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RCJ BUS LINES VS. STANDARD INCURANCE CO.

G.R. No. 193629, Aug. 17, 2011, Carpio, J.:p, 2


nd
Division

FACTS: Standard Insurance Co., Inc. (STANDARD) filed a complaint against the
petitioners Flor Bola Mangoba and RCJ Bus Lines, Inc. The complaint was predicated
upon an accident which involves the Mitsubishi Lancer and the RCJ Bus Lines. Upon
seeing a pile of gravel and sand on the road, the Toyota Corolla, which is ahead of the
Mitsubishi Lancer, stopped on its tracks. The Mitsubishi Lancer followed suit and also
halted. At this point, the bus hit and bumped the rear portion of the Mitsubishi Lancer
causing it to move forward and hit the Toyota Corolla in front of it. As a result of the
incident, the Mitsubishi Lancer sustained damages amounting to P162,151.22,
representing the costs of its repairs. Under the comprehensive insurance policy secured
by Rodelene Valentino, owner of the Mitsubishi Lancer, STANDARD reimbursed to the
former the amount she expended for the repairs of her vehicle. Rodelene then executed
a Release of Claim and Subrogation Receipt, subrogating STANDARD to all rights,
claims and actions she may have against RCJ Bus Lines, Inc. and its driver, Flor Bola
Mangoba. In its answer, RCJ Bus Lines, Inc. maintained, among others, that the direct,
immediate and proximate cause of the accident was the negligence of the driver of the
Mitsubishi Lancer when, for no reason at all, it made a sudden stop along the National
Highway, as if to initiate and/or create an accident. The MeTC rendered its decision in
favor of Standard. The RTC affirmed with modification the MeTCs Decision deleting the
award for exemplary damages.The appellate court found that the RTC committed no
reversible error in affirming RCJs liability as registered owner of the bus and employer
of Mangoba.

ISSUE:W/N the Court of Appeals erroneously disregarded the point that petitioner
RCJs defense of extraordinary diligence in the selection and supervision of its driver
was made as an alternative defense;

HELD:The petition has no merit. RCJ, by presenting witnesses to testify on its exercise
of diligence of a good father of a family in the selection and supervision of its bus
drivers, admitted that Mangoba is its employee. Article 2180 of the Civil Code, in
relation to Article 2176, makes the employer vicariously liable for the acts of its
employees. When the employee causes damage due to his own negligence while
performing his own duties, there arises the juris tantum presumption that the employer
is negligent, rebuttable only by proof of observance of the diligence of a good father of a
family. For failure to rebut such legal presumption of negligence in the selection and
supervision of employees, the employer is likewise responsible for damages, the basis
of the liability being the relationship of pater familias or on the employers own
negligence.Mangoba, per testimony of his conductor, was ten meters away from the
Mitsubishi Lancer before the collision and was driving 60 to 75 kilometers per hour
when the speed limit was 50 kilometers per hour. The presumption under Article 2185 of
the Civil Code was thus proven true: Mangoba, as driver of the bus which collided with
the Mitsubishi Lancer, was negligent since he violated a traffic regulation at the time of
the mishap. We see no reason to depart from the findings of the MeTC, RTC and
appellate court that Mangoba was negligent.

NEW WORLD INTERNATIONAL VS. NYK-FILJAPAN SHIPPING CORP.
G.R. No. 171468, Aug. 24, 2011, Abad, J.:p, 3
rd
Division

FACTS: Petitioner New World International Development (Phils.), Inc. (New World)
bought from DMT Corporation (DMT) through its agent, Advatech Industries, Inc.
(Advatech) three emergency generator sets worth US$721,500.00.DMT shipped the
generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc.
(LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland,
California, where it was loaded on S/S California Luna V59, owned and operated by
NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in
Manila. NYK issued a bill of lading, declaring that it received the goods in good
condition.NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX
Ruby V/72 that it also owned and operated. On its journey to Manila, however, ACX
Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the
Manila South Harbor respecting the loss and damage that the goods on board his
vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harborarrastre or cargo-handling
operator, received the shipment and upon inspection of the three container vans
separately carrying the generator sets, two vans bore signs of external damage while
the third van appeared unscathed. An examination of the three generator sets in the
presence of petitioner New Worlds representatives, Federal Builders (the project
contractor) and surveyors of petitioner New Worlds insurer, SeaboardEastern
Insurance Company (Seaboard), revealed that all three sets suffered extensive damage
and could no longer be repaired. For these reasons, New World demanded recompense
for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt
of the demand, both denied liability for the loss. Since Seaboard covered the goods with
a marine insurance policy, petitioner New World sent it a formal claim. Seaboard
required petitioner New World to submit to it an itemized list of the damaged units,
parts, and accessories, with corresponding values, for the processing of the claim. But
petitioner New World did not submit what was required of it, insisting that the insurance
policy did not include the submission of such a list in connection with an insurance
claim. Reacting to this, Seaboard refused to process the claim. Thus,petitioner New
World filed an action for specific performance and damages against all the respondents
before the Regional Trial Court (RTC) of Makati City. The RTC rendered a decision
absolving the various respondents from liability with the exception of NYK. The RTC
found that the generator sets were damaged during transit while in the care of NYKs
vessel, ACX Ruby.The RTC ruled, however, that petitioner New World filed its claim
against the vessel owner NYK beyond the one year provided under the Carriage of
Goods by Sea Act (COGSA).On appeal, the Court of Appeals (CA) rendered judgment
affirming the RTCs rulings except with respect to Seaboards liability. The CA rendered
an amended decision, reversing itself as regards the claim against Seaboard.

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP
Profit, Marina and Serbros in handling and transporting its shipment from Wisconsin to
Manila collectively resulted in the damage to the same, rendering such
respondentssolidarily liable with NYK, the vessel owner.

ISSUE: W/N the carrier, NYK, is liable for the damage.
HELD: Yes.Consequently, the Court will not disturb the finding of the RTC, affirmed by
the CA, that the generator sets were totally damaged during the typhoon which beset
the vessels voyage from Hong Kong to Manila and that it was her negligence in
continuing with that journey despite the adverse condition which caused petitioner New
Worlds loss.That the loss was occasioned by a typhoon, an exempting cause under
Article 1734 of the Civil Code, does not automatically relieve the common carrier of
liability. The latter had the burden of proving that the typhoon was the proximate and
only cause of loss and that it exercised due diligence to prevent or minimize such loss
before, during, and after the disastrous typhoon. As found by the RTC and the CA, NYK
failed to discharge this burden.

LOADMASTER CUSTOMS SERVICES VS. GLODEL
G.R. No. 179446, Jan. 10, 2011, Mendoza, J.:p, 2
nd
Division

FACTS: R&B Insurance insured the shipment of 132 bundles of electric copper
cathodes against All Risks for Columbia, the owner of the cargoes. 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 Columbias
warehouses/plants in Bulacan and Valenzuela City.One (1) truck, loaded with 11
bundles or 232 pieces of copper cathodes, failed to deliver its cargo.Later on, the said
truck 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
ofP1,903,335.39. R&B Insurance paid Columbia the amount ofP1,896,789.62 as
insurance indemnity and thereafter, filed a complaint for damages against both
Loadmasters and Glodelbefore the Regional Trial Court. 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."The RTC rendered a decision holding Glodel
liable for damages for the loss of the subject cargo and dismissing Loadmasters
counterclaim for damages and attorneys fees against R&B Insurance.On appeal, the
CA likewise held Glodel liable and also Loadmaster.
ISSUE: W/N Loadmaster is also liable for the loss.

