TRANSPORTATION DIGEST TRANSPORTATION OF GOODS TRANSPORTATION Atty.

Abao

A.M.+D.G.

DELSAN TRANSPORT vs. CA FACTS Caltex engaged into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc.(Delsan), for a period of one year whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with private respondent, American Home Assurance Corporation (American Home) The vessel sank in the early morning of August 15, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently, American Home paid Caltex the sum of Php 5,096,635.57 representing the insured value of the cargo. Exercising its right to subrogation under Article 2207 of the New Civil Code, the American Home demanded the Delsan the same amount it paid to Caltex. Due to its failure to collect from Delsan despite prior demand, American Home filed a complaint with the RTC of Makati for collection of a sum of money. The trial court dismissed the complaint against Delsan. It ruled that the vessel, MT Maysun, was seaworthy and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier from liability for the loss of its cargo. The CA reversed. It gave credence to the weather report issued by PAGASA which stated that the waves were only .7 to 2 meters in height in the vicinity of the Panay Gulf at the day the ship sank, in

contrast to the claim of the crew of the ship that the waves were 20 feet high. Delsan contends the following 1. Delsan theorized that when the American Home paid Caltex the value of its lost cargo, the act of American Home is equivalent to a tacit recognition that the illfated vessel was seaworthy; otherwise, American Home was not legally liable to Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was seaworthy. 2. Delsan avers that although chief officer had merely a 2 nd officers license, he was qualified to act as the vessels chief officer. In fact, all the crew and officers of MTT Maysun were exonerated in the administrative investigation. ISSUES

1. W/N the payment made by American Home to Caltex for the

insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. NO 2. W/N the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. NO RULING First Issue: The payment made by American Home for the insured value of the lost cargo operates as waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by American Home as to

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foreclose recourse against Delsan for any liability under its contractual obligation as a common carrier. The fact of payment grants American Home subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against Delsan, the common carrier. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, 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 they observed extraordinary diligence. In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, Delsan attributes the sinking of MT Maysun to fortuitous event or force majeure. Although the testimony of the captain and chief mate that there were strong winds and waves 20 feet high was effectively rebutted and belied by the weather report of PAGASA. Thus, as the CA correctly ruled, Delsans vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity where the said vessel sank. Additionally, the exoneration of MT Maysuns officers and crew merely concern their respective administrative liabilities. It does not in any way operate to absolve Delsan the common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts. In the case at bar, Delsan is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault

or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Second Issue: It is the view of the SC that the presentation in evidence of the marine insurance policy is not indispensable in this case 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, is sufficient to establish not only the relationship of American Home as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

LORENZO SHIPPING vs. BJ MATHEL FACTS Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. Respondent BJ Marthel International, Inc. is an importer and distributor of different brands of engines and spare parts. Respondent supplied petitioner with spare parts for the latter's marine engines. According to the quotation it sent, deliveries of such items are within 2 months after receipt of firm order. Petitioner thereafter issued to respondent Purchase Order No. 13839 for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo, respondents sales manager.

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Instead of paying the 25% down payment (indicated in the purchase order) for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks. The checks were supposed to represent the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued Purchase Order No. 14011, for another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bimonthly equal installments." Like the first purchase order, the second purchase order did not state the date of the cylinder liner's delivery. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it returned said postdated check to petitioner. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of petitioner's warehouseman, appeared. Respondent sent a Statement of Account and respondent's vicepresident sent a demand letter dated to petitioner requiring the latter to pay. Petitioner sent the former a letter offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have

to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale. Respondent filed an action for sum of money and damages before the RTC. Prior to the filing of a responsive pleading, respondent filed an amended complaint with preliminary attachment. The amendments also pertained to the issuance by petitioner of the postdated checks and the amounts of damages claimed. The RTC granted respondent's prayer for the issuance of a preliminary attachment. Petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment attaching thereto a counter-bond which the RTC allowed. Petitioner afterwards filed its Answer alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order." Respondent filed a Second Amended Complaint with Preliminary Attachment which dealt solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. (In the first amended complaint, only nine postdated checks were involved, in its second amended complaint, there were ten postdated checks). Petitioner filed a Motion alleging therein that the cylinder liners run the risk of obsolescence and deterioration to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion was granted. The RTC dismissed the complaint which ordered the plaintiff to pay P50,000.00 to the defendant. It held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the

