis of this allocation of liability was explained
in Viluan v. Court of Appeals, 19 thus:

Nor should it make any difference that the liability of petitioner [bus owner]
springs from contract while that of respondents [owner and driver of other
vehicle] arises from quasi-delict. As early as 1913, we already ruled
in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger
due to the negligence of the driver of the bus on which he was riding and of
the driver of another vehicle, the drivers as well as the owners of the two
vehicles are jointly and severally liable for damages. Some members of the
Court, though, are of the view that under the circumstances they are liable
on quasi-delict. 20

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals 21 this Court exonerated
the jeepney driver from liability to the injured passengers and their families while holding
the owners of the jeepney jointly and severally liable, but that is because that case was
expressly tried and decided exclusively on the theory of culpa contractual. As this Court
there explained:

The trial court was therefore right in finding that Manalo (the driver) and spouses Mangune
and Carreon (the jeepney owners) were negligent. However, its ruling that spouses
Mangune and Carreon are jointly and severally liable with Manalo is erroneous. The driver
cannot be held jointly and severally liable with carrier in case of breach of the contract of
carriage. The rationale behind this is readily discernible. Firstly, the contract of carriage is
between the carrier is exclusively responsible therefore to the passenger, even if such
breach be due to the negligence of his driver (see Viluan v. The Court of Appeals, et al., G.R.
Nos. L-21477-81, April 29, 1966, 16 SCRA 742). 22

As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake
out their claim against the carrier and the driver exclusively on one theory, much less on
that of breach of contract alone. After all, it was permitted for them to allege alternative
causes of action and join as many parties as may be liable on such causes of action 23 so long
as private respondent and her coplaintiffs do not recover twice for the same injury. What is

95 | P a g e
clear from the cases is the intent of the plaintiff there to recover from both the carrier and
the driver, thus, justifying the holding that the carrier and the driver were jointly and
severally liable because their separate and distinct acts concurred to produce the same
injury.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to

award of damages. Petitioners are ORDERED to PAY jointly and severally the private
respondent Amyline Antonio the following amounts:

1) P93,657.11 as actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline

Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) 25% of the recoverable amount as attorney's fees; and

6) costs of suit.

SO ORDERED.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier

into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation

(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer

96 | P a g e
which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum"
owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska,
U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No.
KP-1 signed by the master of the vessel and issued on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid
charter-party starting from par. 16 to 40 were attached to the pre-printed agreement.
Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the
18th, 20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate

from National Cargo Bureau inspector or substitute appointed by charterers
for his account certifying the vessel's readiness to receive cargo spaces. The
vessel's hold to be properly swept, cleaned and dried at the vessel's expense and
the vessel to be presented clean for use in bulk to the satisfaction of the
inspector before daytime commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the
supervision of the shipper, the steel hatches were closed with heavy iron lids, covered with
three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and
tightly sealed throughout the entire voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into
its steelbodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-partly (which
provided for an F.I.O.S. clause).6 The hatches remained open throughout the duration of the
discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it
was transported to the consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale
where they were individually weighed for the purpose of ascertaining the net weight of the
cargo. The port area was windy, certain portions of the route to the warehouse were sandy
and the weather was variable, raining occasionally while the discharge was in
progress.8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets,
with an opening at the front where the dump trucks entered and unloaded the fertilizer on
the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer.9

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It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July
12th, 14th and 18th).10A private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by
taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the
cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo
delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that
portion said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed
an action for damages with the Court of First Instance of Manila. The defendant carrier
argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party.
The court a quo however sustained the claim of the plaintiff against the defendant carrier
for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is

presumed negligent in case of loss or damage of the goods it contracts to
transport, all that a shipper has to do in a suit to recover for loss or damage is
to show receipt by the carrier of the goods and to delivery by it of less than
what it received. After that, the burden of proving that the loss or damage was
due to any of the causes which exempt him from liability is shipted to the
carrier, common or private he may be. Even if the provisions of the charter-
party aforequoted are deemed valid, and the defendants considered private
carriers, it was still incumbent upon them to prove that the shortage or
contamination sustained by the cargo is attributable to the fault or negligence
on the part of the shipper or consignee in the loading, stowing, trimming and
discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the
defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968
case of Home Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled

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that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private
carrier and not a common carrier by reason of the time charterer-party. Accordingly, the
Civil Code provisions on common carriers which set forth a presumption of negligence do
not find application in the case at bar. Thus —

. . . In the absence of such presumption, it was incumbent upon the plaintiff-

appellee to adduce sufficient evidence to prove the negligence of the defendant
carrier as alleged in its complaint. It is an old and well settled rule that if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to
show in a satisfactory manner the facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v.
Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the
basis of its cause of action, i.e. the alleged negligence of defendant carrier. It
appears that the plaintiff was under the impression that it did not have to
establish defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in performing its obligation
. . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the
Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the
present controversy because the issue raised therein is the validity of a stipulation in the
charter-party delimiting the liability of the shipowner for loss or damage to goods cause by
want of due deligence on its part or that of its manager to make the vessel seaworthy in all
respects, and not whether the presumption of negligence provided under the Civil Code
applies only to common carriers and not to private carriers. 19 Petitioner further argues that
since the possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for the negligence of the
captain and crew. In fine, PPI faults the appellate court in not applying the presumption of
negligence against respondent carrier, and instead shifting the onus probandi on the
shipper to show want of due deligence on the part of the carrier, when he was not even at
hand to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant
case was able to prove that he had exercised that degree of diligence required of him under
the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our
discussion.

99 | P a g e
A "charter-party" is defined as a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her to
a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in
part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter,
by the terms of which the whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its navigation, including the
master and the crew, who are his servants. Contract of affreightment may either be time
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the
master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the
Civil Code. 23 The definition extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying goods or transporting passengers or both for
compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the character
of the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature
of their business, should observe extraordinary diligence in the vigilance over the goods
they carry.25 In the case of private carriers, however, the exercise of ordinary diligence in the
carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration of
the goods, common carriers are presumed to have been at fault or to have acted negligently,
and the burden of proving otherwise rests on them.26 On the contrary, no such presumption
applies to private carriers, for whosoever alleges damage to or deterioration of the goods
carried has the onus of proving that the cause was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer, a stranger to the crew
and to the ship, with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks, the determination of the course of the voyage
and other technical incidents of maritime navigation were all consigned to the officers and
crew who were screened, chosen and hired by the shipowner. 27

100 | P a g e
It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when
the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party
is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners
from liability for loss due to the negligence of its agent, and not the effects of a special
charter on common carriers. At any rate, the rule in the United States that a ship chartered
by a single shipper to carry special cargo is not a common carrier, 29 does not find
application in our jurisdiction, for we have observed that the growing concern for safety in
the transportation of passengers and /or carriage of goods by sea requires a more exacting
interpretation of admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-
law 30 —

As a matter of principle, it is difficult to find a valid distinction between cases

in which a ship is used to convey the goods of one and of several persons.
Where the ship herself is let to a charterer, so that he takes over the charge
and control of her, the case is different; the shipowner is not then a carrier.
But where her services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually
without any representative on board the ship; the same opportunities for
fraud or collusion occur; and the same difficulty in discovering the truth as to
what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or
damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April
1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo,
101 | P a g e
Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's
holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel
covers made it impossible for a person to open without the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the
hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of
the consignee boarded, and in the presence of a representative of the shipowner, the
foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under
the watchful eyes of the shipmates who were overseeing the whole operation on rotation
basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligations. Particularly, the following testimonies
of plaintiff-appellee's own witnesses clearly show absence of negligence by
the defendant carrier; that the hull of the vessel at the time of the discharge
of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel (TSN,
20 July 1977, p. 14); that the cover of the hatches was made of steel and it
was overlaid with tarpaulins, three layers of tarpaulins and therefore their
contents were protected from the weather (TSN, 5 April 1978, p. 24); and,
that to open these hatches, the seals would have to be broken, all the seals
were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence
required of it as a public carrier began from the time the cargo was unconditionally placed
in its charge after the vessel's holds were duly inspected and passed scrutiny by the
shipper, up to and until the vessel reached its destination and its hull was reexamined by
the consignee, but prior to unloading. This is clear from the limitation clause agreed upon
by the parties in the Addendum to the standard "GENCON" time charter-party which
provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the
cargo was to be done by the charterer, free from all risk and expense to the
carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore
under his control and supervision, not when the same is done by the consignee or
stevedores under the employ of the latter. 36

102 | P a g e
Article 1734 of the New Civil Code provides that common carriers are not responsible for
the loss, destruction or deterioration of the goods if caused by the charterer of the goods or
defects in the packaging or in the containers. The Code of Commerce also provides that all
losses and deterioration which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the
preceding causes if it is proved, as against him, that they arose through his negligence or by
reason of his having failed to take the precautions which usage has established among
careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature
inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is
deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell
which does not seal very tightly. Also, the wind tends to blow away some of the materials
during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an

extremely high temperature in its place of storage, or when it comes in contact with water.
When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But
the salvaged portion which is in liquid form still remains potent and usable although no
longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various
pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water
to seep into the vessel's holds during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun
Plum" in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who
supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as
contained in their report to PPI was just an approximation or estimate made by

103 | P a g e
them after the fertilizer was discharged from the vessel and segregated from the rest of the
cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded
her cargo. It rained from time to time at the harbor area while the cargo was being
discharged according to the supply officer of PPI, who also testified that it was windy at the
waterfront and along the shoreline where the dump trucks passed enroute to the
consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather
condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or
the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the
inherent character of the goods which makes it highly vulnerable to deterioration; as well
as the inadequacy of its packaging which further contributed to the loss. On the other hand,
no proof was adduced by the petitioner showing that the carrier was remise in the exercise
of due diligence in order to minimize the loss or damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals,
which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then
Court of the First Instance, now Regional Trial Court, of Manila should be, as it is
hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

G.R. No. L-25599 April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.

William H. Quasha and Associates for plaintiff-appellee.

Ross, Selph, Salcedo and Associates for defendant-appellant.

BENGZON, J.P., J.:

"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate,
Peru, 21,740 jute bags of Peruvian fish meal through SS Crowborough, covered by clean
bills of lading Numbers 1 and 2, both dated January 17, 1963. The cargo, consigned to San
Miguel Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance
Company for $202,505, arrived in Manila on March 7, 1963 and was discharged into the
lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San
104 | P a g e
Miguel Brewery Inc., there were shortages amounting to P12,033.85, causing the latter to
lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the
American Steamship Agencies, owner and operator of SS Crowborough.

Because the others denied liability, Home Insurance Company paid the consignee
P14,870.71 — the insurance value of the loss, as full settlement of the claim. Having been
refused reimbursement by both the Luzon Stevedoring Corporation and American
Steamship Agencies, Home Insurance Company, as subrogee to the consignee, filed against
them on March 6, 1964 before the Court of First Instance of Manila a complaint for recovery
of P14,870.71 with legal interest, plus attorney's fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the
goods in the same quantity and quality that it had received the same from the carrier. It also
claimed that plaintiff's claim had prescribed under Article 366 of the Code of Commerce
stating that the claim must be made within 24 hours from receipt of the cargo.

American Steamship Agencies denied liability by alleging that under the provisions of the
Charter party referred to in the bills of lading, the charterer, not the shipowner, was
responsible for any loss or damage of the cargo. Furthermore, it claimed to have exercised
due diligence in stowing the goods and that as a mere forwarding agent, it was not
responsible for losses or damages to the cargo.

On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the
carrier in the same condition and quality, and ordered American Steamship Agencies to pay
plaintiff P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the
following grounds:

(a) The non-liability claim of American Steamship Agencies under the charter party
contract is not tenable because Article 587 of the Code of Commerce makes the ship
agent also civilly liable for damages in favor of third persons due to the conduct of
the captain of the carrier;

(b) The stipulation in the charter party contract exempting the owner from liability
is against public policy under Article 1744 of the Civil Code;

(c) In case of loss, destruction or deterioration of goods, common carriers are

presumed at fault or negligent under Article 1735 of the Civil Code unless they prove
extraordinary diligence, and they cannot by contract exempt themselves from
liability resulting from their negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad
order at the place of destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The
appeal brings forth for determination this legal issue: Is the stipulation in the charter party
105 | P a g e
of the owner's non-liability valid so as to absolve the American Steamship Agencies from
liability for loss?

The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof
that the bills of lading shall be governed by and subject to the terms and conditions of the
charter party, if any, otherwise, the bills of lading prevail over all the agreements. 2 On the of
the bills are stamped "Freight prepaid as per charter party. Subject to all terms, conditions
and exceptions of charter party dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of
the ship were not entirely transferred to the charterer,4 the vessel was chartered to its full
and complete capacity (Exh. 3). Furthermore, the, charter had the option to go north or
south or vice-versa,5 loading, stowing and discharging at its risk and expense.6Accordingly,
the charter party contract is one of affreightment over the whole vessel rather than a
demise. As such, the liability of the shipowner for acts or negligence of its captain and crew,
would remain in the absence of stipulation.

Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or
damage to the goods caused by personal want of due diligence on its part or its manager to
make the vessel in all respects seaworthy and to secure that she be properly manned,
equipped and supplied or by the personal act or default of the owner or its manager. Said
paragraph, however, exempts the owner of the vessel from any loss or damage or delay
arising from any other source, even from the neglect or fault of the captain or crew or some
other person employed by the owner on board, for whose acts the owner would ordinarily
be liable except for said paragraph..

Regarding the stipulation, the Court of First Instance declared the contract as contrary to
Article 587 of the Code of Commerce making the ship agent civilly liable for indemnities
suffered by third persons arising from acts or omissions of the captain in the care of the
goods and Article 1744 of the Civil Code under which a stipulation between the common
carrier and the shipper or owner limiting the liability of the former for loss or destruction
of the goods to a degree less than extraordinary diligence is valid provided it be reasonable,
just and not contrary to public policy. The release from liability in this case was held
unreasonable and contrary to the public policy on common carriers.

The provisions of our Civil Code on common carriers were taken from Anglo-American
law.7 Under American jurisprudence, a common carrier undertaking to carry a special cargo
or chartered to a special person only, becomes a private carrier. 8 As a private carrier, a
stipulation exempting the owner from liability for the negligence of its agent is not against
public policy,9 and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should
not be applied where the carrier is not acting as such but as a private carrier. The
stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void only if the strict public policy governing common

106 | P a g e
carriers is applied. Such policy has no force where the public at large is not involved, as in
the case of a ship totally chartered for the use of a single party.

And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to
the charterer, as shipper, is in fact and legal contemplation merely a receipt and a document
of title not a contract, for the contract is the charter party. 10 The consignee may not claim
ignorance of said charter party because the bills of lading expressly referred to the same.
Accordingly, the consignees under the bills of lading must likewise abide by the terms of the
charter party. And as stated, recovery cannot be had thereunder, for loss or damage to the
cargo, against the shipowners, unless the same is due to personal acts or negligence of said
owner or its manager, as distinguished from its other agents or employees. In this case, no
such personal act or negligence has been proved.

WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved
from liability to plaintiff. No costs. So ordered.

G.R. No. 131166 September 30, 1999

CALTEX (PHILIPPINES), INC., petitioner,

vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO,
EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.

PARDO, J.:

Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Donñ a Paz, killing almost all the passengers and crew members of
both ships, and thus resulting in one of the country's worst maritime disasters.

The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner
jointly liable with the operator of MT Vector for damages when the latter collided with
Sulpicio Lines, Inc.'s passenger ship MV Donñ a Paz.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex. 2 MT Vector is a tramping motor tanker owned and operated by Vector Shipping
107 | P a g e
Corporation, engaged in the business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on
board gasoline and other oil products owned by Caltex by virtue of a charter contract
between
them. 3

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Donñ a Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master
and his officers, and passengers totaling 1,493 as indicated in the Coast Guard
Clearance. 4 The MV Donñ a Paz is a passenger and cargo vessel owned and operated by
Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/
Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within
the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the
crewmembers of MV Donñ a Paz died, while the two survivors from MT Vector claimed that
they were sleeping at the time of the incident.1âwphi1.nêt

The MV Donñ a Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the
burning waters by vessels that responded to distress calls. 5 Among those who perished
were public school teacher Sebastian Canñ ezal (47 years old) and his daughter Corazon
Canñ ezal (11 years old), both unmanifested passengers but proved to be on board the vessel.

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and
actual operator Vector Shipping Corporation, were at fault and responsible for its collision
with MV Donñ a Paz. 6

On February 13, 1989, Teresita Canñ ezal and Sotera E. Canñ ezal, Sebastian Canñ ezal's wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
"Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc.
(hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco
Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that
Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT
Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation;
as a result, it rammed against MV Donñ a Paz in the open sea setting MT Vector's highly
flammable cargo ablaze.

On September 15, 1992, the trial court rendered decision dismissing, the third party
complaint against petitioner. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

108 | P a g e
 1. For the death of Sebastian E. Canñ ezal and his 11-year old daughter Corazon
G. Canñ ezal, including loss of future earnings of said Sebastian, moral and
exemplary damages, attorney's fees, in the total amount of P 1,241,287.44
and finally;

2. The statutory costs of the proceedings.

Likewise, the 3rd party complaint is hereby DISMISSED for want of

substantiation and with costs against the 3rd party plaintiff.

IT IS SO ORDERED.

DONE IN MANILA, this 15th day of September 1992.