HELD:Yes.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 (Glodels) failure to file a cross-claim. Glodel, in its
Comment, counters that Loadmasters is liable to it under its cross-claim because the
latter was grossly negligent in the transportation of the subject cargo. 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.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 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.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."
In the same vein, Glodel is also considered a common carrier within the context of
Article 1732. In its Memorandum, 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.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.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.
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."

CRUZ VS. SUN HOLIDAYS
G.R. No. 186312, Jun. 29, 2010, Carpio Morales, J.:p, 3
rd
Division

FACTS: Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint against
Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) for damages arising
from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife 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 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.Petitionersdemanded indemnification from respondent for the death of their
son in the amount of at least P4,000,000.Replying, respondent, by letter denied any
responsibility for the incident which it considered to be a fortuitous event. It nevertheless
offered, as an act of commiseration, the amount of P10,000 to petitioners upon their
signing of a waiver.As petitioners declined respondents offer, they filed the Complaint,
as earlier reflected, alleging that respondent, as a common carrier, was guilty of
negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning
bulletins issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA). In its Answer, 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 as the Coast Guard in fact cleared the voyage; and M/B Coco
Beach III was not filled to capacity and had sufficient life jackets for its passengers. By
way of Counterclaim, respondent alleged that it is entitled to an award for attorneys
fees and litigation expenses amounting to not less than P300,000.RTC dismissed
petitioners Complaint and respondents Counterclaim. 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.
ISSUE: W/N respondent is liable as a common carrier.
HELD: Yes.The definition of a common carrier by 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 (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.Indeed,
respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents
ferry services in its resort operations is underscored by its having its own Coco Beach
boats. And the tour packages it offers, which include the ferry services, may be availed
of by anyone who can afford to pay the same. These services are thus available to the
public.That respondent does not charge a separate fee or fare for its ferry services is of
no moment. It would be imprudent to suppose that it provides said services at a loss.
The Court is aware of the practice of beach resort operators offering tour packages to
factor the transportation fee in arriving at the tour package price. That guests who opt
not to avail of respondents ferry services pay the same amount is likewise
inconsequential. These guests may only be deemed to have overpaid.
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.
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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.The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if
they were their own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not
impress either.The elements of a "fortuitous event" are: (a) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that constituted
the casofortuito 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.
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.
UNSWORTH TRANSPORT VS. CA
G.R. No. 166250, Jul. 26, 2010, Nachura, J.:p, 2
nd
Division
FACTS: The shipper,Sylvex Purchasing Corporation, delivered to petitioner, UTI, a
shipment of 27 drums of various raw materials for pharmaceutical manufacturing. The
subject shipment was insured with private respondent Pioneer Insurance and Surety
Corporation in favor of Unilab against all risks in the amount of P1,779,664.77. The
shipment was loaded in a sealed 1x40 container van, boarded on APLs vessel M/V
"Pres. Jackson," Voyage 42, and transshipped to APLs M/V "Pres. Taft" for delivery to
petitioner in favor of the consignee United Laboratories, Inc. (Unilab). The shipment
arrived at the port of Manila and petitioner received the said shipment in its warehouse
and the materials were noted to be complete and in good order in the gate pass. When
the shipment arrived in Unilabs warehouse and was immediately surveyed by an
independent surveyor andUnilabs quality control representative rejected one paper bag
containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the
intended purpose. Unilab filed a formal claim for the damage against private respondent
and UTI. UTI denied liability on the basis of the gate pass issued that the goods were in
complete and good condition. By virtue of the Loss and Subrogation Receipt issued by
Unilab in favor of private respondent, the latter filed a complaint for Damages against
APL, UTI and petitioner with the RTC. The RTC decided in favor of private respondent
and against APL, UTI and petitioner. The CA affirmed the RTC decision.
Petitioner admits that it is a forwarder but disagrees with the CAs conclusion that it is a
common carrier. It also questions the appellate courts 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.
ISSUE: W/N the petitioner is not a common carrier, and its liability is limited only to
$500 pursuant to the package limitation rule under COGSA.
HELD: Petitioner is a common carrier. A freight forwarders 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.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. 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.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.
However, we affirm the applicability of the Package Limitation Rule under the COGSA,
contrary to the RTC and the CAs 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 carriers liability in the absence of a
shippers declaration of a higher value in the bill of lading.In the present case, the
shipper did not declare a higher valuation of the goods to be shipped. In light of the
foregoing, petitioners 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
attorneys fees.

AIR FRANCE VS. GILLEGO
G.R. No. 165266, Dec. 15, 2010, Villarama, J.:p, 3
rd
Division

