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PEDRO DE GUZMAN, petitioner, vs.

COURT OF APPEALS and ERNESTO


CENDANA, respondents. .................................................................................... 1
VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL
INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co., Inc.) respondent. . 12
A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT OF
APPEALS and FGU INSURANCE CORPORATION, respondents. ................... 18
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners, vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD.,
and BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING
SERVICES, Respondents.................................................................................. 25
CEBU SALVAGE CORPORATION, Petitioner, vs. PHILIPPINE HOME
ASSURANCE CORPORATION, Respondent. ................................................... 48
SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners, vs. SUN
HOLIDAYS, INC., Respondent. ......................................................................... 51
PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS,
SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents. ........................................................................................ 58
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner, vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING
CORPORATION, respondents. ......................................................................... 69
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE
DAVIES TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST
INSURANCE CO., INC., respondents. ............................................................... 86
SULPICIO LINES, INC., petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE
CORPORATION, respondent. ......................................................................... 104
DELSAN TRANSPORT LINES, INC., Petitioner, vs. AMERICAN HOME
ASSURANCE CORPORATION, Respondent. ................................................. 110
VICENTE CALALAS, petitioner, vs. COURT OF APPEALS, ELIZA JUJEURCHE
SUNGA and FRANCISCO SALVA, respondents. ............................................ 115
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs.
CHEMOIL LIGHTERAGE CORPORATION, respondent. ................................ 120
LARRY ESTACION, Petitioner, vs. NOE BERNARDO, thru and his guardian ad
litem ARLIE BERNARDO, CECILIA BANDOQUILLO and GEMINIANO

QUINQUILLERA, Respondents. ...................................................................... 126


MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner, vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO.,
INC., Respondent. ........................................................................................... 145
LAPANDAY AGRICULTURAL and DEVELOPMENT CORPORATION (LADECO),
HENRY BERENGUEL, and APOLONIO R. DEOCAMPO, petitioners, vs.
MICHAEL RAYMOND ANGALA, respondent................................................... 160

Facts: respondent cendana was engaged in nuying up used bottles and


scrap metals in pangasinan. upon gathering sufficient quantities of such
scrap materials, he would bring such material w/ his 2 six wheeler trucks
to manila 4 resale. upon return trip to pangasin he would load his trucks
w/ cargo w/c merchants wanted delivered to diff estblishments in
pngasinan.
petitioner de guzman contrcted w/ respondent for the hauling of 750
cartons of liberty filled milk frm warehouse in mkti to petitioners
estblishmnt in pngsinan. hower onl 150 cartons were delivrd to
petitioner. the other trck carring the 600 cartons was hijacked b armed
men who took w them the truck, its driver and helper and d cargo.

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

PEDRO DE GUZMAN, petitioner,


vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

petitioner commenced an action against respondent demnding tehe


payment of the claimed value of the lost goods. petitioner argued that
respondeng being common carrier and having failed to exercse EOD
reirdd of m by law old be liale for the vale of the undelivrd goods.

Vicente D. Millora for petitioner.


Jacinto Callanta for private respondent.

respondent denied that he was a common carrier and argued thT he


could be held liable fir the value of the lost goods, such loss having been
due to force majure.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, respondent charged freight rates
which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer
of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with
respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General
Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December 1970.
Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his
trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons
were placed on board the other truck which was driven by Manuel Estrada, respondent's
driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along
the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its
driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary diligence
required of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services
to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had
been
engaged
in
transporting
return
loads
of
freight
"as
a
casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under
the facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop,
wharf
or
dock,
ice
plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water

supply and power petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. ... (Emphasis
supplied)
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such back-hauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent'sprincipal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his
customers a fee for hauling their goods; that fee frequently fell below commercial freight rates
is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate
of public convenience is not a requisite for the incurring of liability under the Civil Code
provisions governing common carriers. That liability arises the moment a person or firm acts
as a common carrier, without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations and has been
granted a certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary certificate
of public convenience, would be offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being
and property of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by simply failing to obtain the necessary
permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held
to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as
well as of passengers. The specific import of extraordinary diligence in the care of goods
transported by a common carrier is, according to Article 1733, "further expressed in Articles
1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3)
Act
or
omission
of
the
shipper
or
owner
of
the
goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within any of
the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore,
that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article
1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown by
proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care
of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying the
600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the
standard of extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives
of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its
employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers who
donot act with grave or irresistible threat, violence or force, is dispensed with or diminished;
and
(7) that the common carrier shall not responsible for the loss, destruction or deterioration of
goods on account of the defective condition of the car vehicle, ship, airplane or other
equipment used in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed
to divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat,
violence or force." We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost as a result of a
robbery which is attended by "grave or irresistible threat, violence or force."

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

In these circumstances, we hold that the occurrence of the loss must reasonably be regarded
as quite beyond the control of the common carrier and properly regarded as a fortuitous event.
It is necessary to recall that even common carriers are not made absolute insurers against all
risks of travel and of transport of goods, and are not held liable for acts or events which
cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous
standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of
an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of
the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Facts: Petitioner is a grantee of a pipeline concession under Republic Act No. 387. Sometime in January 1995, petitioner applied for mayors permit in Batangas. However, the
Treasurer required petitioner to pay a local tax based on gross receipts amounting to P956,076.04. In order not to hamper its operations, petitioner paid the taxes for the first
quarter of 1993 amounting to P239,019.01 under protest. On January 20, 1994, petitioner filed a letter-protest to the City Treasurer, claiming that it is exempt from local tax
since it is engaged in transportation business. The respondent City Treasurer denied the protest, thus, petitioner filed a complaint before the Regional Trial Court of Batangas
for tax refund. Respondents assert that pipelines are not included in the term common carrier which refers solely to ordinary carriers or motor vehicles. The trial court
dismissed the complaint, and such was affirmed by the Court of Appeals.

No.is125948
29, 1998
Issue: Whether a pipelineG.R.
business
included inDecember
the term common
carrier so as to entitle the petitioner to the exemption
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor
of Batangas City. However, before the mayor's permit could be issued, the respondent City
Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code 3. The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four installments based on the
gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the
amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government concession
granted under the Petroleum Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals.
As such, our Company is exempt from paying tax on gross receipts under Section 133 of the
Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of contractors
under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to
impose tax "on contractors and other independent contractors" under Section 143, Paragraph
(e) of the Local Government Code does not include the power to levy on transportation
contractors.
The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of fees and
charges on business to such amounts as may be commensurate to the cost of regulation,
inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee,
the imposition thereof based on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of

regulation, inspection and licensing. The fee is already a revenue raising measure, and not a
mere regulatory imposition. 4
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City of
Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e)
and 151 does not include the authority to collect such taxes on transportation contractors for, as
defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the
City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid. 7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to
the mode or manner by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax
exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of
law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet
neither said law nor the deed of concession grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the
Local Tax Code. Such being the situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses onlycommon carriers so as
not to overburden the riding public or commuters with taxes. Plaintiff is not a common carrier,
but a special carrier extending its services and facilities to a single specific or "special
customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make them economically
and financially viable to serve the people and discharge their functions with a concomitant

obligation to accept certain devolution of powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e)
and 151 of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication. 10 On November 29, 1995, the respondent court rendered a decision 11 affirming
the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996. 12

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

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment,
and must hold himself out as ready to engage in the transportation of goods for person
generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports the goods by land
and for compensation. The fact that petitioner has a limited clientele does not exclude it from
the definition of a common carrier. In De Guzman vs. Court of Appeals 16 we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 . . . avoids making any

distinction between a person or enterprise offering transportation service on


a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think
that Article 1877 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
every person that now or hereafter may own, operate. manage, or control in the Philippines,
for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or
without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light
heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public
services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe line shall have the preferential
right to utilize installations for the transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport, and to charge without discrimination
such rates as may have been approved by the Secretary of Agriculture and Natural
Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
that everything relating to the exploration for and exploitation of petroleum . . . and everything
relating to the manufacture, refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting
petroleum products, it is considered a common carrier under Republic Act No. 387 . . . . Such
being the case, it is not subject to withholding tax prescribed by Revenue Regulations No.
13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local
Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to
be one of those being deemed to be exempted from the taxing powers of the local
government units. May we know the reason why the transportation business is being
excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131),
line 16, paragraph 5. It states that local government units may not impose taxes on the
business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there
that provinces have the power to impose a tax on business enjoying a franchise at the rate of
not more than one-half of 1 percent of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject to tax by the province. That is the
exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top of

10

what is already being imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific
rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the
so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.

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

11

A contract was entered into between Calvo and San Miguel Corporation (SMC) for the transfer of certain cargoes from the port area in Manila to the warehouse of SMC. The
cargo was insured by UCPB General Insurance Co., Inc. When the shipment arrived and unloaded from the vessel, Calvo withdrew the cargo from the arrastre operator and
delivered the same to SMCs warehouse. When it was inspected, it was found out that some of the goods were torn. UCPB, being the insurer, paid for the amount of the
damages and as subrogee thereafter, filed a suit against Calvo.
Petitioner, on the other hand, contends that it is a private carrier not required to observe such extraordinary diligence in the vigilance over the goods.
As customs broker, she does not indiscriminately hold her services out to the public but only to selected parties.

G.R. No. 148496

March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co.,
Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals,
affirming the decision2of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorney's
fees, and the cost of the suit.
1 wp hi 1.n t

The facts are as follows:


Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to
SMC's warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo
was insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the
custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator
and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods were
inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting
paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The damage
was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995,
rendered judgment finding petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the Damage Report (Exh.
"F") with entries appearing therein, classified as "TED" and "TSN", which the claims processor,
Ms. Agrifina De Luna, claimed to be tearrage at the end and tearrage at the middle of the
subject damaged cargoes respectively, coupled with the Marine Cargo Survey Report (Exh.
"H" - "H-4-A") confirms the fact of the damaged condition of the subject cargoes. The
surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to improper handling in
transit presumably whilst in the custody of the broker . . . ."

12

is a finding which cannot be traversed and overturned.


The evidence adduced by the defendants is not enough to sustain [her] defense that [she is]
are not liable. Defendant by reason of the nature of [her] business should have devised ways
and means in order to prevent the damage to the cargoes which it is under obligation to take
custody of and to forthwith deliver to the consignee. Defendant did not present any evidence
on what precaution [she] performed to prevent [the] said incident, hence the presumption is
that the moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they have observed the extraordinary diligence
required by law. The burden of the plaintiff, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
carrier to prove that he has exercised the extraordinary diligence required by law. Thus, it has
been held that the mere proof of delivery of goods in good order to a carrier, and of their
arrival at the place of destination in bad order, makes out a prima facie case against the
carrier, so that if no explanation is given as to how the injury occurred, the carrier must be
held responsible. It is incumbent upon the carrier to prove that the loss was due to accident or
some other circumstances inconsistent with its liability." (cited in Commercial Laws of the
Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier
is supposed [to] exercise [the] extraordinary diligence required by law, hence the
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received by the carrier for transportation until the same are delivered
actually or constructively by the carrier to the consignee or to the person who has the right to
receive the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts -1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES,
SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.

13

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN


CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then
she is indeed not liable beyond what ordinary diligence in the vigilance over the goods
transported by her, would require.6 Consequently, any damage to the cargo she agrees to
transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she
is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a
similar contention and held the party to be a common carrier, thus The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public."
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity . . . Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on aregular 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
narrowsegment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
" x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system,
gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting stations and other similar
public services. x x x" 8

14

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's contention
would be to deprive those with whom she contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for her customers, as already noted,
is part and parcel of petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the
vigilance over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying
vessel "M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre operator,
to whom the goods were unloaded and who allegedly kept them in open air for nine days from
July 14 to July 23, 1998 notwithstanding the fact that some of the containers were deformed,
cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880

rain gutter deformed/cracked

ICSU-363461-3

left side rubber gasket on door distorted/partly loose

PERU-204209-4

with pinholes on roof panel right portion

TOLU-213674-3

wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0

with dent/crack on roof panel

ICSU-412105-0

rubber gasket on left side/door panel partly detached loosened.10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he
has no personal knowledge on whether the container vans were first stored in petitioner's
warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing
the container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately
delivered the cargo to SMC's warehouse in Ermita, Manila, which is a mere thirty-minute drive
from the Port Area where the cargo came from. Thus, the damage to the cargo could not have
taken place while these were in her custody.11

15

Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator,
these were covered by clean Equipment Interchange Report (EIR) and, when petitioner's
employees withdrew the cargo from the arrastre operator, they did so without exception or
protest either with regard to the condition of container vans or their contents. The Survey
Report pertinently reads -Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of
Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x 20' secure metal
vans, covered by clean EIRs. Except for slight dents and paint scratches on side and roof
panels, these containers were deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.12
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean
Equipment Interchange Reports (EIRs). Had there been any damage to the shipment, there
would have been a report to that effect made by the arrastre operator. The cargoes were
withdrawn by the defendant-appellant from the arrastre still in good order and condition as the
same were received by the former without exception, that is, without any report of damage or
loss. Surely, if the container vans were deformed, cracked, distorted or dented, the
defendant-appellant would report it immediately to the consignee or make an exception on the
delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order and
condition and delivered the same to the consignee damaged. We can only conclude that the
damages to the cargo occurred while it was in the possession of the defendant-appellant.
Whenever the thing is lost (or damaged) in the possession of the debtor (or obligor), it shall be
presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary.
No proof was proffered to rebut this legal presumption and the presumption of negligence
attached to a common carrier in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMC's compound, suffice it to say that
to prove the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it
used "all reasonable means to ascertain the nature and characteristic of goods tendered for
[transport] and that [it] exercise[d] due care in the handling [thereof]." Petitioner failed to do
this.

16

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides -Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s
in the container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom.14 In this case, petitioner accepted the cargo without exception despite the apparent
defects in some of the container vans. Hence, for failure of petitioner to prove that she
exercised extraordinary diligence in the carriage of goods in this case or that she is exempt
from liability, the presumption of negligence as provided under Art. 173515 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.

17

1 wp hi 1 .n t

G.R. No. 147079

December 21, 2004

A.F. SANCHEZ BROKERAGE INC., petitioners,


vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

DECISION

CARPIO MORALES, J.:


Before this Court on a petition for Certiorari is the appellate courts Decision1 of August 10,
2000 reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati
City, in Civil Case No. 93-76B which dismissed the complaint of respondent FGU Insurance
Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal
tablets, 14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to
Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were
placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed
together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in two
pallets, each of which contained 30 cartons.3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine
Risk Note No. 4995 pursuant to Marine Open Policy No. 138.4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport
(NAIA),5 it was discharged "without exception"6 and delivered to the warehouse of the
Philippine Skylanders, Inc. (PSI) located also at the NAIA for safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs,
Wyeth-Suaco engaged the services of Sanchez Brokerage which had been its licensed
broker since 1984.8 As its customs broker, Sanchez Brokerage calculates and pays the
customs duties, taxes and storage fees for the cargo and thereafter delivers it to
Wyeth-Suaco.9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez
Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt
No. 016992,10 was issued. On the receipt, another representative of Sanchez Brokerage, M.
Sison,11 acknowledged that he received the cargoes consisting of three pieces in good
condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the
cargoes13 which were thereupon stripped from the aluminum containers14 and loaded inside
two transport vehicles hired by Sanchez Brokerage.15

18

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a
marine and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on
behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.17 The delivery receipt, bearing No. 07037 dated July 29,
1992, indicated that the delivery consisted of one container with 144 cartons of Femenal and
Nordiol and 1 pallet containing Trinordiol.18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery
of the cargoes by affixing his signature on the delivery receipt.19 Upon inspection, however, he,
together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing
Femenal and Nordiol tablets were in bad order.20 He thus placed a note above his signature
on the delivery receipt stating that 44 cartons of oral contraceptives were in bad order. The
remaining 160 cartons of oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report21 dated
July 31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were
"wetted" (sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an
"Annexed Schedule" whereon it was indicated that prior to the loading of the cargoes to the
brokers trucks at the NAIA, they were inspected and found to be in "apparent good
condition."24 Also noted was that at the time of delivery to the warehouse of Hizon
Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets.25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that
38 x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x
700 blister packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of
Femenal and 3 cartons of Nordiol on the ground that they were "delivered to Hizon
Laboratories with heavy water damaged (sic) causing the cartons to sagged (sic) emitting a
foul order and easily attracted flies."28
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the
payment ofP191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance
claim against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in
settlement of its claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid
Wyeth-Suaco, Sanchez Brokerage, by letter31 of January 7, 1993, disclaimed liability for the
damaged goods, positing that the damage was due to improper and insufficient export
packaging; that when the sealed containers were opened outside the PSI warehouse, it was
discovered that some of the loose cartons were wet,32 prompting its (Sanchez Brokerages)

19

representative Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan,


about the condition of the cargoes but that the latter advised to still deliver them to Hizon
Laboratories where an adjuster would assess the damage.33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial
Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the
Survey Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere
product of pure guesswork.35
On appeal, the appellate court reversed the decision of the trial court, it holding that the
Sanchez Brokerage engaged not only in the business of customs brokerage but also in the
transportation and delivery of the cargo of its clients, hence, a common carrier within the
context of Article 1732 of the New Civil Code.36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in
good order and condition but were in a damaged state when delivered to Wyeth-Suaco, the
appellate court held that Sanchez Brokerage is presumed negligent and upon it rested the
burden of proving that it exercised extraordinary negligence not only in instances when
negligence is directly proven but also in those cases when the cause of the damage is not
known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The
Decision of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of
the Appellant and against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49,
with interest thereupon at the rate of 6% per annum, from the date of the Decision of the Court,
until the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and
by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it
comes to this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a "common carrier" within the
context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole office
of a writ of certiorari is the correction of errors of jurisdiction including the commission of grave
abuse of discretion amounting to lack or excess of jurisdiction and does not include correction
of the appellate courts evaluation of the evidence and factual findings thereon.