ARSEN
IO M.
GONO
NG

Judge 7

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the
Court of Appeal modified the trial court's ruling and included petitioner Caltex as one of the
those liable for damages. Thus:

WHEREFORE, in view of all the foregoing, the judgment rendered by the

Regional Trial Court is hereby MODIFIED as follows:

WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of

Sebastian E. Canñ ezal and Corazon Canñ ezal:

1. Compensatory damages for the death of Sebastian E. Canñ ezal and Corazon
Canñ ezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

2. Compensatory damages representing the unearned income of Sebastian E.

Canñ ezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR
HUNDRED EIGHTY (P306,480.00) PESOS;

3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS

(P300,000.00);

4. Attorney's fees in the concept of actual damages in the amount of FIFTY

THOUSAND PESOS (P50,000.00);

5. Costs of the suit.

109 | P a g e
 Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
equally liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney's
fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the collision)
and the other half by Caltex (Phils.), Inc. (being the charterer that negligently
caused the shipping of combustible cargo aboard an unseaworthy vessel).

SO ORDERED.

JORGE
S.
IMPER
IAL

Associate
Justice

WE CONCUR:

RAMON U. MABUTAS, JR. PORTIA ALINÑ O HERMACHUELOS

Associate Justice Associate Justice. 8

Hence, this petition.

We find the petition meritorious.

First: The charterer has no liability for damages under

Philippine Maritime laws.

The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter party or similar contract on
the other. 9

Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter. 10

A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one
by which the owner of a ship or other vessel lets the whole or part of her to a merchant or
other person for the conveyance of goods, on a particular voyage, in consideration of the
payment of freight. 11

110 | P a g e
A contract of affreightment may be either time charter, wherein the leased vessel is leased
to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charter-party provides for the hire of the vessel only, either
for a determinate period of time or for a single or consecutive voyage, the ship owner to
supply the ship's store, pay for the wages of the master of the crew, and defray the expenses
for the maintenance of the ship. 12

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with
his own people and becomes, in effect, the owner for the voyage or service stipulated,
subject to liability for damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights and the responsibilities of ownership rest on
the owner. The charterer is free from liability to third persons in respect of the ship. 13

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private one?
We need to answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel
as a common carrier.

In Planters Products, Inc. vs. Court of Appeals, 14 we said:

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole portion of a vessel of one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or the voyage charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.

Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15

Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment . . .

A common carrier is a person or corporation whose regular business is to carry passengers

or property for all persons who may choose to employ and to remunerate him. 16 MT Vector
fits the definition of a common carrier under Article 1732 of the Civil Code. In Guzman
vs. Court of Appeals, 17 we ruled:
111 | P a g e
 The Civil Code defines "common carriers" in the following terms:

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers for
passengers or goods or both, by land, water, or air for compensation, offering
their services to the public.

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such services on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services
to the "general public," i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from
making such distinctions.

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such backhauling was done
on a periodic, occasional rather than regular or scheduled manner, and even
though respondent's principal occupation was not the carriage of goods for
others. There is no dispute that private respondent charged his customers a
fee for hauling their goods; that the fee frequently fell below commercial
freight rates is not relevant here.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the
voyage to exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition the vessel involved in its contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code. 18

112 | P a g e
The provisions owed their conception to the nature of the business of common carriers.
This business is impressed with a special public duty. The public must of necessity rely on
the care and skill of common carriers in the vigilance over the goods and safety of the
passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more
hazardous. 19 For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:

1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license
renewed;

2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;

3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.

Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these
deficiencies.

1. The master of M/T Vector did not posses the required Chief Mate license to command
and navigate the vessel;

2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to
navigate only in bays and rivers when the subject collision occurred in the open sea;

3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;

4. The vessel did not have a Third Mate, a radio operator and lookout; and

5. The vessel had a defective main engine. 20

As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the
Civil Code, which provide:

113 | P a g e
 Art. 20. — Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.

Art. 2176. — Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.

And what is negligence?

The Civil Code provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Article 1171 and
2201 paragraph 2, shall apply.

If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.

In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others.
It may be the failure to observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which ordinarily regulate
the conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in "public service." 22 The Civil Code demands diligence
which is required by the nature of the obligation and that which corresponds with the
circumstances of the persons, the time and the place. Hence, considering the nature of the
obligation between Caltex and MT Vector, liability as found by the Court of Appeals is
without basis.1âwphi1.nêt

The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness, 23 shippers of goods, when transacting with common
carriers, are not expected to inquire into the vessel's seaworthiness, genuineness of its
licenses and compliance with all maritime laws. To demand more from shippers and hold
them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as
the protection of the public in general is concerned. By the same token, we cannot expect
passengers to inquire every time they board a common carrier, whether the carrier
possesses the necessary papers or that all the carrier's employees are qualified. Such a
practice would be an absurdity in a business where time is always of the essence.
114 | P a g e
Considering the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other
shipper in shipping his cargoes.

A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year.

Atty. Poblador: Mr. Witness, I direct your attention to this portion here
containing the entries here under "VESSEL'S DOCUMENTS

1. Certificate of Inspection No. 1290-85, issued December 21,

1986, and Expires December 7, 1987", Mr. Witness, what steps
did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT
Vector?

Apolinario Ng: At the time when I extended the Contract, I did

nothing because the tanker has a valid C.I. which will expire on
December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed
and Mr. Abalos, in turn, assured me they will renew the same.

Q: What happened after that?

A: On the first week of December, I again made a follow-up

from Mr. Abalos, and said they were going to send me a copy as
soon as possible, sir. 24

xxx xxx xxx

Q: What did you do with the C.I.?

A: We did not insist on getting a copy of the C.I. from Mr. Abalos
on the first place, because of our long business relation, we
trust Mr. Abalos and the fact that the vessel was able to sail
indicates that the documents are in order. . . . 25

On cross examination —

Atty. Sarenas: This being the case, and this being an admission
by you, this Certificate of Inspection has expired on December
7. Did it occur to you not to let the vessel sail on that day
because of the very approaching date of expiration?

115 | P a g e
 Apolinar Ng: No sir, because as I said before, the operation
Manager assured us that they were able to secure a renewal of
the Certificate of Inspection and that they will in time submit
us a
copy. 26

Finally, on Mr. Ng's redirect examination:

Atty. Poblador: Mr. Witness, were you aware of the pending

expiry of the Certificate of Inspection in the coastwise license
on December 7, 1987. What was your assurance for the record
that this document was renewed by the MT Vector?

Atty. Sarenas: . . .

Atty. Poblador: The certificate of Inspection?

A: As I said, firstly, we trusted Mr. Abalos as he is a long time

business partner; secondly, those three years; they were
allowed to sail by the Coast Guard. That are some that make me
believe that they in fact were able to secure the necessary
renewal.

Q: If the Coast Guard clears a vessel to sail, what would that

mean?

Atty. Sarenas: Objection.

Court: He already answered that in the cross examination to

the effect that if it was allowed, referring to MV Vector, to sail,
where it is loaded and that it was scheduled for a destination
by the Coast Guard, it means that it has Certificate of Inspection
extended as assured to this witness by Restituto Abalos. That in
no case MV Vector will be allowed to sail if the Certificate of
inspection is, indeed, not to be extended. That was his repeated
explanation to the cross-examination. So, there is no need to
clarify the same in the re-direct examination. 27

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner liable for damages.

116 | P a g e
As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit
our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling
insofar as Vector is concerned.

WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court
AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay
the heirs of Sebastian E. Canñ ezal and Corazon Canñ ezal damages as set forth therein. Third-
party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held
liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys'
fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.1âwphi1.nêt

No costs in this instance.

SO ORDERED.

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to
and from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for
another night because of strong winds and heavy rains.

117 | P a g e
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners’ son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them
to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.

The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners’ son and his wife, died during the incident.

At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary
of $900.3

Petitioners, by letter of October 26, 2000, 4 demanded indemnification from respondent for
the death of their son in the amount of at least ₱4,000,000.

Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of ₱10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondent’s offer, they filed the Complaint, as earlier reflected,
alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B
Coco Beach III to sail notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as
5:00 a.m. of September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners’ allegation, there was no storm on September 11, 2000
as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to
capacity and had sufficient life jackets for its passengers. By way of Counterclaim,
118 | P a g e
respondent alleged that it is entitled to an award for attorney’s fees and litigation expenses
amounting to not less than ₱300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2)
there is clearance from the Coast Guard, (3) there is clearance from the captain and (4)
there is clearance from the Resort’s assistant manager.8 He added that M/B Coco Beach III
met all four conditions on September 11, 2000, 9 but a subasco or squall, characterized by
strong winds and big waves, suddenly occurred, causing the boat to capsize. 10

By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners’
Complaint and respondent’s Counterclaim.

Petitioners’ Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.

By Decision of August 19, 2008,13 the appellate court denied petitioners’ appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.

Petitioners’ Motion for Reconsideration having been denied by Resolution dated January
16, 2009,14 they filed the present Petition for Review.15

Petitioners maintain the position they took before the trial court, adding that respondent is
a common carrier since by its tour package, the transporting of its guests is an integral part
of its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to
prove that it is a common carrier; that the Resort’s ferry services for guests cannot be
considered as ancillary to its business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed before allowing M/B
Coco Beach III to sail; that the incident was caused by a fortuitous event without any
contributory negligence on its part; and that the other case wherein the appellate court
held it liable for damages involved different plaintiffs, issues and evidence. 16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing respondent

as a common carrier.

The Civil Code defines "common carriers" in the following terms:

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

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the law on
common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondent’s
ferry services in its resort operations is underscored by its having its own Coco Beach
boats. And the tour packages it offers, which include the ferry services, may be availed of by
anyone who can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no
moment. It would be imprudent to suppose that it provides said services at a loss. The
Court is aware of the practice of beach resort operators offering tour packages to factor the
transportation fee in arriving at the tour package price. That guests who opt not to avail of
respondent’s ferry services pay the same amount is likewise inconsequential. These guests
may only be deemed to have overpaid.

120 | P a g e
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or
goods is the carrier’s principal business, whether it is offered on a regular basis, or whether
it is offered to the general public. The intent of the law is thus to not consider such
distinctions. Otherwise, there is no telling how many other distinctions may be concocted
by unscrupulous businessmen engaged in the carrying of persons or goods in order to
avoid the legal obligations and liabilities of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. 19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances. 20

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed

that the common carrier is at fault or negligent. In fact, there is even no need for the court
to make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000.
Respondent’s position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical
depressions in Northern Luzon which would also affect the province of Mindoro. 22 By the
testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be
expected under such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other people’s lives at risk. The extraordinary diligence required of
common carriers demands that they take care of the goods or lives entrusted to their hands
as if they were their own. This respondent failed to do.

Respondent’s insistence that the incident was caused by a fortuitous event does not
impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor.24

121 | P a g e
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only causeof the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous
event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and sank. 26 The incident
was, therefore, not completely free from human intervention.

The Court need not belabor how respondent’s evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.

Article 176427 vis-aè -vis Article 220628 of the Civil Code holds the common carrier in breach
of its contract of carriage that results in the death of a passenger liable to pay the following:
(1) indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at ₱50,000. 29

As for damages representing unearned income, the formula for its computation is:

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 — age of deceased at the time of death]30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 — age
at death]) adopted in the American Expectancy Table of Mortality or the Actuarial of
Combined Experience Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the
entire earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs. 33

In computing the third factor – necessary living expense, Smith Bell Dodwell Shipping
Agency Corp. v. Borja34teaches that when, as in this case, there is no showing that the living
expenses constituted the smaller percentage of the gross income, the living expenses are
fixed at half of the gross income.

122 | P a g e
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]
2/3 x [52]

Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange
rate of $1 = ₱44 in 2000,36 amounts to ₱39,600. Ruelito’s net earning capacity is thus computed
as follows:

Net Earning = life expectancy x (gross annual income - reasonable and

Capacity necessary living expenses).
= 35 x (₱475,200 - ₱237,600)
= 35 x (₱237,600)

Net Earning
= ₱8,316,000
Capacity

Respecting the award of moral damages, since respondent common carrier’s breach of
contract of carriage resulted in the death of petitioners’ son, following Article 1764 vis-aè -vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner. 37

Under the circumstances, it is reasonable to award petitioners the amount of ₱100,000 as

moral damages and ₱100,000 as exemplary damages.381avvphi1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit —

123 | P a g e
 1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the
rate of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners
the following: (1) ₱50,000 as indemnity for the death of Ruelito Cruz; (2) ₱8,316,000 as
indemnity for Ruelito’s loss of earning capacity; (3) ₱100,000 as moral damages; (4)
₱100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent
as attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per
annum computed from the finality of this decision until full payment.

SO ORDERED.

G.R. No. L-15122 March 10, 1920

124 | P a g e
THE UNITED STATES, plaintiff-appellee,
vs.
TAN PIACO, VENTURA ESTUYA, PEDRO HOMERES, MAXIMINO GALSA and EMILIO
LEOPANDO, defendants.
TAN PIACO, appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Paredes for appellee.

JOHNSON, J.:

Said defendants were charged with a violation of the Public Utility Law (Act No. 2307 as
amended by Acts Nos. 2362 and 2694), in that they were operating a public utility without
permission from the Public Utility Commissioner.

Upon the complain presented each of said defendants were arrested and brought to trial.
After hearing the evidence the Honorable Cayetano Lukban, judge, found that the evidence
was insufficient to support the charges against Ventura Estuya, Pedro Homeres, Maximino
Galsa and Emilio Leopando, and absolved them from all liability under the complaint and
discharged them from all liability under the complaint and discharged them from the
custody of the law. The lower court found the defendant Tan Piaco guilty of the crime
charged in the complaint and sentence him to pay a fine of P100, and, in case of insolvency,
to suffer subsidiary imprisonment, and to pay one-fifth part of the costs. From that
sentence Tan Piaco appealed to this court.

The facts proved during the trial of the cause may be stated as follows:

The appellant rented two automobile trucks and was using them upon the highways of the
Province of Leyte for the purpose of carrying some passengers and freight; that he carried
passengers and freight under a special contract in each case; that he had not held himself
out to carry all passengers and all freight for all persons who might offer passengers and
freight.

The Attorney-General, in a carefully prepared brief, says: "The question is whether the
appellant, under the above facts, was a public utility under the foregoing definitions," and
was therefore subject to the control and regulation of the Public Utility Commission. "We
have not found anything in the evidence showing that the appellant operated the trucks in
question for public use. These trucks, so far as indicated by the evidence and as far as the
appellant is concerned, furnished service under special agreements to carry particular
persons and property. . . . For all that we can deduce from the evidence, these passengers, or
the owners of the freight, may have controlled the whole vehicles 'both as to content,
direction, and time of use,' which facts, under all the circumstances of the case, would, in
our opinion, take away the defendant's business from the provisions of the Public Utility
Act."

125 | P a g e
In support of the conclusion of the Attorney-General, he cites the case of Terminal Taxicab
Co. vs. Kutz (241 U. S.. 252). In that case the Terminal Taxicab Co. furnished automobiles
from its central garage on special orders and did not hold itself out to accommodate any
and all persons. The plaintiff reserve to itself the right to refuse service. The Supreme Court
of the United States, speaking through Mr. Justice Holmes, said: "The bargains made by the
plaintiff are individual, and however much they may tend towards uniformity in price,
probably have not the mechanical fixity of charges that attend the use of taxicabs from the
stations to the hotels. The court is of the opinion that that part of the business is not to be
regarded as a public utility. It is true that all business, and for the matter of that, every life
in all its details, has a public aspect, some bearing upon the welfare of the country in which
it is passed." The court held that by virtue of the fact that said company did not hold itself
out to serve any and all persons, it was not a public utility and was not subject to the
jurisdiction of the public utility commission.

Upon the facts adduced during the trial of the cause, and for the foregoing reasons, the
Attorney-General recommends that the sentence of the lower court be revoked and that the
appellant be absolved from all liability under the complaint.

Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694, provides that: "The
Public Utility Commission or Commissioners shall have general supervision and regulation
of, jurisdiction and control over, all public utilities. . . . The term 'public utility' is hereby
defined to include every individual, copartnership, association, corporation or joint stock
company, etc., etc., that now or hereafter may own, operate, managed, or control any
common carrier, railroad, street railway, etc., etc., engaged in the transportation of
passengers, cargo, etc., etc., for public use."

Under the provisions of said section, two things are necessary: (a) The individual,
copartnership, etc., etc., must be a public utility; and (b) the business in which such
individual, copartnership, etc. etc., is engaged must be for public use. So long as the
individual or copartnership, etc., etc., is engaged in a purely private enterprise, without
attempting to render service to all who may apply, he can in no sense be considered a public
utility, for public use.

"Public use" means the same as "use by the public." The essential feature of the public use is
that it is not confined to privilege individuals, but is open to the indefinite public. It is this
indefinite or unrestricted quality that gives it its public character. In determining whether a
use is public, we must look not only the character of the business to be done, but also to the
proposed mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of the jurisdiction
of the public utility commission. There must be, in general, a right which the law compels
the power to give to the general public. It is not enough that the general prosperity of the
public is promoted. Public use is not synonymous with public interest. The true criterion by
which to judge of the character of the use is whether the public may enjoy it by right or only
by permission.

126 | P a g e
For all of the foregoing reasons, we agree with the Attorney-General that the appellant was
not operating a public utility, for public use, and was not, therefore, subject to the
jurisdiction of the Public Utility Commission.

Therefore, the sentence of the lower court is hereby revoked, and it is hereby ordered and
decreed that the complaint be dismissed and that the defendant be absolved from all
liability under the same, and that he be discharged from the custody of the law, without any
finding as to costs. So ordered.

[G.R. No. 141910. August 6, 2002.]

FGU INSURANCE CORPORATION, Petitioner, v. G.P. SARMIENTO TRUCKING

CORPORATION and LAMBERT M. EROLES, Respondents.

DECISION

VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty
(30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by
Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South
Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City.
While the truck was traversing the north diversion road along McArthur highway in
Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall
into a deep canal, resulting in damage to the cargoes.chanrob1es virtua1 1aw 1ibrary

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion

Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn,
being the subrogee of the rights and interests of Concepcion Industries, Inc., sought
reimbursement of the amount it had paid to the latter from GPS. Since the trucking
company failed to heed the claim, FGU filed a complaint for damages and breach of contract
of carriage against GPS and its driver Lambert Eroles with the a Regional Trial Court,
Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive
hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in business
as a common carrier. Respondents further claimed that the cause of damage was purely
accidental.