FACTS: Respondent left Manila on board petitioner Air Frances aircraft bound for
Paris, France. While waiting at the De Gaulle International Airport for his connecting
flight to Budapest scheduled at 3:15 p.m. that same day, respondent learned that
petitioner had another aircraft bound for Budapest with an earlier departure time (10:00
a.m.) than his scheduled flight. He then went to petitioners counter at the airport and
made arrangements for the change in his booking. He was given a corresponding ticket
and boarding pass a new baggage claim stub for his checked-in luggage.However,
upon arriving in Budapest, respondent was unable to locate his luggage at the claiming
section. He sought assistance from petitioners counter at the airport where petitioners
representative verified from their computer that he had indeed a checked-in luggage. He
was advised to just wait for his luggage at his hotel and that petitioners representatives
would take charge of delivering the same to him that same day.But said luggage was
never delivered by petitioners representatives despite follow-up inquiries by
respondent.Upon his return to the Philippines, respondents lawyer immediately wrote
petitioners Station Manager complaining about the lost luggage and the resulting
damages he suffered while in Budapest. Respondent claimed that his single luggage
contained his personal effects such as clothes, toiletries, medicines for his
hypertension, and the speeches he had prepared, including the notes and reference
materials he needed for the conference. He was thus left with only his travel documents,
pocket money and the clothes he was wearing. Because petitioners representatives in
Budapest failed to deliver his luggage despite their assurances and his repeated follow-
ups, respondent was forced to shop for personal items including new clothes and his
medicines. Aside from these unnecessary expenditures of about $1,000, respondent
had to prepare another speech, in which he had difficulty due to lack of data and
information. Respondent thus demanded the sum of P1,000,000.00 from the petitioner
as compensation for his loss, inconvenience and moral damages. Respondent asserted
that as a common carrier which advertises and offers its services to the public,
petitioner is under obligation to observe extraordinary diligence in the vigilance over
checked-in luggage and to see to it that respondents luggage entrusted to petitioners
custody would accompany him on his flight and/or could be claimed by him upon arrival
at his point of destination or delivered to him without delay.
As special and affirmative defense, petitioner contended that its liability for lost checked-
in baggage is governed by the Warsaw Convention for the Unification of Certain Rules
Relating to International Carriage. Under the said treaty, petitioners liability for lost or
delayed registered baggage of respondent is limited to 250 francs per kilogram or
US$20.00, which constitutes liquidated damages and hence respondent is not entitled
to any further damage.Petitioner averred that it has taken all necessary measures to
avoid loss of respondents baggage, the contents of which respondent did not declare,
and that it has no intent to cause such loss, much less knew that such loss could
occur.Petitioner further asserted that it exercised due diligence in the selection and
supervision of its employees and acted in good faith in denying respondents demand
for damages. The claims for actual, moral and exemplary damages and attorneys fees
therefore have no basis in fact and in law, and are, moreover speculative and
unconscionable.
The trial court rendered its decision in favor of respondent. Petitioner appealed to the
CA, which affirmed the trial courts decision.
ISSUE: W/N petitioner is liable for the damage caused upon respondent.
HELD: Yes.A business intended to serve the travelling public primarily, a contract of
carriage is imbued with public interest.The law governing common carriers
consequently imposes an exacting standard. Article 1735 of the Civil Codeprovides that
in case of lost or damaged goods, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary
diligence as required by Article 1733. Thus, in an action based on a breach of contract
of carriage, the aggrieved party does not have to prove that the common carrier was at
fault or was negligent. All that he has to prove is the existence of the contract and the
fact of its non-performance by the carrier.That respondents checked-in luggage was not
found upon arrival at his destination and was not returned to him until about two years
later is not disputed. The action filed by the respondent is founded on such breach of
the contract of carriage with petitioner who offered no satisfactory explanation for the
unreasonable delay in the delivery of respondents baggage. The presumption of
negligence was not overcome by the petitioner and hence its liability for the delay was
sufficiently established.We hold that the trial and appellate courts did not err in finding
that petitioner acted in bad faith in repeatedly ignoring respondents follow-up
calls.There was not even any attempt to explain the reason for the loss of respondents
luggage. Clearly, petitioner did not give the attention and care due to its passenger
whose baggage was not transported and delivered to him at his travel destination and
scheduled time. Inattention to and lack of care for the interest of its passengers who are
entitled to its utmost consideration, particularly as to their convenience, amount to bad
faith which entitles the passenger to an award of moral damages. What the law
considers as bad faith which may furnish the ground for an award of moral damages
would be bad faith in securing the contract and in the execution thereof, as well as in
the enforcement of its terms, or any other kind of deceit.Petitioner was thus guilty of bad
faith in breaching its contract of carriage with the respondent, which entitles the latter to
the award of moral damages

LHUILLER VS. BRITISH AIRWAYS
G.R. No. 171092, Mar. 15, 2010, Del Castillo, J.:p, 2
nd
Division

FACTS: Petitioner Edna DiagoLhuillier filed a Complaint for damages against
respondent British Airways before the Regional Trial Court (RTC) of Makati City. She
alleged that she took respondents flight 548 from London, United Kingdom to Rome,
Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one of the
respondents flight attendants, to assist her in placing her hand-carried luggage in the
overhead bin. However, Halliday allegedly refused to help and assist her, and even
sarcastically remarked that "If I were to help all 300 passengers in this flight, I would
have a broken back!"Petitioner further alleged that when the plane was about to land in
Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan), singled her out from
among all the passengers in the business class section to lecture on plane safety.
Allegedly, Kerrigan made her appear to the other passengers to be ignorant,
uneducated, stupid, and in need of lecturing on the safety rules and regulations of the
plane. Affronted, petitioner assured Kerrigan that she knew the planes safety
regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his face a
mere few centimeters away from that of the petitioner and menacingly told her that "We
dont like your attitude."Upon arrival in Rome, petitioner complained to respondents
ground manager and demanded an apology. However, the latter declared that the flight
stewards were "only doing their job."
Respondent, by way of special appearance through counsel, filed a Motion to
Dismiss on grounds of lack of jurisdiction over the case and over the person of the
respondent. Respondent alleged that only the courts of London, United Kingdom or
Rome, Italy, have jurisdiction over the complaint for damages pursuant to the Warsaw
Convention, Article 28(1). The RTC of Makati City, Branch 132, issued an
Order granting respondents Motion to Dismiss.Petitioner now comes directly before us
on a Petition for Review on Certiorari on pure questions of law, arguing that her cause
of action arose not from the contract of carriage, but from the tortious conduct
committed by airline personnel of respondent in violation of the provisions of the Civil
Code on Human Relations. Since her cause of action was not predicated on the
contract of carriage, petitioner asserts that she has the option to pursue this case in this
jurisdiction pursuant to Philippine laws.In contrast, respondent maintains that
petitioners claim for damages fell within the ambit of Article 28(1) of the Warsaw
Convention. As such, the same can only be filed before the courts of London, United
Kingdom or Rome, Italy.

ISSUE: W/N the RTC has jurisdiction of the case.

HELD: No.The Warsaw Convention has the force and effect of law in this country.The
Warsaw Convention applies because the air travel, where the alleged tortious conduct
occurred, was between the United Kingdom and Italy, which are both signatories to the
Warsaw Convention. Under Article 28(1) of the Warsaw Convention, the plaintiff may
bring the action for damages before
1. the court where the carrier is domiciled;
2. the court where the carrier has its principal place of business;
3. the court where the carrier has an establishment by which the contract has
been made; or
4. the court of the place of destination.
In this case, it is not disputed that respondent is a British corporation domiciled in
London, United Kingdom with London as its principal place of business. Hence, under
the first and second jurisdictional rules, the petitioner may bring her case before the
courts of London in the United Kingdom. In the passenger ticket and baggage check
presented by both the petitioner and respondent, it appears that the ticket was issued in
Rome, Italy. Consequently, under the third jurisdictional rule, the petitioner has the
option to bring her case before the courts of Rome in Italy. Finally, both the petitioner
and respondent aver that the place of destination is Rome, Italy, which is properly
designated given the routing presented in the said passenger ticket and baggage check.
Accordingly, petitioner may bring her action before the courts of Rome, Italy. We thus
find that the RTC of Makati correctly ruled that it does not have jurisdiction over the
case filed by the petitioner.
A number of reasons tends to support the characterization of Article 28(1) as a
jurisdiction and not a venue provision. First, the wording of Article 32, which indicates
the places where the action for damages "must" be brought, underscores the mandatory
nature of Article 28(1). Second, this characterization is consistent with one of the
objectives of the Convention, which is to "regulate in a uniform manner the conditions of
international transportation by air." Third, the Convention does not contain any provision
prescribing rules of jurisdiction other than Article 28(1), which means that the phrase
"rules as to jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the
last sentence of Article 32 specifically deals with the exclusive enumeration in Article
28(1) as "jurisdictions," which, as such, cannot be left to the will of the parties
regardless of the time when the damage occurred. Furthermore, respondent, in seeking
remedies from the trial court through special appearance of counsel, is not deemed to
have voluntarily submitted itself to the jurisdiction of the trial court.