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contract of sale when it returned the postdated checks issued by petitioner. The CA reversed the decision of the RTC. ISSUES

1. Whether or not respondent incurred delay in performing its

obligation under the contract of sale - NO 2. Whether or not said contract was validly rescinded by petitioner. -NO RULING Petitioner maintains that its obligation to pay fully the purchase price was extinguished because the adverted contract was validly terminated due to respondent's failure to deliver within the twomonth period. The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof? In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention. Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner. Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract of sale. Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct contracts." We do not agree.

While this Court recognizes the principle that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the parties is primordial and "once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms." In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder liner. In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or tendered a counter-offer to respondent while the latter could have, withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer

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were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839. The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of anything to show that an immediate delivery intended. We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the subject contracts of sale. Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they have been cashed, respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners with its principal in Japan solely on the basis of its previously harmonious business relationship with petitioner. As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force." Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still

subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items. We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is unavailing to the petitioner. Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party. MAERSK LINES vs. CA FACTS Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines through its general agent Compania de Tabacos de Filipinas, while private respondent Efren Castillo is the proprietor of Ethegal Laboratories, a firm engaged in the manufacture of pharmaceutical products.

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On Nov. 12, 1976, Castillo ordered from Eli Lilly, Inc. of Puerto Rico 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The capsules were placed in 6 drums of 100,000 capsules each valued at US$1,668.71. Shipper Eli Liily,Inc. advised Castillo through a Memorandum of Shipment that the products were already shipped on board MV Anders Maesrkline and date of arrival to be April 3, 1977. However, for unknown reasons, said cargoes of capsules were diverted to Richmond, VA and then transported back to Oakland, CA and with the goods finally arriving in the PI on June 10, 1977. Consignee Castillo refused to take delivery of the goods on account of its failure to arrive on time, and filed an action for rescission of contract with damages against Maersk and Eli Lilly alleging gross negligence and undue delay. Maersk contends that it is liable only in case of loss, destruction or deterioration of goods under Art 1734 NCC while Eli Lilly in its cross claim argued that the delay was due solely to the negligence of Maersk Line. Trial Court dismissed the complaint against Eli Lilly and the latter withdrew cross claim but TC still held Maersk liable and CA affirmed with modifications. ISSUES

The complaint was filed originally against Eli Lilly, Inc. as shippersupplier and petitioner as carrier. Petitioner Maersk Line being an original party defendant upon whom the delayed shipment is imputed cannot claim that the dismissal of the complaint against Eli Liily inured to its benefit. Petitioner contends as well that it cannot be held liable because there was no special contract under which the carrier undertook to deliver the shipment on or before a specific date and that the Bill of Lading provides that The Carrier does not undertake that the Goods shall arrive at port of discharge or the place of delivery at any particular time. However, although the SC stated that a bill of lading being a contract of adhesion will not be voided on that basis alone, it did declare that the questioned provision to be void because it has the effect of practically leaving the date of arrival of the subject shipment on the sole determination and will of the carrier. It is established that without any stipulated date, the delivery of shipment or cargo should be made within a reasonable time. In the case at hand, the SC declared that a delay in the delivery of the goods spanning a period of 2 months and 7 days falls way beyond the realm of reasonableness.

1. W/N a cause of action exists against Maersk Line given that

there was a dismissal of the complaint against Eli Lilly? Yes, but not under the cross claim rather because Maersk was an original party. 2. W/N Castillo is entitled to damages resulting from delay in the delivery of the shipment in the absence in the bill of lading of a stipulation on the delivery of goods? Yes. RULING

FGU INSURANCE vs. CA FACTS Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business. It owned the M/T

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ANCO tugboat and the D/B Lucio barge which were operated as common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to move from one place to another. The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The vessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique. When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the clouds over the area were dark and the waves were already big. The arrastre workers unloading the cargoes of SMC on board the D/B Lucio began to complain about their difficulty in unloading the cargoes. SMCs District Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the barge to a safer place because the vessel might not be able to withstand the big waves. ANCOs representative did not heed the request because he was confident that the barge could withstand the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San Jose, Antique, as all other vessels already left the wharf to seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged into the custody of the arrastre operator. At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel because the barges rope attached to the wharf was cut off by the big waves. At around midnight, the barge run aground and was broken and the cargoes of beer in the barge were swept away. As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case of

Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00). As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of the total claim as attorneys fees. ISSUE ANCO raised the defense that the breach was caused by a fortuitous event, thus it is exempted from liability. Is this contention correct? RULING No. In order for fortuitous event to be a valid defense for a common carrier, the event must be: 1. Unforeseeable , or if foreseeable it must be inevitable. 2. It must be the proximate and the only cause of the loss. 3. The common carrier must exercise due diligence to prevent or minimize the loss (before, during after the occurrence of the event). Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability)[19] by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable. It is therefore not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.

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In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and could not maneuver by itself. Even if ANCOs representatives wanted to transfer it, they no longer had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the tugboat should have had the foresight not to leave the barge alone considering the pending storm. While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not escape liability to respondent SMC. The records clearly show the failure of petitioners representatives to exercise the extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of the common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.: . . . To be exempt from liability because of an act of God, the tug must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. For, although the immediate or proximate cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such accident by any culpable act or omission of its own, it is not excused. Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of M/T ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the assistance of the tugboat, and again in failing to heed the request of SMCs representatives to have the barge transferred to a safer place, as was done by the other vessels in the

port; thus, making said blatant negligence the proximate cause of the loss of the cargoes.

DSR-SENATOR vs. FEDERAL FACTS Berde Plants delivered 632 units of artificial trees to C.F. Sharp, the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for transportation and delivery to the consignee, AlMohr International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of Lading for the cargo the port of discharge for the cargo was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in M/S Arabian Senator. Federal Phoenix Assurance insured the cargo against all risks. On June 7, 1993, M/S Arabian Senator left the Manila South Harbor for Saudi Arabia with the cargo on board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSRSenator Lines feeder vessel, M/V Kapitan Sakharov, bound for Port Dammam, Saudi Arabia. However, while in transit, the vessel and all its cargo caught fire.

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On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V Kapitan Sakharov with its cargo was gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a certification to that effect Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the amount of insurance for the cargo. In turn Berde Plants executed in its favor a Subrogation Receipt dated January 17, 1994. On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment of P941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such liability was extinguished when the vessel carrying the cargo was gutted by fire. On March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to pay actual damages of P941,429.61, compensatory damages of P100,000.00 and costs. ISSUE W/N DSR-Senator is liable YES RULING Under Article 1734, Fire is not one of those enumerated under the above provision which exempts a carrier from liability for loss or destruction of the cargo. Since the peril of fire is not comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law. The natural disaster must have been the proximate and only cause of the loss, and that the carrier has exercised due diligence to

prevent or minimize the loss before, during or after the occurrence of the disaster. When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners. However, they failed to overcome it by sufficient proof of extraordinary diligence.

CENTRAL SHIPPIN vs. INS TO FOLLOW. SORRY OF THE INCONVENIENCE. EVERETT STEAMSHIP vs. CA FACTS Hernandez trading company imported three crates of bus spare parts marked as Marco 12, Marco 13, Marco 14 from its supplier Maruman trading company.

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Said crates were shipped from Japan to Manila on noard the vessel owned by Everette Orient Lines. Upon arrival in Manila, it was discovered that Marco 14 was missing. Hernandez makes a formal claim to Everette in an amount of 1 mill ++ Yen, which is the amount of the cargo lost. However, Everett offers an amount of 100k because it is the amount that was stipulated in its Bill of Lading. Hernandez files a case at the RTC of Caloocan, RTC rules1 in favor of Hernandez holding Everett liable for the amount of !mill ++ Yen. THE CA affirmed the RTCs ruling and made an additional observation that since Hernandez is not a privy to the contract in the bill of lading ( the contract was entered by Everett and Maruman trading [shipper]), and so the 100k limit stipulated will not bind Hernandez making Everett liable for the full amount of 1mill ++ Yen. ISSUE

1. Is Everett liable for the full amount or the amount that was stipulated in the contract?- what was stipulated in the contract 2. Is Hernandez a privy to the contract which says that Petitioner is liable only for 100k? Yes
RULING

1. Controlling provisions for this issue would be 1749 and 1750

of the Civil Code.
2

In Sea Land Service, Inc. vs Intermediate Appellate Court That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading The clause of the contract goes: The carrier shall not be liable for any loss of or any
2 ART. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding.

Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. It is required, however, that the contract must be reasonable and just under the circumstances and has been fairly and freely agreed upon.XXX the Court is of the view that the requirements of said article have not been met. The fact that those conditions are printed at the back of the bill of lading in letters so small that they are hard to read would not warrant the presumption that the plaintiff or its supplier was aware of these conditions such that he had fairly and freely agreed to these conditions. It can not be said that the plaintiff had actually entered into a contract with the defendant, embodying the conditions as printed at the back of the bill of lading that was issued by the defendant to plaintiff.

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

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damage to or in any connection with, goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required. (Emphasis supplied) The shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. The trial courts ratiocination that private respondent could not have fairly and freely agreed to the limited liability clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading invalid. In Ong Yiu VS. CA the court said that contracts of adhesion wherein one party imposes a readymade form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited 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 The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said to be ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The shipper could not have known, or

should know the stipulations in the bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing to ship the cargo in petitioners vessel. 2. Even if the consignee was not a signatory to the contract of carriage between the shipper and the carrier. The consignee can still be bound by the contract. private respondent (Hernandez) formally claimed reimbursement for the missing goods from petitioner and subsequently filed a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to court to enforce it. Thus, private respondent cannot now reject or disregard the carriers limited liability stipulation in the bill of lading. In other words, private respondent is bound by the whole stipulations in the bill of lading and must respect the same. PAL vs. CA FACTS Isidro Co, accompanied by his wife and son, arrived at the Manila International Airport aboard PAL airline's Flight from San Francisco. Soon after his embarking, Co proceeded to the baggage retrieval area to claim his checks in his possession. He found 8 of his luggage, but despite diligent search, he failed to locate his 9th luggage. Co then immediately notified PAL through its employee, Willy Guevarra, who was then in charge of the PAL claim counter at the airport. Willy filled up the printed form known as a Property Irregularity Report, acknowledging the luggage to be missing, and signed it.

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The incontestable evidence further shows that plaintiff lost luggage was a Samsonite suitcase worth about US$200 and containing various personal effects purchased by plaintiff and his wife during their stay in the US and similar other items sent by their friends abroad to be given as presents to relatives in the Philippines worth around $1,800. Co on several occasions unrelentingly called PALs office in order to pursue his complaint about his missing luggage but no avail was given. Thus, Co wrote a demand letter to PAL, through its manager of the Central Baggage Services. PAL replied acknowledging that they have been unable to locate the baggage despite careful search and extended their sincere apologies for the inconvenience. PAL never found the missing luggage or paid its corresponding value. Co then filed his present complaint against PAL for damages. The RTC found PAL liable and ordered said company to pay damages. The CA affirmed in toto the trial court's award. PAL Contends: The Lower Courts were in error in not applying the limit of liability under the Warsaw Convention which limits the liability of an air carrier of loss, delay or damage to checked-in baggage to US$20.00 based on weight; and ISSUE W/N the Lower Courts should apply the limit of liability under the Warsaw Convention? NO RULING In Alitalia vs. IAC, the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of baggage without any improper conduct on the part of the officials or employees of the airline, or other special injury sustained by the passengers. The petitioner therein did not declare a higher value for his luggage, much less did he pay an additional transportation charge.

PAL contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00 based on weight as private respondent Co did not declare the contents of his baggage nor pay traditional charges before the flight. We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd, this Court ruled: The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by Special Laws. The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which provide: Art. 1733. Common carriers.. are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them... Art. 1735. ...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.. Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the common carrier for their loss, destruction or deterioration. Since the passenger's destination in this case was the Philippines, Philippine law governs the liability of the carrier for the loss of the passenger's luggage. In this case, the PAL failed to overcome, not only the presumption, but more importantly, the Cos evidence, proving that the carrier's

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negligence was the proximate cause of the loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail itself out of having to pay Co's claim. The CA therefore did not err in disregarding the limits of liability under the Warsaw Convention and applied the Civil Code instead.

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