The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of
submitting its evidence, filed with leave of court a motion to dismiss the complaint by way
of demurrer to evidence on the ground that petitioner had failed to prove that it was a
common carrier.chanrob1es virtua1 1aw 1ibrary

127 | P a g e
The trial court, in its order of 30 April 1996, 1 granted the motion to dismiss, explaining
thusly:jgc:chanrobles.com.ph

"Under Section 1 of Rule 131 of the Rules of Court, it is provided that ‘Each party must
prove his own affirmative allegation, . . .’

"In the instant case, plaintiff did not present any single evidence that would prove that
defendant is a common carrier.

"x x x

"Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss, damage
or deterioration of goods during transport under 1735 of the Civil Code is not availing.

"Thus, the laws governing the contract between the owner of the cargo to whom the
plaintiff was subrogated and the owner of the vehicle which transports the cargo are the
laws on obligation and contract of the Civil Code as well as the law on quasi delicts.

"Under the law on obligation and contract, negligence or fault is not presumed. The law on
quasi delict provides for some presumption of negligence but only upon the attendance of
some circumstances. Thus, Article 2185 provides:chanrob1es virtual 1aw library

‘Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor
vehicle has been negligent if at the time of the mishap, he was violating any traffic
regulation.’

"Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.

"Considering that plaintiff failed to adduce evidence that defendant is a common carrier
and defendant’s driver was the one negligent, defendant cannot be made liable for the
damages of the subject cargoes." 2

The subsequent motion for reconsideration having been denied, 3 plaintiff interposed an
appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that
the appellee corporation was not a common carrier defined under the law and existing
jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence.chanrob1es
virtua1 1aw 1ibrary

The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The
appellate court, in its decision of 10 June 1999, 4 discoursed, among other things, that —

". . . in order for the presumption of negligence provided for under the law governing
common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the

128 | P a g e
appellee is a common carrier. Should the appellant fail to prove that the appellee is a
common carrier, the presumption would not arise; consequently, the appellant would have
to prove that the carrier was negligent.

"x x x

"Because it is the appellant who insists that the appellees can still be considered as a
common carrier, despite its limited clientele, (assuming it was really a common carrier), it
follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) ‘must
establish his case by a preponderance of evidence, which means that the evidence as a
whole adduced by one side is superior to that of the other.’ (Summa Insurance Corporation
v. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do — hence,
the dismissal of the plaintiffs complaint by the trial court is justified.

"x x x

"Based on the foregoing disquisitions and considering the circumstances that the appellee
trucking corporation has been ‘its exclusive contractor, hauler since 1970, defendant has no
choice but to comply with the directive of its principal,’ the inevitable conclusion is that the
appellee is a private carrier.chanrob1es virtua1 1aw 1ibrary

"x x x

". . . the lower court correctly ruled that ‘the application of the law on common carriers is
not warranted and the presumption of fault or negligence on the part of a common carrier
in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of
the Civil Code is not availing.’ . . .

"Finally, We advert to the long established rule that conclusions and findings of fact of a trial
court are entitled to great weight on appeal and should not be disturbed unless for strong
and valid reasons." 5

Petitioner’s motion for reconsideration was likewise denied; 6 hence, the instant petition, 7
raising the following issues:chanrob1es virtual 1aw library

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED

UNDER THE LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER,

MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO

129 | P a g e
TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE
CUSTODY AND POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals
to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion
Industries, Inc., rendering or offering its services to no other individual or entity, cannot be
considered a common carrier. 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 hire or compensation, offering their services to the public, 8
whether to the public in general or to a limited clientele in particular, but never on an
exclusive basis. 9 The true test of a common carrier is the carriage of passengers or goods,
providing space for those who opt to avail themselves of its transportation service for a fee.
10 Given accepted standards, GPS scarcely falls within the term "common carrier."cralaw
virtua1aw library

The above conclusion notwithstanding, GPS cannot escape from liability.

In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief. 11 The law, recognizing
the obligatory force of contracts, 12 will not permit a party to be set free from liability for
any kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof. 13 A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the
interests of the promisee that may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a position as he would have been in
had the contract been performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a position as
he would have been in had the contract not been made; or his "restitution interest," which
is his interest in having restored to him any benefit that he has conferred on the other party.
14 Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action. 15 The effect of every infraction is to create a new duty,
that is, to make recompense to the one who has been injured by the failure of another to
observe his contractual obligation 16 unless he can show extenuating circumstances, like
proof of his exercise of due diligence (normally that of the diligence of a good father of a
family or, exceptionally by stipulation or by law such as in the case of common carriers, that
of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his
ensuing liability.cralaw : red

Respondent trucking corporation recognizes the existence of a contract of carriage between

it and petitioner’s assured, and admits that the cargoes it has assumed to deliver have been
130 | P a g e
lost or damaged while in its custody. In such a situation, a default on, or failure of
compliance with, the obligation — in this case, the delivery of the goods in its custody to the
place of destination — gives rise to a presumption of lack of care and corresponding
liability on the part of the contractual obligor the burden being on him to establish
otherwise. GPS has failed to do so.

Respondent driver, on the other hand, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the contract of
carriage between petitioner’s principal and defendant, may not be held liable under the
agreement. A contract can only bind the parties who have entered into it or their successors
who have assumed their personality or their juridical position. 17 Consonantly with the
axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor
prejudice a third person. Petitioner’s civil action against the driver can only be based on
culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to
prove negligence or fault on the part of the defendant. 18

A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a
defendant liable where the thing which caused the injury complained of is shown to be
under the latter’s management and the accident is such that, in the ordinary course of
things, cannot be expected to happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence of explanation by the defendant,
that the accident arose from want of care. 19 It is not a rule of substantive law and, as such,
it does not create an independent ground of liability. Instead, it is regarded as a mode of
proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the
plaintiff of, the burden of producing specific proof of negligence. The maxim simply places
on the defendant the burden of going forward with the proof. 20 Resort to the doctrine,
however, may be allowed only when (a) the event is of a kind which does not ordinarily
occur in the absence of negligence; (b) other responsible causes, including the conduct of
the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the
indicated negligence is within the scope of the defendant’s duty to the plaintiff. 21 Thus, it
is not applicable when an unexplained accident may be attributable to one of several
causes, for some of which the defendant could not be responsible. 22chanrob1es virtua1
1aw 1ibrary

Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties. 23 Nevertheless, the requirement that responsible causes other than those due to
defendant’s conduct must first be eliminated, for the doctrine to apply, should be
understood as being confined only to cases of pure (non-contractual) tort since obviously
the presumption of negligence in culpa contractual, as previously so pointed out,
immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver,
whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be
said to have been in control and management of the vehicle which figured in the accident, it
is not equally shown, however, that the accident could have been exclusively due to his

131 | P a g e
negligence, a matter that can allow, forthwith, res ipsa loquitur work against him.

If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the
movant shall be deemed to have waived the right to present evidence. 24 Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in
transporting the cargoes of the assured so as to still warrant a remand of the case to the
trial court.chanrob1es virtua1 1aw library

WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of
Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED
only insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the
trial court and decision of the appellate court are REVERSED as regards G.P. Sarmiento
Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation
the value of the damaged and lost cargoes in the amount of P204,450.00. No costs.

SO ORDERED.

G.R. No. 184300 July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES,
INC., Respondents.

DECISION

REYES, J.:

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance
Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and Resolution2 dated
August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with
modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former’s products to its customers, dealers or
salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy)
from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its
interest over its own products. Philippines First thereby insured Wyeth’s nutritional,
pharmaceutical and other products usual or incidental to the insured’s business while the

132 | P a g e
same were being transported or shipped in the Philippines. The policy covers all risks of
direct physical loss or damage from any external cause, if by land, and provides a limit of
P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It
turned out, however, that the contract was not signed by Wyeth’s
representative/s.4 Nevertheless, it was admittedly signed by Reputable’s representatives,
the terms thereof faithfully observed by the parties and, as previously stated, the same
contract of carriage had been annually executed by the parties every year since 1989. 5

Under the contract, Reputable undertook to answer for "all risks with respect to the goods
and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the goods/products are in transit and
until actual delivery to the customers, salesmen, and dealers of the COMPANY". 6

The contract also required Reputable to secure an insurance policy on Wyeth’s

goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR
Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable
received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be
delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately,
on the same date, the truck carrying Wyeth’s products was hijacked by about 10 armed
men. They threatened to kill the truck driver and two of his helpers should they refuse to
turn over the truck and its contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant
to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then
demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth
by virtue of the payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on
August 12, 1996.8 In its complaint, Philippines First stated that Reputable is a "private
corporation engaged in the business of a common carrier." In its answer, 9 Reputable claimed
that it is a private carrier. It also claimed that it cannot be made liable under the contract of
carriage with Wyeth since the contract was not signed by Wyeth’s representative and that
the cause of the loss was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect

the amount covered in the SR Policy. According to Reputable, "it was validly insured with
Malayan for P1,000,000.00 with respect to the lost products under the latter’s Insurance
Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR
Policy covered the risk of robbery or hijacking.10

133 | P a g e
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR
Policy, the insurance does not cover any loss or damage to property which at the time of the
happening of such loss or damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.

After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for
the amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the
RTC to be liable to Reputable to the extent of the policy coverage. The dispositive portion of
the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable]

liable for the loss of the Wyeth products and orders it to pay Philippines First the following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines First to

Wyeth for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by Philippines

First to hired adjusters/surveyors;

3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

SO ORDERED.12

Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC
decision.

Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth
was binding despite Wyeth’s failure to sign the same. Reputable further contended that the
provisions of the contract are unreasonable, unjust, and contrary to law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by
134 | P a g e
or would but for the existence of this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the amount which would have been payable
under the Fire or Marine policy or policies had this insurance not been effected.

Malayan argued that inasmuch as there was already a marine policy issued by Philippines
First securing the same subject matter against loss and that since the monetary
coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo,
Philippines First alone must bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it
prayed that it be held liable for no more than P468,766.70, its alleged pro-rata share of the
loss based on the amount covered by the policy, subject to the provision of Section 12 of the
SR Policy, which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any
property hereby insured, there be any other subsisting insurance or insurances, whether
effected by the insured or by any other person or persons, covering the same property, the
company shall not be liable to pay or contribute more than its ratable proportion of such
loss or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the
RTC, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as
modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the
award of attorney’s fees in favor of Reputable is DELETED.

SO ORDERED.13

The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of
the contract of carriage on the ground of lack of signature of Wyeth’s representative/s; (2)
Reputable is liable under the contract for the value of the goods even if the same was lost
due to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being
the latter provision; however, since the ratable proportion provision of Section 12 applies
only in case of double insurance, which is not present, then it should not be applied and
Malayan should be held liable for the full amount of the policy coverage, that is,
P1,000,000.00.14

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was
denied by the CA in its Resolution dated August 28, 2008. 15

Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations
on the liability of common carriers" and the "difference between an ‘other insurance clause’
and an ‘over insurance clause’."
135 | P a g e
Malayan also contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. This argument
is based on its assertion that Philippines First judicially admitted in its complaint that
Reputable is a common carrier and as such, Reputable should not be held liable pursuant to
Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is not liable for the loss, then
there is no reason to hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the CA failed
to apply the express provisions of Section 5 (referred to by Malayan as over insurance
clause) and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as
these provisions could have been read together there being no actual conflict between
them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier or
a private/special carrier. It, however, maintains the correctness of the CA ruling that
Malayan is liable to Philippines First for the full amount of its policy coverage and not
merely a ratable portion thereof under Section 12 of the SR Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private carrier
should be accorded the highest degree of respect and must be considered conclusive
between the parties, and that a review of such finding by the Court is not warranted under
the circumstances. As to its alleged judicial admission that Reputable is a common carrier,
Philippines First proffered the declaration made by Reputable that it is a private carrier.
Said declaration was allegedly reiterated by Reputable in its third party complaint, which in
turn was duly admitted by Malayan in its answer to the said third-party complaint. In
addition, Reputable even presented evidence to prove that it is a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the
ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed
decision, praying that Reputable and Malayan be rendered solidarily liable to it in the
amount of P998,000.00, which represents the balance from the P1,000.000.00 coverage of
the SR Policy after deducting P2,000.00 under Section 10 of the said SR Policy. 17

Issues

The liability of Malayan under the SR Policy hinges on the following issues for resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage

with Wyeth, such that it should be liable for any risk of loss or damage, for any cause
whatsoever, including that due to theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12
of the SR Policy; and
136 | P a g e
 4) Whether Reputable should be held solidarily liable with Malayan for the amount
of P998,000.00 due to Philippines First.

The Court’s Ruling

On the first issue – Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched
in jurisprudence is the rule that factual findings of the trial court, especially when affirmed
by the appellate court, are accorded the highest degree of respect and considered
conclusive between the parties, save for certain exceptional and meritorious circumstances,
none of which are present in this case.18

Malayan relies on the alleged judicial admission of Philippines First in its complaint that
Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence that
"an admission verbal or written, made by a party in the course of the proceeding in the
same case, does not require proof," it is Malayan’s position that the RTC and CA should have
ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code,
the liability of Reputable for the loss of Wyeth’s goods should be dispensed with, or at least
diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require
proof, and need not be offered to be considered by the court. "The court, for the proper
decision of the case, may and should consider, without the introduction of evidence, the
facts admitted by the parties."20 The rule on judicial admission, however, also states that
such allegation, statement, or admission is conclusive as against the pleader, 21 and that the
facts alleged in the complaint are deemed admissions of the plaintiff and binding upon
him.22 In this case, the pleader or the plaintiff who alleged that Reputable is a common
carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as
against Reputable whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and
Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable
under the terms of the contract of carriage. Philippines First is not in any position to make
any admission, much more a definitive pronouncement, as to the nature of Reputable’s
business and there appears no other connection between Philippines First and Reputable
which suggests mutual familiarity between them.

Moreover, records show that the alleged judicial admission of Philippines First was
essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer
that it is actually a private or special carrier.23 In addition, Reputable stated in paragraph 2
of its third-party complaint that it is "a private carrier engaged in the carriage of
goods."24 Such allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to
the third-party complaint.25 There is also nothing in the records which show that
137 | P a g e
Philippines First persistently maintained its stance that Reputable is a common carrier or
that it even contested or proved otherwise Reputable’s position that it is a private or special
carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own business,
what was stated by Philippines First in its complaint is reduced to nothing more than mere
allegation, which must be proved for it to be given any weight or value. The settled rule is
that mere allegation is not proof.26

More importantly, the finding of the RTC and CA that Reputable is a special or private
carrier is warranted by the evidence on record, primarily, the unrebutted testimony of
Reputable’s Vice President and General Manager, Mr. William Ang Lian Suan, who expressly
stated in open court that Reputable serves only one customer, Wyeth. 27

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or
both by land, water or air for compensation, offering their services to the public. On the
other hand, a private carrier is one wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. 28 A common
carrier becomes a private carrier when it undertakes to carry a special cargo or chartered
to a special person only.29 For all intents and purposes, therefore, Reputable operated as a
private/special carrier with regard to its contract of carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it

entered into, provided its stipulations, clauses, terms and conditions are not contrary to
law, morals, good customs, public order, or public policy. "The Civil Code provisions on
common carriers should not be applied where the carrier is not acting as such but as a
private carrier. Public policy governing common carriers has no force where the public at
large is not involved."30

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the
loss of the goods/products due to any and all causes whatsoever, including theft, robbery
and other force majeure while the goods/products are in transit and until actual delivery to
Wyeth’s customers, salesmen and dealers.31

On the third issue – other insurance vis-aè -vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12
as a "modified ‘other insurance’ clause".32 In rendering inapplicable said provisions in the
SR Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be
sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which
138 | P a g e
provides only for a pro-rated contribution between the two insurers. Being the later
provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore
prevail.

xxxx

x x x The intention of both Reputable and Malayan should be given effect as against the
wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in
case of double insurance, or where the benefits of the policies of both plaintiff-appellee and
Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that
there is no double insurance in this case inasmuch as Reputable was not privy thereto, and
therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of
Wyeth, then Malayan’s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice
to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage,
would not be entitled to recover said amount for the simple reason that the same property
is covered by another insurance policy, a policy to which it was not a party to and much
less, from which it did not stand to benefit. Plainly, this unfair situation could not have been
the intention of both Reputable and Malayan in signing the insurance contract in question. 33

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions
applicable under distinct circumstances. Malayan argues that "it will not be completely
absolved under Section 5 of its policy if it were the assured itself who obtained additional
insurance coverage on the same property and the loss incurred by Wyeth’s cargo was more
than that insured by Philippines First’s marine policy. On the other hand, Section 12 will
not completely absolve Malayan if additional insurance coverage on the same cargo were
obtained by someone besides Reputable, in which case Malayan’s SR policy will contribute
or share ratable proportion of a covered cargo loss."34

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and
"double insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, 35 which validity
was upheld by the Court as a warranty that no other insurance exists. The Court ruled that
Condition No. 336 is a condition which is not proscribed by law as its incorporation in the
policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that
unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any
violation thereof but expressly provides that the condition "shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the
nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of the
amount that was not covered by the other insurance policy. In interpreting the "other
insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of
139 | P a g e
double insurance. The Court ruled that in order to constitute a violation of the clause, the
other insurance must be upon same subject matter, the same interest therein, and the same
risk. Thus, even though the multiple insurance policies involved were all issued in the name
of the same assured, over the same subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause" since there was no double
insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double insurance.
In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more
than its ratable proportion of such loss or damage." This is in accord with the principle of
contribution provided under Section 94(e) of the Insurance Code, 37 which states that
"where the insured is over insured by double insurance, each insurer is bound, as between
himself and the other insurers, to contribute ratably to the loss in proportion to the amount
for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal
question that now arises is whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where
the same person is insured by several insurers separately in respect to the same subject
and interest. The requisites in order for double insurance to arise are as follows: 38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both
issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered the
same peril insured against, it is, however, beyond cavil that the said policies were issued to
two different persons or entities. It is undisputed that Wyeth is the recognized insured of
Philippines First under its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the
goods of Wyeth pursuant merely to the stipulated requirement under its contract of
carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the
said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also
different and distinct from that of Reputable’s. The policy issued by Philippines First was in
140 | P a g e
consideration of the legal and/or equitable interest of Wyeth over its own goods. On the
other hand, what was issued by Malayan to Reputable was over the latter’s insurable
interest over the safety of the goods, which may become the basis of the latter’s liability in
case of loss or damage to the property and falls within the contemplation of Section 15 of
the Insurance Code.39

Therefore, even though the two concerned insurance policies were issued over the same
goods and cover the same risk, there arises no double insurance since they were issued to
two different persons/entities having distinct insurable interests. Necessarily, over
insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC
and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial
provisions of the SR Policy against Malayan.1âwphi1 This is in keeping with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the general
rule of resolving any ambiguity therein in favor of the insured, where the contract or policy
is prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its obligations." 40

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice
to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage,
would not be entitled to recover said amount for the simple reason that the same property
is covered by another insurance policy, a policy to which it was not a party to and much
less, from which it did not stand to benefit. x x x41

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the
liability of the insurer is direct and such third persons can directly sue the insurer. The
direct liability of the insurer under indemnity contracts against third party[- ]liability does
not mean, however, that the insurer can be held solidarily liable with the insured and/or
the other parties found at fault, since they are being held liable under different obligations.
The liability of the insured carrier or vehicle owner is based on tort, in accordance with the
provisions of the Civil Code; while that of the insurer arises from contract, particularly, the
insurance policy:43 (Citation omitted and emphasis supplied)
141 | P a g e
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract
of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February
29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No.
71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.