20

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier,
failed to overcome the presumption of negligence, it being documented that petitioner
withdrew from the warehouse of PSI the subject shipment entirely in good order and
condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to
this Court by filing a petition for review, which would be but a continuation of the appellate
process over the original case.40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5,
2001. Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the
appellate courts decision had become final and executory. The filing by petitioner of a petition
for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove
not merely reversible error but also grave abuse of discretion amounting to lack or excess of
jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of
the trial court based on its finding that petitioner is liable for the damage to the cargo as a
common carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which
is properly the subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision
not the jurisdiction of the court to render said decision the same is beyond the province of
a petition for certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot
be exercised in order to review the judgment of lower courts as to its intrinsic correctness,
either upon the law or the facts of the case.42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of the
consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:

21

As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from
customs and finally deliver the goods to the warehouse of the importer.43
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity.44 The
contention, therefore, of petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver
the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 173345 of the
Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all
the circumstances of each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted negligently, unless it
proves that it observed extraordinary diligence.46
The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of
Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristics of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."48
In the case at bar, it was established that petitioner received the cargoes from the PSI
warehouse in NAIA in good order and condition;49 and that upon delivery by petitioner to
Hizon Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the
Delivery Receipt50 issued by petitioner, and as indicated in the Survey Report of Elite
Surveyors51 and the Destruction Report of Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits
that they were damaged due to the fault or negligence of the shipper for failing to properly
pack them and to the inherent characteristics of the goods53; and that it should not be faulted
for following the instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite
information conveyed to the latter that some of the cartons, on examination outside the PSI
warehouse, were found to be wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packing or
in the containers, the rule is that if the improper packing is known to the carrier or his
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for
the resulting damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it
were true, then it should naturally have received the cargo under protest or with reservations
duly noted on the receipt issued by PSI. But it made no such protest or reservation.57

22

Moreover, as observed by the appellate court, if indeed petitioners employees only examined
the cargoes outside the PSI warehouse and found some to be wet, they would certainly have
gone back to PSI, showed to the warehouseman the damage, and demanded then and there
for Bad Order documents or a certification confirming the damage.58 Or, petitioner would have
presented, as witness, the employees of the PSI from whom Morales and Domingo took
delivery of the cargo to prove that, indeed, part of the cargoes was already damaged when
the container was allegedly opened outside the warehouse.59
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day.
Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside the
PSI warehouse but such notwithstanding Calicdan directed Morales to proceed with the
delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29,
1992, he failed to specifically declare what time he received the call. As to whether the call
was made at the PSI warehouse when the shipment was stripped from the airport containers,
or when the cargoes were already in transit to Antipolo, it is not determinable. Aside from that
phone call, petitioner admitted that it had no documentary evidence to prove that at the time it
received the cargoes, a part of it was wet, damaged or in bad condition.60
The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely then.
Sanchez himself testified that in the past, there was a similar instance when the shipment of
Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at
the NAIA were damaged and claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did
not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were
turned over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a
portion thereof was found to be in bad order, it was incumbent on petitioner to prove that it

23

exercised extraordinary diligence in the carriage of the goods. It did not, however. Hence, its
presumed negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

24

G.R. No. 150255. April 22, 2005


SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK
SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its
Resolution2 dated September 28, 2001 denying the motion for reconsideration, which affirmed
that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.
92-631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport),
together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent
Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable for the loss of
37 hot rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk,
Russia on board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black
Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee,
Little Giant Steel Pipe Corporation (Little Giant),4 were insured against all risks with Industrial
Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South
Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances,
to receive the cargoes from the shipside, and to deliver them to its (the consignees)
warehouse at Cainta, Rizal,7 in turn engaged the services of TVI to send a barge and tugboat
at shipside.
On October 26, 1991, around 4:30 p.m., TVIs tugboat "Lailani" towed the barge "Erika V" to
shipside.8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal
Services Inc. commenced to unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement
due to an approaching storm, the unloading unto the barge of the 37 coils was
accomplished.10 No tugboat pulled the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge
abandoned it and transferred to the vessel. The barge pitched and rolled with the waves and
eventually capsized, washing the 37 coils into the sea.12 At 7:00 a.m., a tugboat finally arrived
to pull the already empty and damaged barge back to the pier.13

25

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to
recover the lost cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount
of P5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in favor of Industrial
Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea
through its representative Inchcape (the defendants) before the RTC of Manila, for the
recovery of the amount it paid to Little Giant plus adjustment fees, attorneys fees, and
litigation expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while
typhoon signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent
for unloading the cargoes outside of the breakwater notwithstanding the storm signal.18 The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
ordering the defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with
interest from the date the complaint was filed until fully satisfied, as well as the sum
of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount recoverable
from the defendants as attorneys fees plus the costs of suit. The counterclaims and cross
claims of defendants are hereby DISMISSED for lack of [m]erit.19
To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of
excessive attorneys fees of more thanP1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the incident was caused by a fortuitous
event. 20
By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001,
affirmed in toto the decision of the trial court, 22 it finding that all the defendants were common
carriers Black Sea and TVI for engaging in the transport of goods and cargoes over the
seas as a regular business and not as an isolated transaction,23 and Schmitz Transport for
entering into a contract with Little Giant to transport the cargoes from ship to port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one was
essential such that without each others contributory negligence the incident would not have
happened and so much so that the person principally liable cannot be distinguished with
sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although
defendants obviously had nothing to do with the force of nature, they however had control of
where to anchor the vessel, where discharge will take place and even when the discharging
will commence."26

26

The defendants respective motions for reconsideration having been denied by Resolution27 of
September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present
petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal,
consignee Little Giant, hence, the transportation contract was by and between Little Giant and
TVI.28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and
TVI were required to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through
petitioner in good order, hence, it cannot be faulted, it having had no control and supervision
thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes
and transferred them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner
and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any
and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which though foreseen,
were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the
caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must
be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from
creating or entering into the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active intervention or neglect or failure to
act, the whole occurrence is then humanized and removed from the rules applicable to the
acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in the
form of contributory negligence by all the defendants resulted to the loss of the

27

cargoes,34 held that unloading outside the breakwater, instead of inside the breakwater, while
a storm signal was up constitutes negligence.35 It thus concluded that the proximate cause of
the loss was Black Seas negligence in deciding to unload the cargoes at an unsafe place and
while a typhoon was approaching.36
From a review of the records of the case, there is no indication that there was greater risk in
loading the cargoes outside the breakwater. As the defendants proffered, the weather on
October 26, 1991 remained normal with moderate sea condition such that port operations
continued and proceeded normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of
PAG-ASA and marked as a common exhibit of the parties, states that while typhoon signal No.
1 was hoisted over Metro Manila on October 23-31, 1991, the sea condition at the port of
Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be
said that the defendants were negligent in not unloading the cargoes upon the barge on
October 26, 1991 inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded by
12:30 in the morning39 is, however, a material fact which the appellate court failed to properly
consider and appreciate40 the proximate cause of the loss of the cargoes. Had the barge
been towed back promptly to the pier, the deteriorating sea conditions notwithstanding, the
loss could have been avoided. But the barge was left floating in open sea until big waves set
in at 5:30 a.m., causing it to sink along with the cargoes.41 The loss thus falls outside the "act
of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are
responsible therefor?
Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner is
a common carrier. For it undertook to transport the cargoes from the shipside of "M/V
Alexander Saveliev" to the consignees warehouse at Cainta, Rizal. As the appellate court put
it, "as long as a person or corporation holds [itself] to the public for the purpose of transporting
goods as [a] business, [it] is already considered a common carrier regardless if [it] owns the
vehicle to be used or has to hire one."42 That petitioner is a common carrier, the testimony of
its own Vice-President and General Manager Noel Aro that part of the services it offers to its
clients as a brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President
and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the
company. I also handle the various division heads of the company for operation matters, and
all other related functions that the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell
the Honorable Court if you came to know the company by the name Little Giant Steel Pipe
Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can recall?

28

A: Since 1990, Sir.


Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you
perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also
in-charged of the delivery of the goods to their warehouses. We also handled the clearances
of their shipment at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with
regards to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of
[the] cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to
perform, what equipment do (sic) you require or did you use in order to effect this unloading,
transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to
lighter, and on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was]
in-charged (sic) of the barges. Also, in BASECO compound we are leasing cranes to have the
cargo unloaded from the barge to trucks, [and] then we used trucks to deliver [the cargoes] to
the consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to
contract for the barges of Transport Ventures Incorporated in this particular operation?
A: Firstly, we dont own any barges. That is why we hired the services of another firm whom
we know [al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis
supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common
carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of
Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.

29

xxx
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver
the goods for pecuniary consideration.45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation
of goods is an integral part of a customs broker, the customs broker is also a common carrier.
For to declare otherwise "would be to deprive those with whom [it] contracts the protection
which the law affords them notwithstanding the fact that the obligation to carry goods for [its]
customers, is part and parcel of petitioners business."47
As for petitioners argument that being the agent of Little Giant, any negligence it committed
was deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In
effecting the transportation of the cargoes from the shipside and into Little Giants warehouse,
however, petitioner was discharging its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler48 to provide the barge and the tugboat. In their Service Contract,49 while Little Giant
was named as the consignee, petitioner did not disclose that it was acting on commission and
was chartering the vessel for Little Giant.50 Little Giant did not thus automatically become a
party to the Service Contract and was not, therefore, bound by the terms and conditions
therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon
but it can maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper
and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have used in
the same situation exercised by TVI?52

30

This Court holds not.


TVIs failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the
loss. A man of ordinary prudence would not leave a heavily loaded barge floating for a
considerable number of hours, at such a precarious time, and in the open sea, knowing that
the barge does not have any power of its own and is totally defenseless from the ravages of
the sea. That it was nighttime and, therefore, the members of the crew of a tugboat would be
charging overtime pay did not excuse TVI from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 173953 of the Civil
Code, prove that it exercised due diligence to prevent or minimize the loss, before, during and
after the occurrence of the storm in order that it may be exempted from liability for the loss of
the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the
operations of TVI, itfailed to take all available and reasonable precautions to avoid the loss.
After noting that TVI failed to arrange for the prompt towage of the barge despite the
deteriorating sea conditions, it should have summoned the same or another tugboat to extend
help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the cargoes.
The following pronouncement of the Supreme Court is instructive:
The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high
diligence required of the common carrier. In the discharge of its commitment to ensure the
safety of passengers, a carrier may choose to hire its own employees or avail itself of the
services of an outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil
Code. x x x [O]ne might ask further, how then must the liability of the common carrier, on one
hand, and an independent contractor, on the other hand, be described? It would be solidary.
A contractual obligation can be breached by tort and when the same act or omission causes
the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of
the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where
tort is that which breaches the contract. Stated differently, when an act which constitutes a
breach of contract would have itself constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.57
As for Black Sea, its duty as a common carrier extended only from the time the goods were
surrendered or unconditionally placed in its possession and received for transportation until
they were delivered actually or constructively to consignee Little Giant.58
Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering
the shipment provides that delivery be made "to the port of discharge or so near thereto as
she may safely get, always afloat."59 The delivery of the goods to the consignee was not from
"pier to pier" but from the shipside of "M/V Alexander Saveliev" and into barges, for which

31

reason the consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its
duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorneys fees in an amount over P1,000,000.00 to Industrial
Insurance, for lack of factual and legal basis, this Court sets it aside. While Industrial
Insurance was compelled to litigate its rights, such fact by itself does not justify the award of
attorneys fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.61 To award attorneys fees to a party just because the judgment is
rendered in its favor would be tantamount to imposing a premium on ones right to litigate or
seek judicial redress of legitimate grievances.62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred
by Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost
cargo. They do not constitute actual damages.63
As for the court a quos award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that
when the demand cannot be reasonably established at the time the demand is made, the
interest shall begin to run not from the time the claim is made judicially or extrajudicially but
from the date the judgment of the court is made (at which the time the quantification of
damages may be deemed to have been reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &
Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable for
the amount of P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per
annum of the amount due should be computed from the promulgation on November 24, 1997
of the decision of the trial court.
Costs against petitioner.
SO ORDERED.

32

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.

G.R. No. 161833. July 8, 2005

DEFECT IN THE PACKAGIN (NEGLIGENCE OF THE SHIPPER)

PHILIPPINE
CHARTER
INSURANCE
CORPORATION, Petitioners,
vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR," NATIONAL SHIPPING
CORPORATION OF THE PHILIPPINES and INTERNATIONAL CONTAINER SERVICES,
INC., Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure
assailing the Decision1dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV
No. 57357 which affirmed the Decision dated February 17, 1997 of the Regional Trial Court
(RTC) of Manila, Branch 37, in Civil Case No. 95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of
parts and accessories in the port of Pusan, Korea, on board the vessel M/V "National
Honor," represented in the Philippines by its agent, National Shipping Corporation of the
Philippines (NSCP). The shipment was for delivery to Manila, Philippines. Freight forwarder,
Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No. SH94103062 in the name of the
shipper consigned to the order of Metropolitan Bank and Trust Company with arrival notice in
Manila to ultimate consignee Blue Mono International Company, Incorporated (BMICI),
Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML5125653 in the name of the freight
forwarder, as shipper, consigned to the order of Stamm International Inc., Makati, Philippines.
It is provided therein that:
12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent
good order and condition except as, otherwise, noted of the total number of Containers or
other packages or units enumerated overleaf. Proof to the contrary shall be admissible when
this Bill of Lading has been transferred to a third party acting in good faith. No representation
is made by the Carrier as to the weight, contents, measure, quantity, quality, description,
condition, marks, numbers, or value of the Goods and the Carrier shall be under no
responsibility whatsoever in respect of such description or particulars.
13. The shipper, whether principal or agent, represents and warrants that the goods are
properly described, marked, secured, and packed and may be handled in ordinary course
without damage to the goods, ship, or property or persons and guarantees the correctness of
the particulars, weight or each piece or package and description of the goods and agrees to
ascertain and to disclose in writing on shipment, any condition, nature, quality, ingredient or
characteristic that may cause damage, injury or detriment to the goods, other property, the
ship or to persons, and for the failure to do so the shipper agrees to be liable for and fully
indemnify the carrier and hold it harmless in respect of any injury or death of any person and
loss or damage to cargo or property. The carrier shall be responsible as to the correctness of
any such mark, descriptions or representations.4

33

The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2,
complete and in good order condition, covered by Commercial Invoice No. YJ-73564
DTD5 and a Packing List.6 There were no markings on the outer portion of the crates except
the name of the consignee.7 Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs. It
contained the following articles: one (1) unit Lathe Machine complete with parts and
accessories; one (1) unit Surface Grinder complete with parts and accessories; and one (1)
unit Milling Machine complete with parts and accessories. On the flooring of the wooden
crates were three wooden battens placed side by side to support the weight of the cargo.
Crate No. 2, on the other hand, measured 10 cubic meters and weighed 2,060 kgs. The Lathe
Machine was stuffed in the crate. The shipment had a total invoice value of US$90,000.00
C&F Manila.8 It was insured for P2,547,270.00 with the Philippine Charter Insurance
Corporation (PCIC) thru its general agent, Family Insurance and Investment
Corporation,9 under Marine Risk Note No. 68043 dated October 24, 1994.10
The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on
November 14, 1995. 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.11 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,12 the 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.13 They inspected the hatches, checked
the cargo and found it in apparent good condition.14 Claudio Cansino, the stevedore of the
ICTSI, placed two sling cables on each end of Crate No. 1.15 No sling cable was fastened on
the mid-portion of the crate. In Dauzs experience, this was a normal procedure.16 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,17 resulting in extensive damage to the shipment.
BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such damaged
condition.18 Upon receipt of the damaged shipment, BMICI found that the same could no
longer be used for the intended purpose. The Mariners Adjustment Corporation hired by
PCIC conducted a survey and declared that the packing of the shipment was considered
insufficient. It ruled out the possibility of taxes due to insufficiency of packing. It opined that
three to four pieces of cable or wire rope slings, held in all equal setting, never by-passing the
center of the crate, should have been used, considering that the crate contained heavy
machinery.19
BMICI subsequently filed separate claims against the NSCP,20 the ICTSI,21 and its insurer, the
PCIC,22 for US$61,500.00. When the other companies denied liability, PCIC paid the claim
and was issued a Subrogation Receipt23 for P1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint
for Damages24against the "Unknown owner of the vessel M/V National Honor," NSCP and
ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed,
among others
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered
ordering defendants to pay plaintiff, jointly or in the alternative, the following:

34

1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing
of this complaint until fully paid;
2. Attorneys fees in the amount of P100,000.00;
3. Cost of suit.25
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant
NSCP, claiming that the loss/damage of the shipment was caused exclusively by the
defective material of the wooden battens of the shipment, insufficient packing or acts of the
shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens
placed on the wooden flooring of the crate was of good material but was not strong enough to
support the weight of the machines inside the crate. He averred that most stevedores did not
know how to read and write; hence, he placed the sling cables only on those portions of the
crate where the arrow signs were placed, as in the case of fragile cargo. He said that unless
otherwise indicated by arrow signs, the ICTSI used only two cable slings on each side of the
crate and would not place a sling cable in the mid-section.26 He declared that the crate fell
from the cranes because the wooden batten in the mid-portion was broken as it was being
lifted.27 He concluded that the loss/damage was caused by the failure of the shipper or its
packer to place wooden battens of strong materials under the flooring of the crate, and to
place a sign in its mid-term section where the sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to
the cargo could be attributed to insufficient packing and unbalanced weight distribution of the
cargo inside the crate as evidenced by the types and shapes of items found.28
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two
defendants are dismissed, with costs against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the
internal defect and weakness of the materials used in the fabrication of the crates. The middle
wooden batten had a hole (bukong-bukong). The trial court rejected the certification30 of the
shipper, stating that the shipment was properly packed and secured, as mere hearsay and
devoid of any evidentiary weight, the affiant not having testified.
Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19, 2004
affirming in toto the appealed decision, with this fallo
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February
17, 1997, is AFFIRMED.
SO ORDERED.32
The appellate court held, inter alia, that it was bound by the finding of facts of the RTC,
especially so where the evidence in support thereof is more than substantial. It ratiocinated

35

that the loss of the shipment was due to an excepted cause "[t]he character of the goods or
defects in the packing or in the containers" and the failure of the shipper to indicate signs to
notify the stevedores that extra care should be employed in handling the shipment.33 It blamed
the shipper for its failure to use materials of stronger quality to support the heavy machines
and to indicate an arrow in the middle portion of the cargo where additional slings should be
attached.34 The CA concluded that common carriers are not absolute insurers against all risks
in the transport of the goods.35
Hence, this petition by the PCIC, where it alleges that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING
THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY
THE SHIPMENT IN THE POSSESSION OF THE ARRASTRE OPERATOR.
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING
THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING
THAT THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE
PACKING AND NOT TO THE FAULT AND NEGLIGENCE OF THE RESPONDENTS.36
The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to
the carrier) in good order, and their arrival at the place of destination in bad order makes out
a prima facie case against it; in such case, it is liable for the loss or damage to the cargo
absent satisfactory explanation given by the carrier as to the exercise of extraordinary
diligence. The petitioner avers that the shipment was sufficiently packed in wooden boxes, as
shown by the fact that it was accepted on board the vessel and arrived in Manila safely. It
emphasizes that the respondents did not contest the contents of the bill of lading, and that the
respondents knew that the manner and condition of the packing of the cargo was normal and
barren of defects. It maintains that it behooved the respondent ICTSI to place three to four
cables or wire slings in equal settings, including the center portion of the crate to prevent
damage to the cargo:
[A] simple look at the manifesto of the cargo and the bill of lading would have alerted
respondents of the nature of the cargo consisting of thick and heavy machinery. Extra-care
should have been made and extended in the discharge of the subject shipment. Had the
respondent only bothered to check the list of its contents, they would have been nervous
enough to place additional slings and cables to support those massive machines, which were
composed almost entirely of thick steel, clearly intended for heavy industries. As indicated in
the list, the boxes contained one lat[h]e machine, one milling machine and one grinding
machine-all coming with complete parts and accessories. Yet, not one among the
respondents were cautious enough. Here lies the utter failure of the respondents to observed
extraordinary diligence in the handling of the cargo in their custody and possession, which the
Court of Appeals should have readily observed in its appreciation of the pertinent facts.37

36

The petitioner posits that the loss/damage was caused by the mishandling of the shipment by
therein respondent ICTSI, the arrastre operator, and not by its negligence.
The petitioner insists that the respondents did not observe extraordinary diligence in the care
of the goods. It argues that in the performance of its obligations, the respondent ICTSI should
observe the same degree of diligence as that required of a common carrier under the New
Civil Code of the Philippines. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,38 it
posits that respondents are liable in solidum to it, inasmuch as both are charged with the
obligation to deliver the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily
liable with it. It further avers that the "carrier cannot discharge directly to the consignee
because cargo discharging is the monopoly of the arrastre." Liability, therefore, falls solely
upon the shoulder of respondent ICTSI, inasmuch as the discharging of cargoes from the
vessel was its exclusive responsibility. Besides, the petitioner is raising questions of facts,
improper in a petition for review on certiorari.39
Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of
the Rules of Court. It claims that it is merely a depository and not a common carrier; hence, it
is not obliged to exercise extraordinary diligence. It reiterates that the loss/damage was
caused by the failure of the shipper or his packer to place a sign on the sides and middle
portion of the crate that extra care should be employed in handling the shipment, and that the
middle wooden batten on the flooring of the crate had a hole. The respondent asserts that the
testimony of Anthony Abarquez, who conducted his investigation at the site of the incident,
should prevail over that of Rolando Balatbat. As an alternative, it argues that if ever adjudged
liable, its liability is limited only to P3,500.00 as expressed in the liability clause of Gate Pass
CFS-BR-GP No. 319773.
The petition has no merit.
The well-entrenched rule in our jurisdiction is that only questions of law may be entertained by
this Court in a petition for review on certiorari. This rule, however, is not ironclad and admits
certain exceptions, such as when (1) the conclusion is grounded on speculations, surmises or
conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave
abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings
of fact are conflicting; (6) there is no citation of specific evidence on which the factual findings
are based; (7) the findings of absence of facts are contradicted by the presence of evidence
on record; (8) the findings of the Court of Appeals are contrary to those of the trial court; (9)
the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the Court of
Appeals are beyond the issues of the case; and (11) such findings are contrary to the
admissions of both parties.40
We have reviewed the records and find no justification to warrant the application of any
exception to the general rule.
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.41 The Court has defined extraordinary
diligence in the vigilance over the goods as follows:

37

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."42
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.43 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.44 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.45
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.46 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.47
"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.48 On the other hand, inferior
means of poor quality, mediocre, or second rate.49 A thing may be of inferior quality but not
necessarily defective. In other words, "defectiveness" is not synonymous with "inferiority."
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,

38

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. However, in the case of the
crate in dispute, although there were three wooden battens placed side by side on its flooring,
the middle wooden batten, which carried substantial volume of the weight of the crates
contents, had a knot hole or "bukong-bukong," which considerably affected, reduced and
weakened its strength. Because of the enormous weight of the machineries inside this crate,
the middle wooden batten gave way and collapsed. As the combined strength of the other two
wooden battens were not sufficient to hold and carry the load, they too simultaneously with
the middle wooden battens gave way and collapsed (TSN, Sept. 26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing
in the record which would indicate that defendant ICTSI had any role in the choice of the
materials used in fabricating this crate. Said defendant, therefore, cannot be held as blame
worthy for the loss of the machineries contained in Crate No. 1.50
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code,
particularly number (4) thereof, i.e., the character of the goods or defects in the packing or in
the containers. The trial court found that the breakage of the crate was not due to the fault or
negligence of ICTSI, but to the inherent defect and weakness of the materials used in the
fabrication of the said crate.
Upon examination of the records, We find no compelling reason to depart from the factual
findings of the trial court.
It appears that the wooden batten used as support for the flooring was not made of good
materials, which caused the middle portion thereof to give way when it was lifted. The shipper
also failed to indicate signs to notify the stevedores that extra care should be employed in
handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and
responsibilities:
"Q: With regard to crates, what do you do with the crates?
A: Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.
Q: When the crates have arrows drawn and where you placed the slings, what do you do with
these crates?
A: A sling is placed on it, Maam.
Q: After you placed the slings, what do you do with the crates?
A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

39

Q: Now, what, if any, were written or were marked on the crate?


A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.
Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Maam.
Q: How many arrows did you see?
A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?


A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?


A: Nothing more, Maam.
Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where there
are no arrows?
A: You can not place slings if there are no arrows, Maam."
Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea
without defect, the fault should be attributed to the arrastre operator who mishandled the
cargo, is without merit. The cargo fell while it was being carried only at about five (5) feet high
above the ground. It would not have so easily collapsed had the cargo been properly packed.
The shipper should have used materials of stronger quality to support the heavy machines.
Not only did the shipper fail to properly pack the cargo, it also failed to indicate an arrow in the
middle portion of the cargo where additional slings should be attached. At any rate, the issue
of negligence is factual in nature and in this regard, it is settled that factual findings of the
lower courts are entitled to great weight and respect on appeal, and, in fact, accorded finality
when supported by substantial evidence.51
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The
petitioner failed to rebut the testimony of Dauz, that the crates were sealed and that the
contents thereof could not be seen from the outside.52 While it is true that the crate contained
machineries and spare parts, it cannot thereby be concluded that the respondents knew or
should have known that the middle wooden batten had a hole, or that it was not strong
enough to bear the weight of the shipment.

40

There is no showing in the Bill of Lading that the shipment was in good order or condition
when the carrier received the cargo, or that the three wooden battens under the flooring of the
cargo were not defective or insufficient or inadequate. On the other hand, under Bill of Lading
No. NSGPBSML512565 issued by the respondent NSCP and accepted by the petitioner, the
latter represented and warranted that the goods were properly packed, and disclosed in
writing the "condition, nature, quality or characteristic that may cause damage, injury or
detriment to the goods." Absent any signs on the shipment requiring the placement of a sling
cable in the mid-portion of the crate, the respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good condition, is
sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that
such statement will create a prima faciepresumption only as to the external condition and not
to that not open to inspection.53
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
SO ORDERED.

41

LIABILITY OF COMMON CARRIER - FORTUITOUS EVENT WHEN APPLICABLE

LEA
MER
INDUSTRIES,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.

INC., Petitioners,

DECISION
PANGANIBAN, J.:
ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods
entrusted to them, as required by the nature of their business and for reasons of public policy.
Consequently, the law presumes that common carriers are at fault or negligent for any loss or
damage to the goods that they transport. In the present case, the evidence submitted by
petitioner to overcome this presumption was sorely insufficient.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October
9, 2002 Decision2and the December 29, 2003 Resolution3 of the Court of Appeals (CA) in
CA-GR CV No. 66028. The challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional
Trial
Court
of
Manila,
Branch
42
in
Civil
Case
No.
92-63159
is
hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent]
the value of the lost cargo in the amount of P565,000.00. Costs against the [herein
petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the
shipment of 900 metric tons of silica sand valued at P565,000.5 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.6 During the voyage, the vessel sank, resulting in the loss of the cargo.7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover
the amount paid and in the exercise of its right of subrogation, Malayan demanded
reimbursement from Lea Mer, which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for the
collection of P565,000 representing the amount that respondent had paid Vulcan.9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the
loss was a fortuitous event.10 The RTC noted that 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 from Palawan to Manila.11
Ruling of the Court of Appeals

42

Reversing the trial court, the CA 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.12
Hence, this recourse.13
The Issues

Petitioner states the issues in this wise:


"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been
presented as a witness of the said report during the trial of this case before the lower court
can be admitted in evidence to prove the alleged facts cited in the said report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the
finding of fact of the Regional Trial Court which clearly and unequivocally held that the loss of
the cargo subject of this case was caused by fortuitous event for which herein petitioner could
not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave
abuse of discretion in disregarding the testimony of the witness from the MARINA, Engr.
Jacinto Lazo y Villegal, to the effect that the vessel Judy VII was seaworthy at the time of
incident and further in disregarding the testimony of the PAG-ASA weather specialist, Ms.
Rosa Barba y Saliente, to the effect that typhoon Trining did not hit Metro Manila or
Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo,
and (2) whether the survey report of Jesus Cortez is admissible in evidence.
The Courts Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a
fortuitous event. This issue involves primarily a question of fact, notwithstanding petitioners
claim that it pertains only to a question of law. As a general rule, questions of fact may not be
raised in a petition for review.15 The present case serves as an exception to this rule, because
the factual findings of the appellate and the trial courts vary.16 This Court meticulously
reviewed the records, but found no reason to reverse the CA.
Rule on Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods, or both -- by land, water, or air -- when this

43

service is offered to the public for compensation.17 Petitioner is clearly a common carrier,
because it offers to the public its business of transporting goods through its vessels.18
Thus, the Court corrects the trial courts finding that petitioner became a private carrier when
Vulcan chartered it.19 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, 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."20
The distinction is significant, because a demise or bareboat charter indicates a business
undertaking that isprivate in character. 21 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.22
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.23 Necessarily, petitioner was a common carrier, and the pertinent law governs the present
factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the
goods and the safety of the passengers they transport, as required by the nature of their
business and for reasons of public policy.24Extraordinary diligence requires rendering service
with the greatest skill and foresight to avoid damage and destruction to the goods entrusted
for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for loss or
damage to the goods that they have transported.26 This presumption can be rebutted only by
proof that they observed extraordinary diligence, or that the loss or damage was occasioned
by any of the following causes:27
"(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."28
Rule on Fortuitous Events

44

Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous
event which could not be foreseen, or which, though foreseen, was inevitable." Thus, if the
loss or damage was due to such an event, a common carrier is exempted from liability.
Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid;
(c) the occurrence must have been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner; and (d) the obligor must have been free from any participation
in the aggravation of the resulting injury to the creditor.29
To excuse the common carrier fully of any liability, the fortuitous event must have been the
proximate and only cause of the loss.30 Moreover, it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. 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 -- an exempting
circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that
the loss of the cargo was due to the bad weather condition brought about by Typhoon
Trining.32 Evidence was presented to show that petitioner had not been informed of the
incoming typhoon, and that the Philippine Coast Guard had given it clearance to begin the
voyage.33 On October 25, 1991, the date on which the voyage commenced and the barge
sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was only
"Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was sorely
insufficient. As required by the pertinent law, it was not enough for the common carrier 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.35 Its witness, Joey A. Draper, testified that
he could no longer remember whether anything had been done to minimize loss when water
started entering the barge.36 This fact was confirmed during his cross-examination, as shown
by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]
exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy
VII?
xxxxxxxxx
Atty. Baldovino, Jr.:

45

Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat
Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy
VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
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.38 Respondent was able to prove that, in the hull of the barge, there were holes that
might have caused or aggravated the sinking.39 Because the presumption of negligence or
fault applied to petitioner, it was incumbent upon it to show that there were no holes; or, if
there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A.
Luna, testified that the barge was in "tip-top" or excellent condition,40 but that he had not
personally inspected it when it left Palawan.41
The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated
July 31, 1991, did not conclusively prove that the barge was seaworthy.42 The regularity of the
issuance of the Certificate is disputably presumed.43 It could be contradicted by competent
evidence, which respondent offered. Moreover, this evidence did not necessarily take into
account
the
actual
condition
of
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor,
should not have been admitted in evidence. The Court partly agrees. Because he did not
testify during the trial,46 then the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortezs Survey Report was used in the testimonies of respondents
witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the
vice-president of Toplis and Harding Company.47 Soriano testified that the Survey Report had
been used in preparing the final Adjustment Report conducted by their company.48 The final
Report showed that the barge was not seaworthy because of the existence of the holes.
Manlapig testified that he had prepared that Report after taking into account the findings of
the surveyor, as well as the pictures and the sketches of the place where the sinking

46

occurred.49 Evidently, the existence of the holes was proved by the testimonies of the
witnesses, not merely by Cortez Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,50 and that their testimonies
must be confined to personal knowledge is required by the rules on evidence, from which we
quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. A
witness can testify only to those facts which he knows of his personal knowledge; that is,
which are derived from his own perception, except as otherwise provided in these rules."51
On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which
respondent had offered as evidence.52 Well-settled is the rule that, unless the affiant is
presented as a witness, an affidavit is considered hearsay.53
An exception to the foregoing rule is that on "independently relevant statements." A report
made by a person is admissible if it is intended to prove the tenor, not the truth, of the
statements.54 Independent of the truth or the falsity of the statement given in the report, the
fact that it has been made is relevant. Here, the hearsay rule does not apply.55
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as
part of the testimonies of respondents witnesses. The referral to Cortezs Report was in
relation to Manlapigs final Adjustment Report. Evidently, it was the existence of the Survey
Report that was testified to. The admissibility of that Report as part of the testimonies of the
witnesses was correctly ruled upon by the trial court.
At any rate, even without the Survey Report, petitioner has already failed to overcome the
presumption of fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.
SO ORDERED.