PNR VS. BRUNTY
G.R. No. 169891, Nov. 2, 2008, Callejo, Sr., J.:p, 1
st
Division

FACTS: Rhonda Brunty, Garcia and Mercelita were already approaching the railroad
crossing at Barangay Rizal, Moncada, Tarlac. Mercelita, driving at approximately 70
km/hr, drove past a vehicle, unaware of the railroad track up ahead and that they were
about to collide with PNR Train No. T-71.Mercelita was instantly killed when the
Mercedes Benz smashed into the train; the two other passengers suffered serious
physical injuries. A certain James Harrow brought Rhonda Brunty to the Central Luzon
Doctors Hospital in Tarlac, where she was pronounced dead after ten minutes from
arrival. Garcia, who had suffered severe head injuries, was brought via ambulance to
the same hospital. He was transferred to the Manila Doctors Hospital, and later to the
Makati Medical Center for further treatment. Ethel Brunty sent a demand letter to the
PNR demanding payment of actual, compensatory, and moral damages, as a result of
her daughters death. When PNR did not respond, Ethel Brunty and Garcia, filed a
complaint for damages against the PNR before the RTC of Manila. They alleged that
the death of Mercelita and Rhonda Brunty, as well as the physical injuries suffered by
Garcia, were the direct and proximate result of the gross and reckless negligence of
PNR in not providing the necessary equipment at the railroad crossing. They pointed
out that there was no flagbar or red light signal to warn motorists who were about to
cross the railroad track, and that the flagman or switchman was only equipped with a
hand flashlight. Plaintiffs likewise averred that PNR failed to supervise its employees in
the performance of their respective tasks and duties, more particularly the pilot and
operator of the train.

In its Answer, PNR claimed that it exercised the diligence of a good father of a family
not only in the selection but also in the supervision of its employees. By way of special
and affirmative defense, it stressed that it had the right of way on the railroad crossing in
question, and that it has no legal duty to put up a bar or red light signal in any such
crossing. It insisted that there were adequate, visible, and clear warning signs
strategically posted on the sides of the road before the railroad crossing. It countered
that the immediate and proximate cause of the accident was Mercelitas negligence,
and that he had the last clear chance to avoid the accident. The driver disregarded the
warning signs, the whistle blasts of the oncoming train and the flashlight signals to stop
given by the guard. The RTC rendered its Decision in favor of plaintiffs to which the
CA affirmed with partial modifications.

ISSUE: (1) Whether or not Mmercelitas negligence resulted in the unfortunate collision.
(2) W/N the doctrine of last clear chance is applicable in the case.

HELD: No. Petitioner was found negligent because of its failure to provide the
necessary safety device to ensure the safety of motorists in crossing the railroad track.
As such, it is liable for damages for violating the provisions of Article 2176 of the New
Civil Code. It was clearly established that plaintiffs-appellees (respondents herein)
sustained damage or injury as a result of the collision. That there was negligence on the
part of PNR is, likewise, beyond cavil. Considering the circumstances prevailing at the
time of the fatal accident, the alleged safety measures installed by the PNR at the
railroad crossing is not only inadequate but does not satisfy well-settled safety
standards in transportation. It may broadly be stated that railroad companies owe to the
public a duty of exercising a reasonable degree of care to avoid injury to persons and
property at railroad crossings, which duties pertain both in the operation of trains and in
the maintenance of the crossings.
56
Moreover, every corporation constructing or
operating a railway shall make and construct at all points where such railway crosses
any public road, good, sufficient, and safe crossings and erect at such points, at a
sufficient elevation from such road as to admit a free passage of vehicles of every kind,
a sign with large and distinct letters placed thereon, to give notice of the proximity of the
railway, and warn persons of the necessity of looking out for trains. Mercelita should not
have driven the car the way he did. However, while his acts contributed to the collision,
they nevertheless do not negate petitioners liability.
As to whether or not the doctrine of last clear chance is applicable, we rule in the
negative because the proximate cause of the injury having been established to be the
negligence of petitioner, we hold that the above doctrine finds no application in the
instant case.

DELA TORRE VS. CA
G.R. No. 160088, Jul. 13, 2011, Mendoza, J.:p, 3
rd
Division

FACTS: Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel
registered with the Philippine Coast Guard. Concepcion and the Philippine Trigon
Shipyard Corporation (PTSC), represented by Roland, entered into a "Contract of
Agreement," wherein the latter would charter LCT-Josephine. PTSC/Roland sub-
chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single proprietorship owned
by Rolands father, Agustin de la Torre (Agustin). TSL, this time represented by Roland
per Agustins Special Power of Attorney, sub-chartered LCT-Josephine to Ramon
Larrazabal (Larrazabal) for the transport of cargo consisting of sand and gravel to Leyte.
The LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte.
The vessel was beached near the NDC Wharf. With the vessels ramp already lowered,
the unloading of the vessels cargo began with the use of Larrazabals payloader. While
the payloader was on the deck of the LCT-Josephine scooping a load of the cargo, the
vessels ramp started to move downward, the vessel tilted and sea water rushed in.
Shortly thereafter, LCT-Josephine sank. Concepcion demanded that PTSC/ Roland
refloat LCT-Josephine. The latter assured Concepcion that negotiations were underway
for the refloating of his vessel. Unfortunately, this did not materialize. For this reason,
Concepcion was constrained to institute a complaint for "Sum of Money and Damages"
against PTSC and Roland before the RTC. PTSC and Roland filed their answer
together with a third-party complaint against Agustin. Agustin, in turn, filed his answer
plus a fourth-party complaint against Larrazabal. The latter filed his answer and
counterclaim but was subsequently declared in default by the RTC. Eventually, the
fourth-party complaint against Larrazabal was dismissed when the RTC rendered its
decision in favor of Concepcion. The appellate court, in agreement with the findings of
the RTC, affirmed its decision in toto.
ISSUE: (1) W/N the Code of Commerce is applicable, more specifically, the Limited
Liability Rule; and (2) W/N the petitioners are solidarily liable.

HELD: No. Petitioners position is that the Limited Liability Rule under the Code of
Commerce should be applied to them, the argument is misplaced. The said rule has
been explained to be that of the real and hypothecary doctrine in maritime law where
the shipowner or ship agents liability is held as merely co-extensive with his interest in
the vessel such that a total loss thereof results in its extinction. In this jurisdiction, this
rule is provided in three articles of the Code of Commerce. One of which, Article 837
specifically applies to cases involving collision which is a necessary consequence of the
right to abandon the vessel given to the shipowner or ship agent under the first
provision Article 587. Similarly, Article 590 is a reiteration of Article 587, only this time
the situation is that the vessel is co-owned by several persons. Obviously, the
forerunner of the Limited Liability Rule under the Code of Commerce is Article 587.
Now, the latter is quite clear on which indemnities may be confined or restricted to the
value of the vessel pursuant to the said Rule, and these are the "indemnities in favor
of third persons which may arise from the conduct of the captain in the care of the
goods which he loaded on the vessel." Thus, what is contemplated is the liability to third
persons who may have dealt with the shipowner, the agent or even the charterer in
case of demise or bareboat charter. The only person who could avail of this is the
shipowner, Concepcion. He is the very person whom the Limited Liability Rule has been
conceived to protect. The petitioners cannot invoke this as a defense. The shipowners
or agents liability is merely coextensive with his interest in the vessel such that a total
loss thereof results in its extinction. The total destruction of the vessel extinguishes
maritime liens because there is no longer any res to which it can attach. This doctrine is
based on the real and hypothecary nature of maritime law which has its origin in the
prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions
and to encourage shipbuilding and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the
vessel, equipment, and freight, or insurance, if any. The charterer of a vessel, under the
conditions stipulated in the charter party in question, is the owner pro hac vice of the
ship and takes upon himself the responsibilities of the owner. Therefore, even if the
contract is for a bareboat or demise charter where possession, free administration and
even navigation are temporarily surrendered to the charterer, dominion over the vessel
remains with the shipowner. Ergo, the charterer or the sub-charterer, whose rights
cannot rise above that of the former, can never set up the Limited Liability Rule against
the very owner of the vessel. In the present case, the charterer and the sub-charterer
through their respective contracts of agreement/charter parties, obtained the use and
service of the entire LCT-Josephine. The vessel was likewise manned by the charterer
and later by the sub-charterers people. With the complete and exclusive relinquishment
of possession, command and navigation of the vessel, the charterer and later the sub-
charterer became the vessels owner pro hac vice. Now, and in the absence of any
showing that the vessel or any part thereof was commercially offered for use to the
public, the above agreements/charter parties are that of a private carriage where the
rights of the contracting parties are primarily defined and governed by the stipulations in
their contract. Thus, Roland, who, in his personal capacity, entered into the Preliminary
Agreement with Concepcion for the dry-docking and repair of LCT-Josephine, is liable
under Article 1189 of the New Civil Code. There is no denying that the vessel was not
returned to Concepcion after the repairs because of the provision in the Preliminary
Agreement that the same "should" be used by Roland for the first two years. Before the
vessel could be returned, it was lost due to the negligence of Agustin to whom Roland
chose to sub-charter or sublet the vessel.