G.R. No. L-1963 April 30, 1906

BAER SENIOR & CO.'S SUCCESSORS, plaintiff-appellee,

vs.
LA COMPAÑIA MARITIMA, defendant-appellant.

Chicote, Miranda and Sierra, for appellant.

Pillsbury and Sutro, for appellee.

WILLARD, J.:

The plaintiff, being the owner of the launch Mascota, which was then at Aparri, made a
contract with the defendant about the 2d of February, 1903, by the terms of which the
defendant agreed to tow the launch from Aparri to Manila. In accordance with this
agreement the launch was delivered to the defendant at Aparri on the day named, and the
defendant's steamer Churruca left Aparri on that day with the launch in tow. The steamer,
with the launch in tow, arrived safely at Vigan. Two or three hours after leaving Vigan the
wind increased in violence, with a rough sea. The speed of the streamer was decreased so
that the tow might travel more easily. About half-past 11 at night the lookout, who was
stationed in the stern of the steamer for the purpose of watching the launch, reported to the
officer of the deck that the launch had disappeared. The steamer was stopped and search
was made the rest of the night for the launch, but without success, and in the morning the
steamer proceeded on her way to Manila. This action was brought to recover the value of
the launch. Judgment was rendered in the court below in favor of plaintiff. The defendant
moved for a new trial, which was denied, and it has brought the case here by bill of
exceptions.

The first question to be determined is as to the nature of the liability of the defendant.
Articles 1601 and 1602 of the Civil Code are as follows:

142 | P a g e
 ART. 1601. Carriers of goods by land or by water shall be subject with regard to the
keeping and preservation of the things intrusted to them, to the same obligations as
determined for in keepers by articles 1783 and 1784.

The provisions of this article shall be understood without prejudice to what is

prescribed by the Code of Commerce with regard to transportation by sea and land.

ART. 1602. Carriers are also liable for the loss of and damage to the things which
they receive, unless they prove that the loss or damage arose from a fortuitous event
or force majuere.

Article 618 of the Code of Commerce is in part as follows:

ART. 618. The captain shall be civilly liable to the agent and the latter to the third
persons who may have made contracts with the former —

1. For all the damages suffered by the vessel and its cargo by reason of want skill or
negligence on his part. If a misdemeanor with the Penal Code.

Article 620 of the same code is in part as follows:

ART. 620. The captain shall not be liable for the damages caused to the vessel or to
the cargo by reason of force majuere; but he shall always be so — no agreement to
the contrary being valid — for those arising through his own fault.

These articles treat of the liability of a carrier of goods, but we do not think that the
defendant was a carrier of goods in respect to this launch. The reasons for so holding under
the American law found in the case of The J. P. McDonaldson (167 U. S., 599, 602, 603) are
equally cogent when applied to the Spanish law. The court there said:

While the tug is performing her contract of towing the barges they may indeed be
regarded as part of herself, in the sense that her master is bound to use due care to
provide for their safety as well as her own and to avoid collision, either of them or of
herself, with other vessels. (The Syracuse, 9 Wall., 672, 675, 676; The Civilta, 103 U.
S., 699, 701.)

But the barges in tow are by no means put under the control of the master of the tug
to the same extent as the tug herself, and the cargo, if any, on board of her.

A general ship carrying goods for hire, whether employed in internal, in coasting, or
in foreign commerce, is a common carrier; and the ship and her owners, in the
absence of a valid agreement to the contrary, are liable to the owners of the goods
carried as insurers against all losses, excepting only such irresistible causes as the
act of God and public enemies. (Liverpool Steamship Co. vs. Phoenix Ins. Co., 129 U.
S., 397, 437.) But a tug and her owners are subject to no such liability to the owners
of the vessels towed, or of the cargoes can not maintain any action for the loss of
143 | P a g e
 either against the tug of her owners, without proving negligence on her part. As was
said by Mr. Justice Strong, and repeated by the present Chief Justice: "An engagement
to tow does not impose either an obligation to insure or the liability of common
carriers. The burden is always upon him who alleges the breach of such a contract to
show either that there has been no attempt at performance, or that there has been
negligence or unskillfulness to his injury in the performance. Unlike the case of
common carriers, damage sustained by the tow does not ordinarily raise a
presumption that the tug has been in fault. The contract requires no more than that
he who undertakes to tow shall carry out his undertaking with that degree of
caution and skill which prudent navigators usually employ in similar services." (The
Webb, 14 Wall., 406, 414; The Burlington, 137 U. S., 386, 391. See also The L. P.
Dayton, 120 U. S., 337, 351.)

The obligation of the defendant grew out of a contract made between it and the plaintiff,
and the liability of the former is defined in articles 1101 and 1104 of the Civil Code, which
are as follows:

ART. 1101. Those who in fulfilling their obligations are guilty of fraud, negligence, or
delay, and those who in any manner whatsoever act in contravention of the
stipulations of the same, shall be subject to indemnify for the losses and damages
caused thereby.

ART. 1104. The fault or negligence of the debtor consists of the omission of the steps
which may be required by the character of the obligation, and which may pertain to
the circumstances of the persons, time, and place.

Should the obligation not state what conduct is to be observe in its fulfillment, that
observed by a good father of a family shall be required.

We do not think that the provisions of articles 1902 and 1903 are applicable to this case.
(Manresa's Commentaries on the Civil Code, vol. 8, pp. 29, 69.)

By the terms of articles 1104 the defendant was bound to exercise what is known in the
American law as ordinary diligence, taking into consideration the nature of the obligation
and the circumstances of persons, time, and place. We think the evidence in the case shows
that the defendant did exercise the diligence required of it by law. As we understand the
evidence the towing line was passed from the steamer to the launch, around the stern of the
launch once or twice, and one or two other lines passed entirely around the bow of the
launch and under the keel. These lines were fastened to a post in the bow of the launch,
which post, according to the testimony of the defendant's witnesses, was used for fastening
ropes in cases of towing, and, according to one witness of the plaintiff, for the purpose of
fastening the launch to the wharf. At the time the loss occurred the towing line did not
break, but this post did, and was found fastened to the towing lines when they were pulled
on board the steamer. The captain of the steamer and the first mate, both men of experience
in the matter, testified that the lines were properly adjusted and the tow properly made fast
to the steamer. The only evidence to the contrary was the evidence furnished by one
144 | P a g e
witness of the plaintiff, who testified that he was present when the towing lines were made
fast by the captain himself, of the steamer; that he then told the captain it should be done
another way. The captain denied this. This witness had no experience, according to his own
testimony, in the matter of towing; had never had occasion to make fast a tow to a tug, and
had never seen it done, with one exception; and that when this same launch was towed
from Manila to Aparri. We do not think his evidence is sufficient to overcome the evidence
of the defendant.

The judgment of the court below is reversed, and judgment entered for the defendant,
absolving it from the complaint, with the costs of the lower court. No costs will be allowed
to either party in this court. After the expiration of twenty days final judgment will be
entered in accordance herewith and ten days thereafter the case remanded to the lower
court for proper procedure. So ordered.

[G.R. NO. 146426 : June 27, 2006]

CARGOLIFT SHIPPING, INC. Petitioner, v. L. ACUARIO MARKETING CORP. and SKYLAND

BROKERAGE, INC., Respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a Petition for Review on Certiorari of the July 6, 2000 Decision1 of the Court of
Appeals in CA-G.R. CV No. 55664, which affirmed the judgment2 of the Regional Trial Court
of Caloocan City, Branch 121, in Civil Case No. C-16120 in so far as it found petitioner
Cargolift Shipping, Inc. ("Cargolift") liable, as third-party defendant, for actual damages in
the sum of P97,021.20, as well as the November 28, 2000 Resolution3 denying the motion
for reconsideration.

The antecedent facts of the case are as follows:

Sometime in March 1993, respondent L. Acuario Marketing Corp., ("Acuario") and

respondent Skyland Brokerage, Inc., ("Skyland") entered into a time charter
agreement4 whereby Acuario leased to Skyland its L. Acuario II barge for use by the latter in
transporting electrical posts from Manila to Limay, Bataan. At the same time, Skyland also
entered into a separate contract5 with petitioner Cargolift, for the latter's tugboats to tow
the aforesaid barge.

In accordance with the foregoing contracts, petitioner's tugboat M/T Beejay left the Manila
South Harbor on April 1, 1993 with Acuario's barge in tow. It reached the port of Limay,
Bataan on April 3, 1993, whereupon M/T Beejay disengaged and once again set sail for
Manila. Petitioner's other tugboat, the M/T Count, remained in Bataan to secure the barge
for unloading.

145 | P a g e
Off-loading operations went underway until April 7, 1993, when operations were
interrupted for the next two days to give way to the observance of the lenten season. The
unloading of the cargo was concluded on April 12, 1993, by which time M/T Beejay had
gone back to Bataan for the return trip. The M/T Beejay and the barge returned to the port
of Manila on April 13, 1993.

On the same day, the barge was brought to Acuario's shipyard where it was allegedly
discovered by Acuario's dry-docking officer, Guillermo Nacu, Jr., that the barge was listing
due to a leak in its hull. According to Nacu, he was informed by the skipper of the tugboat
that the damage was sustained in Bataan. To confirm the same, Nacu ordered an
underwater survey of the barge and prepared a damage report dated April 14, 1993. No
representative of Skyland was present during the inspection although it was furnished with
a copy of the said report.

The barge was consequently dry-docked for repairs at the Western Shipyard from April 16
to April 26, 1993. Acuario spent the total sum of P97,021.20 for the repairs. 6

Pursuant to its contract with Skyland which provided that "(a)ny damage or loss on the
barge due to the fault or negligence of charterers shall be the responsibility of the
(c)harterer or his representative,"7Acuario wrote Skyland seeking reimbursement of its
repair costs, failing which, it filed a complaint for damages against Skyland before the
Regional Trial Court of Caloocan City, where the case was docketed as Civil Case No. C-
16120 and raffled to Branch 121.

Skyland, in turn, filed a third-party complaint8 against petitioner alleging that it was
responsible for the damage sustained by the barge.

According to Acuario and its witnesses, the weather in Bataan shifted drastically at dawn of
April 7, 1993 while the barge was docked at the Limay port eight meters away from the
stone wall. Due to strong winds and large waves, the barge repeatedly hit its hull on the
wall, thus prompting the barge patron to alert the tugboat captain of the M/T Count to tow
the barge farther out to sea. However, the tugboat failed to pull the barge to a safer distance
due to engine malfunction, thereby causing the barge to sustain a hole in its hull.
Fortunately, no part of the cargo was lost even if only half of it had been unloaded at that
time.9

On the other hand, petitioner and Skyland denied that the barge had been damaged. One of
its witnesses, Salvador D. Ocampo, claimed that he was involved in all aspects of the
operation and that no accident of any sort was brought to his knowledge. He alleged that
the barge patron and tug master made no mention of any maritime casualty during the
clearing of the vessels at the Philippine Ports Authority in Limay, Bataan. The barge was in
good condition and was not damaged when it was turned over to Acuario on April 13,
1993.10

In due course, the trial court promulgated its decision dated June 10, 1996, the dispositive
part of which reads:
146 | P a g e
WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant Skyland Brokerage to pay to the plaintiff L. Acuario Marketing
Corporation the cost of repairs of the barge L. Acuario II in the amount of P97,021.20 and to
seek reimbursement from the third-party defendant Cargolift Shipping;

2. Ordering the defendant to pay attorney's fees in the amount of P24,255.30 and to seek
reimbursement thereof from the third-party defendant; andcralawlibrary

3. Ordering the defendant to pay the costs of suit subject to reimbursement from the third-
party defendant.

SO ORDERED.11

The trial court gave credence to the testimonies of Acuario's witnesses that the barge
sustained damage while it was being chartered by Skyland. It held that the positive
testimonies of Acuario's witnesses, coupled with documentary evidence detailing the
nature and extent of the damage as well as the repairs done on the barge, should prevail
over the bare denials of Skyland and petitioner. It also noted that two of the latter's three
witnesses were not in Limay, Bataan when the incident happened.

The trial court further held that Skyland was liable under its time charter agreement with
Acuario pursuant to Article 1159 of the Civil Code which states that "contracts have the
force of law between the contracting parties." Skyland must bear the consequences of the
tugboat's incapacity to respond to the barge's request for assistance because Acuario had
no control in the selection of the tugboats used by Skyland. But since the ultimate fault lies
with petitioner, justice demands that the latter reimburse Skyland for whatever it may be
adjudged to pay Acuario.12

Both Skyland and petitioner elevated the matter to the Court of Appeals which, on July 6,
2000, rendered the assailed Decision affirming the trial court, but deleting the award of
attorney's fees. Upon denial of its motion for reconsideration, 13 petitioner brought the
instant petition raising the following issues:

WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDING OF THE TRIAL
COURT THAT L. ACUARIO II SUSTAINED DAMAGE AND THAT IT WAS SUSTAINED DURING
ITS CHARTER TO RESPONDENT SKYLAND.

II

ASSUMING THAT L. ACUARIO II SUFFERED DAMAGE, WHETHER THE COURT OF APPEALS

ERRED IN UPHOLDING THE TRIAL COURT DECISION HOLDING PETITIONER LIABLE
THEREFOR.14

147 | P a g e
The petition lacks merit.

On the first assigned error, petitioner is asking this Court to resolve factual issues that have
already been settled by the courts below. The question of whether the barge had been
damaged during its charter to Skyland is a factual matter, the determination of which may
not be generally disturbed on appeal. Questions of fact are not reviewable by this Court
except under certain exceptional circumstances.15 No such exceptional circumstance exists
in the case at bar.

On the contrary, the factual conclusions reached by the courts below are consistent with the
evidence on record. Acuario's witnesses testified that strong winds and waves caused the
barge to bump into the walls of the pier where it was berthed for unloading. Petitioner's
tugboat failed to tow it farther away due to engine breakdown, thus causing the barge to
sustain a hole in its hull. These testimonies were duly supported and corroborated by
documentary evidence detailing the damage and repairs done on the barge. 16

On the other hand, petitioner and Skyland's denial that there was inclement weather in the
early hours of April 7, 1993 and that the barge sustained no damage on this occasion were
not supported by evidence to overcome the positive allegations of Acuario's witnesses who
were present at the place and time of the incident. The categorical declaration of Acuario's
witnesses regarding the events which led to the damage on the barge shifted the burden of
evidence on petitioner and Skyland. They could have easily disproved Acuario's claims by
presenting competent proof that there was no weather disturbance on that day or, by
presenting the testimony of individuals who have personal knowledge of the events which
transpired.

Moreover, the inability of petitioner's and Skyland's witnesses to unequivocally declare that
it was still the M/T Count that secured the barge during the resumption of off-loading
operations casts suspicion on their credibility. As aptly observed by the trial court, such
hesitation on the part of its witnesses is indicative of uncertainty, if not a propensity to
withhold information that could be unfavorable to their cause. 17 To our mind, therefore, the
trial court rightly concluded that petitioner's M/T Count indeed encountered mechanical
trouble, as asserted by Acuario. The fact that petitioner did not categorically deny the
allegation of mechanical trouble only serves to strengthen the trial court's conclusion.

Petitioner's assertion that it is contrary to human experience for the barge to have made
the return trip to Manila if it sustained the alleged damage deserves short shrift. The trial
court found that the damage on the barge was not too extensive as to render it incapable of
staying afloat and being used in operation. Neither was it impossible for the barge's cargo
to remain intact and undamaged during the weather disturbance. Apart from the fact that
the cargo which consisted of wooden electric poles are, by nature, not easily damaged by
adverse weather,18 part of it had already been unloaded when the unfortunate incident
occurred.