47

G.R. No. 150403

January 25, 2007

CEBU SALVAGE CORPORATION, Petitioner,


vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not
own?
This is the issue presented for the Courts resolution in this petition for review on
certiorari1 assailing the March 16, 2001 decision2 and September 17, 2001 resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 40473 which in turn affirmed the December 27,
1989 decision4 of the Regional Trial Court (RTC), Branch 145, Makati, Metro Manila.5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter6 wherein
petitioner was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu
Santo7 at Ayungon, Negros Occidental for transport to and discharge at Tagoloan, Misamis
Oriental to consignee Ferrochrome Phils., Inc.8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric
tons of silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next
day.9 The shipment never reached its destination, however, because the M/T Espiritu Santo
sank in the afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting
in the total loss of the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was
subrogated to the rights of MCCII.12 Thereafter, it filed a case in the RTC13 against petitioner
for reimbursement of the amount it paid MCCII.
After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and
costs of suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of
affreightment wherein the ship was leased for a single voyage for the conveyance of goods, in
consideration of the payment of freight.14 Under a voyage charter, the shipowner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of freight.15 An owner who retains
possession of the ship remains liable as carrier and must answer for loss or non-delivery of
the goods received for transportation.16

48

Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage.17 It insists that the agreement was merely
a contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises
(ALS).18 Not being the owner of the M/T Espiritu Santo, petitioner did not have control and
supervision over the vessel, its master and crew.19 Thus, it could not be held liable for the loss
of the shipment caused by the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of 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.20
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo,
it was engaged in the business of carrying and transporting goods by water, for compensation,
and offered its services to the public.21
From the nature of their business and for reasons of public policy, common carriers are bound
to observe extraordinary diligence over the goods they transport according to the
circumstances of each case.22 In the event of loss of the goods, common carriers are
responsible, unless they can prove that this was brought about by the causes specified in
Article 1734 of the Civil Code.23 In all other cases, common carriers are presumed to be at
fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had
control over what vessel it would use. All throughout its dealings with MCCII, it represented
itself as a common carrier. The fact that it did not own the vessel it decided to use to
consummate the contract of carriage did not negate its character and duties as a common
carrier. The MCCII (respondents subrogor) could not be reasonably expected to inquire about
the ownership of the vessels which petitioner carrier offered to utilize. As a practical matter, it
is very difficult and often impossible for the general public to enforce its rights of action under
a contract of carriage if it should be required to know who the actual owner of the vessel
is.25 In fact, in this case, the voyage charter itself denominated petitioner as the
"owner/operator" of the vessel.26
Petitioner next contends that if there was a contract of carriage, then it was between MCCII
and ALS as evidenced by the bill of lading ALS issued.27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had
been received for transportation. It was not signed by MCCII, as in fact it was simply signed
by the supercargo of ALS.28 This is consistent with the fact that MCCII did not contract directly
with ALS. While it is true that a bill of lading may serve as the contract of carriage between the
parties,29 it cannot prevail over the express provision of the voyage charter that MCCII and
petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard
a vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill

49

of lading operates as the receipt for the goods, and as document of title passing the property
of the goods, but not as varying the contract between the charterer and the shipowner." The
Bill of Lading becomes, therefore, only a receipt and not the contract of carriage in a charter of
the entire vessel, for the contract is the Charter Party, and is the law between the parties who
are bound by its terms and condition provided that these are not contrary to law, morals, good
customs, public order and public policy. 30
Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage
charter stipulated that cargo insurance was for the charterers account.31 This deserves scant
consideration. This simply meant that the charterer would take care of having the goods
insured. It could not exculpate the carrier from liability for the breach of its contract of carriage.
The law, in fact, prohibits it and condemns it as unjust and contrary to public policy.32
To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on
board the vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove
that it exercised extraordinary diligence to prevent such loss or that it was due to some
casualty or force majeure. The voyage charter here being a contract of affreightment, the
carrier was answerable for the loss of the goods received for transportation.33
The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a
carrier that enters into a contract of carriage is not liable to the charterer or shipper if it does
not own the vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists
that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by the expedient of
alleging non-ownership of the vessel it employed) would radically derogate from the carrier's
duty of extraordinary diligence. It would also open the door to collusion between the carrier
and the supposed owner and to the possible shifting of liability from the carrier to one without
any financial capability to answer for the resulting damages.34
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.

50

Sps. Cruz filed a complaint for damages against Sun Holidays arising from their sonss death who perished with his wife on board the boat M/B Coco Beach III that
capsized en route to Batangas from Puerto Galera where the coupled had stayed at Coco Beach Island Resort owned by Sun, by virtue of a tour package-contract
with the latter. Eight passengers, including petitioners son and his wife, died during the incident. Sun denied responsibility claiming fortuitous event. Petitioners allege
that as a common carrier, Sun was negligent in allowing the boat to sail notwithstanding storm warning bulletins issued by PAGASA. 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

G.R. No. 186312

June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,


vs.
SUN HOLIDAYS, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco
Beach Island Resort (Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to and
from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for another
night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.
The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died during the incident.

51

At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the
death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of 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) as early as 5:00 a.m. of
September 11, 2000.6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm on September 11, 2000 as
the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity
and had sufficient life jackets for its passengers. By way of Counterclaim, respondent alleged
that it is entitled to an award for attorneys fees and litigation expenses amounting to not less
than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is
clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resorts assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.
By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of

52

its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove
that it is a common carrier; that the Resorts ferry services for guests cannot be considered as
ancillary to its business as no income is derived therefrom; that it exercised extraordinary
diligence as shown by the conditions it had imposed before allowing M/B Coco Beach III to
sail; that the incident was caused by a fortuitous event without any contributory negligence on
its part; and that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as
a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide
neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth
in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger,
or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other similar
public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry

53

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.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods is
the carriers principal business, whether it is offered on a regular basis, or whether it is offered
to the general public. The intent of the law is thus to not consider such distinctions. Otherwise,
there is no telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the legal
obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case.19 They are bound to
carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed
that the common carrier is at fault or negligent. In fact, there is even no need for the court to
make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions
of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents
position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical depressions
in Northern Luzon which would also affect the province of Mindoro.22 By the testimony of Dr.
Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected under such
weather condition.23
A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of common
carriers demands that they take care of the goods or lives entrusted to their hands as if they
were their own. This respondent failed to do.
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 caso fortuito must have been

54

impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of
the resulting injury to the creditor.24
To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous event.25
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows that
M/B Coco Beach III suffered engine trouble before it capsized and sank.26 The incident was,
therefore, not completely free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of
its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.32 The loss is not equivalent to the entire
earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja34teaches that when, as in this case, there is no showing that the living
expenses constituted the smaller percentage of the gross income, the living expenses are
fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

55

2/3 x [80 - age of deceased at the time of death]


Life expectancy = 2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange rate
of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net earning capacity is thus computed
as follows:

Net Earning
Capacity

= life expectancy x (gross annual income - reasonable and necessary


living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning
Capacity

= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as
moral damages andP100,000 as exemplary damages.38
1a vvp hi 1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or

56

damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the rate
of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners
the following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as
indemnity for Ruelitos loss of earning capacity; (3) P100,000 as moral damages;
(4) P100,000 as exemplary damages; (5) 10% of the total amount adjudged against
respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per
annum computed from the finality of this decision until full payment.
SO ORDERED.

57

G.R. No. 101503 September 15, 1993


PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?

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


(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which
the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by
private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to
Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1
signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter 2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party
starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4
to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of May
1974, respectively.

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

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


Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned
and dried at the vessel's expense and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision
of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3)
layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed
throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into
its steelbodied dump trucks which were parked alongside the berth, using metal scoops
attached to the ship, pursuant to the terms and conditions of the charter-partly (which

58

provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of the
discharge. 7

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

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

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that portion
said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an
action for damages with the Court of First Instance of Manila. The defendant carrier argued that
the strict public policy governing common carriers does not apply to them because they have
become private carriers by reason of the provisions of the charter-party. The court a quo however
sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed negligent in
case of loss or damage of the goods it contracts to transport, all that a shipper has to do in a
suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery
by it of less than what it received. After that, the burden of proving that the loss or damage
was due to any of the causes which exempt him from liability is shipted to the carrier, common
or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid,
and the defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or negligence
on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the
cargo. This they failed to do. By this omission, coupled with their failure to destroy the
presumption of negligence against them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier
from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case

59

of Home Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the
cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a
common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on
common carriers which set forth a presumption of negligence do not find application in the case at
bar. Thus

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


adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its
complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil.
202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause
of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish defendant's negligence. Be that as it
may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its
obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court
of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the vessel seaworthy in all respects, and
not whether the presumption of negligence provided under the Civil Code applies only to
common carriers and not to private carriers. 19 Petitioner further argues that since the
possession and control of the vessel remain with the shipowner, absent any stipulation to the
contrary, such shipowner should made liable for the negligence of the captain and crew. In fine,
PPI faults the appellate court in not applying the presumption of negligence against respondent
carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on
the part of the carrier, when he was not even at hand to witness what transpired during the entire
voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant case
was able to prove that he had exercised that degree of diligence required of him under the
law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a
merchant or other person for the conveyance of goods, on a particular voyage, in consideration of
the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment which
involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry
goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole
vessel is let to the charterer with a transfer to him of its entire command and possession and
consequent control over its navigation, including the master and the crew, who are his servants.
Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer

60

for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In
both cases, the charter-party provides for the hire of vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance of the ship.

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

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

It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct supervision
and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship,
with the duty of caring for his cargo when the charterer did not have any control of the means
in doing so. This is evident in the present case considering that the steering of the ship, the
manning of the decks, the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers and crew who were
screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole or portion of a vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation of
passengers and /or carriage of goods by sea requires a more exacting interpretation of admiralty
laws, more particularly, the rules governing common carriers.

61

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is
used to convey the goods of one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master and
the crew are in each case his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or collusion occur; and the
same difficulty in discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or
damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the cargo
was due to fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April
1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo,
Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were
cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's
holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel
covers made it impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing
the possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores,
and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the
hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates
who were overseeing the whole operation on rotation basis. 34

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

62

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

Article 1734 of the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of the goods or
defects in the packaging or in the containers. The Code of Commerce also provides that all
losses and deterioration which the goods may suffer during the transportation by reason of
fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account
and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The
carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes if
it is proved, as against him, that they arose through his negligence or by reason of his having failed
to take the precautions which usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting
mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also
contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and
ammonia do not normally evaporate even on a long voyage, provided that the temperature
inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added
that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during
such operation amounting to one percent (1%) against the bill of lading is deemed "normal" or
"tolerable." The primary cause of these spillages is the clamped shell which does not seal
very tightly. Also, the wind tends to blow away some of the materials during the unloading
process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an
extremely high temperature in its place of storage, or when it comes in contact with water.
When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the
salvaged portion which is in liquid form still remains potent and usable although no longer
saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various pieces
of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to
seep into the vessel's holds during the voyage since the hull of the vessel was in good
condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum"
in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being
transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised

63

the unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained in their
report to PPI was just an approximation or estimate made by them after the fertilizer was
discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded
her cargo. It rained from time to time at the harbor area while the cargo was being discharged
according to the supply officer of PPI, who also testified that it was windy at the waterfront and
along the shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather condition
prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner
of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss. On the other hand, no proof
was adduced by the petitioner showing that the carrier was remise in the exercise of due
diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals,
which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then
Court of the First Instance, now Regional Trial Court, of Manila should be, as it is
hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

64

G.R. No. 114167 July 12, 1995


COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents.
RESOLUTION

FRANCISCO, R., J.:


This is a petition for review of a Decision rendered by the Court of Appeals, dated December
17, 1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros
to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise
owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9",
struck an unknown sunken object. The forward buoyancy compartment was damaged, and
water gushed in through a hole "two inches wide and twenty-two inches long" 1 As a
consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the use it
was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of
molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its
lost cargo, herein private respondent, Philippine General Insurance Company (PhilGen, for short)
and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied the
claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial
Court of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales,
Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights
and claims which the consignee may have against the carrier, which is presumed to have
violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to
the Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment
which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a private
carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of

65

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

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions
of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel, rather
than a demise. As such, the liability of the shipowner for acts or negligence of its captain and
crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract
of affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of
Appeals, 4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded
as the owner for the voyage or service stipulated. The charterer mans the vessel with his own
people and becomes the owner pro hac vice, subject to liability to others for damages caused
by negligence. To create a demise, the owner of a vessel must completely and exclusively
relinquish possession, command and navigation thereof to the charterer, anything short of
such a complete transfer is a contract of affreightment (time or voyage charter party) or not a
charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care,
loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment on account of the aforementioned
distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of
affreightment. 5 We agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to
carry cargo from one point to another, but the possession, command and navigation of the vessels
remained with petitioner Coastwise Lighterage.

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

66

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

However, petitioner's assertion is belied by the evidence on record where it appeared that far
from having rendered service with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not
licensed. The Code of Commerce, which subsidiarily governs common carriers (which are
primarily governed by the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to
contract in accordance with this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established by marine and navigation laws,
ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron
violates this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a
person whose navigational skills are questionable, at the helm of the vessel which eventually
met the fateful accident. It may also logically, follow that a person without license to navigate,
lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes
taken by seasoned and legally authorized ones. Had the patron been licensed, he could be
presumed to have both the skill and the knowledge that would have prevented the vessel's
hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported,
by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once
more rule against the petitioner. We have already found petitioner liable for breach of the
contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage
sustained by the loss of the cargo which petitioner-carrier was transporting, it was not the
carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein
private respondent PhilGen.

67

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


Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a
long line of cases including Compania Maritima v. Insurance Company of North
America; 7 Fireman's Fund Insurance Company v. Jamilla & Company, Inc., 8 and Pan Malayan
Insurance Corporation v. Court of Appeals, 9 wherein this Court explained:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured will be subrogated to the rights of
the assured to recover from the wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operated as an equitable assignment to the
former of all remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to
Pag-asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being
transported by petitioner Coastwise Lighterage, the former was subrogated into all the rights
which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner Coastwise
Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision
affirming the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise
Lighterage to pay respondent Philippine General Insurance Company the "principal amount of
P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989, the date
the complaint was filed until fully paid and another sum of P100,000.00 as attorney's fees and
costs" 10 is likewise hereby AFFIRMED
SO ORDERED.

68

G.R. No. 102316 June 30, 1997


VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING
CORPORATION, respondents.

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

WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co.,
Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing the value
of the policy of the lost logs with legal interest thereon from the date of demand on February 2,
1984 until the amount is fully paid or in the alternative, defendant Seven Brothers Shipping
Corporation to pay plaintiff the amount of TWO MILLION PESOS (2,000,000.00) representing
the value of lost logs plus legal interest from the date of demand on April 24, 1984 until full
payment thereof; the reasonable attorney's fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of
TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance of
the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the
liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned which is
hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as
follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.)
entered into an agreement with the defendant Seven Brothers (Shipping Corporation)
whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former's
lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.

69

On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant
South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine
Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance
policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting
in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and
documentary stamps due on the policy was tendered due to the insurer but was not accepted.
Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued
as of the date of the inception for non-payment of the premium due in accordance with
Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co.,
Inc. the payment of the proceeds of the policy but the latter denied liability under the policy.
Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for
the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against
defendants. Both defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the
following assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel
Seven Ambassadors, was not due to fortuitous event but to the negligence of the captain in
stowing and securing the logs on board, causing the iron chains to snap and the logs to roll to
the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers
Shipping Corporation from logs (sic) of the cargo stipulated in the charter party is void for
being contrary to public policy invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation
liable in the alternative and ordering/directing it to pay plaintiff-appellee the amount of two
million (2,000,000.00) pesos representing the value of the logs plus legal interest from date of
demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorney's fees in the amount equivalent to 5% of the
amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its
counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping
Corporation.

70

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant
South Sea Surety and Insurance Company, Inc. and likewise erred in not holding that he was
the representative of the insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on
the premiums paid on the policies issued by the defendant-appellant South Sea Surety and
Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to and
forming part of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of
premium and documentary stamps to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy due to
non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance
Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy with
legal interest from 2 February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's fees alleged
and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and
the surety company are liable to the plaintiff for the latter's lost logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South
Sea Surety and Insurance Company ("South Sea"), but modified it by holding that Seven
Brothers Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In
modifying the RTC judgment, the respondent appellate court ratiocinated thus:

It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers should
not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the negligence of
its agent is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23
SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. 6

71

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

The Court is now called upon to resolve the petition for review filed by Valenzuela assailing
the CA Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in
the charter party executed between the petitioner and the private respondent exempting the
latter from liability for the loss of petitioner's logs arising from the negligence of its (Seven
Brothers') captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, short-landing, breakages and any kind of damages to
the cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the
"snapping of the iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a
private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter
admits this in its petition. 12

The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the
goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;

72

(4) That the common carrier shall exercise a degree of diligence less than that of a good
father of a family, or of a man of ordinary prudence in the vigilance over the movables
transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its
employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of
goods on account of the defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and
587 of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article
1306 and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said
stipulation "gives no duty or obligation to the private respondent to observe the diligence of a good
father of a family in the custody and transportation of the cargo."

The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent
had acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and
other Civil Code provisions on common carriers which were cited by petitioner may not be
applied unless expressly stipulated by the parties in their charter party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for the
cargo rests solely on the charterer, exempting the shipowner from liability for loss of or
damage to the cargo caused even by the negligence of the ship captain. Pursuant to Article
1306 17 of the Civil Code, such stipulation is valid because it is freely entered into by the parties
and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed,
their contract of private carriage is not even a contract of adhesion. We stress that in a contract of
private carriage, the parties may freely stipulate their duties and obligations which perforce would
be binding on them. Unlike in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial goods
as a private carrier. Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by law in contracts
involving common carriers.