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine,
is liable under Article 1651 of the New Civil Code. Although he was never privy to the
contract between PTSC and Concepcion, he remained bound to preserve the chartered
vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it was
deemed amended so as to include him because, despite or in the absence of that
formality of amending the complaint to include him, he still had his day in court as he
was in fact impleaded as a third-party defendant by his own son, Roland the very
same person who represented him in the Contract of Agreement with Larrazabal.
Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted
as early as the time when it was dry-docked for repairs, were obliged to insure the
same. Unfortunately, they failed to do so in clear contravention of their respective
agreements. Certainly, they should now all answer for the loss of the vessel.

DIAZ VS. CA
G.R. No. 149749, Jul. 25, 2006, Corona, J.:p, 2
nd
Division

FACTS: Petitioner Agapita Diaz operated a Tamaraw FX taxi plying the route of
Cagayan de Oro City to any point in Region 10. Petitioners taxi, driven by one Arman
Retes, was moving at an excessive speed when it rammed into the rear portion of a
Hino cargo truck owned by private respondent Teodoro Lantoria and driven by private
respondent Rogelio Francisco. As a result, nine passengers of the taxi died including
Sherly Moneo. Thus, the heirs of Sherly Moneo filed with the Regional Trial Court of
Malaybalay City, an action for breach of contract of carriage and damages against
petitioner and her driver, Arman Retes. Petitioner filed a third-party complaint against
private respondents Teodorio Lantoria and Rogelio Francisco. The trial court rendered a
decision holding petitioner and Arman Retes jointly and severally liable to pay private
respondent. The trial courts decision was affirmed by the Court of Appeals.

ISSUE: W/N the petitioner liable for breach of contract.
HELD: Yes. A common carrier is bound to 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. In a contract of carriage, it is presumed that
the common carrier is at fault or is negligent when a passenger dies or is injured. 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. In the case at bar, petitioner,
as common carrier, failed to establish sufficient evidence to rebut the presumption of
negligence. The findings of the trial court, as affirmed by the Court of Appeals, showed
that the accident which led to the death of Sherly Moneo was caused by the reckless
speed and gross negligence of petitioners driver who demonstrated no regard for the
safety of his passengers. It was thus correct to hold petitioner guilty of breach of the
contract of carriage.

ABOITIZ SHIPPING CORP. VS. NEW INDIA ASSURANCE
G.R. No. 156978, May 2, 2006, Quisumbing, J.:p, 3
rd
Division

FACTS:Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary
chemicals from France on board a vessel owned by Franco-Belgian Services, Inc. The
cargo was consigned to General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V P.
Aboitiz for transshipment to Manila.Before departing, the vessel was advised by the
Japanese Meteorological Center that it was safe to travel to its destination. But while at
sea, the vessel received a report of a typhoon moving within its general path. To avoid
the typhoon, the vessel changed its course. However, it was still at the fringe of the
typhoon when its hull leaked. The vessel sank, but the captain and his crew were
saved.Upon arrival in Manila.the captain of M/V P. Aboitiz filed his "Marine Protest".
Thereafter, petitioner notified the consignee, General Textile, of the total loss of the
vessel and all of its cargoes. General Textile, lodged a claim with respondent for the
amount of its loss. Respondent paid General Textile and was subrogated to the rights of
the latter.Respondent hired a surveyor, Perfect, Lambert and Company, to investigate
the cause of the sinking. In its report, the surveyor concluded that the cause was the
flooding of the holds brought about by the vessels questionable seaworthiness.
Consequently, respondent filed a complaint for damages against petitioner Aboitiz,
Franco-Belgian Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig).
Respondent alleged that the proximate cause of the loss of the shipment was the fault
or negligence of the master and crew of the vessel, its unseaworthiness, and the failure
of defendants therein to exercise extraordinary diligence in the transport of the goods.
Hence, respondent added, defendants therein breached their contract of
carriage.Franco-Belgian Services and Zuellig responded, claiming that they exercised
extraordinary diligence in handling the shipment while it was in their possession; its
vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous
event.The Board of Marine Inquiry (BMI) exonerated the captain and crew of any
administrative liability; and declared the vessel seaworthy and concluded that the
sinking was due to the vessels exposure to the approaching typhoon. The trial
courtruled in favor of respondent. It held petitioner liable for the total value of the lost
cargo plus legal interest. Upon appeal, the appellate court affirmed in toto the trial
courts decision.Petitioner, citing Monarch Insurance Co. Inc. v. Court of
Appeals, contends that respondents claim for damages should only be against the
insurance proceeds and limited to its pro-rata share in view of the doctrine of limited
liability.Respondent counters that the doctrine of real and hypothecary nature of
maritime law is not applicable in the present case because petitioner was found to have
been negligent.
ISSUE: W/N the limited liability doctrine, which limits respondents award of damages to
its pro-rata share in the insurance proceeds, applies in this case.
HELD:No.Our ruling in Monarch may appear inconsistent with the exception of the
limited liability doctrine, as explicitly stated in the earlier part of the Monarch decision.
An exception to the limited liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the captain. In which
case, the shipowner shall be liable to the full-extent of the damage. We thus find it
necessary to clarify now the applicability here of the decision in Monarch.From the
nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport according to all the
circumstances of each case. In the event of loss, destruction or deterioration of the
insured goods, common carriers are responsible, unless they can prove that the loss,
destruction or deterioration was brought about by the causes specified in Article 1734 of
the Civil Code. In all other cases, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary
diligence. Moreover, where the vessel is found unseaworthy, the shipowner is also
presumed to be negligent since it is tasked with the maintenance of its vessel. Though
this duty can be delegated, still, the shipowner must exercise close supervision over its
men.In the present case, petitioner has the burden of showing that it exercised
extraordinary diligence in the transport of the goods it had on board in order to invoke
the limited liability doctrine. Differently put, to limit its liability to the amount of the
insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its
vessel was not due to its fault or negligence. Considering the evidence presented and
the circumstances obtaining in this case, we find that petitioner failed to discharge this
burden. Besides, exoneration of the vessels officers and crew by the BMI merely
concerns their respective administrative liabilities. It does not in any way operate to
absolve the common carrier from its civil liabilities arising from its failure to exercise
extraordinary diligence, the determination of which properly belongs to the courts.