Consequently, we find no cogent reason to disturb the lower courts' finding that the barge
sustained a hole in its hull when petitioner's tugboat failed to tow it to a safer distance as
148 | P a g e
the weather changed in the port of Limay. This Court is bound by the factual determinations
of the appellate court especially when these are supported by substantial evidence and
merely affirm those of the trial court,19 as in this case. There is no showing here that the
inferences made by the Court of Appeals were manifestly mistaken, or that the appealed
judgment was based on a misapprehension of facts, or that the appellate court overlooked
certain relevant, undisputed facts which, if properly considered, would justify a different
conclusion.20 Thus, a reversal of the factual findings in this case is unwarranted.

As for the second assigned error, petitioner asserts that it could not be held liable for the
damage sustained by Acuario's barge because the latter sought to recover upon its contract
with Skyland, to which petitioner was not a party. Since it had no contractual relation with
Acuario, only Skyland should be held liable under the contract. Besides, Skyland
contractually assumed the risk that the tugboat might encounter engine trouble when it
acknowledged in its contract with petitioner that the latter's vessels were in good order
and in seaworthy condition. At any rate, it was neither negligent in the performance of its
obligation nor the proximate cause of the damage.

We do not agree.

It was not Acuario that seeks to hold petitioner liable for the damage to the barge, as the
former in fact sued only Skyland pursuant to their charter agreement. It was Skyland that
impleaded petitioner as third-party defendant considering that Skyland was being held
accountable for the damage attributable to petitioner. In other words, petitioner was not
sued under Skyland's charter agreement with Acuario, but pursuant to its separate
undertaking with Skyland. Strictly speaking, therefore, petitioner is not being held liable
under any charter agreement with Acuario.

Consequently, it is not correct for petitioner to assert that Acuario could not recover
damages from it due to lack of privity of contract between them. It is not Acuario that is
seeking damages from petitioner but Skyland, with whom it undoubtedly had a juridical tie.
While Acuario could hold Skyland liable under its charter agreement, Skyland in turn could
enforce liability on petitioner based on the latter's obligation to Skyland. In other words,
petitioner is being held liable by Skyland and not by Acuario.

Thus, in the performance of its contractual obligation to Skyland, petitioner was required to
observe the due diligence of a good father of the family. This much was held in the old but
still relevant case of Baer Senior & Co.'s Successors v. La Compania Maritima21 where the
Court explained that a tug and its owners must observe ordinary diligence in the
performance of its obligation under a contract of towage. The negligence of the obligor in
the performance of the obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise
due care and prudence in the performance of the obligation as the nature of the obligation
so demands.22

In the case at bar, the exercise of ordinary prudence by petitioner means ensuring that its
tugboat is free of mechanical problems. While adverse weather has always been a real
149 | P a g e
threat to maritime commerce, the least that petitioner could have done was to ensure that
the M/T Count or any of its other tugboats would be able to secure the barge at all times
during the engagement. This is especially true when considered with the fact that Acuario's
barge was wholly dependent upon petitioner's tugboat for propulsion. The barge was not
equipped with any engine and needed a tugboat for maneuvering. 23

Needless to say, if petitioner only subjected the M/T Count to a more rigid check-up or
inspection, the engine malfunction could have been discovered or avoided. The M/T Count
was exclusively controlled by petitioner and the latter had the duty to see to it that the
tugboat was in good running condition. There is simply no basis for petitioner's assertion
that Skyland contractually assumed the risk of any engine trouble that the tugboat may
encounter. Skyland merely procured petitioner's towing service but in no way assumed any
such risk.

That petitioner's negligence was the proximate cause of the damage to the barge cannot be
doubted. Had its tugboat been serviceable, the barge could have been moved away from the
stone wall with facility. It is too late in the day for petitioner to insist that the proximate
cause of the damage was the barge patron's negligence in not objecting to the position of
the barge by the stone wall. Aside from the fact that the position of the barge is quite
understandable since off-loading operations were then still underway, 24 the alleged
negligence of the barge patron is a matter that is also being raised for the first time before
this Court.

Thus, the damage to the barge could have been avoided had it not been for the tugboat's
inability to tow it away from the stone wall. Considering that a barge has no power of its
own and is totally defenseless against the ravages of the sea, it was incumbent upon
petitioner to see to it that it could secure the barge by providing a seaworthy tugboat.
Petitioner's failure to do so did not only increase the risk that might have been reasonably
anticipated during the shipside operation but was the proximate cause of the
damage.25 Hence, as correctly found by the courts below, it should ultimately be held liable
therefor.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals
in CA-G.R. CV No. 55664 dated July 6, 2000 and the Resolution dated November 28, 2000,
finding petitioner Cargolift Shipping, Inc. liable, as third-party defendant, for actual
damages in the sum of P97,021.20, are AFFIRMED.

SO ORDERED.

G.R. No. L-16567 March 27, 1961

DELGADO BROTHERS, INC., petitioner,

vs.
HOME INSURANCE COMPANY and THE COURT OF APPEALS, respondents.

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Leocadio de Asis and A.C. Cruz for petitioner.
William H. Quasha for respondents.

BARRERA, J.:

This is an appeal by certiorari to review the decision of the Court of Appeals (in CA-G.R. No.
20441-R), reversing the judgment of dismissal of the Court of First Instance of Manila (in
Civil Case No. 29144) and, instead, ordering petitioner-defendant Delgado Brothers, Inc. to
pay to respondent-plaintiff Home Insurance Company, the sum of P1,436.86, plus 6% per
annum interest from the commencement of the action until fully paid.

On March 7, 1956, respondent Home Insurance Company filed with the Court of First
Instance of Manila a complaint against petitioner Delgado Brothers, Inc. alleging that on
February 17, 1955, Victor Bijou & Co. of 14 East 37th Street, New York 16, New York, U.S.A.,
shipped at New York for Manila aboard the vessel S.S. Leoville and consigned to the Judy
Philippines, Inc. of Manila, a shipment of 1 case Linen Handkerchiefs and 2 cases cotton
piece goods, for which, the New York agent of said vessel, the Barber Steamship Lines, Inc.,
issued Bill of Lading No. 119; that said shipment as insured with herein respondent by the
shipper and/or consignee; that said vessel arrived at the Port of Manila on March 30, 1955
and, thereafter, said shipment was unloaded complete and in good order from said vessel
by petitioner, but the latter delivered the same to the consignee with 1 case of Linen
Handkerchiefs in bad order, with a shortage of 503 yards of Linen Print Handkerchiefs, to
the prejudice, loss and damage of shipper and or consignee in the sum of P1,287.20; that
the shipper and/or consignee filed its claim with petitioner for said loss in the sum of
$713.08 (P1,436.86); and since respondent dent paid the amount to the shipper and\or
consignee, the former was subrogated to the shipper's and/or consignee's rights and
interests; that notwithstanding respondent's claim against petitioner, the latter failed and
refused to pay the shipper and/or consignee and/or respondent the total claim of
P1,287.20; and that as it result of petitioner's gross and evident bad faith to pay the claim of
the shipper and/or consignee and/or respondent, it was compelled to file the Case and will
incur attorney's fees in the sum of P478.95. Respondent prayed that petitioner pay to it the
sum of P1,287.20, with legal interest thereon from the filing of the complaint until fully,
paid; P149.66, the difference between P1,436.86 paid by respondent to the shipper and/or
consignee and the said sum of P1,287.20; and P478.95 as attorney's fees, plus costs.

To this complaint, petitioner filed its answer on March 27, 1956, alleging as special defense
that since no claim whatsoever was filed by respondent or the consignee, or their
representatives against petitioner within the 15-day period from the date of the arrival of
the goods before they could file a suit in the court of proper jurisdiction within 1 year from
the date of said arrival at the Port of Manila, petitioner is completely relieved and released
of any and all liability for loss or damage under the law and in accordance with the
pertinent provisions of the management Contract with the Bureau of Customs, covering the
operation of the Arrastre Service for the Port of Manila; and that petitioner in no way acts
as an agent of the carrying vessel or of the importer or consignee. Petitioner, therefore,
prayed for the dismissal of respondent's complaint.

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On October 16, 1956, petitioner filed a motion to dismiss the complaint, on the ground that
"the court has no jurisdiction over the subject matter of the complaint", to which,
respondent filed an opposition on October 19, 1956, alleging that since the case is an action
in admiralty, it is within the original jurisdiction of the court. On October 20, 1956, the
court issued an order denying petitioner's motion to dismiss.

The case was, thereafter, tried and, after trial, the court, on March 6, 1957, rendered a
decision dismissing the case and absolving petitioner from liability to respondent, not on
the ground of lack of jurisdiction raised by petitioner-defendant, but on the merits of the
latter's special defenses invoked in its answer.

Not satisfied with said decision, respondent appealed to the Court of Appeals which court,
on December 29, 1959, rendered as already adverted to, a decision reversing the judgment
of the Court of First Instance of Manila and ordering petitioner to pay to respondent the
sum of P1,436.86, plus 6% per annum interest thereon from the commencement of the
action until fully paid. Hence, this appeal.

Petitioner, in this instance, claims that the Court of Appeals (as did the Court of First
Instance of Manila) erred in not dismissing respondent's complaint on the specific ground
that it (Court of First Instance) had no jurisdiction over the subject matter of the action, the
same not being an admiralty case, and the amount sought to be recovered falling within the
exclusive original jurisdiction of the Municipal Court of Manila.

Appellant's contention is meritorious. In the case of Macondray & Company, Inc. v. Delgado
Brothers, Inc. (G.R. No. L-13116, prom. April 28, 1960), the facts and issues of which are
identical, mutatis mutandis, to the case at bar, we held:

The case at bar does not deal with any maritime or with the administration and
application of any maritime law. As custodian of the sixty-eight (68) cartons of paints
it had received from the MS Pleasantville, it was defendant's duty, like that of any
ordinary depositary, to take good care of said goods and to turn the same over to the
party entitled to its possession, subject to such qualifications as may have validly been
imposed in the contract between the parties concerned. Such duty on the part of the
defendant would be the same if the final destination of the goods were Manila, not
Iloilo, and the goods had not been imported from another state. The only issues
raised in the pleadings are (1) whether or not defendant had fully discharged its
obligation to deliver the aforementioned sixty-eight (68) cartons of paint; and (2) in
the negative case, the amount of indemnity due the plaintiff therefor. The
determination of those questions does not require the application of any maritime law
and cannot affect either navigation or maritime commerce. The foreign origin of the
goods is — under the attending circumstances — immaterial to the law applicable to
this case or the rights of the parties herein, or the procedure for the settlement of their
disputes. Indeed, it is well settled that —

In case of controversy involving both maritime and nonmaritime subject matter,

where the principal matter involved belongs to the jurisdiction of a court of common
152 | P a g e
 law or of equity, admiralty will not take cognizance of incidental maritime matters
connected therewith but will relegate the whole controversy to the appropriate
tribunal. (2 C.J.S. 66.). (Emphasis supplied.)

Respondent, however, submits that the above-quoted ruling is wrong and urges a re-
examination of the issue, arguing that petitioner's arrastre service is maritime in nature
and, therefore, actions against petitioner arrastre operator properly come under the
jurisdiction of the Court of First Instance of Manila.

We have carefully considered respondent's argument but found nothing to justify a

departure from our conclusion in the Macondray case, supra. Section 2 of the Management
Contract entered into between petitioner an the Bureau of Customs on October 21, 1950
(effective January 1, 1951), reads as follows:

2. During the period while this agreement remains in force and effect, the
CONTRACTOR (herein petitioner Delgado Brothers, Inc.) shall be, and the shall
manager of the Arrastre Service at the Port of Manila, subject always, how ever, to
the terms conditions, restrictions, subjections, supervisions and provisions in this
agreement contained, with the exclusive right or privilege of receiving, handling,
caring for, and delivering all merchandise, imported and exported, upon or passing
over, the Philippine Government-owned wharves and piers in the Port of Manila; as
also, the recording or checking of all merchandise which may be delivered to the Port
of Manila at shipside, except coal, lumber and firebricks in quantity case crude oil
and kerosene and gasoline in lots of over ten thousand cases or its equivalent, and
whole cargoes of on commodity when consigned to one consignee only as hereafter
provided, and in general to furnish lighting and water services and other incidental
services, in order to undertake such work and with full power to fix the number and
salaries of, and to appoint and dismiss, all officers, employees and laborers
temporary and permanent, which may be necessary, and to do all acts and things
which said CONTRACTOR may consider conclusive to the interests of the Arrastre
Service. (Emphasis supplied.)

Under this provision, petitioner's functions as arrastre operator are (1) to receive, handle,
care for, and deliver all merchandise imported and exported, upon or passing over
Government-owned wharves and piers in the Port of Manila, (2) as well as to record or
cheek all merchandise which may be delivered to said port at shipside, and in general, (3)
to furnish light and water services and other incidental services in order to undertake its
arrastre service. Note that there is nothing in those functions which relate to the trade and
business of navigation (1 Am. Jur. 564), nor to the use or operation of vessels (Id. at 568).
Both as to the nature of the functions and the place of their performance (upon wharves
and piers shipside), petitioner's services are clearly not maritime. As we held in the
Macondray case, they are no different from those of a depositary or warehouseman.
Granting, arguendo, that petitioner's arrastre service depends on, assists, or furthers
maritime transportation (Id. at 565), it may be deemed merely incidental to its

153 | P a g e
aforementioned functions as arrastre operator and does not, thereby, make petitioner's
arrastre service maritime in character.

To give admiralty jurisdiction over a contract as maritime, such contract must relate
to the trade and business of the sea; it must be essentially and fully maritime in its
character; it must provide for maritime services, maritime transactions, or maritime
casualties. (The James T. Furber, 129 Fed. 808, cited in 66 L.R.A. 212; emphasis
supplied.) See also 2 C.J.S. 66, supra.

The case of Cebu Arrastre Service v. Collector of Internal Revenue (G.R. No. L-7444, prom.
May 30, 1956) cited by respondent is irrelevant to the present case, considering that the
functions of the Cebu Arrastre Service involve the loading, and unloading of coastwise
vessels calling at the port of Cebu and, are, therefore, of a "stevedore", subject to the
percentage tax under Section 191 of the Tax Code. Similarly, the case of American
Stevedores v. Porello (330 U.S. 446, 91 L. Ed. 1011) is inapplicable, involving as it does,
stevedores or longshoremen, not an arrastre operator. In the instant case, Delgado
Brothers, Inc. has nothing to do with the loading or unloading of cargoes to and from the
ships. Its operation on and its responsibility for the merchandise and goods begins from the
time they are placed upon the wharves or piers or delivered along sides of ships. Evans v.
New York & Pacific Steamship Co., Ltd., et al. (145 F. 841) cited by respondent is, likewise,
not in point. It should be noted that in said case, the New York & Pacific Steamship Co. Ltd.
(owner of the steamship "Capac" and with whom appellant Evans has a contract evidenced
by a bill of lading) and not the warehouseman or depositary Beards Erie Basin Stores, was the
one sued by said appellant Evans for recovery of the value of 20 bales of rubber which said
steamship failed to deliver. Hence, the District Court of New York properly held that the
contract with the steamship company was maritime in nature, over which it had
jurisdiction to entertain and decide. Undoubtedly, the Court of First Instance of Manila has
jurisdiction in cases where suit is brought directly against the carrier or shipowner.

Respondent cannot invoke the rule against multiplicity of suits, for the simple reason that
said rule has to be subservient to the superior requirement that the court must have
jurisdiction. (See International Harvester Company of the Philippines v. Judge Aragon, et al.,
G.R. No. L-2372, prom. August 26, 1949, 84 Phil. 363.)

With these conclusions, it is needless to discuss the other points raised in the briefs.

WHEREFORE, the decision of the Court of Appeals appealed from is hereby reversed and
set aside, and case dismissed, with costs against the respondent. So ordered.

[G.R. NO. 162467 : May 8, 2009]

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner, v. PHOENIX

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

DECISION

154 | P a g e
 TINGA, J.:

Before us is a Petition for Review on Certiorari 1 under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 20032 Decision of the Court of Appeals and the 26 February
2004 Resolution3 of the same court denying petitioner's motion for reconsideration.

The facts of the case are not disputed.

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

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

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

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

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorney's fees of 20% of the
claim."11 It sustained Phoenix's and McGee's argument that the damage in the cargoes was
the result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal,
as the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual relationship
between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and
McGee could be based on quasi-delict under Article 2176 of the Civil Code. 12

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

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable
for damages; and, whether Phoenix and McGee has a cause of action against Mindanao
Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three
questions have to be answered: first, whether Phoenix and McGee have a cause of action
against Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring
company, is under obligation to observe the same extraordinary degree of diligence in the
conduct of its business as required by law for common carriers 15 and warehousemen;16 and
third, whether Mindanao Terminal observed the degree of diligence required by law of a
stevedoring company.

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

156 | P a g e
The resolution of the two remaining issues is determinative of the ultimate result of this
case.

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

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

x x x The relationship therefore between the consignee and the arrastre operator must
be examined. This relationship is much akin to that existing between the consignee or
owner of shipped goods and the common carrier, or that between a depositor and a
warehouseman22 . In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the goods discharged
from a vessel, an arrastre operator's duty is to take good care of the goods and to
turn them over to the party entitled to their possession. (Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word

which refers to hauling of cargo, comprehends the handling of cargo on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. The
responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee.

157 | P a g e
The service is usually performed by longshoremen. On the other hand, stevedoringrefers to
the handling of the cargo in the holds of the vessel or between the ship's tackle and the
holds of the vessel. The responsibility of the stevedore ends upon the loading and stowing
of the cargo in the vessel.IÏ‚IηIαAÑ ±rIοblIεAÅ ¡ IνIιraâ € IÏ…Iαl lIαIω lIιbrIαrAÑ ¿

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

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence 25 that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in
equipoise or there is any doubt on which side the evidence preponderates the party having
the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed
fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact
must fail.26 IÏ‚IηIαAÑ ±rIοblIεAÅ ¡ IνIιraâ € IÏ…Iαl lIαIω lIιbrIαrAÑ ¿

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

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

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

CAUSE OF DAMAGE

xxx

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

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family,
the grant of the petition is in order.