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

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

73

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not
be applied where the carrier is not acting as such but as a private carrier. The stipulation in
the charter party absolving the owner from liability for loss due to the negligence of its agent
would be void if the strict public policy governing common carriers is applied. Such policy has
no force where the public at large is not involved, as in this case of a ship totally chartered for
the used of a single party. 19(Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants
to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law
on common carriers extends its protective mantle against one-sided stipulations inserted in
tickets, invoices or other documents over which the riding public has no understanding or,
worse, no choice. Compared to the general public, a charterer in a contract of private carriage
is not similarly situated. It can and in fact it usually does enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the price or
consideration of the charter. Thus, a charterer, in exchange for convenience and economy,
may opt to set aside the protection of the law on common carriers. When the charterer
decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case
because it "covers only a stipulation exempting a private carrier from liability for the
negligence of his agent, but it does not apply to a stipulation exempting a private carrier like
private respondent from the negligence of his employee or servant which is the situation in
this case." 20 This contention of petitioner is bereft of merit, for it raises a distinction without any
substantive difference. The case Home Insurance specifically dealt with "the liability of the
shipowner for acts or negligence of its captain and crew" 21 and a charter party stipulation which
"exempts the owner of the vessel from any loss or damage or delay arising from any other source,
even from the neglect or fault of the captain or crew or some other person employed by the owner
on
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.

The naked assertion of petitioner that the American rule enunciated in Home Insurance is not
the rule in the Philippines 23 deserves scant consideration. The Court there categorically held that
said rule was "reasonable" and proceeded to apply it in the resolution of that case. Petitioner
miserably failed to show such circumstances or arguments which would necessitate a departure
from a well-settled rule. Consequently, our ruling in said case remains a binding judicial precedent
based on the doctrine of stare decisis and Article 8 of the Civil Code which provides that "(j)udicial
decisions applying or interpreting the laws or the Constitution shall form part of the legal system of
the Philippines."

In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is valid." 24
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all
concerned.
Articles 586 and 587, Code of Commerce

74

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

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

Articles 1170 and 1173, Civil Code


Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an
obligor in respect of the cargo, for this obligation to bear the loss was shifted to petitioner by
virtue of the charter party. This shifting of responsibility, as earlier observed, is not void. The
provisions cited by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second
paragraph of Article 1173 of the Civil Code which prescribes the standard of diligence to be
observed in the event the law or the contract is silent. In the instant case, Article 362 of the
Code of Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a
carrier. The standard of diligence under this statutory provision may, however, be modified in a
contract of private carriage as the petitioner and private respondent had done in their charter party.

Cases Cited by Petitioner Inapplicable


Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated
there vis-a-vis contractual stipulations limiting the carrier's liability be applied "with equal force" to
this case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends that

75

stipulations exempting a party from liability for damages due to negligence "should not be
countenanced" and should be "strictly construed" against the party claiming its benefit. 33 We
disagree.

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

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

Effect of the South Sea Resolution


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

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency form the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to
show any reversible error on the part of Respondent Court. The assailed Decision is
AFFIRMED.
SO ORDERED.

76

G.R. No. 131166 September 30, 1999


CALTEX
(PHILIPPINES),
INC., petitioner,
vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO,
VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S.
GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAEZAL, AND SOTERA E. CAEZAL, respondents.

PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Doa Paz, killing almost all the passengers and crew members of both
ships, and thus resulting in one of the country's worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly
liable with the operator of MT Vector for damages when the latter collided with Sulpicio Lines,
Inc.'s passenger ship MV Doa Paz.

The facts are as follows:


On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex. 2 MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene,
diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and
other oil products owned by Caltex by virtue of a charter contract between
them. 3

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and
his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The
MV Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying
the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips
twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the
vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of
MV Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at
the time of the incident.
1 wph i1 .n t

The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
waters by vessels that responded to distress calls. 5 Among those who perished were public
school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years
old), both unmanifested passengers but proved to be on board the vessel.

77

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual
operator Vector Shipping Corporation, were at fault and responsible for its collision with MV
Doa Paz. 6
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezal's wife
and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
"Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doa Paz in the open sea setting MT Vector's highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing, the third party complaint
against petitioner. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal,
including loss of future earnings of said Sebastian, moral and exemplary damages, attorney's
fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with
costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge 7
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the
Court of Appeal modified the trial court's ruling and included petitioner Caltex as one of the
those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court
is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E.
Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E. Caezal and Corazon Caezal the
total amount of ONE HUNDRED THOUSAND PESOS (P100,000);

78

2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the


total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY
(P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P300,000.00);
4. Attorney's fees in the concept of actual damages in the amount of FIFTY THOUSAND
PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the
above-mentioned damages, attorney's fees and costs which the latter is adjudged to pay
plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault for the
collision) and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused
the shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter party or similar contract on the
other. 9
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter. 10
A charter party is a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; a contract of affreightment is one by
which the owner of a ship or other vessel lets the whole or part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment
of freight. 11

79

A contract of affreightment may be either time charter, wherein the leased vessel is leased to
the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a
single voyage. In both cases, the charter-party provides for the hire of the vessel only, either
for a determinate period of time or for a single or consecutive voyage, the ship owner to
supply the ship's store, pay for the wages of the master of the crew, and defray the expenses
for the maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his
own people and becomes, in effect, the owner for the voyage or service stipulated, subject to
liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of
the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the
owner. The charterer is free from liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private one?
We need to answer this question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel as
a common carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole portion of a vessel of one or more persons, provided the charter is limited to the
ship only, as in the case of a time-charter or the voyage charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment . . .
A common carrier is a person or corporation whose regular business is to carry passengers or
property for all persons who may choose to employ and to remunerate him. 16 MT Vector fits
the definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of
Appeals, 17 we ruled:

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


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

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The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such services on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such backhauling was done on a periodic, occasional rather than regular or
scheduled manner, and even though respondent's principal occupation was not the carriage
of goods for others. There is no dispute that private respondent charged his customers a fee
for hauling their goods; that the fee frequently fell below commercial freight rates is not
relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise
due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel
to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and safety of the passengers,
especially because with the modern development of science and invention, transportation has
become more rapid, more complicated and somehow more hazardous. 19 For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its
crew, the carrier being obliged by law to impliedly warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:

81

1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license
renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.
Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these
deficiencies.
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate
only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the
Civil Code, which provide:
Art. 20. Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may
be the failure to observe that degree of care, precaution, and vigilance, which the circumstances

82

justly demand, or the omission to do something which ordinarily regulate the conduct of human
affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in "public service." 22 The Civil Code demands diligence which
is required by the nature of the obligation and that which corresponds with the circumstances of
the persons, the time and the place. Hence, considering the nature of the obligation between
Caltex and MT Vector, liability as found by the Court of Appeals is without basis.
1 wp hi1 .n t

The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers,
are not expected to inquire into the vessel's seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers and hold them liable in case of
failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in
general is concerned. By the same token, we cannot expect passengers to inquire every time they
board a common carrier, whether the carrier possesses the necessary papers or that all the
carrier's employees are qualified. Such a practice would be an absurdity in a business where time
is always of the essence. Considering the nature of transportation business, passengers and
shippers alike customarily presume that common carriers possess all the legal requisites in its
operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper
in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries
here under "VESSEL'S DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7,
1987", Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the
Certificate of Inspection No. 1290-85 during the hiring of MT Vector?
Apolinario Ng: At the time when I extended the Contract, I did nothing because the tanker has
a valid C.I. which will expire on December 7, 1987 but on the last week of November, I called
the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured
me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they
were going to send me a copy as soon as possible, sir. 24
xxx xxx xxx

Q: What did you do with the C.I.?


A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of
our long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail
indicates that the documents are in order. . . . 25

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On cross examination
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of
Inspection has expired on December 7. Did it occur to you not to let the vessel sail on that day
because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they
were able to secure a renewal of the Certificate of Inspection and that they will in time submit
us
a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of
Inspection in the coastwise license on December 7, 1987. What was your assurance for the
record that this document was renewed by the MT Vector?
Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly,
those three years; they were allowed to sail by the Coast Guard. That are some that make me
believe that they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed,
referring to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by
the Coast Guard, it means that it has Certificate of Inspection extended as assured to this
witness by Restituto Abalos. That in no case MV Vector will be allowed to sail if the Certificate
of inspection is, indeed, not to be extended. That was his repeated explanation to the
cross-examination. So, there is no need to clarify the same in the re-direct examination. 27
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit
our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling
insofar as Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,

84

Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys' fees and
costs the latter is adjudged to pay plaintiffs-appellees in the case.
1 wph i1 .n t

No costs in this instance.


SO ORDERED.

85

G.R. No. 143133

June 5, 2002

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES


TRANSPORT SERVICES, INC., petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes prima facie fault or negligence on the part of the carrier. If
no adequate explanation is given as to how the loss, the destruction or the deterioration of the
goods happened, the carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15,
1998 Decision1 and the May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV
No. 53571. The decretal portion of the Decision reads as follows:
"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally
pay plaintiffs-appellants the following:
'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as
actual damages, representing the value of the damaged cargo, plus interest at the legal rate
from the time of filing of the complaint on July 25, 1991, until fully paid;
'2) Attorney's fees amounting to 20% of the claim; and
'3) Costs of suit.'"4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134),
which had disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the
complaint, as well as defendant's counterclaim."5
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg,
Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila
consigned to the Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky
arrived at the port of Manila and, within the subsequent days, discharged the subject cargo.
Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4)
coils in their damaged state to be unfit for the intended purpose, the consignee Philippine
Steel Trading Corporation declared the same as total loss.
1 wph i1 .n t

86

"Despite receipt of a formal demand, defendants-appellees refused to submit to the


consignee's claim. Consequently, plaintiff-appellant paid the consignee five hundred six
thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the latter's rights
and causes of action against defendants-appellees. Subsequently, plaintiff-appellant
instituted this complaint for recovery of the amount paid by them, to the consignee as insured.
"Impugning the propriety of the suit against them, defendants-appellees imputed that the
damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of
the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing thereof,
or to the act or omission of the shipper of the goods or their representatives. In addition
thereto, defendants-appellees argued that their liability, if there be any, should not exceed the
limitations of liability provided for in the bill of lading and other pertinent laws. Finally,
defendants-appellees averred that, in any event, they exercised due diligence and foresight
required by law to prevent any damage/loss to said shipment."6
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the
quantum of proof required by law.7
It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly
frivolous or primarily intended to harass them.8
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage
of the goods shipped, because they had failed to overcome the presumption of negligence
imposed on common carriers.
The CA further held as inadequately proven petitioners' claim that the loss or the deterioration
of the goods was due to pre-shipment damage.9 It likewise opined that the notation "metal
envelopes rust stained and slightly dented" placed on the Bill of Lading had not been the
proximate cause of the damage to the four (4) coils.10
As to the extent of petitioners' liability, the CA held that the package limitation under COGSA
was not applicable, because the words "L/C No. 90/02447" indicated that a higher valuation of
the cargo had been declared by the shipper. The CA, however, affirmed the award of
attorney's fees.
Hence, this Petition.11
Issues
In their Memorandum, petitioners raise the following issues for the Court's consideration:
I
"Whether or not plaintiff by presenting only one witness who has never seen the subject
shipment and whose testimony is purely hearsay is sufficient to pave the way for the
applicability of Article 1735 of the Civil Code;

87

II
"Whether or not the consignee/plaintiff filed the required notice of loss within the time required
by law;
III
"Whether or not a notation in the bill of lading at the time of loading is sufficient to show
pre-shipment damage and to exempt herein defendants from liability;
IV
"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is
applicable to the case at bar."12
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be
applied on the basis of the lone testimony offered by private respondent. The contention is
untenable.
Well-settled is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence and vigilance with
respect to the safety of the goods and the passengers they transport.13 Thus, common
carriers are required to render service with the greatest skill and foresight and "to use all
reason[a]ble means to ascertain the nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires."14 The extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for transportation by the carrier until
they are delivered, actually or constructively, to the consignee or to the person who has a right
to receive them.15
This strict requirement is justified by the fact that, without a hand or a voice in the preparation
of such contract, the riding public enters into a contract of transportation with common
carriers.16 Even if it wants to, it cannot submit its own stipulations for their approval.17 Hence, it
merely adheres to the agreement prepared by them.

88

Owing to this high degree of diligence required of them, 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.18 That is, unless they prove that they exercised extraordinary diligence
in transporting the goods.19 In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such diligence.20
However, the presumption of fault or negligence will not arise21 if the loss is due to any of the
following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) an act of the public enemy in war, whether international or civil; (3) an act or omission of
the shipper or owner of the goods; (4) the character of the goods or defects in the packing or
the container; or (5) an order or act of competent public authority.22 This is a closed list. If the
cause of destruction, loss or deterioration is other than the enumerated circumstances, then
the carrier is liable therefor.23
Corollary to the foregoing, 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, the loss or the destruction of the goods happened, the transporter shall be held
responsible.24
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the
case at bar by a review of the records and more so by the evidence adduced by respondent.25
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order
and condition in Hamburg, Germany.26
Second, prior to the unloading of the cargo, an Inspection Report27 prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes
rust-stained and heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services, Inc.,
stated that the four coils were in bad order and condition. Normally, a request for a bad order
survey is made in case there is an apparent or a presumed loss or damage.29
Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested,
the steel sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and
dated October 12, 1990 -- admitted that they were aware of the condition of the four coils
found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers
Agency. Pertinent portions of his testimony are reproduce hereunder:
"Q.
Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the
Honorable Court with what company you are connected?
A.

BM Santos Checkers Agency, sir.

Q.
How is BM Santos checkers Agency related or connected with defendant Jardine
Davies Transport Services?

89

A.

It is the company who contracts the checkers, sir.

Q.
You mentioned that you are a Head Checker, will you inform this Honorable Court your
duties and responsibilities?
A.
I am the representative of BM Santos on board the vessel, sir, to supervise the
discharge of cargoes.
xxx

xxx

xxx

Q.
On or about August 1, 1990, were you still connected or employed with BM Santos as
a Head Checker?
A.

Yes, sir.

Q.
And, on or about that date, do you recall having attended the discharging and
inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY?
A.

Yes, sir, I was there.


xxx

xxx

xxx

Q.
Based on your inspection since you were also present at that time, will you inform this
Honorable Court the condition or the appearance of the bad order cargoes that were
unloaded from the MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel
sheets and the best evidence is the document itself, Your Honor that shows the condition of
the steel sheets.
COURT:
Let the witness answer.
A.
The scrap of the cargoes is broken already and the rope is loosen and the cargoes are
dent on the sides."32
All these conclusively prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner,33 who notably failed
to explain why.34
Further, petitioners failed to prove that they observed the extraordinary diligence and
precaution which the law requires a common carrier to know and to follow to avoid damage to
or destruction of the goods entrusted to it for safe carriage and delivery.35
True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of
Lading; however, there is no showing that petitioners exercised due diligence to forestall or
lessen the loss.36 Having been in the service for several years, the master of the vessel

90

should have known at the outset that metal envelopes in the said state would eventually
deteriorate when not properly stored while in transit.37 Equipped with the proper knowledge of
the nature of steel sheets in coils and of the proper way of transporting them, the master of
the vessel and his crew should have undertaken precautionary measures to avoid possible
deterioration of the cargo. But none of these measures was taken.38 Having failed to
discharge the burden of proving that they have exercised the extraordinary diligence required
by law, petitioners cannot escape liability for the damage to the four coils.39
In their attempt to escape liability, petitioners further contend that they are exempted from
liability under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust
stained and slightly dented" printed on the Bill of Lading as evidence that the character of the
goods or defect in the packing or the containers was the proximate cause of the damage. We
are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading.40 The aforecited exception refers to
cases when goods are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances liable therefor, the
necessary and natural wear of goods in transport, defects in packages in which they are
shipped, or the natural propensities of animals.41 None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was
apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting
therefrom, once it accepts the goods notwithstanding such condition.42 Thus, petitioners have
not successfully proven the application of any of the aforecited exceptions in the present
case.43
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act44 (COGSA), respondent should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent
filed its Notice of Claim only on September 18, 1990.45
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of
claim need not be given if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report46 as to the condition of the goods was prepared and signed by
representatives of both parties.47
Second, as stated in the same provision, a failure to file a notice of claim within three days will
not bar recovery if it is nonetheless filed within one year.48 This one-year prescriptive period
also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the
bill of lading.49
In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of the ponente,
Chief Justice Hilario G. Davide Jr.:

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"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which
provides for a one-year period of limitation on claims for loss of, or damage to, cargoes
sustained during transit--may be applied suppletorily to the case at bar."
In the present case, the cargo was discharged on July 31, 1990, while the Complaint51 was
filed by respondent on July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondent's claims, petitioners contend that their
liability should be limited to US$500 per package as provided in the Bill of Lading and by
Section 4(5)52 of COGSA.53
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because
the value of the subject shipment was declared by petitioners beforehand, as evidenced by
the reference to and the insertion of the Letter of Credit or "L/C No. 90/02447" in the said Bill
of Lading.54
A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a
contract by which three parties -- namely, the shipper, the carrier, and the consignee -undertake specific responsibilities and assume stipulated obligations.56 In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected and binding contract.57
Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability
for loss or destruction of a cargo -- unless the shipper or owner declares a greater value58 -- is
sanctioned by law.59 There are, however, two conditions to be satisfied: (1) the contract is
reasonable and just under the circumstances, and (2) it has been fairly and freely agreed
upon by the parties.60 The rationale for this rule is to bind the shippers by their agreement to
the value (maximum valuation) of their goods.61
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier
to a fixed amount per package.62 In all matters not regulated by the Civil Code, the right and
the obligations of common carriers shall be governed by the Code of Commerce and special
laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code,
supplements the latter by establishing a statutory provision limiting the carrier's liability in the
absence of a shipper's declaration of a higher value in the bill of lading.64 The provisions on
limited liability are as much a part of the bill of lading as though physically in it and as though
placed there by agreement of the parties.65
In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's
liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This
fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for
petitioners' liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit
obtained by the shipper for the importation of steel sheets did not effect a declaration of the

92

value of the goods as required by the bill.67 That notation was made only for the convenience
of the shipper and the bank processing the Letter of Credit.68
Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was
separate from the Other Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the
contract of issuance of a letter of credit between the amount of goods described in the
commercial invoice in the contract of sale and the amount allowed in the letter of credit will not
affect the validity and enforceability of the contract of carriage as embodied in the bill of lading.
As the bank cannot be expected to look beyond the documents presented to it by the seller
pursuant to the letter of credit, neither can the carrier be expected to go beyond the
representations of the shipper in the bill of lading and to verify their accuracy vis--vis the
commercial invoice and the letter of credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's
obligation to private respondent arising from the contract of transportation."70
In the light of the foregoing, petitioners' liability should be computed based on US$500 per
package and not on the per metric ton price declared in the Letter of Credit.71 In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,72 we explained the meaning
of packages:
"When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of those
units and not the container constitutes the 'package' referred to in the liability limitation
provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading
clearly disclosed the contents of the containers, the number of units, as well as the nature of
the steel sheets, the four damaged coils should be considered as the shipping unit subject to
the US$500 limitation.
1 wph i1 .n t

WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED.
Petitioners' liability is reduced to US$2,000 plus interest at the legal rate of six percent from
the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision, and 12
percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED

93

G.R. No. 137775. March 31, 2005


FGU
INSURANCE
CORPORATION, Petitioners,
vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI,
represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO, Respondents.
G.R. No. 140704. March 31, 2005
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG,
and
CO
TO,Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE
CORP., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision1 of the Court of
Appeals in CA-G.R. CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee versus
Estate of Ang Gui, represented by Lucio, Julian and Jaime, all surnamed Ang, and Co To,
Defendants-Appellants, ThirdParty Plaintiffs versus FGU Insurance Corporation, Third-Party
Defendant-Appellant," which affirmed in toto the decision2 of the Regional Trial Court of Cebu
City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per
annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and an
additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants
the amount of P632,700.00.3
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui
and Co To, was engaged in the shipping business. It owned the M/T 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.

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On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu,
on board the D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the
cargoes covered by Bill of Lading No. 2 was SMCs BMD-San Jose Beer Sales Office, San
Jose, Antique.
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

95

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.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993,
SMC filed a second amended complaint which was admitted by the Court impleading the
surviving partner, Co To and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all
surnamed Ang. The substituted defendants adopted the original answer with counterclaim of
ANCO "since the substantial allegations of the original complaint and the amended complaint
are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however that it
had an agreement with SMC that ANCO would not be liable for any losses or damages
resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale Pilsen and
Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk the
vessel in which they were loaded, they should not be held liable. ANCO further asserted that
there was an agreement between them and SMC to insure the cargoes in order to recover
indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of Twenty
Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total
amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per
Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging
that before the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC,
the cargoes, to the extent of Twenty Thousand (20,000) cases, were insured with FGU for a
total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00)
under Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October
1979, by reason of very strong winds and heavy waves brought about by a passing typhoon,
the vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel
was totally wrecked and its cargoes owned by SMC were lost and/or destroyed. According to
ANCO, the loss of said cargoes occurred as a result of risks insured against in the insurance
policy and during the existence and lifetime of said insurance policy. ANCO went on to assert
that in the remote possibility that the court will order ANCO to pay SMCs claim, the third-party
defendant corporation should be held liable to indemnify or reimburse ANCO whatever
amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence
of the Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged
loss of the cargoes covered by the said insurance policy cannot be attributed directly or
indirectly to any of the risks insured against in the said insurance policy. According to FGU, it
is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any
of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or destruction.

96

Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked
for actual, moral, and exemplary damages and attorneys fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was
failure on ANCOs part, through their representatives, to observe the degree of diligence
required that would exonerate them from liability. The trial court thus held the Estate of Ang
Gui and Co To liable to SMC for the amount of the lost shipment. With respect to the
Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of
the amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and
was broken and the beer cargoes on the said barge were swept away. It is the sense of this
Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the
amount of the policy was only for P858,500.00, defendants as assured, therefore, were
considered co-insurers of third-party defendant FGU Insurance Corporation to the extent of
975,405.00 value of the cargo. Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into
two: 1) Whether or not respondent Court of Appeals committed grave abuse of discretion in
holding FGU liable under the insurance contract considering the circumstances surrounding
the loss of the cargoes; and 2) Whether or not the Court of Appeals committed an error of law
in holding that the doctrine of res judicata applies in the instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the
appellate court based on the following assignments of error: 1) The Court of Appeals
committed grave abuse of discretion in affirming the findings of the lower court that the
negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the
cargoes; and 2) The respondent court acted with grave abuse of discretion when it ruled that
the appeal was without merit despite the fact that said court had accepted the decision in Civil
Case No. R-19341, as affirmed by the Court of Appeals and the Supreme Court, as res
judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their
respective petitions for review, that is, whether or not the doctrine of res judicata applies in the
instant case.

97

It is ANCOs contention that the decision in Civil Case No. R-19341,5 which was decided in its
favor, constitutesres judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No.
R-19341 and the case at bar. In order for res judicata to be made applicable in a case, the
following essential requisites must be present: 1) the former judgment must be final; 2) the
former judgment must have been rendered by a court having jurisdiction over the subject
matter and the parties; 3) the former judgment must be a judgment or order on the merits; and
4) there must be between the first and second action identity of parties, identity of subject
matter, and identity of causes of action.6
There is no question that the first three elements of res judicata as enumerated above are
indeed satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still
inapplicable due to the absence of the last essential requisite of identity of parties, subject
matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in
the instant case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian
and Jaime, all surnamed Ang and Co To as defendants, with the latter merely impleading
FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by
ANCO, the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant
case, the subject matter of litigation is the loss of the cargoes of SMC, as shipper, loaded in
the D/B Lucio and the resulting failure of ANCO to deliver to SMCs consignees the lost cargo.
Otherwise stated, the controversy in the first case involved the rights and liabilities of the
shipowner vis--vis that of the insurer, while the present case involves the rights and liabilities
of the shippervis--vis that of the shipowner. Specifically, Civil Case No. R-19341 was an
action for Specific Performance and Damages based on FGU Marine Hull Insurance Policy
No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is an action for
Breach of Contract of Carriage and Damages filed by SMC against ANCO based on Bill of
Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from FGU under
Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different
from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance
contract over the vessel while in the former, the third-party complaint arose from the
insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already
passed upon by a court of competent jurisdiction in a former judgment, in another action
between the same parties based on a different claim or cause of action. The judgment in the
prior action operates as estoppel only as to those matters in issue or points controverted,
upon the determination of which the finding or judgment was rendered.7 If a particular point or
question is in issue in the second action, and the judgment will depend on the determination
of that particular point or question, a former judgment between the same parties or their
privies will be final and conclusive in the second if that same point or question was in issue
and adjudicated in the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341,
only findings with respect to matters passed upon by the court in the former judgment are
conclusive in the disposition of the instant case. A careful perusal of the decision in Civil Case

98

No. R-19341 will reveal that the pivotal issues resolved by the lower court, as affirmed by both
the Court of Appeals and the Supreme Court, can be summarized into three legal conclusions:
1) that the D/B Lucio before and during the voyage was seaworthy; 2) that there was proper
notice of loss made by ANCO within the reglementary period; and 3) that the vessel D/B Lucio
was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent
therein was any discussion regarding the liability of ANCO for the loss of the cargoes. Neither
did the lower court pass upon the issue of the alleged negligence of the crewmembers of the
D/B Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of
Appeals that there isres judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding
that the negligence of ANCOs representatives was the proximate cause of the loss, said
issue is a question of fact assailing the lower courts appreciation of evidence on the
negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact of
lower courts, particularly when affirmed by the appellate court, are deemed final and
conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence.9 As held in the case
of Donato v. Court of Appeals,10 in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because the trial court is in a better position to
examine real evidence, as well as to observe the demeanor of the witnesses while testifying
in the case.11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a
showing that the findings of the lower court are totally devoid of support or are glaringly
erroneous as to constitute palpable error or grave abuse of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower court,
as sustained by the appellate court, that ANCOs representatives failed to exercise the
extraordinary degree of diligence required by the law to exculpate them from liability for the
loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine
Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550)
cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio
had no engine of its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat
M/T ANCO left it to fend for itself notwithstanding the fact that as the two vessels arrived at the
port of San Jose, Antique, signs of the impending storm were already manifest. As stated by
the lower court, witness Mr. Anastacio Manilag testified that the captain or patron of the
tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San Jose, Antique,
despite the fact that there were already big waves and the area was already dark. This is
corroborated by defendants own witness, Mr. Fernando Macabueg.13
The trial court continued:

99

At that precise moment, since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or captain of
M/T ANCO, representing the defendant could have placed D/B Lucio in a very safe location
before they left knowing or sensing at that time the coming of a typhoon. The presence of big
waves and dark clouds could have warned the patron or captain of M/T ANCO to insure the
safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine, as the
patron or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron or
captain of M/T ANCO, the representative of the defendants observed extraordinary diligence
in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could not have
occurred. In short, therefore, defendants through their representatives, failed to observe the
degree of diligence required of them under the provision of Art. 1733 of the Civil Code of the
Philippines.14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention
of respondents SMC and FGU that "the crewmembers of D/B Lucio should have left port at
the onset of the typhoon is like advising the fish to jump from the frying pan into the fire and an
advice that borders on madness."15
The argument does not persuade. The records show that the D/B Lucio was the only vessel
left at San Jose, Antique, during the time in question. The other vessels were transferred and
temporarily moved to Malandong, 5 kilometers from wharf where the barge
remained.16 Clearly, the transferred vessels were definitely safer in Malandong than at the
port of San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the
typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on
their part. In fact, ANCO claims that their crewmembers exercised due diligence to prevent or
minimize the loss of the cargoes but their efforts proved no match to the forces unleashed by
the typhoon which, in petitioners own words was, by any yardstick, a natural calamity, a
fortuitous event, an act of God, the consequences of which petitioners could not be held liable
for.17
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734,
1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the
natural disaster must have been the proximate and only cause of the loss. However, the
common carrier must exercise due diligence to prevent or minimize loss before, during and

100

after the occurrence of flood, storm, or other natural disaster in order that the common carrier
may be exempted from liability for the loss, destruction, or deterioration of the goods . . .
(Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor
from liability)18 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.19
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.20 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.:21
. . . 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.22
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.
We now come to the issue of whether or not FGU can be held liable under the insurance
policy to reimburse ANCO for the loss of the cargoes despite the findings of the respondent
court that such loss was occasioned by the blatant negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or his agents constitute no
defense on the part of the insurer.23 This rule however presupposes that the loss has occurred
due to causes which could not have been prevented by the insured, despite the exercise of
due diligence.

101

The question now is whether there is a certain degree of negligence on the part of the insured
or his agents that will deprive him the right to recover under the insurance contract. We say
there is. However, to what extent such negligence must go in order to exonerate the insurer
from liability must be evaluated in light of the circumstances surrounding each case. When
evidence show that the insureds negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States
Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk
which the insurer takes upon himself, and the existence of which, where it is the proximate
cause of the loss, does not absolve the insurer from liability. But willful exposure, gross
negligence, negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the
owners of an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck
on the bar and was wrecked. The master knew that the depth of water on the bar was such as
to make the attempted passage dangerous. Judge Clifford held that, under the circumstances,
the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own
wrongful acts are hardly necessary, as the proposition involves an elementary principle of
universal application. Losses may be recovered by the insured, though remotely occasioned
by the negligence or misconduct of the master or crew, if proximately caused by the perils
insured against, because such mistakes and negligence are incident to navigation and
constitute a part of the perils which those who engage in such adventures are obliged to
incur; but it was never supposed that the insured could recover indemnity for a loss
occasioned by his own wrongful act or by that of any agent for whose conduct he was
responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction
between ordinary negligence and gross negligence or negligence amounting to misconduct
and its effect on the insureds right to recover under the insurance contract. According to the
Court, while mistake and negligence of the master or crew are incident to navigation and
constitute a part of the perils that the insurer is obliged to incur, such negligence or
recklessness must not be of such gross character as to amount to misconduct or wrongful
acts; otherwise, such negligence shall release the insurer from liability under the insurance
contract.
In the case at bar, both the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly
negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when
the patron (operator) of the tug boat immediately left the barge at the San Jose, Antique wharf
despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants representative who did not heed Macabuags request that the barge
be moved to a more secure place. The prudent thing to do, as was done by the other sea

102

vessels at San Jose, Antique during the time in question, was to transfer the vessel to a safer
wharf. The negligence of the defendants-appellants is proved by the fact that on 01 October
1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.27 [Emphasis
ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by
the lower court, as sustained by the Court of Appeals, that ANCOs representatives had failed
to exercise extraordinary diligence required of common carriers in the shipment of SMCs
cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes
amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that
the blatant negligence of ANCOs employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February
1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.

103

G.R. No. 140349

June 29, 2005

SULPICIO LINES, INC., petitioner,


vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals
reversing the Decision2 of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing
the complaint for damages for failure of the plaintiff to prove its case with a preponderance of
evidence. Assailed as well is the Resolution3 of the Court of Appeals denying petitioners
Motion for Reconsideration.
THE FACTS
On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc.
(shipper) entered into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by
the latter in favor of the owner of the goods, 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). The vessel arrived at the North Harbor, Manila, on 24 February 1992.
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. Respondent-insurer paid the claim less
thirty-five percent (35%) salvage value or P194, 220.31.
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.
On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case
No. 92-63337 with the trial court against Delbros, Inc. and herein petitioner-carrier. On 05
February 1993, petitioner-carrier filed its Answer with Counterclaim. Delbros, Inc. filed on 15
April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming the contents

104

of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was
responsible for the unloading of the crates.
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, except that "2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c)
were unaccounted for and missing as per packaging list."
After hearing, 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.
According to the RTC:
The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about
the payment of the claim based on the documents accompanying the claim which were the
Packing List, Commercial Invoices, Bill of Lading, Claims Statement, Marine Policies, Survey
Report, Marine Risk Note, and the letter to Third Party carriers and shipping lines (Exhibit
A-J).
The check was paid and delivered to the assured as evidenced by the check voucher and the
subrogation receipt.
On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the
claim less 35% salvage value based on the adjuster report. This testimony is hearsay.
The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together
with a co-surveyor and a representative of Sulpicio Lines had conducted a survey of the
shipment at the compound of Sulpicio Lines. He prepared a survey report (Exhibits G and G-1)
and took a picture of shipment (Exhibit G-2).
On cross-examination, he said that two cartons were torn at the sides with top portion flaps
opened and the 41 cartons were properly sealed and in good order conditions. Two cartons
were already opened and slightly damaged. He merely looked at them but did not conduct an
inspection of the contents. What he was referring to as slightly damaged were the cartons
only and not the contents.
From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a
preponderance of evidence.
.
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered
dismissing the Complaint, defendant Sulpicio Lines counterclaim and defendant Delbros
Inc.s cross-claim.4
A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently
denied by the trial court in an Order dated 07 February 1995 on the ground that it did not raise
any new issue. Thus, respondent-insurer instituted an appeal with the Court of Appeals,
which reversed the dismissal of the complaint by the lower court, the decretal portion of which
reads:

105

WHEREFORE, the appeal is granted. The decision appealed from is REVERSED.