CEBU SALVAGE CORP. VS. PHIL. HOME ASSURANCE
G.R. No. 150403, Jan. 25, 2007, Corona, J.:p, 1
st
Division

FACTS: Pursuant to a contract petitioner received and loaded 1,100 metric tons of silica
quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day. The shipment never reached its destination, however, because the M/T Espiritu
Santo sank off the beach of Opol, Misamis Oriental, resulting in the total loss of the
cargo. MCCII filed a claim for the loss of the shipment with its insurer, respondent
Philippine Home Assurance Corporation which paid the claim in the amount
of P211,500 and was subrogated to the rights of MCCII. Thereafter, it filed a case in the
RTC against petitioner for reimbursement of the amount it paid MCCII. The RTC
rendered judgment in favor of respondent. The CA affirmed the decision of the RTC.
ISSUE: W/N a carrier be held liable for the loss of cargo resulting from the sinking of a
ship it does not own.

HELD: Yes. Petitioner and MCCII entered into a "voyage charter," also known as a
contract of affreightment wherein the ship was leased for a single voyage for the
conveyance of goods, in consideration of the payment of freight. Under a voyage
charter, the shipowner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of freight. An owner who retains possession of the ship remains liable as
carrier and must answer for loss or non-delivery of the goods received for
transportation. Based on the agreement signed by the parties and the testimony of
petitioners operations manager, it is clear that it was a contract of carriage petitioner
signed with MCCII. It actively negotiated and solicited MCCIIs account, offered its
services to ship the silica quartz and proposed to utilize the M/T Espiritu Santo in lieu of
the M/T Seebees or the M/T Shirley (as previously agreed upon in the voyage charter)
since these vessels had broken down. There is no dispute that petitioner was a
common carrier. At the time of the loss of the cargo, it was engaged in the business of
carrying and transporting goods by water, for compensation, and offered its services to
the public. From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they transport
according to the circumstances of each case. In the event of loss of the goods, common
carriers are responsible, unless they can prove that this was brought about by the
causes specified in Article 1734 of the Civil Code. In all other cases, common carriers
are presumed to be at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence. Petitioner was the one which contracted with MCCII
for the transport of the cargo. It had control over what vessel it would use. All throughout
its dealings with MCCII, it represented itself as a common carrier. The fact that it did not
own the vessel it decided to use to consummate the contract of carriage did not negate
its character and duties as a common carrier. Certainly, to permit a common carrier to
escape its responsibility for the goods it agreed to transport (by the expedient of alleging
non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the
carrier and the supposed owner and to the possible shifting of liability from the carrier to
one without any financial capability to answer for the resulting damages.


CRESCENT PETROLEUM VS. M/V "LOK MAHESHWARI,"
G.R. No. 155014, Nov. 11, 2005, Puno, J.:p, 2
nd
Division

FACTS: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian
registry that is owned by respondent Shipping Corporation of India (SCI), a corporation
organized and existing under the laws of India and principally owned by the
Government of India. It was time-chartered by respondent SCI to Halla Merchant Marine
Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel
through a time charter to Transmar Shipping,Inc. (Transmar). Transmar further sub-
chartered the Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are
corporations organized and existing under the laws of Canada. Portserv requested
petitioner Crescent Petroleum, Ltd.(Crescent), a corporation organized and existing
under the laws of Canada that is engaged in the business of selling petroleum and oil
products for the use and operation of ocean going vessels, to deliver marine fuel oils
(bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request
through an advice. As security for the payment of the bunker fuels and related services,
petitioner Crescent received two (2) checks in theamounts of US$100,000.00 and
US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk
Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of
the bunker fuels to the Vessel. On or about November 4, 1995, Marine Petrobulk
delivered the bunker fuels amounting to US$103,544 inclusive of barging and
demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver, Canada. The
Chief Engineer Officer of the Vessel duly acknowledged and received the delivery
receipt. Marine Petrobulk issued an invoice to petitioner Crescent for the
US$101,400.00 worth of the bunker fuels. Petitioner Crescent issued a check for the
same amount in favor of Marine Petrobulk, which check was duly encashed. Having
paid Marine Petrobulk, petitioner Crescent issued a revised invoice to "Portserv Limited,
and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V Lok
Maheshwari" in the amount of US$103,544.00 with instruction to remit the amount on or
before December 1, 1995. The period lapsed and several demands were made but no
payment was received. Also, the checks issued to petitioner Crescent as security for the
payment of the bunker fuels were dishonored for insufficiency of funds. As a
consequence, petitioner Crescent incurred additional expenses of US$8,572.61 for
interest, tracking fees, and legal fees. While the Vessel was docked at the port of Cebu
City, petitioner Crescent instituted before the RTC of Cebu City an action "for a sum of
money with prayer for temporary restraining order and writ of preliminary attachment"
against respondents Vessel and SCI, Portserv and/or Transmar. The trial court issued a
writ of attachment against the Vessel with bond at P2,710,000.00. Petitioner Crescent
withdrew its prayer for a temporary restraining order and posted the required bond.
Summonses were served to respondents Vessel and SCI, and Portservand/or Transmar
through the Master of the Vessel. Respondents Vessel and SCI, through Pioneer
Insurance and Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve
Pioneers letter of undertaking, to consider it as counter-bond and to discharge the
attachment. The trial court granted the motion; thus, the letter of undertaking was
approved as counter-bond to discharge the attachment.

ISSUE: W/N the Philippine court has or will exercise jurisdiction and entitled to maritime
lien under our laws on foreign vessel docked on Philippine port and supplies furnished
to a vessel in a foreign port.

HELD: In a suit to establish and enforce a maritime lien for supplies furnished to a
vessel in a foreign port, whether such lien exists, or whether the court has or will
exercise jurisdiction, depends on the law of the country where the supplies were
furnished, which must be pleaded and proved. The Lauritzen-Romero-Rhoditis trilogy of
cases, which replaced such single-factor methodologies as the law of the place of
supply. The multiple-contact test to determine, in the absence of a specific
Congressional directive as to the statutes reach, which jurisdictions law should be
applied. The following factors were considered: (1) place of the wrongful act; (2) law of
the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant
shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the
forum. This is applicable not only to personal injury claims arising under the Jones Act
but to all matters arising under maritime law in general. The Court cannot sustain
petitioner Crescents insistence on the application of P.D. No. 1521 or the Ship
Mortgage Decree of 1978 and hold that a maritime lien exists. Out of the seven basic
factors listed in the case of Lauritzen, Philippine law only falls under one the law of the
forum. All other elements are foreign Canada is the place of the wrongful act, of the
allegiance or domicile of the injured and the place of contract; India is the law of the flag
and the allegiance of the defendant ship owner. Applying P.D. No. 1521,a maritime lien
exists would not promote the public policy behind the enactment of the law to develop
the domestic shipping industry. Opening up our courts to foreign suppliers by granting
them a maritime lien under our laws even if they are not entitled to a maritime lien under
their laws will encourage forum shopping. In light of the interests of the various foreign
elements involved, it is clear that Canada has the most significant interest in this
dispute. The injured party is a Canadian corporation, the sub-charterer which placed the
orders for the supplies is also Canadian, the entity which physically delivered the bunker
fuels is in Canada, the place of contracting and negotiation is in Canada, and the
supplies were delivered in Canada. .