However, the Court finds no basis for the award of attorney's fees in favor of
petitioner.IÏ‚IηIαAÑ ±rIοblIεAÅ ¡ IνIιraâ € IÏ…Iαl lIαIω lIιbrIαrAÑ ¿

None of the circumstances enumerated in Article 2208 of the Civil Code exists. The present
case is clearly not an unfounded civil action against the plaintiff as there is no showing that
it was instituted for the mere purpose of vexation or injury. It is not sound public policy to
set a premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages to Mindanao
Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the
trial of this case in Davao City, the lawyer of Mindanao Terminal incurred expenses for
plane fare, hotel accommodations and food, as well as other miscellaneous expenses, as he
attended the trials coming all the way from Manila. But there is no showing that Phoenix
and McGee made a false claim against Mindanao Terminal resulting in the protracted trial of
the case necessitating the incurrence of expenditures.42

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

SO ORDERED.

G.R. No. 185964 June 16, 2014

ASIAN TERMINALS, INC., Petitioner,

vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent.

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated October 10, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay
the money claims of respondent First Lepanto-Taisho Insurance Corporation (FIRST
LEPANTO).

The Undisputed Facts

On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags
complete and in good condition were loaded and received on board M/V "Da Feng" owned
by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI).
Based on a Certificate of Insurance4 dated August 24, 1995, it appears that the shipment
was insured against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under Marine
Open Policy No. 0123.

The shipment arrived in Manila on July 18, 1996 and was discharged into the possession
and custody of ATI, a domestic corporation engaged in arrastre business. The shipment
remained for quite some time at ATI’s storage area until it was withdrawn by broker,
Proven Customs Brokerage Corporation (PROVEN), on August 8 and 9, 1996 for delivery to
the consignee. Upon receipt of the shipment,5 GASI subjected the same to inspection and
found that the delivered goods incurred shortages of 8,600 kilograms and spillage of 3,315
kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.

GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines,
Inc. (SMITH BELL),6ATI7 and PROVEN8 but was denied. Hence, it pursued indemnification
from the shipment’s insurer.9

After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of
₱165,772.40 as insurance indemnity.10
160 | P a g e
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all
liabilities pertaining to the lost/damaged shipment and subrogating it to all the rights of
recovery and claims the former may have against any person or corporation in relation to
the lost/damaged shipment.

As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the
Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI.
When FIRST LEPANTO’s demands were not heeded, it filed on May 29, 1997 a
Complaint12 for sum of money before the Metropolitan Trial Court (MeTC) of Manila,
Branch 3. FIRST LEPANTO sought that it be reimbursed the amount of 166,772.41, twenty-
five percent (25%) thereof as attorney’s fees, and costs of suit.

ATI denied liability for the lost/damaged shipment and claimed that it exercised due
diligence and care in handling the same.13 ATI averred that upon arrival of the shipment,
SMITH BELL requested for its inspection14 and it was discovered that one jumbo bag
thereof sustained loss/damage while in the custody of COSCO as evidenced by Turn Over
Survey of Bad Order Cargo No. 47890 dated August 6, 1996 15 jointly executed by the
respective representatives of ATI and COSCO. During the withdrawal of the shipment by
PROVEN from ATI’s warehouse, the entire shipment was re-examined and it was found to
be exactly in the same condition as when it was turned over to ATI such that one jumbo bag
was damaged. To bolster this claim, ATI submitted Request for Bad Order Survey No. 40622
dated August 9, 199616 jointly executed by the respective representatives of ATI and
PROVEN. ATI also submitted various Cargo Gate Passes17 showing that PROVEN was able to
completely withdraw all the shipment from ATI’s warehouse in good order condition except
for that one damaged jumbo bag.

In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of
the shipment, its contract for cargo handling services limits its liability to not more than
₱5,000.00 per package. ATI interposed a counterclaim of ₱20,000.00 against FIRST
LEPANTO as and for attorney’s fees. It also filed a cross-claim against its co-defendants
COSCO and SMITH BELL in the event that it is made liable to FIRST LEPANTO. 18

PROVEN denied any liability for the lost/damaged shipment and averred that the complaint
alleged no specific acts or omissions that makes it liable for damages. PROVEN claimed that
the damages in the shipment were sustained before they were withdrawn from ATI’s
custody under which the shipment was left in an open area exposed to the elements,
thieves and vandals. PROVEN contended that it exercised due diligence and prudence in
handling the shipment. PROVEN also filed a counterclaim for attorney’s fees and damages. 19

Despite receipt of summons on December 4, 1996, 20 COSCO and SMITH BELL failed to file
an answer to the complaint. FIRST LEPANTO thus moved that they be declared in
default21 but the motion was denied by the MeTC on the ground that under Rule 9, Section 3
of the Rules of Civil Procedure, "when a pleading asserting a claim states a common cause
of action against several defending parties, some of whom answer and the other fail to do

161 | P a g e
so, the Court shall try the case against all upon the answers thus filed, and render judgment
upon the evidence presented."22

Ruling of the MeTC

In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any liability
and instead found COSCO to be the party at fault and hence liable for the loss/damage
sustained by the subject shipment. However, the MeTC ruled it has no jurisdiction over
COSCO because it is a foreign corporation. Also, it cannot enforce judgment upon SMITH
BELL because no evidence was presented establishing that it is indeed the Philippine agent
of COSCO. There is also no evidence attributing any fault to SMITH BELL. Consequently, the
complaint was dismissed in this wise:

WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the

instant case for failure of [FIRST LEPANTO] to sufficiently establish its cause o faction
against [ATI, COSCO, SMITH BELL, and PROVEN].

The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.

No pronouncement as to cost.

SO ORDERED.24

Ruling of the Regional Trial Court

On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its
Decision25 dated January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No. 06-
116237, rejected the contentions of ATI upon its observation that the same is belied by its
very own documentary evidence. The RTC remarked that, if, as alleged by ATI, one jumbo
bag was already in bad order condition upon its receipt of the shipment from COSCO on July
18, 1996, then how come that the Request for Bad Order Survey and the Turn Over Survey
of Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996 and August
6, 1996, respectively. ATI was adjudged unable to prove that it exercised due diligence while
in custody of the shipment and hence, negligent and should be held liable for the damages
caused to GASI which, in turn, is subrogated by FIRST LEPANTO.

The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00 per package
because its Management Contract with the Philippine Ports Authority (PPA) purportedly
containing the same was not presented as evidence. More importantly, FIRST LEPANTO or
GASI cannot be deemed bound thereby because they were not parties thereto. Lastly, the
RTC did not give merit to ATI’s defense that any claim against it has already prescribed
because GASI failed to file any claim within the 15-day period stated in the gate pass issued
by ATI to GASI’s broker, PROVEN. Accordingly, the RTC disposed thus:

WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED.

162 | P a g e
[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with
legal interest until fully paid, to pay [FIRST LEPANTO] 10% of the amount due the latter as
and for attorney’s fees plus the costs of suit.

The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of
evidence against them. The counterclaim and cross[-]claim of [ATI] are likewise DISMISSED
for lack of merit.

SO ORDERED.26

Ruling of the CA

ATI sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was
validly subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI
argued that there was no valid subrogation because FIRSTLEPANTO failed to present a
valid, existing and enforceable Marine Open Policy or insurance contract. ATI reasoned that
the Certificate of Insurance or Marine Cover Note submitted by FIRST LEPANTO as evidence
is not the same as an actual insurance contract.

In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the
Release of Claim and the Certificate of Insurance presented by FIRST LEPANTO sufficiently
established its relationship with the consignee and that upon proof of payment of the
latter’s claim for damages, FIRST LEPANTO was subrogated to its rights against those liable
for the lost/damaged shipment.

The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in
the custody of ATI. Thus, the CA disposed as follows:

WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the
instant petition is DENIED for lack of merit.

SO ORDERED.28

ATI moved for reconsideration but the motion was denied in the CA Resolution 29 dated
January 12, 2009. Hence, this petition arguing that:

(a) The presentation of the insurance policy is indispensable in proving the right of FIRST
LEPANTO to be subrogated to the right of the consignee pursuant to the ruling in Wallem
Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.; 30

(b) ATI cannot be barred from invoking the defense of prescription as provided for in the
gate passes in consonance with the ruling in International Container Terminal Services, Inc.
v. Prudential Guarantee and Assurance Co, Inc.31

Ruling of the Court

163 | P a g e
The Court denies the petition.

ATI failed to prove that it exercised

due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.

It must be emphasized that factual questions pertaining to ATI’s liability for the
loss/damage sustained by GASI has already been settled in the uniform factual findings of
the RTC and the CA that: ATI failed to prove by preponderance of evidence that it exercised
due diligence in handling the shipment.

Such findings are binding and conclusive upon this Court since a review thereof is
proscribed by the nature of the present petition. Only questions of law are allowed in
petitions for review on certiorari under Rule 45 of the Rules of Court. It is not the Court’s
duty to review, examine, and evaluate or weigh all over again the probative value of the
evidence presented, especially where the findings of the RTC are affirmed by the CA, as in
this case.32

There are only specific instances when the Court deviates from the rule and conducts a
review of the courts a quo’s factual findings, such as when: (1) the inference made is
manifestly mistaken, absurd or impossible; (2) there is grave abuse of discretion;(3) the
findings are grounded entirely on speculations, surmises or conjectures; (4) the judgment
of the CA is based on misapprehension of facts; (5) the CA, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (6) the findings of fact are conclusions without citation of specific evidence
on which they are based; (7) the CA manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify a different
conclusion; and (8) the findings of fact of the CA are premised on the absence of evidence
and are contradicted by the evidence on record.33

None of these instances, however, are present in this case. Moreover, it is unmistakable that
ATI has already conceded to the factual findings of RTC and CA adjudging it liable for the
shipment’s loss/damage considering the absence of arguments pertaining to such issue in
the petition at bar.

These notwithstanding, the Court scrutinized the records of the case and found that indeed,
ATI is liable as the arrastre operator for the lost/damaged portion of the shipment.

The relationship between the consignee and the arrastre operator is akin to that existing
between the consignee and/or the owner of the shipped goods and the common carrier, or
that between a depositor and a warehouseman. Hence, in the performance of its
obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman. Being the custodian of the goods

164 | P a g e
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. 34

In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon
the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove
that the losses were not due to its negligence or to that of its employees. To avoid liability,
the arrastre operator must prove that it exercised diligence and due care in handling the
shipment.35

ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to
COSCO on the basis of the Request for Bad Order Survey dated August 9, 1996 purportedly
showing that when ATI received the shipment, one jumbo bag thereof was already in
damaged condition.

The RTC and CA were both correct in concluding that ATI’s contention was improbable and
illogical. As judiciously discerned by the courts a quo, the date of the document was too
distant from the date when the shipment was actually received by ATI from COSCO on July
18, 1996. In fact, what the document established is that when the loss/damage was
discovered, the shipment has been in ATI’s custody for at least two weeks. This
circumstance, coupled with the undisputed declaration of PROVEN’s witnesses that while
the shipment was in ATI’s custody, it was left in an open area exposed to the elements,
thieves and vandals,36 all generate the conclusion that ATI failed to exercise due care and
diligence while the subject shipment was under its custody, control and possession as
arrastre operator.

To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must
do more than merely show the possibility that some other party could be responsible for
the loss or the damage.37 It must prove that it used all reasonable means to handle and store
the shipment with due care and diligence including safeguarding it from weather elements,
thieves or vandals.

Non-presentation of the insurance

contract is not fatal to FIRST
LEPANTO’s cause of action for
reimbursement as subrogee.

It is conspicuous from the records that ATI put in issue the submission of the insurance
contract for the first time before the CA. Despite opportunity to study FIRST LEPANTO’s
complaint before the MeTC, ATI failed to allege in its answer the necessity of the insurance
contract. Neither was the same considered during pre-trial as one of the decisive matters in
the case. Further, ATI never challenged the relevancy or materiality of the Certificate of
Insurance presented by FIRST LEPANTO as evidence during trial as proof of its right to be
subrogated in the consignee’s stead. Since it was not agreed during the pre-trial
proceedings that FIRST LEPANTO will have to prove its subrogation rights by presenting a
copy of the insurance contract, ATI is barred from pleading the absence of such contract in
165 | P a g e
its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend
to raise during the trial because, they are bound by the delimitation of such issues. The
determination of issues during the pre-trial conference bars the consideration of other
questions, whether during trial or on appeal.38

A faithful adherence to the rule by litigants is ensured by the equally settled principle that a
party cannot change his theory on appeal as such act violates the basic rudiments of fair
play and due process. As stressed in Jose v. Alfuerto: 39

[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of law,
theories, issues and arguments not brought to the attention of the lower court will not be
considered by the reviewing court. The defenses not pleaded in the answer cannot, on
appeal, change fundamentally the nature of the issue in the case. To do so would be unfair
to the adverse party, who had no opportunity to present evidence in connection with the
new theory; this would offend the basic rules of due process and fair play. 40 (Citation
omitted)

While the Court may adopt a liberal stance and relax the rule, no reasonable explanation,
however, was introduced to justify ATI’s failure to timely question the basis of FIRST
LEPANTO’s rights as a subrogee.

The fact that the CA took cognizance of and resolved the said issue did not cure or ratify
ATI’s faux pas. "[A] judgment that goes beyond the issues and purports to adjudicate
something on which the court did not hear the parties, is not only irregular but also
extrajudicial and invalid."41 Thus, for resolving an issue not framed during the pre-trial and
on which the parties were not heard during the trial, that portion of the CA’s judgment
discussing the necessity of presenting an insurance contract was erroneous.

At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s
right to collect reimbursement as the subrogee of GASI.

"Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities." 42 The right of subrogation
springs from Article 2207 of the Civil Code which states:

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 wrong-doer 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.

As a general rule, the marine insurance policy needs to be presented in evidence before the
insurer may recover the insured value of the lost/damaged cargo in the exercise of its
subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage Corp., 43 the Court stated
166 | P a g e
that the presentation of the contract constitutive of the insurance relationship between the
consignee and insurer is critical because it is the legal basis of the latter’s right to
subrogation.44

In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was
necessary to prove that it covered the hauling portion of the shipment and was not limited
to the transport of the cargo while at sea. The shipment in that case passed through six
stages with different parties involved in each stage until it reached the consignee. The
insurance contract, which was not presented in evidence, was necessary to determine the
scope of the insurer’s liability, if any, since no evidence was adduced indicating at what
stage in the handling process the damage to the cargo was sustained. 46

An analogous disposition was arrived at in the Wallem47 case cited by ATI wherein the
Court held that the insurance contract must be presented in evidence in order to determine
the extent of its coverage. It was further ruled therein that the liability of the carrier from
whom reimbursement was demanded was not established with certainty because the
alleged shortage incurred by the cargoes was not definitively determined. 48

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted
exceptions by declaring that a marine insurance policy is dispensable evidence in
reimbursement claims instituted by the insurer.

In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. Hence,
presentation in evidence of the marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, was held sufficient to
establish not only the relationship between the insurer and consignee, but also the amount
paid to settle the insurance claim. The presentation of the insurance contract was deemed
not fatal to the insurer’s cause of action because the loss of the cargo undoubtedly occurred
while on board the petitioner’s vessel.50

The same rationale was the basis of the judgment in International Container Terminal
Services, Inc. v. FGU Insurance Corporation,51 wherein the arrastre operator was found
liable for the lost shipment despite the failure of the insurance company to offer in evidence
the insurance contract or policy. As in Delsan, it was certain that the loss of the cargo
occurred while in the petitioner’s custody.52

Based on the attendant facts of the instant case, the application of the exception is
warranted.1âwphi1 As discussed above, it is already settled that the loss/damage to the
GASI’s shipment occurred while they were in ATI’s custody, possession and control as
arrastre operator. Verily, the Certificate of Insurance53 and the Release of Claim54presented
as evidence sufficiently established FIRST LEPANTO’s right to collect reimbursement as the
subrogee of the consignee, GASI.

167 | P a g e
With ATI’s liability having been positively established, to strictly require the presentation of
the insurance contract will run counter to the principle of equity upon which the doctrine
of subrogation is premised. Subrogation 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.55

The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured 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.56

ATI cannot invoke prescription

ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking
payment for the lost/damaged shipment because the claim letter of GASI to ATI was served
only on September 27, 1996 or more than one month from the date the shipment was
delivered to the consignee’s warehouse on August 9, 1996. The claim of GASI was thus filed
beyond the 15-day period stated in ATI’s Management Contract with PPA which in turn was
reproduced in the gate passes issued to the consignee’s broker, PROVEN, as follows:

Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods as
described above in good order and condition unless an accompanying x x x certificates duly
issued and noted on the face of this Gate Pass appeals. [sic]

This Gate pass is subject to all terms and conditions defined in the Management Contract
between the Philippine Port[s] Authority and Asian Terminals, Inc. and amendment thereto
and alterations thereof particularly but not limited to the [A]rticle VI thereof, limiting the
contractor’s liability to [P]5,000.00 per package unless the importation is otherwise
specified or manifested or communicated in writing together with the invoice value and
supported by a certified packing list to the contractor by the interested party or parties
before the discharge of the goods and corresponding arrastre charges have been paid
providing exception or restrictions from liability releasing the contractor from liability
among others unless a formal claim with the required annexes shall have been filed with
the contractor within fifteen (15) days from date of issuance by the contractors or
certificate of loss, damages, injury, or Certificate of non-delivery. 57

The contention is bereft of merit. As clarified in Insurance Company of North America v.