Defendants-appellees Delbros and Sulpicio Lines are hereby ordered to pay, jointly and
severally, plaintiff-appellant the sum of P194,220.31 representing actual damages, plus legal
interest counted from the filing of the complaint until fully paid.5
The appellate court disposed of the issues in the case in this wise:
Furthermore, the evidence shows that one of the three crates fell during the unloading at the
pier in Manila. The wooden crate which fell was damaged such that this particular crate was
not anymore sent to Singapore and was instead shipped back to Cebu from Manila. Upon
examination, it was found that two (2) cartons of the forty-two (42) cartons contained in this
crate were externally damaged. They were torn at the sides and their top portions or flaps
were open. These facts were admitted by all the parties. Defendant-appellees, however, insist
that it was only the external packaging that was damaged, and that there was no actual
damage to the goods such that would make them liable to the shipper. This theory is
erroneous. When the goods are placed at a common carriers possession for delivery to a
specified consignee, they are in good order and condition and are supposed to be transported
and delivered to the consignee in the same state. In the case herein, the goods were received
by defendant-appellee Delbros in Cebu properly packed in cardboard cartons and then placed
in wooden crates, for delivery to the consignee in Singapore. However, before the shipment
reached Singapore (while it was in Manila) one crate and 2 cartons contained therein were
not anymore in their original state. They were no longer fit to be sent to Singapore.
.
As We have already found, there is damage suffered by the goods of the shipper. This
consists in the destruction of one wooden crate and the tearing of two of the cardboard boxes
therein rendering then unfit to be sent to Singapore. Defendant-appellee Sulpicio Lines admits
that this crate fell while it was being unloaded at the Manila pier. Falling of the crate was
negligence on the part of defendant-appellee Sulpicio Lines under the doctrine of res ipsa
loquitur. Defendant-appellee Sulpicio Lines cannot exculpate itself from liability because it
failed to prove that it exercised due diligence in the selection and supervision of its employees
to prevent the damage.6
On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision
of the Court of Appeals which was subsequently denied in a Resolution dated 13 October
1999. Hence, the instant petition.
During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating
that its appeal7filed before this Court had been dismissed for being filed out of time and thus
the case as against it was declared closed and terminated. As a consequence, it paid in full
the amount of the damages awarded by the appellate court to the respondent-insurer. Before
this Court, Delbros, Inc. prays for reimbursement, contribution, or indemnity from its
co-defendant, herein petitioner-carrier Sulpicio Lines, Inc. for whatever it had paid to
respondent-insurer in consonance with the decision of the appellate court declaring both
Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and severally liable.
ISSUES
Petitioner-carrier raises the following issues in its petition:

106

1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed
the complaint against Sulpicio Lines, which dismissal is already final.
2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply
with the technical requirement of the Rules of Court.
RULING OF THE COURT
We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc.
that the Court of Appeals should have dismissed the appeal for failure of respondent-insurer
to attach a copy of the decision of the trial court to its appellants brief in violation of Rule 44,
Section 13(h) of the Rules of Civil Procedure.8
A perusal of the records will show, however, that in a Resolution9 dated 13 August 1996, the
Court of Appeals required herein respondent-insurer to submit seven (7) copies of the
questioned decision within five (5) days from notice. Said Resolution was properly complied
with.
As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must
comply with the manner required by the pertinent rules for the perfection of an appeal.
Nevertheless, this Court has allowed the filing of an appeal upon subsequent compliance with
the requirements imposed by law, where a strict application of the technical rules will impair
the proper administration of justice. As enunciated by the Court in the case ofJaro v. Court of
Appeals:10
There is ample jurisprudence holding that the subsequent and substantial compliance of an
appellant may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs.
Diaz [336
SCRA
113]
and Piglas-Kamao
vs.
National
Labor
Relations
Commission [357SCRA 640], we ruled that the subsequent submission of the missing
documents with the motion for reconsideration amounts to substantial compliance. The
reasons behind the failure of the petitioners in these two cases to comply with the required
attachments were no longer scrutinized.11
We see no error, therefore, on the part of the Court of Appeals when it gave due course to the
appeal after respondent-insurer had submitted copies of the RTC decision, albeit belatedly.
We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to
be considered in the resolution of this issue is whether or not, based on the evidence
presented during the trial, the owner of the goods, respondent-insurers
predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable
for the same.
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.
Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or
loss and should not include the lack of fitness of the shipment for transport to Singapore due

107

to the damaged packing. This is erroneous. Petitioner-carrier seems to belabor under the
misapprehension that a distinction must be made between the cargo packaging and the
contents of the cargo. According to it, damage to the packaging is not tantamount to damage
to the cargo. It must be stressed that in the case at bar, the damage sustained by the
packaging of the cargo while in petitioner-carriers custody resulted in its unfitness to be
transported to its consignee in Singapore. Such failure to ship the cargo to its final destination
because of the ruined packaging, indeed, resulted in damages on the part of the owner of the
goods.
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.12 The standard of extraordinary
diligence imposed upon common carriers is considerably more demanding than the standard
of ordinary diligence, i.e., the diligence of a good paterfamiliasestablished in respect of the
ordinary relations between members of society.13 A common carrier is bound to transport its
cargo and its passengers safely "as far as human care and foresight can provide, using
the utmost diligence of a very cautious person, with due regard to all circumstances."14 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 the damage to, or
destruction of, the goods entrusted to it for safe carriage and delivery.15 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."16
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
173517 and 175218 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 173319 of the Civil Code.20
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.
Coming now to the issue of the extent of petitioner-carriers liability, it is undisputed that
respondent-insurer paid the owner of the goods under the insurance policy the amount of
P194,220.31 for the alleged damages the latter has incurred. Neither is there dispute as to the
fact that Delbros, Inc. paid P194,220.31 to respondent-insurer in satisfaction of the whole
amount of the judgment rendered by the Court of Appeals. The question then is: To what
extent is Sulpicio Lines, Inc., as common carrier, liable for the damages suffered by the owner
of the goods?
Upon respondent-insurers payment of the alleged amount of loss suffered by the insured (the
owner of the goods), the insurer is entitled to be subrogated pro tanto to any right of action
which the insured may have against the common carrier whose negligence or wrongful act
caused the loss.21 Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies or securities.22 The rights to which
the subrogee succeeds are the same as, but not greater than, those of the person for whom

108

he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not
have.23 In other words, a subrogee cannot succeed to a right not possessed by the
subrogor.24 A subrogee in effect steps into the shoes of the insured and can recover only if the
insured likewise could have recovered.25
As found by the Court of Appeals, there was damage suffered by the goods which consisted
in the destruction of one wooden crate and the tearing of two (2) cardboard boxes therein
which rendered them unfit to be sent to Singapore.26 The falling of the crate was negligence
on the part of Sulpicio Lines, Inc. for which it cannot exculpate itself from liability because it
failed to prove that it exercised extraordinary diligence.27
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.
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already
been paid the full amount granted by the Court of Appeals, hence, it will be tantamount to
unjust enrichment for respondent-insurer to again recover damages from herein
petitioner-carrier.
With respect to Delbros, Inc.s prayer contained in its manifestation that, in case the decision
in the instant case be adverse to petitioner-carrier, a pronouncement as to the matter of
reimbursement, indemnification or contribution in favor of Delbros, Inc. be included in the
decision, this Court will not pass upon said issue since Delbros, Inc. has no personality before
this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any
action Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to
the damages the latter is liable to pay.
WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26
May 1999 and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs.
SO ORDERED.

109

G.R. No. 149019 August 15, 2006


DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan
Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated
July 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier
decision of the Regional Trial Court (RTC) of Manila, Branch IX, in two separate complaints
for damages docketed as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the
other hand, respondent American Home Assurance Corporation (AHAC for brevity) is a
foreign insurance company duly licensed to do business in the Philippines through its agent,
the American-International Underwriters, Inc. (Phils.). It is engaged, among others, in insuring
cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of
1,986.627 k/l Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for
transportation and delivery to the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex),
pursuant to a Contract of Afreightment. The shipment was insured by respondent AHAC
against all risks under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk Note No.
34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading
operations commenced. The discharging of the diesel oil started at about 1:30 PM of the
same day. However, at about 10:30 PM, the discharging had to be stopped on account of the
discovery that the port bow mooring of the vessel was intentionally cut or stolen by unknown
persons. Because there was nothing holding it, the vessel drifted westward, dragged and
stretched the flexible rubber hose attached to the riser, broke the elbow into pieces, severed
completely the rubber hose connected to the tanker from the main delivery line at sea bed
level and ultimately caused the diesel oil to spill into the sea. To avoid further spillage, the
vessels crew tried water flushing to clear the line of the diesel oil but to no avail. In the
meantime, the shore tender, who was waiting for the completion of the water flushing, was
surprised when the tanker signaled a "red light" which meant stop pumping. Unaware of what
happened, the shore tender, thinking that the vessel would, at any time, resume pumping, did
not shut the storage tank gate valve. As all the gate valves remained open, the diesel oil that
was earlier discharged from the vessel into the shore tank backflowed. Due to non-availability
of a pump boat, the vessel could not send somebody ashore to inform the people at the depot
about what happened. After almost an hour, a gauger and an assistant surveyor from the
Caltexs Bulk Depot Office boarded the vessel. It was only then that they found out what had
happened. Thereafter, the duo immediately went ashore to see to it that the shore tank gate
valve was closed. The loss of diesel oil due to spillage was placed at 113.788 k/l while some
435,081 k/l thereof backflowed from the shore tank.

110

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from
Delsan, but the latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57
for spillage, pursuant to Marine Risk Note No. 34-5093-6, and P1,939,575.37 for backflow of
the diesel oil pursuant to Inland Floater Policy No. AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357
against Delsan before the Manila RTC, Branch 9, for loss caused by the spillage. It likewise
prayed that it be indemnified for damages suffered in the amount of P652,432.57 plus legal
interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No.
85-30559 against Delsan for the loss caused by the backflow. It likewise prayed that it be
awarded the amount of P1,939,575.37 for damages and reasonable attorneys fees. As
counterclaim in both cases, AHAC prayed for attorneys fees in the amount ofP200,000.00
and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same
issues, the two were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan
liable for the loss of the cargo for its negligence in its duty as a common carrier. Dispositively,
the decision reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum
of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984 until fully
paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the
legal rate from February 6, 1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No.
40951.

111

In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling,
the CA declared that Delsan failed to exercise the extraordinary diligence of a good father of a
family in the handling of its cargo. Applying Article 1736 4 of the Civil Code, the CA ruled that
since the discharging of the diesel oil into Caltex bulk depot had not been completed at the
time the losses occurred, there was no reason to imply that there was actual delivery of the
cargo to Caltex, the consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of
Manila, Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a
modification that attorneys fees awarded in Civil Case Nos. 85-29357 and 85-30559 are
hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of
the Civil Code cannot exculpate it from liability for the loss of the subject cargo and in not
applying the rule on contributory negligence against Caltex, the shipper-owner of the cargo,
and in not taking into consideration the fact that the loss due to backflow occurred when the
diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the
CA, affirmatory of those of the trial court, are binding on the Court unless there is a clear
showing that such findings are tainted with arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds.
First, the loss through spillage was partly due to the contributory negligence of Caltex; and
Second, the loss through backflow should not be borne by Delsan because it was already
delivered to Caltexs shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. They are presumed to have been at fault or to have acted negligently if
the goods are lost, destroyed or deteriorated. 6 To overcome the presumption of negligence in
case of loss, destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of
the Civil Code enumerates the instances when the presumption of negligence does not
attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;

112

5) Order or act of competent public authority.


Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there
was a contributory negligence on the part of the owner of the goods Caltex. We see no
reason to depart therefrom. As aptly pointed out by the CA, it had been established that the
proximate cause of the spillage and backflow of the diesel oil was due to the severance of the
port bow mooring line of the vessel and the failure of the shore tender to close the storage
tank gate valve even as a check on the drain cock showed that there was still a product on the
pipeline. To the two courts below, the actuation of the gauger and the escort surveyor, both
personnel from the Caltex Bulk Depot, negates the allegation that Caltex was remiss in its
duties. As we see it, the crew of the vessel should have promptly informed the shore tender
that the port mooring line was cut off. However, Delsan did not do so on the lame excuse that
there was no available banca. As it is, Delsans personnel signaled a "red light" which was not
a sufficient warning because such signal only meant that the pumping of diesel oil had been
finished. Neither did the blowing of whistle suffice considering the distance of more than 2
kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was not
the agreed signal. Had the gauger and the escort surveyor from Caltex Bulk Depot not gone
aboard the vessel to make inquiries, the shore tender would have not known what really
happened. The crew of the vessel should have exerted utmost effort to immediately inform the
shore tender that the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused
by one of the excepted causes if it were to seek exemption from responsibility. 7 Unfortunately,
it miserably failed to discharge this burden by the required quantum of proof.
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow
because the same had already been actually and legally delivered to Caltex at the time it
entered the shore tank holds no water. It had been settled that the subject cargo was still in
the custody of Delsan because the discharging thereof has not yet been finished when the
backflow occurred. Since the discharging of the cargo into the depot has not yet been
completed at the time of the spillage when the backflow occurred, there is no reason to imply
that there was actual delivery of the cargo to the consignee. Delsan is straining the issue by
insisting that when the diesel oil entered into the tank of Caltex on shore, there was legally, at
that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary
responsibility of common carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by, the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to a person who has the right to
receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been finished,
Delsan still has the duty to guard and to preserve the cargo. The carrier still has in it the
responsibility to guard and preserve the goods, a duty incident to its having the goods
transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each
case. 9 The mere proof of delivery of goods in good order to the carrier, and their arrival in the
place of destination in bad order, make out a prima facie case against the carrier, so that if no
explanation is given as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability. 10

113

All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the
performance of its duties. Consequently, it is obliged to prove that the damage to its cargo
was caused by one of the excepted causes if it were to seek exemption from
responsibility. 11 Having failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
Cost against petitioner.
SO ORDERED.

114

G.R. No. 122039 May 31, 2000


VICENTE CALALAS, petitioner,
vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO
SALVA, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated March
31, 1991, reversing the contrary decision of the Regional Trial Court, Branch 36, Dumaguete
City, and awarding damages instead to private respondent Eliza Jujeurche Sunga as plaintiff
in an action for breach of contract of carriage.
The facts, as found by the Court of Appeals, are as follows:
At 10 o'clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G. Sunga,
then a college freshman majoring in Physical Education at the Siliman University, took a
passenger jeepney owned and operated by petitioner Vicente Calalas. As the jeepney was
filled to capacity of about 24 passengers, Sunga was given by the conductor an "extension
seat," a wooden stool at the back of the door at the rear end of the vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a passenger
off. As she was seated at the rear of the vehicle, Sunga gave way to the outgoing passenger.
Just as she was doing so, an Isuzu truck driven by Iglecerio Verena and owned by Francisco
Salva bumped the left rear portion of the jeepney. As a result, Sunga was injured. She
sustained a fracture of the "distal third of the left tibia-fibula with severe necrosis of the
underlying skin." Closed reduction of the fracture, long leg circular casting, and case wedging
were done under sedation. Her confinement in the hospital lasted from August 23 to
September 7, 1989. Her attending physician, Dr. Danilo V. Oligario, an orthopedic surgeon,
certified she would remain on a cast for a period of three months and would have to ambulate
in crutches during said period.
On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation
of the contract of carriage by the former in failing to exercise the diligence required of him as a
common carrier. Calalas, on the other hand, filed a third-party complaint against Francisco
Salva, the owner of the Isuzu truck.
The lower court rendered judgment against Salva as third-party defendant and absolved
Calalas of liability, holding that it was the driver of the Isuzu truck who was responsible for the
accident. It took cognizance of another case (Civil Case No. 3490), filed by Calalas against
Salva and Verena, for quasi-delict, in which Branch 37 of the same court held Salva and his
driver Verena jointly liable to Calalas for the damage to his jeepney.
On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground
that Sunga's cause of action was based on a contract of carriage, not quasi-delict, and that
the common carrier failed to exercise the diligence required under the Civil Code. The
appellate court dismissed the third-party complaint against Salva and adjudged Calalas liable
for damages to Sunga. The dispositive portion of its decision reads:

115

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and
another one is entered ordering defendant-appellee Vicente Calalas to pay plaintiff-appellant:
(1) P50,000.00 as actual and compensatory damages;
(2) P50,000.00 as moral damages;
(3) P10,000.00 as attorney's fees; and
(4) P1,000.00 as expenses of litigation; and
(5) to pay the costs.
SO ORDERED.
Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the
negligence of Verena was the proximate cause of the accident negates his liability and that to
rule otherwise would be to make the common carrier an insurer of the safety of its passengers.
He contends that the bumping of the jeepney by the truck owned by Salva was a caso fortuito.
Petitioner further assails the award of moral damages to Sunga on the ground that it is not
supported by evidence.
The petition has no merit.
The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver and
the owner of the truck liable for quasi-delict ignores the fact that she was never a party to that
case and, therefore, the principle ofres judicata does not apply.
Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in Civil
Case No. 3490 was whether Salva and his driver Verena were liable for quasi-delict for the
damage caused to petitioner's jeepney. On the other hand, the issue in this case is whether
petitioner is liable on his contract of carriage. The first, quasi-delict, also known as culpa
aquiliana or culpa extra contractual, has as its source the negligence of the tortfeasor.
The second, breach of contract or culpa contractual, is premised upon the negligence in the
performance of a contractual obligation.
Consequently, in quasi-delict, the negligence or fault should be clearly established because it
is the basis of the action, whereas in breach of contract, the action can be prosecuted merely
by proving the existence of the contract and the fact that the obligor, in this case the common
carrier, failed to transport his passenger safely to his destination.2 In case of death or injuries
to passengers, Art. 1756 of the Civil Code provides that common carriers are presumed to
have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This provision
necessarily shifts to the common carrier the burden of proof.
There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding Salva
and his driver Verena liable for the damage to petitioner's jeepney, should be binding on
Sunga. It is immaterial that the proximate cause of the collision between the jeepney and the
truck was the negligence of the truck driver. The doctrine of proximate cause is applicable
only in actions for quasi-delict, not in actions involving breach of contract. The doctrine is a
device for imputing liability to a person where there is no relation between him and another