LEA MER INDUSTRIES VS. MALAYAN INSURANCE
G.R. No. 161745, Sept. 30, 2005, Panganiban, J.;p, 3
rd
Division
FACTS: Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries for
the shipment of silica sand valued at P565,000. It was Consigned to Vulcan Industrial
and Mining Corporation, the cargo was to be transported from Palawan to Manila. On
October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by Lea
Mer. During the voyage, the vessel sank, resulting in the loss of the cargo. Malayan
Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. Malayan
demanded reimbursement from Lea Mer, which refused to comply. Consequently,
Malayan instituted a Complaint for the collection of P565,000. The Trial Court dismissed
the Complaint, upon finding that the cause of the loss was a fortuitous event; the vessel
had sunk because of the bad weather condition brought about by Typhoon Trining. The
court ruled that petitioner had no advance knowledge of the incoming typhoon, and that
the vessel had been cleared by the Philippine Coast Guard to travel. The CA
REVERSED the trial court decision and held that the vessel was not seaworthy when it
sailed for Manila. Thus, the loss of the cargo was occasioned by petitioners fault, not
by a fortuitous event.
ISSUE: (1) W/N petitioner is liable for the loss of the cargo. (2) Whether the loss of the
cargo was due to a fortuitous event.

HELD (1) YES. Lea Mer is liable to pay Malayan Insurance. (2) No. Lea Mer was
negligent.

I. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both, when this service is
offered to the public for compensation. Petitioner is clearly a common carrier,
because it offers to the public its business of transporting goods through its vessels.
Thus, the Court corrects the trial courts finding that petitioner became a private carrier
when Vulcan chartered it. Charter parties are classified as contracts of demise (or
bareboat) and affreightment, which are distinguished as follows: Under the demise or
bareboat charter of the vessel, the charterer will generally be considered as owner for
the voyage or service stipulated. The charterer mans the vessel with his own people
and becomes, in effect, the owner pro hac vice (for this occasion; for this event;
literally, for this turn), subject to liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer; anything short of such a
complete transfer is a contract of affreightment (time or voyage charter party) or not a
charter party at all. The distinction is significant, because a demise or bareboat
charter indicates a business undertaking that is private in character. Consequently,
the rights and obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers. The Contract
in the present case was one of affreightment, as shown by the fact that it was
petitioners crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.
Necessarily, petitioner was a common carrier, and the pertinent law governs the present
factual circumstances.

II. As the common carrier, petitioner bore the burden of proving that it had exercised
extraordinary diligence to avoid the loss, or that the loss had been occasioned by a
fortuitous event. It was not enough for Lea Mer to show that there was an unforeseen or
unexpected occurrence. It had to show that it was free from any fault -- a fact it
miserably failed to prove: First, petitioner presented no evidence that it had attempted to
minimize or prevent the loss before, during or after the alleged fortuitous event. Second,
the alleged fortuitous event was not the sole and proximate cause of the loss. There is
a preponderance of evidence that the barge was not seaworthy when it sailed for
Manila. Respondent was able to prove that, in the hull of the barge, there were holes
that might have caused or aggravated the sinking.

PHIL. CHARTER INSURANCE CORPORATION VS. UNKNOWN OWNER OF THE
VESSEL M/V NATIONAL HONOR,
G.R. No. 161833. July 8, 2005, Callejo, Sr., J.:p, 2
nd
Division

FACTS: Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer of a
shipment on board the vessel M/V National Honor, represented in the Philippines by its
agent, National Shipping Corporation of the Philippines (NSCP). The M/V National Honor
arrived at the Manila International Container Terminal (MICT). The International Container
Terminal Services, Incorporated (ICTSI) was furnished with a copy of the crate cargo list
and bill of lading, and it knew the contents of the crate. The following day, the vessel started
discharging its cargoes using its winch crane. The crane was operated by Olegario Balsa, a
winchman from the ICTSI, exclusive arrastre operator of MICT. Denasto Dauz, Jr., the
checker-inspector of the NSCP, along with the crew and the surveyor of the ICTSI,
conducted an inspection of the cargo. They inspected the hatches, checked the cargo and
found it in apparent good condition. Claudio Cansino, the stevedore of the ICTSI, placed
two sling cables on each end of Crate No. 1. No sling cable was fastened on the mid-portion
of the crate. In Dauzs experience, this was a normal procedure. As the crate was being
hoisted from the vessels hatch, the mid-portion of the wooden flooring suddenly snapped in
the air, about five feet high from the vessels twin deck, sending all its contents crashing
down hard, resulting in extensive damage to the shipment. PCIC paid the damage, and as
subrogee, filed a case against M/V National Honor, NSCP and ICTSI. Both RTC and CA
dismissed the complaint.

ISSUE: W/N the presumption of negligence is applicable in the instant case.

HELD: No. We agree with the contention of the petitioner that common carriers, from the
nature of their business and for reasons of public policy, are mandated to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. The Court has
defined extraordinary diligence in the vigilance over the goods as follows: The extraordinary
diligence in the vigilance over the goods tendered for shipment requires the common carrier
to know and to follow the required precaution for avoiding damage to, or destruction of the
goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristic of goods tendered for shipment, and to exercise due care in
the handling and stowage, including such methods as their nature requires.

The common carriers duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance, by the person entitled to receive them.] >When the
goods shipped are either lost or arrive in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable. 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.

However, under Article 1734 of the New Civil Code, the presumption of negligence does not
apply to any of the following causes:

1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.

It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts
the common carrier for the loss or damage to the cargo is a closed list. To exculpate itself
from liability for the loss/damage to the cargo under any of the causes, the common carrier
is burdened to prove any of the aforecited causes claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove
that the carrier is negligent.

Defect is the want or absence of something necessary for completeness or perfection; a
lack or absence of something essential to completeness; a deficiency in something
essential to the proper use for the purpose for which a thing is to be used. On the other
hand, inferior means of poor quality, mediocre, or second rate. A thing may be of inferior
quality but not necessarily defective. In other words, defectiveness is not synonymous with
inferiority.

x x x

In the present case, the trial court declared that based on the record, the loss of the
shipment was caused by the negligence of the petitioner as the shipper:

The same may be said with respect to defendant ICTSI. The breakage and collapse of
Crate No. 1 and the total destruction of its contents were not imputable to any fault or
negligence on the part of said defendant in handling the unloading of the cargoes from the
carrying vessel, but was due solely to the inherent defect and weakness of the materials
used in the fabrication of said crate.