Asian Terminals, Inc.,58substantial compliance with the 15-day time limitation is allowed
provided that the consignee has made a provisional claim thru a request for bad order
survey or examination report, viz:

Although the formal claim was filed beyond the 15-day period from the issuance of the
examination report on the request for bad order survey, the purpose of the time limitations
for the filing of claims had already been fully satisfied by the request of the consignee’s
168 | P a g e
broker for a bad order survey and by the examination report of the arrastre operator on the
result thereof, as the arrastre operator had become aware of and had verified the facts
giving rise to its liability. Hence, the arrastre operator suffered no prejudice by the lack of
strict compliance with the 15-day limitation to file the formal complaint. 59 (Citations
omitted)

In the present case, ATI was notified of the loss/damage to the subject shipment as early as
August 9, 1996 thru a Request for Bad Order Survey60 jointly prepared by the consignee’s
broker, PROVEN, and the representatives of ATI. For having submitted a provisional claim,
GASI is thus deemed to have substantially complied with the notice requirement to the
arrastre operator notwithstanding that a formal claim was sent to the latter only on
September 27, 1996. ATI was not deprived the best opportunity to probe immediately the
veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred
by filing the herein action in court.

ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no
provisional claim thru request for bad order survey and instead filed a claim for the first
time after four months from receipt of the shipment.

Attorney's fees and interests

All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing
the insurance indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery
Frames,62 the said amount shall earn a legal interest at the rate of six percent (6%) per
annum from the date of finality of this judgment until its full satisfaction.

As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is
reasonable as and for attorney's fees considering the length of time that has passed in
prosecuting the claim.63

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated
October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby AFFIRMED
insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho
Insurance Corp., the amount of ₱165,772.40, ten percent (10%) thereof as and for
attorney's fees, plus costs of suit. The said amount shall earn legal interest at the rate of six
percent ( 6%) per annum from the date of finality of this judgment until its full satisfaction.

SO ORDERED.

G.R. No. 166250 July 26, 2010

UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,

vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.

169 | P a g e
 DECISION

NACHURA, J.:

For review is the Court of Appeals (CA) Decision1 dated April 29, 2004 and
Resolution2 dated November 26, 2004. The assailed Decision affirmed the Regional Trial
Court (RTC) decision3 dated February 22, 2001; while the assailed Resolution denied
petitioner Unsworth Transport International (Philippines), Inc., American President Lines,
Ltd. (APL), and Unsworth Transport International, Inc.’s (UTI’s) motion for reconsideration.

The facts of the case are:

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment
of 27 drums of various raw materials for pharmaceutical manufacturing, consisting of: "1) 3
drums (of) extracts, flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums
(of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20
drums (of) Vitabs: Vitamin B Complex Extract."4 UTI issued Bill of Lading No.
C320/C15991-2,5covering the aforesaid shipment. The subject shipment was insured with
private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all
risks in the amount of ₱1,779,664.77 under and by virtue of Marine Risk Note Number MC
RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.7

On the same day that the bill of lading was issued, the shipment was loaded in a sealed
1x40 container van, with no. APLU-982012, boarded on APL’s vessel M/V "Pres. Jackson,"
Voyage 42, and transshipped to APL’s M/V "Pres. Taft"8 for delivery to petitioner in favor of
the consignee United Laboratories, Inc. (Unilab).

On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992,
petitioner received the said shipment in its warehouse after it stamped the Permit to
Deliver Imported Goods9 procured by the Champs Customs Brokerage.10 Three days
thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC)
conducted a stripping survey of the shipment located in petitioner’s warehouse. The survey
results stated:

2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed

19- steel drums STC Vitamin B Complex Extract, all in good order condition and
properly sealed

1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx.
spilling of 1%11

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine)
issued Gate Pass No. 761412 which stated that "22 drums13 Raw Materials for
Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by
Champs for delivery to Unilab’s warehouse. The materials were noted to be complete
170 | P a g e
 and in good order in the gate pass.14 On the same day, the shipment arrived in
Unilab’s warehouse and was immediately surveyed by an independent surveyor, J.G.
Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated:

1-p/bag torn on side contents partly spilled

1-s/drum #7 punctured and retaped on bottom side content lacking

5-drums shortship/short delivery15

On October 23 and 28, 1992, the same independent surveyor conducted final inspection
surveys which yielded the same results. Consequently, Unilab’s quality control
representative rejected one paper bag containing dried yeast and one steel drum containing
Vitamin B Complex as unfit for the intended purpose.16

On November 7, 1992, Unilab filed a formal claim17 for the damage against private
respondent and UTI. On November 20, 1992, UTI denied liability on the basis of the gate
pass issued by Jardine that the goods were in complete and good condition; while private
respondent paid the claimed amount on March 23, 1993. By virtue of the Loss and
Subrogation Receipt18 issued by Unilab in favor of private respondent, the latter filed a
complaint for Damages against APL, UTI and petitioner with the RTC of Makati. 19 The case
was docketed as Civil Case No. 93-3473 and was raffled to Branch 134.

After the termination of the pre-trial conference, trial on the merits ensued. On February
22, 2001, the RTC decided in favor of private respondent and against APL, UTI and
petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE &

SURETY CORPORATION and against the defendants AMERICAN PRESIDENT LINES and
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and severally, the former the
following amounts:

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100
(Php76,231.27) with interest at the legal rate of 6% per annum to be computed
starting from September 30, 1993 until fully paid, for and as actual damages;

2. The amount equivalent to 25% of the total sum as attorney’s fees;

3. Cost of this litigation.

SO ORDERED.20

On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s
defense that it was merely a forwarder, declaring instead that it was a common carrier. The
appellate court added that by issuing the Bill of Lading, UTI acknowledged receipt of the
171 | P a g e
goods and agreed to transport and deliver them at a specific place to a person named or his
order. The court further concluded that upon the delivery of the subject shipment to
petitioner’s warehouse, its liability became similar to that of a depositary. As such, it ought
to have exercised ordinary diligence in the care of the goods. And as found by the RTC, the
CA agreed that petitioner failed to exercise the required diligence. The CA also rejected
petitioner’s claim that its liability should be limited to $500 per package pursuant to the
Carriage of Goods by Sea Act (COGSA) considering that the value of the shipment was
declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court
considered it as a common carrier notwithstanding the non-issuance of a bill of lading
inasmuch as a bill of lading is not indispensable for the execution of a contract of carriage. 21

Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the
following issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE

OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE
SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS
(PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND
25% AS ATTORNEY’S FEES.

2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.

3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY

DILIGENCE.

4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE

ALLEGED DAMAGE TO ITS CARGO.22

Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a
common carrier. It also questions the appellate court’s findings that it failed to establish
that it exercised extraordinary or ordinary diligence in the vigilance over the subject
shipment. As to the damages allegedly suffered by private respondent, petitioner counters
that they were not sufficiently proven. Lastly, it insists that its liability, in any event, should
be limited to $500 pursuant to the package limitation rule. Indeed, petitioner wants us to
review the factual findings of the RTC and the CA and to evaluate anew the evidence
presented by the parties.

The petition is partly meritorious.

Well established is the rule that factual questions may not be raised in a petition for review
on certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:

Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the
172 | P a g e
Supreme Court a verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.

Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm
holding itself out to the general public (other than as a pipeline, rail, motor, or water
carrier) to provide transportation of property for compensation and, in the ordinary course
of its business, (1) to assemble and consolidate, or to provide for assembling and
consolidating, shipments, and to perform or provide for break-bulk and distribution
operations of the shipments; (2) to assume responsibility for the transportation of goods
from the place of receipt to the place of destination; and (3) to use for any part of the
transportation a carrier subject to the federal law pertaining to common
carriers.231avvphi1

A freight forwarder’s liability is limited to damages arising from its own negligence,
including negligence in choosing the carrier; however, where the forwarder contracts to
deliver goods to their destination instead of merely arranging for their transportation, it
becomes liable as a common carrier for loss or damage to goods. A freight forwarder
assumes the responsibility of a carrier, which actually executes the transport, even though
the forwarder does not carry the merchandise itself.24

It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto,
petitioner undertook to transport, ship, and deliver the 27 drums of raw materials for
pharmaceutical manufacturing to the consignee.

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to

transport and to deliver them at a specified place to a person named or on his or her
order.25 It operates both as a receipt and as a contract. It is a receipt for the goods shipped
and a contract to transport and

deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment,
describes the goods as to quantity, weight, dimensions, identification marks, condition,
quality, and value. As a contract, it names the contracting parties, which include the
consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights
and obligations assumed by the parties.26

Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or
got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence
in transporting the goods. In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence.27 Mere proof of delivery
of the goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes a prima facie case of fault or negligence against the carrier. If no
adequate explanation is given as to how the deterioration, loss, or destruction of the goods
happened, the transporter shall be held responsible.28

173 | P a g e
Though it is not our function to evaluate anew the evidence presented, we refer to the
records of the case to show that, as correctly found by the RTC and the CA, petitioner failed
to rebut the prima facie presumption of negligence in the carriage of the subject shipment.

First, as stated in the bill of lading, the subject shipment was received by UTI in apparent
good order and condition in New York, United States of America. Second, the OCMSC Survey
Report stated that one steel drum STC Vitamin B Complex Extract was discovered to be
with a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No.
7614, issued by Jardine, noted that the subject shipment was in good order and condition, it
was specifically stated that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G.
Bernas’ Survey Report stated that "1-s/drum was punctured and retaped on the bottom
side and the content was lacking, and there was a short delivery of 5-drums."

All these conclusively prove the fact of shipment in good order and condition, and the
consequent damage to one steel drum of Vitamin B Complex Extract while in the possession
of petitioner which failed to explain the reason for the damage. Further, petitioner failed to
prove that it observed the extraordinary diligence and precaution which the law requires a
common carrier to exercise and to follow in order to avoid damage to or destruction of the
goods entrusted to it for safe carriage and delivery. 29

However, we affirm the applicability of the Package Limitation Rule under the COGSA,
contrary to the RTC and the CA’s findings.

It is to be noted that the Civil Code does not limit the liability of the common carrier to a
fixed amount per package. In all matters not regulated by the Civil Code, the rights and
obligations of common carriers are governed by the Code of Commerce and special laws.
Thus, the COGSA supplements the Civil Code by establishing a provision limiting the
carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of
lading.30 Section 4(5) of the COGSA provides:

(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 of 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 the bill of lading. This declaration, if embodied in the bill of lading, shall be
prima facie evidence, but shall not be conclusive on the carrier.

In the present case, the shipper did not declare a higher valuation of the goods to be
shipped. Contrary to the CA’s conclusion, the insertion of the words "L/C No. LC No. 1-187-
008394/ NY 69867 covering shipment of raw materials for pharmaceutical Mfg. x x x"
cannot be the basis of petitioner’s liability.31 Furthermore, the insertion of an invoice
number does not in itself sufficiently and convincingly show that petitioner had knowledge
of the value of the cargo.32

174 | P a g e
In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In
this case, as there was only one drum lost, private respondent is entitled to receive only
$500 as damages for the loss. In addition to said amount, as aptly held by the trial court, an
interest rate of 6% per annum should also be imposed, plus 25% of the total sum as
attorney’s fees.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of

Appeals Decision dated April 29, 2004 and Resolution dated November 26, 2004 are
AFFIRMED with MODIFICATION by reducing the principal amount due private respondent
Pioneer Insurance and Surety Corporation from ₱76,231.27 to $500, with interest of 6%
per annum from date of demand, and 25% of the amount due as attorney’s fees.

The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

G.R. No. 148496 March 19, 2002

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

MENDOZA, J.:

This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals,
affirming the decision2 of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorney's
fees, and the cost of the suit.1âwphi1.nêt

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila
to SMC's warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo
was insured by respondent UCPB General Insurance Co., Inc.

On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the
custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre
operator and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods
175 | P a g e
were inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical
fluting paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn.
The damage was placed at P93,112.00.

SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20,
1995, rendered judgment finding petitioner liable to respondent for the damage to the
shipment.

The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in the
custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the
Damage Report (Exh. "F") with entries appearing therein, classified as "TED" and
"TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at
the end and tearrage at the middle of the subject damaged cargoes respectively,
coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact
of the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-
A") in particular, which provides among others that:

" . . . we opine that damages sustained by shipment is attributable to

improper handling in transit presumably whilst in the custody of the
broker . . . ."

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that
[she is] are not liable. Defendant by reason of the nature of [her] business should
have devised ways and means in order to prevent the damage to the cargoes which it
is under obligation to take custody of and to forthwith deliver to the consignee.
Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the
nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they have observed
the extraordinary diligence required by law. The burden of the plaintiff, therefore, is
to prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
176 | P a g e
 place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to
accident or some other circumstances inconsistent with its liability." (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence
the extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of and received by the carrier for transportation until the
same are delivered actually or constructively by the carrier to the consignee or to
the person who has the right to receive the same.3

Accordingly, the trial court ordered petitioner to pay the following amounts --

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

3. Costs of suit.4

The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]

DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN

CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5

It will be convenient to deal with these contentions in the inverse order, for if petitioner is
not a common carrier, although both the trial court and the Court of Appeals held
otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance
over the goods transported by her, would require.6 Consequently, any damage to the cargo
she agrees to transport cannot be presumed to have been due to her fault or negligence.

Petitioner contends that contrary to the findings of the trial court and the Court of Appeals,
she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her
business.

177 | P a g e
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a
similar contention and held the party to be a common carrier, thus -

The Civil Code defines "common carriers" in the following terms:

"Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public."

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

So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, "public service" includes:

" x x x every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with
or without fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations
and other similar public services. x x x" 8

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's
contention would be to deprive those with whom she contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioner's business.

178 | P a g e
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

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

In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the

vigilance over goods" was explained thus:

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and "to use all reasonable means to ascertain the nature and characteristic
of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."

In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying
vessel "M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre
operator, to whom the goods were unloaded and who allegedly kept them in open air for
nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers
were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh.
H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached

loosened.10

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

Details of Discharge:

Shipment, provided with our protective supervision was noted discharged ex vessel
to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x
20' secure metal vans, covered by clean EIRs. Except for slight dents and paint
scratches on side and roof panels, these containers were deemed to have [been]
received in good condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn]
by Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignee's storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990. 12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by the
arrastre operator. The cargoes were withdrawn by the defendant-appellant from the
arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the defendant-
appellant would report it immediately to the consignee or make an exception on the
delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant received the shipment in good
order and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of
the defendant-appellant. Whenever the thing is lost (or damaged) in the possession
of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to
his fault, unless there is proof to the contrary. No proof was proffered to rebut this
legal presumption and the presumption of negligence attached to a common carrier
in case of loss or damage to the goods.13

180 | P a g e
Anent petitioner's insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMC's compound, suffice it to say
that to prove the exercise of extraordinary diligence, petitioner must do more than merely
show the possibility that some other party could be responsible for the damage. It must
prove that it used "all reasonable means to ascertain the nature and characteristic of goods
tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]."
Petitioner failed to do this.

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --

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

....

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

....

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

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.1âwphi1.nêt

SO ORDERED.

[G.R. NO. 150255. April 22, 2005]

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners, v. TRANSPORT

VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING
AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.

DECISION

CARPIO-MORALES, J.:

On Petition for Review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its
Resolution2dated September 28, 2001 denying the motion for reconsideration, which
affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-
181 | P a g e
631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport),
together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent
Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable for the loss
of 37 hot rolled steel sheets in coil that were washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk,
Russia on board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black
Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee,
Little Giant Steel Pipe Corporation (Little Giant),4 were insured against all risks with
Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-
3747-TIS.5

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South
Harbor.6

Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignee's) warehouse at Cainta, Rizal,7 in turn engaged the services of TVI to send a barge
and tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVI's tugboat "Lailani" towed the barge "Erika V" to
shipside.8

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean
Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the
barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the 37 coils was
accomplished.10 No tugboat pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge
abandoned it and transferred to the vessel. The barge pitched and rolled with the waves
and eventually capsized, washing the 37 coils into the sea. 12 At 7:00 a.m., a tugboat finally
arrived to pull the already empty and damaged barge back to the pier. 13

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to
recover the lost cargoes proved futile.14

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of P5,246,113.11. Little Giant thereupon executed a subrogation receipt 15 in favor of
Industrial Insurance.
182 | P a g e
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea
through its representative Inchcape (the defendants) before the RTC of Manila, for the
recovery of the amount it paid to Little Giant plus adjustment fees, attorney's fees, and
litigation expenses.16

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes
while typhoon signal No. 1 was raised in Metro Manila.17

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent
for unloading the cargoes outside of the breakwater notwithstanding the storm
signal.18 The dispositive portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
ordering the defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with
interest from the date the complaint was filed until fully satisfied, as well as the sum
of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount
recoverable from the defendants as attorney's fees plus the costs of suit. The counterclaims
and cross claims of defendants are hereby DISMISSED for lack of [m]erit. 19

To the trial court's decision, the defendants Schmitz Transport and TVI filed a joint motion
for reconsideration assailing the finding that they are common carriers and the award of
excessive attorney's fees of more than P1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the incident was caused by a fortuitous
event.20

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001,
affirmed in toto the decision of the trial court, 22 it finding that all the defendants were
common carriers - Black Sea and TVI for engaging in the transport of goods and cargoes
over the seas as a regular business and not as an isolated transaction, 23 and Schmitz
Transport for entering into a contract with Little Giant to transport the cargoes from ship to
port for a fee.24

In holding all the defendants solidarily liable, the appellate court ruled that "each one was
essential such that without each other's contributory negligence the incident would not
have happened and so much so that the person principally liable cannot be distinguished
with sufficient accuracy."25

In discrediting the defense of fortuitous event, the appellate court held that "although
defendants obviously had nothing to do with the force of nature, they however had control
of where to anchor the vessel, where discharge will take place and even when the
discharging will commence."26

183 | P a g e
The defendants' respective motions for reconsideration having been denied by
Resolution27 of September 28, 2001, Schmitz Transport (hereinafter referred to as
petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its
principal, consignee Little Giant, hence, the transportation contract was by and between
Little Giant and TVI.28

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and
TVI were required to file their respective Comments.29

By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and
supervision thereover.30

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes
and transferred them unto the barge upon the instruction of petitioner. 31

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner
and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any
and all liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be foreseen, or which though
foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence
must be such as to render it impossible for the debtor to fulfill his obligation in any manner;
and (4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.32

[T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from
creating or entering into the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active intervention or neglect or
184 | P a g e
failure to act, the whole occurrence is then humanized and removed from the rules
applicable to the acts of God.33

The appellate court, in affirming the finding of the trial court that human intervention in
the form of contributory negligence by all the defendants resulted to the loss of the
cargoes,34 held that unloading outside the breakwater, instead of inside the breakwater,
while a storm signal was up constitutes negligence.35 It thus concluded that the proximate
cause of the loss was Black Sea's negligence in deciding to unload the cargoes at an unsafe
place and while a typhoon was approaching.36

From a review of the records of the case, there is no indication that there was greater risk in
loading the cargoes outside the breakwater. As the defendants proffered, the weather on
October 26, 1991 remained normal with moderate sea condition such that port operations
continued and proceeded normally.37

The weather data report,38 furnished and verified by the Chief of the Climate Data Section of
PAG-ASA and marked as a common exhibit of the parties, states that while typhoon signal
No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port
of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore,
be said that the defendants were negligent in not unloading the cargoes upon the barge on
October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded
by 12:30 in the morning39 is, however, a material fact which the appellate court failed to
properly consider and appreciate40 - the proximate cause of the loss of the cargoes. Had the
barge been towed back promptly to the pier, the deteriorating sea conditions
notwithstanding, the loss could have been avoided. But the barge was left floating in open
sea until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.41 The loss
thus falls outside the "act of God doctrine."