The crate should have three solid and strong wooden batten placed side by side
underneath or on the flooring of the crate to support the weight of its contents. x x x

SULPICIO LINES VS. FIRST LEPANTO
G.R.No. 140349, Jun. 29, 2005, Chico-Nazario, J.:p, 2
nd
Division

FACTS: Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper)
entered into a contract for Delbros, Inc. to transport a shipment of goods consisting of
three (3) wooden crates containing one hundred thirty-six (136) cartons of inductors and
LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of
the consignee, Taiyo Yuden Singapore Pte, Ltd. For the carriage of said shipment from
Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine
Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). During the
unloading of the shipment, one crate containing forty-two (42) cartons dropped from the
cargo hatch to the pier apron. The owner of the goods examined the dropped cargo,
and upon an alleged finding that the contents of the crate were no longer usable for
their intended purpose, they were rejected as a total loss and returned to Cebu City.
The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the
value of the rejected cargo which was refused by the latter. Thereafter, the owner of the
goods sought payment from respondent First Lepanto-Taisho Insurance Corporation
(insurer) under a marine insurance policy issued to the former. The payment of the
insurance claim of the owner of the goods by the respondent-insurer subrogated the
latter to whatever right or legal action the owner of the goods may have against Delbros,
Inc. and petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims
for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which
were subsequently denied. Respondent-insurer filed a suit for damages with the trial
court against Delbros, Inc. and herein petitioner-carrier. Petitioner-carrier filed its
Answer to Delbros, Inc.s cross-claim asserting that it observed extraordinary diligence
in the handling, storage and general care of the shipment and that subsequent
inspection of the shipment by the Manila Adjusters and Surveyors Company showed
that the contents of the third crate that had fallen were found to be in apparent sound
condition. The trial court dismissed the complaint for damages as well as the
counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by
Delbros, Inc. The CA reversed the RTC and decided against the carrier.
ISSUE: W/N the carrier is liable for the damages incurred by the owner of the goods.
HELD: It cannot be denied that the shipment sustained damage while in the custody of
petitioner-carrier. It is not disputed that one of the three (3) crates did fall from the cargo
hatch to the pier apron while petitioner-carrier was unloading the cargo from its vessel.
Neither is it impugned that upon inspection, it was found that two (2) cartons were torn
on the side and the top flaps were open and that two (2) cello bags, each of 50 pieces
ferri inductors, were missing from the cargo. The falling of the crate during the unloading
is evidence of petitioner-carriers negligence in handling the cargo. As a common
carrier, it is expected to observe extraordinary diligence in the handling of goods placed
in its possession for transport. Thus, when the shipment suffered damages as it was
being unloaded, petitioner-carrier is presumed to have been negligent in the handling of
the damaged cargo. Under Articles 1735 and 1752 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently in case the goods
transported by them are lost, destroyed or had deteriorated. To overcome the
presumption of liability for loss, destruction or deterioration of goods under Article 1735,
the common carrier must prove that they observed extraordinary diligence as required
in Article 1733 of the Civil Code. Petitioner-carrier miserably failed to adduce any shred
of evidence of the required extraordinary diligence to overcome the presumption that it
was negligent in transporting the cargo. Hence, we uphold the ruling of the appellate
court that herein petitioner-carrier is liable to pay the amount paid by respondent-insurer
for the damages sustained by the owner of the goods.
ALLIED BANKING VS. CHENG
G.R. No. 151040, Oct. 6, 2005, Garcia, J.:p, 3
rd
Division
FACTS: Philippine Pacific Fishing Company, Inc. (Philippine Pacific), through its then
Vice-Chairman of the Board and concurrent President Marilyn Javier, obtained from
Allied Banking Corporation (Allied Bank), a packing credit accommodation amounting to
One Million Seven Hundred Fifty Two Thousand Pesos (P1,752,000.00). To secure the
obligation, Marilyn Javier and the spouses Cheng Yong and Lilia Gaw (spouses Cheng,
for short), executed a Continuing Guaranty/Comprehensive Suret. Later, Philippine
Pacific, due to business reverses and alleged misuse of corporate funds by its operating
officers, defaulted in the payment of said obligation. An intra-corporate dispute among
its stockholders followed, prompting the filing against Philippine Pacific of a petition for
receivership before the Securities and Exchange Commission (SEC). Thereafter, the
corporation was reorganized, following which the spouses Cheng Yong and Lilia Gaw
were elected as its president and treasurer, respectively. The spouses Cheng also hold
similar positions in another company, the Glee Chemicals Phils., Inc. (GCPI), which,
incidentally, also had a credit line with Allied Bank.
It appears, however, that two (2) days prior to the constitution of the management
committee, Allied Bank and Philippine Pacific agreed to restructure and convert the
packing credit accommodation into a simple loan. Accordingly, Philippine Pacific
executed in favor of Allied Bank a promissory note in the same amount as the packing
credit accommodation. Aside from affixing their signatures on the same promissory note
in their capacity as officers of Philippine Pacific, the spouses Cheng also signed the
note in their personal capacities and as co-makers thereof. As it turned out, Philippine
Pacific failed to pay according to the schedule of payments set out in the promissory
note prompting the spouses Cheng to secure the note with substantial collateral by
executing a deed of chattel mortgage in favor of Allied Bank over a fishing vessel, "Jean
III", a Japanese- manufactured vessel with refrigerated hatches and glass freezers,
owned by the spouses and registered in their names. Philippine Pacific again defaulted
payment. Hence, Allied Bank filed with the sheriff of Navotas an application for extra-
judicial foreclosure of the chattel mortgage constituted on "Jean III". In the meantime,
the vessel sank at the port of Navotas resulting to its total loss. The spouses Cheng
filed with the Regional Trial Court at Makati to declare invalid the deed of chattel
mortgage over the vessel "Jean III" for having been constituted to secure a void or
unenforceable obligation. Allied Bank filed a motion to dismiss the amended as well as
the supplemental complaints.
The trial court declared both the promissory note dated 12 August 1981 and the deed of
chattel mortgage over the vessel "Jean III" invalid and unenforceable. The Court of
Appeals partially reversed and set aside the appealed decision of the trial court

ISSUE: W/N the chattel mortgage over the fishing vessel "Jean III" can be foreclosed
for Philippine Pacifics failure to comply with its obligation under the promissory note
and its loss should be bourne by the owners.

HELD: The appellate court is correct in declaring that under the parole evidence rule,
when the parties have reduced their agreement into writing, they are deemed to have
intended such written agreement to be the sole repository and memorial of everything
that they have agreed upon. All their prior and contemporaneous agreements are
deemed to be merged in the written document so that, as between them and their
successors-in-interest, such writing becomes exclusive evidence of the terms thereof
and any verbal agreement which tends to vary, alter or modify the same is not
admissible.

We thus declare and so hold that Allied Banks foreclosure of the chattel mortgage
constituted over the vessel "Jean III" was justified. On this score, we also rule that the
loss of the mortgaged chattel brought about by its sinking must be borne not by Allied
Bank but by the spouses Cheng. As owners of the fishing vessel, it was incumbent upon
the spouses to insure it against loss. Thus, when the vessel sank before the chattel
mortgage could be foreclosed, uninsured as it is, its loss must be borne by the spouses
Cheng.