The proximate cause of the loss having been determined, who among the parties is/are
responsible therefor?chanroblesvirtualawlibrary

Contrary to petitioner's insistence, this Court, as did the appellate court, finds that
petitioner is a common carrier. For it undertook to transport the cargoes from the shipside
of "M/V Alexander Saveliev" to the consignee's warehouse at Cainta, Rizal. As the appellate
court put it, "as long as a person or corporation holds [itself] to the public for the purpose
of transporting goods as [a] business, [it] is already considered a common carrier
regardless if [it] owns the vehicle to be used or has to hire one." 42That petitioner is a
common carrier, the testimony of its own Vice-President and General Manager Noel Aro
that part of the services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President
and General Manager of said Company?chanroblesvirtualawlibrary

185 | P a g e
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters,
and all other related functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please
tell the Honorable Court if you came to know the company by the name Little Giant Steel
Pipe Corporation?chanroblesvirtualawlibrary

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?
chanroblesvirtualawlibrary

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or duty did
you perform in behalf of this company?chanroblesvirtualawlibrary

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are]
also in-charged of the delivery of the goods to their warehouses. We also handled the
clearances of their shipment at the Bureau of Customs, Sir.

xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation
with regards to this shipment? What work did you do with this shipment?
chanroblesvirtualawlibrary

A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of
[the] cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to
perform, what equipment do (sic) you require or did you use in order to effect this
unloading, transfer and delivery to the warehouse?chanroblesvirtualawlibrary

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to
lighter, and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which
[was] in-charged (sic) of the barges. Also, in BASECO compound we are leasing cranes to
have the cargo unloaded from the barge to trucks, [and] then we used trucks to deliver [the
cargoes] to the consignee's warehouse, Sir.

Q: And whose trucks do you use from BASECO compound to the consignee's warehouse?
chanroblesvirtualawlibrary

A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

186 | P a g e
 xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to
contract for the barges of Transport Ventures Incorporated in this particular operation?
chanroblesvirtualawlibrary

A: Firstly, we don't own any barges. That is why we hired the services of another firm whom
we know [al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis
supplied)43

It is settled that under a given set of facts, a customs broker may be regarded as a common
carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
Appeals,44 held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit,

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

xxx

Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker
whose principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.45

And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation
of goods is an integral part of a customs broker, the customs broker is also a common
carrier. For to declare otherwise "would be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding the fact that the obligation to carry
goods for [its] customers, is part and parcel of petitioner's business." 47

As for petitioner's argument that being the agent of Little Giant, any negligence it
committed was deemed the negligence of its principal, it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes.
In effecting the transportation of the cargoes from the shipside and into Little Giant's
warehouse, however, petitioner was discharging its own personal obligation under a
contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler48 to provide the barge and the tugboat. In their Service Contract, 49 while Little Giant
187 | P a g e
was named as the consignee, petitioner did not disclose that it was acting on commission
and was chartering the vessel for Little Giant.50 Little Giant did not thus automatically
become a party to the Service Contract and was not, therefore, bound by the terms and
conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon
but it can maintain a cause of action for negligence.51

In the case of TVI, while it acted as a private carrier for which it was under no duty to
observe extraordinary diligence, it was still required to observe ordinary diligence to
ensure the proper and careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2202, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used
in the same situation exercised by TVI?52

This Court holds not.

TVI's failure to promptly provide a tugboat did not only increase the risk that might have
been reasonably anticipated during the shipside operation, but was the proximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open sea,
knowing that the barge does not have any power of its own and is totally defenseless from
the ravages of the sea. That it was nighttime and, therefore, the members of the crew of a
tugboat would be charging overtime pay did not excuse TVI from calling for one such
tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739 53 of the
Civil Code, prove that it exercised due diligence to prevent or minimize the loss, before,
during and after the occurrence of the storm in order that it may be exempted from liability
for the loss of the goods.

188 | P a g e
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check
the operations of TVI, it failed to take all available and reasonable precautions to avoid the
loss. After noting that TVI failed to arrange for the prompt towage of the barge despite the
deteriorating sea conditions, it should have summoned the same or another tugboat to
extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable 56 for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:

The foundation of LRTA's liability is the contract of carriage and its obligation to indemnify
the victim arises from the breach of that contract by reason of its failure to exercise the high
diligence required of the common carrier. In the discharge of its commitment to ensure the
safety of passengers, a carrier may choose to hire its own employees or avail itself of the
services of an outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under
the provisions of Article 2176 and related provisions, in conjunction with Article 2180 of
the Civil Code. x x x [O]ne might ask further, how then must the liability of the common
carrier, on one hand, and an independent contractor, on the other hand, be described? It
would be solidary. A contractual obligation can be breached by tort and when the same act
or omission causes the injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise
even under a contract, where tort is that which breaches the contract. Stated differently,
when an act which constitutes a breach of contract would have itself constituted the source
of a quasi-delictual liability had no contract existed between the parties, the contract can be
said to have been breached by tort, thereby allowing the rules on tort to apply. 57

As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation
until they were delivered actually or constructively to consignee Little Giant. 58

Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering
the shipment provides that delivery be made "to the port of discharge or so near thereto as
she may safely get, always afloat."59 The delivery of the goods to the consignee was not from
"pier to pier" but from the shipside of "M/V Alexander Saveliev" and into barges, for which
reason the consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its
duty.60

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney's fees in an amount over P1,000,000.00 to Industrial

Insurance, for lack of factual and legal basis, this Court sets it aside. While Industrial
Insurance was compelled to litigate its rights, such fact by itself does not justify the award
189 | P a g e
of attorney's fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith
would be reflected in a party's persistence in a case other than an erroneous conviction of
the righteousness of his cause.61 To award attorney's fees to a party just because the
judgment is rendered in its favor would be tantamount to imposing a premium on one's
right to litigate or seek judicial redress of legitimate grievances. 62

On the award of adjustment fees: The adjustment fees and expense of divers were incurred
by Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the
lost cargo. They do not constitute actual damages.63

As for the court a quo's award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that
when the demand cannot be reasonably established at the time the demand is made, the
interest shall begin to run not from the time the claim is made judicially or extrajudicially
but from the date the judgment of the court is made (at which the time the quantification of
damages may be deemed to have been reasonably ascertained). 65

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &

Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable for
the amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per
annum of the amount due should be computed from the promulgation on November 24,
1997 of the decision of the trial court.

Costs against petitioner.

SO ORDERED.

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.:

190 | P a g e
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.
191 | P a g e
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

192 | P a g e
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:

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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)

194 | P a g e
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:
195 | P a g e
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.1âwphi1 Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable
Court of 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

196 | P a g e
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.

G.R. No. 147079 December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,

vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

197 | P a g e
 DECISION

CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate court’s Decision1 of August 10,
2000 reversing and setting aside the judgment of Branch 133, Regional Trial Court of
Makati City, in Civil Case No. 93-76B which dismissed the complaint of respondent FGU
Insurance Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc.
(Sanchez Brokerage).

On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal
tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to
Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc. 2The Femenal tablets were
placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed
together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in
two pallets, each of which contained 30 cartons.3

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued
Marine Risk Note No. 4995 pursuant to Marine Open Policy No. 138. 4

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport
(NAIA),5 it was discharged "without exception"6 and delivered to the warehouse of the
Philippine Skylanders, Inc. (PSI) located also at the NAIA for safekeeping. 7

In order to secure the release of the cargoes from the PSI and the Bureau of Customs,
Wyeth-Suaco engaged the services of Sanchez Brokerage which had been its licensed
broker since 1984.8 As its customs broker, Sanchez Brokerage calculates and pays the
customs duties, taxes and storage fees for the cargo and thereafter delivers it to Wyeth-
Suaco.9

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez
Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt
No. 016992,10 was issued. On the receipt, another representative of Sanchez Brokerage, M.
Sison,11 acknowledged that he received the cargoes consisting of three pieces in good
condition.12

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Wyeth-Suaco being a regular importer, the customs examiner did not inspect the
cargoes13 which were thereupon stripped from the aluminum containers 14 and loaded
inside two transport vehicles hired by Sanchez Brokerage.15

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a
marine and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on
behalf of FGU Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.17 The delivery receipt, bearing No. 07037 dated July
29, 1992, indicated that the delivery consisted of one container with 144 cartons of
Femenal and Nordiol and 1 pallet containing Trinordiol. 18

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery
of the cargoes by affixing his signature on the delivery receipt. 19 Upon inspection, however,
he, together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing
Femenal and Nordiol tablets were in bad order.20 He thus placed a note above his signature
on the delivery receipt stating that 44 cartons of oral contraceptives were in bad order. The
remaining 160 cartons of oral contraceptives were accepted as complete and in good order.

Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report 21 dated
July 31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets
were "wetted" (sic).22

The Elite Surveyors later issued Certificate No. CS-0731-1538/92 23 attached to which was
an "Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to
the broker’s trucks at the NAIA, they were inspected and found to be in "apparent good
condition."24 Also noted was that at the time of delivery to the warehouse of Hizon
Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets.25

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report 26 confirming
that 38 x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and
3 x 700 blister packs of Nordiol tablets were heavily damaged with water and emitted foul
smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection 27 of 38 cartons of

Femenal and 3 cartons of Nordiol on the ground that they were "delivered to Hizon
Laboratories with heavy water damaged (sic) causing the cartons to sagged (sic) emitting a
foul order and easily attracted flies."28

Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the
payment of P191,384.25 representing the value of its loss arising from the damaged tablets.

199 | P a g e
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance
claim against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in
settlement of its claim under Marine Risk Note Number 4995.

Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-
Suaco, Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the
damaged goods, positing that the damage was due to improper and insufficient export
packaging; that when the sealed containers were opened outside the PSI warehouse, it was
discovered that some of the loose cartons were wet,32 prompting its (Sanchez Brokerage’s)
representative Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir
Calicdan, about the condition of the cargoes but that the latter advised to still deliver them
to Hizon Laboratories where an adjuster would assess the damage. 33

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial
Court of Makati City against the Sanchez Brokerage.

The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the
Survey Report prepared by the Elite Surveyors is bereft of any evidentiary support and a
mere product of pure guesswork.35

On appeal, the appellate court reversed the decision of the trial court, it holding that the
Sanchez Brokerage engaged not only in the business of customs brokerage but also in the
transportation and delivery of the cargo of its clients, hence, a common carrier within the
context of Article 1732 of the New Civil Code.36

Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in
good order and condition but were in a damaged state when delivered to Wyeth-Suaco, the
appellate court held that Sanchez Brokerage is presumed negligent and upon it rested the
burden of proving that it exercised extraordinary negligence not only in instances when
negligence is directly proven but also in those cases when the cause of the damage is not
known or unknown.37

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED.
The Decision of the Court a quo is REVERSED. Another Decision is hereby rendered
in favor of the Appellant and against the Appellee as follows:

1. The Appellee is hereby ordered to pay the Appellant the principal amount
of P181, 431.49, with interest thereupon at the rate of 6% per annum, from
the date of the Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of

P20,000.00 as and by way of attorney’s fees; and
200 | P a g e
 3. The counterclaims of the Appellee are DISMISSED.38

Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate
court’s Resolution of December 8, 2000 which was received by petitioner on January 5,
2001, it comes to this Court on petition for certiorari filed on March 6, 2001.

In the main, petitioner asserts that the appellate court committed grave and reversible
error tantamount to abuse of discretion when it found petitioner a "common carrier"
within the context of Article 1732 of the New Civil Code.

Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole
office of a writ of certiorari is the correction of errors of jurisdiction including the
commission of grave abuse of discretion amounting to lack or excess of jurisdiction and
does not include correction of the appellate court’s evaluation of the evidence and factual
findings thereon.

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier,
failed to overcome the presumption of negligence, it being documented that petitioner
withdrew from the warehouse of PSI the subject shipment entirely in good order and
condition.39

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to
this Court by filing a petition for review, which would be but a continuation of the appellate
process over the original case.40

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5,
2001. Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the
appellate court’s decision had become final and executory. The filing by petitioner of a
petition for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of
appeal.

In another vein, the rule is well settled that in a petition for certiorari, the petitioner must
prove not merely reversible error but also grave abuse of discretion amounting to lack or
excess of jurisdiction.

Petitioner alleges that the appellate court erred in reversing and setting aside the decision
of the trial court based on its finding that petitioner is liable for the damage to the cargo as
a common carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction,
which is properly the subject of an ordinary appeal.

201 | P a g e
Where the issue or question involves or affects the wisdom or legal soundness of the
decision – not the jurisdiction of the court to render said decision – the same is beyond the
province of a petition for certiorari.41 The supervisory jurisdiction of this Court to issue
a cert writ cannot be exercised in order to review the judgment of lower courts as to its
intrinsic correctness, either upon the law or the facts of the case. 42

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of
the consignee or importer.

ATTY. FLORES:

Q: What are the functions of these license brokers, license customs broker?

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and those
upon approval of the importer, we prepare the entry together for processing and
claims from customs and finally deliver the goods to the warehouse of the
importer.43

Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. 44 The
contention, therefore, of petitioner that it is not a common carrier but a customs broker
whose principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to
deliver the goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of
the Civil Code, extraordinary diligence in the vigilance over the goods it transports
according to all the circumstances of each case. In the event that the goods are lost,
destroyed or deteriorated, it is presumed to have been at fault or to have acted
negligently, unless it proves that it observed extraordinary diligence.46

The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of

Appeals:47

202 | P a g e
 The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and "to use all reasonable means to ascertain the nature and
characteristics of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires."48

In the case at bar, it was established that petitioner received the cargoes from the PSI
warehouse in NAIA in good order and condition;49 and that upon delivery by petitioner to
Hizon Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the
Delivery Receipt50 issued by petitioner, and as indicated in the Survey Report of Elite
Surveyors51 and the Destruction Report of Hizon Laboratories, Inc. 52

In an attempt to free itself from responsibility for the damage to the goods, petitioner posits
that they were damaged due to the fault or negligence of the shipper for failing to properly
pack them and to the inherent characteristics of the goods 53 ; and that it should not be
faulted for following the instructions of Calicdan of Wyeth-Suaco to proceed with the
delivery despite information conveyed to the latter that some of the cartons, on
examination outside the PSI warehouse, were found to be wet. 54

While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packing
or in the containers, the rule is that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability
for the resulting damage.56

If the claim of petitioner that some of the cartons were already damaged upon delivery to it
were true, then it should naturally have received the cargo under protest or with
reservations duly noted on the receipt issued by PSI. But it made no such protest or
reservation.57

Moreover, as observed by the appellate court, if indeed petitioner’s employees only

examined the cargoes outside the PSI warehouse and found some to be wet, they would
certainly have gone back to PSI, showed to the warehouseman the damage, and demanded
then and there for Bad Order documents or a certification confirming the damage. 58 Or,
petitioner would have presented, as witness, the employees of the PSI from whom Morales
and Domingo took delivery of the cargo to prove that, indeed, part of the cargoes was
already damaged when the container was allegedly opened outside the warehouse. 59

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that
day. Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside
the PSI warehouse but such notwithstanding Calicdan directed Morales to proceed with the
delivery to Hizon Laboratories, Inc.

203 | P a g e
While Calicdan testified that he received the purported telephone call of Morales on July 29,
1992, he failed to specifically declare what time he received the call. As to whether the call
was made at the PSI warehouse when the shipment was stripped from the airport
containers, or when the cargoes were already in transit to Antipolo, it is not determinable.
Aside from that phone call, petitioner admitted that it had no documentary evidence to
prove that at the time it received the cargoes, a part of it was wet, damaged or in bad
condition.60

The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely
then. Sanchez himself testified that in the past, there was a similar instance when the
shipment of Wyeth-Suaco was also found to be wet by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that
arrived at the NAIA were damaged and claimed by the Wyeth-Suaco without any
question?

WITNESS:

A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-
Suaco did not claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:

A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62

Since petitioner received all the cargoes in good order and condition at the time they were
turned over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a
portion thereof was found to be in bad order, it was incumbent on petitioner to prove that it
exercised extraordinary diligence in the carriage of the goods. It did not, however. Hence, its
presumed negligence under Article 1735 of the Civil Code remains unrebutted.

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

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SO ORDERED.

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