116

party. In such a case, the obligation is created by law itself. But, where there is a pre-existing
contractual relation between the parties, it is the parties themselves who create the obligation,
and the function of the law is merely to regulate the relation thus created. Insofar as contracts
of carriage are concerned, some aspects regulated by the Civil Code are those respecting the
diligence required of common carriers with regard to the safety of passengers as well as the
presumption of negligence in cases of death or injury to passengers. It provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1746, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
Art. 1755. 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 due
regard for all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed by articles 1733 and 1755.
In the case at bar, upon the happening of the accident, the presumption of negligence at once
arose, and it became the duty of petitioner to prove that he had to observe extraordinary
diligence in the care of his passengers.
Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could
provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances" as required by Art. 1755? We do not think so. Several factors militate against
petitioner's contention.
First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion
being exposed about two meters from the broad shoulders of the highway, and facing the
middle of the highway in a diagonal angle. This is a violation of the R.A. No. 4136, as
amended, or the Land Transportation and Traffic Code, which provides:
Sec. 54. Obstruction of Traffic. No person shall drive his motor vehicle in such a manner as
to obstruct or impede the passage of any vehicle, nor, while discharging or taking on
passengers or loading or unloading freight, obstruct the free passage of other vehicles on the
highway.
Second, it is undisputed that petitioner's driver took in more passengers than the allowed
seating capacity of the jeepney, a violation of 32(a) of the same law. It provides:
Exceeding registered capacity. No person operating any motor vehicle shall allow more
passengers or more freight or cargo in his vehicle than its registered capacity.
The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that to
which the other passengers were exposed. Therefore, not only was petitioner unable to

117

overcome the presumption of negligence imposed on him for the injury sustained by Sunga,
but also, the evidence shows he was actually negligent in transporting passengers.
We find it hard to give serious thought to petitioner's contention that Sunga's taking an
"extension seat" amounted to an implied assumption of risk. It is akin to arguing that the
injuries to the many victims of the tragedies in our seas should not be compensated merely
because those passengers assumed a greater risk of drowning by boarding an overloaded
ferry. This is also true of petitioner's contention that the jeepney being bumped while it was
improperly parked constitutes caso fortuito. A caso fortuito is an event which could not be
foreseen, or which, though foreseen, was inevitable.3 This requires that the following
requirements be present: (a) the cause of the breach is independent of the debtor's will; (b)
the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible for
the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part in
causing
the
injury
to
the
creditor.4 Petitioner should have foreseen the danger of parking his jeepney with its body
protruding two meters into the highway.
Finally, petitioner challenges the award of moral damages alleging that it is excessive and
without basis in law. We find this contention well taken.
In awarding moral damages, the Court of Appeals stated:
Plaintiff-appellant at the time of the accident was a first-year college student in that school
year 1989-1990 at the Silliman University, majoring in Physical Education. Because of the
injury, she was not able to enroll in the second semester of that school year. She testified that
she had no more intention of continuing with her schooling, because she could not walk and
decided not to pursue her degree, major in Physical Education "because of my leg which has
a defect already."
Plaintiff-appellant likewise testified that even while she was under confinement, she cried in
pain because of her injured left foot. As a result of her injury, the Orthopedic Surgeon also
certified that she has "residual bowing of the fracture side." She likewise decided not to further
pursue Physical Education as her major subject, because "my left leg . . . has a defect
already."
Those are her physical pains and moral sufferings, the inevitable bedfellows of the injuries
that she suffered. Under Article 2219 of the Civil Code, she is entitled to recover moral
damages in the sum of P50,000.00, which is fair, just and reasonable.
As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract for it is not one of the items enumerated under Art. 2219 of the Civil
Code.5 As an exception, such damages are recoverable: (1) in cases in which the mishap
results in the death of a passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the
Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided
in Art. 2220.6
In this case, there is no legal basis for awarding moral damages since there was no factual
finding by the appellate court that petitioner acted in bad faith in the performance of the
contract of carriage. Sunga's contention that petitioner's admission in open court that the
driver of the jeepney failed to assist her in going to a nearby hospital cannot be construed as
an admission of bad faith. The fact that it was the driver of the Isuzu truck who took her to the
hospital does not imply that petitioner was utterly indifferent to the plight of his injured

118

passenger. If at all, it is merely implied recognition by Verena that he was the one at fault for
the accident.
WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its resolution,
dated September 11, 1995, are AFFIRMED, with the MODIFICATION that the award of moral
damages is DELETED.
SO ORDERED.

119

G.R. No. 136888

June 29, 2005

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,


vs.
CHEMOIL LIGHTERAGE CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which assails the Decision of the Court of
Appeals1 in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set
aside the decision of the Regional Trial Court (RTC),2 Branch 16, City of Manila, which
ordered herein respondent to pay the petitioners claim in the amount of P5,000,000.00 with
legal interest from the date of the filing of the complaint.
THE FACTS
Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the
business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a
domestic corporation engaged in the transport of goods.
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea,
shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT
"TACHIBANA" which was valued at US$90,201.57 under Bill of Lading No. ULS/MNL-13 and
another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No.
ULS/MNL-24 to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation
against all risks. The insurance was under Marine Policies No. MRN-307215 dated 06
February 1991 for P31,757,969.19 and No. MRN-307226 for P4,514,881.00. Marine
Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN-30721,
amending the latters insured value to P24,667,422.03, and reduced the premium
accordingly.
The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of
respondent Chemoil Lighterage Corporation, which shall transport the same to Del Pan
Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker trucks, also
owned by the respondent, and haul it by land to PGPs storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples taken from the shipment showed discoloration from
yellowish to amber, demonstrating that it was damaged, as DOP is colorless and water clear.
PGP then sent a letter to the petitioner dated 18 February 19918 where it formally made an
insurance claim for the loss it sustained due to the contamination.
The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc.
(GIT), to conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT
issued a Report,9 part of which states:
As unloading progressed, it was observed on February 14, 1991 that DOP samples taken
were discolored from yellowish to amber. Inspection of cargo tanks showed manhole covers

120

of ballast tanks ceilings loosely secured. Furthermore, it was noted that the rubber gaskets of
the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus,
loosening the covers and cargo ingress to the rusty ballast tanks10
On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final
payment for the loss. PGP issued a Subrogation Receipt to the petitioner.
Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full
payment for the latters services, as evidenced by Official Receipt No. 1274.12
On 15 July 1991, an action for damages was instituted by the petitioner-insurer against
respondent-carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No.
91-57923.13 The petitioner prayed for actual damages in the amount of P5,000,000.00,
attorneys fees in the amount of no less than P1,000,000.00, and costs of suit.
An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September
1991. The respondent admitted it undertook to transport the consignees shipment from MT
"TACHIBANA" to the Del Pan Bridge, Pasig River, where it was transferred to its tanker trucks
for hauling to PGPs storage tanks in Calamba, Laguna. The respondent alleged that before
the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP,
Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for
loading. The entire loading and unloading of the shipment were also done under the control
and supervision of PGPs surveyor/representative. It was also mentioned by the respondent
that the contract between it and PGP expressly stipulated that it shall be free from any and all
claims arising from contamination, loss of cargo or part thereof; that the consignee accepted
the cargo without any protest or notice; and that the cargo shall be insured by its ownersans
recourse against all risks. As subrogee, the petitioner was bound by this stipulation. As carrier,
no fault and negligence can be attributed against respondent as it exercised extraordinary
diligence in handling the cargo.15
After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive
portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff
ordering defendant to pay plaintiffs claim of P5,000,000.00 with legal interest from the date of
the filing of the complaint. The counterclaims are DISMISSED.16
Aggrieved by the trial courts decision, the respondent sought relief with the Court of Appeals
where it alleged in the main that PGP failed to file any notice, claim or protest within the period
required by Article 366 of the Code of Commerce, which is a condition precedent to the
accrual of a right of action against the carrier.17 A telephone call which was supposedly made
by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the
respondent, informing the latter of the discoloration, is not the notice required by Article 366 of
the Code of Commerce.18
On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court,
the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a
new one is entered dismissing the complaint.19

121

A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the
decision of the trial court be affirmed.
After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court
issued a Resolution23 on 18 August 1999, giving due course to the petition.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I
THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM
WAS NOT FILED WITHIN THE REQUIRED PERIOD.
II
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE
CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL.
III
THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS
DECISION AND IN DISMISSING THE COMPLAINT.24
ISSUES
Synthesized, the issues that must be addressed by this Court are:
I
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED
PERIOD. If the answer is in the affirmative,
II
WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR
NEGLIGENCE OF THE RESPONDENT.
THE COURTS RULINGS
Article 366 of the Code of Commerce has profound application in the case at bar. This
provision of law imparts:
Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be
made against the carrier on account of damage or average found upon opening the packages,
provided that the indications of the damage or average giving rise to the claim cannot be
ascertained from the exterior of said packages, in which case said claim shall only be
admitted at the time of the receipt of the packages.

122

After the periods mentioned have elapsed, or after the transportation charges have been paid,
no claim whatsoever shall be admitted against the carrier with regard to the condition in which
the goods transported were delivered.
As to the first issue, the petitioner contends that the notice of contamination was given by
Alfredo Chan, an employee of PGP, to Ms. Encarnacion Abastillas, Vice President for
Administration and Operations of the respondent, at the time of the delivery of the cargo, and
therefore, within the required period.25 This was done by telephone.
The respondent, however, claims that the supposed notice given by PGP over the telephone
was denied by Ms. Abastillas. Between the testimonies of Alfredo Chan and Encarnacion
Abastillas, the latters testimony is purportedly more credible because it would be quite
unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal
notice of claim that involves millions of pesos.26
On this point, the Court of Appeals declared:
. . . We are inclined to sustain the view that a telephone call made to defendant-company
could constitute substantial compliance with the requirement of notice considering that the
notice was given to a responsible official, the Vice-President, who promptly replied that she
will look into the matter. However, it must be pointed out that compliance with the period for
filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent,
or otherwise within twenty-four hours from receipt of the goods, the clear import being that
prompt examination of the goods must be made to ascertain damage if this is not immediately
apparent. We have examined the evidence, and We are unable to find any proof of
compliance with the required period, which is fatal to the accrual of the right of action against
the carrier.27
The petitioner is of the view that there was an incongruity in the findings of facts of the trial
court and the Court of Appeals, the former allegedly holding that the period to file the notice
had been complied with, while the latter held otherwise.
We do not agree. On the matter concerning the giving of the notice of claim as required by
Article 366 of the Code of Commerce, the finding of fact of the Court of Appeals does not
actually contradict the finding of fact of the trial court. Both courts held that, indeed, a
telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter of the
contamination. However, nothing in the trial courts decision stated that the notice of claim
was relayed or filed with the respondent-carrier immediately or within a period of twenty-four
hours from the time the goods were received. The Court of Appeals made the same finding.
Having examined the entire records of the case, we cannot find a shred of evidence that will
precisely and ultimately point to the conclusion that the notice of claim was timely relayed or
filed.
The allegation of the petitioner that not only the Vice President of the respondent was
informed, but also its drivers, as testified by Alfredo Chan, during the time that the delivery
was actually being made, cannot be given great weight as no driver was presented to the
witness stand to prove this. Part of the testimony of Alfredo Chan is revealing:
Q:
Mr. Witness, were you in your plant site at the time these various cargoes were delivered?

123

A: No, sir.

Q: So, do you have a first hand knowledge that your plant representative informed the driver
of the alleged contamination?
A: What do you mean by that?
Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?
A: No, sir.28
From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no
personal knowledge that the drivers of the respondent were informed of the contamination.
The requirement that a notice of claim should be filed within the period stated by Article 366 of
the Code of Commerce is not an empty or worthless proviso. In a case, we held:
The object sought to be attained by the requirement of the submission of claims in pursuance
of this article is to compel the consignee of goods entrusted to a carrier to make prompt
demand for settlement of alleged damages suffered by the goods while in transport, so that
the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four
hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and
extent of the alleged damages to the goods while the matter is still fresh in the minds of the
parties.29
In another case, we ruled, thus:
More particularly, where the contract of shipment contains a reasonable requirement of giving
notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the
action for loss or injury or the right to enforce the carriers liability. Such requirement is not an
empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the
carrier from just liability, but reasonably to inform it that the shipment has been damaged and
that it is charged with liability therefore, and to give it an opportunity to examine the nature
and extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to safeguard
itself from false and fraudulent claims.30
The filing of a claim with the carrier within the time limitation therefore actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of, or damage
to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition.
If it fails to do so, no right of action against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent; it does not constitute a
limitation of action.31
The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only
when the period to make a claim has elapsed that no claim whatsoever shall be admitted, as
no claim may similarly be admitted after the transportation charges have been paid.

124

In this case, there is no question that the transportation charges have been paid, as admitted
by the petitioner, and the corresponding official receipt32 duly issued. But the petitioner is of
the view that the payment for services does not invalidate its claim. It contends that under the
second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest
has been made prior to payment of services, claim against the bad order condition of the
cargo is allowed.
We do not believe so. As discussed at length above, there is no evidence to confirm that the
notice of claim was filed within the period provided for under Article 366 of the Code of
Commerce. Petitioners contention proceeds from a false presupposition that the notice of
claim was timely filed.
Considering that we have resolved the first issue in the negative, it is therefore unnecessary
to make a resolution on the second issue.
WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18
December 1998, which reversed and set aside the decision of the trial court, is hereby
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

125

G.R. No. 144723

February 27, 2006

LARRY ESTACION, Petitioner,


vs.
NOE BERNARDO, thru and his guardian ad litem ARLIE BERNARDO, CECILIA
BANDOQUILLO and GEMINIANO QUINQUILLERA, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari filed by Larry Estacion (petitioner) seeking to
annul the Decision dated April 17, 20001 of the Court of Appeals (CA) in CA-GR CV No.
41447 which affirmed in toto the decision of the Regional Trial Court (RTC) of Dumaguete
City, Branch 41, Negros Oriental, holding petitioner and his driver Bienvenido Gerosano
(Gerosano) liable for damages for the injury sustained by Noe Bernardo (respondent Noe).
Also assailed is the appellate courts Resolution dated August 16, 20002 denying petitioners
motion for reconsideration.
In the afternoon of October 16, 1982, respondent Noe was going home to Dumaguete from
Cebu, via Bato and Tampi. At Tampi, he boarded a Ford Fiera passenger jeepney with plate
no. NLD 720 driven by respondent Geminiano Quinquillera (Quinquillera), owned by
respondent Cecilia Bandoquillo (Bandoquillo), and was seated on the extension seat placed
at the center of the Fiera. From San Jose, an old woman wanted to ride, so respondent Noe
offered his seat. Since the Fiera was already full, respondent Noe hung or stood on the left
rear carrier of the vehicle. Somewhere along Barangay Sto. Nio, San Jose, Negros Oriental,
between kilometers 13 and 14, the Fiera began to slow down and then stopped by the right
shoulder of the road to pick up passengers. Suddenly, an Isuzu cargo truck, owned by
petitioner and driven by Gerosano, which was traveling in the same direction, hit the rear end
portion of the Fiera where respondent Noe was standing. Due to the tremendous force, the
cargo truck smashed respondent Noe against the Fiera crushing his legs and feet which
made him fall to the ground. A passing vehicle brought him to the Silliman University Medical
Center where his lower left leg was amputated.
Police investigation reports showed that respondent Noe was one of the 11 passengers of the
Fiera who suffered injuries; that when the Fiera stopped to pick up a passenger, the cargo
truck bumped the rear left portion of the Fiera; that only one tire mark from the front right
wheel of the cargo truck was seen on the road. A sketch of the accident was drawn by
investigator Mateo Rubia showing the relative positions of the two vehicles, their distances
from the shoulder of the road and the skid marks of the right front wheel of the truck
measuring about 48 feet.
On February 18, 1993, respondent Noe, through his guardian ad litem Arlie Bernardo, filed
with the RTC of Dumaguete City a complaint3 for damages arising from quasi delict against
petitioner as the registered owner of the cargo truck and his driver Gerosano. He alleged that
the proximate cause of his injuries and suffering was the reckless imprudence of Gerosano
and petitioners negligence in the selection of a reckless driver and for operating a vehicle that
was not roadworthy. He prayed for actual damages, loss of income, moral and exemplary
damages, attorneys fees, litigation expenses and costs of suit.
Petitioner and his driver Gerosano filed their Answer4 denying the material allegations in the
complaint. They, in turn, filed a third party complaint5 against respondents Bandoquillo and

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Quinquillera, as owner and driver respectively of the Fiera. They alleged that it was the
reckless imprudence of respondent driver Quinquillera and his clear violation of the traffic
rules and regulations which was the proximate cause of the accident and asked for
indemnification for whatever damages they would be sentenced to pay. Respondents
Bandoquillo and Quinquillera filed their Answer to the third party complaint asking for the
dismissal of the third party complaint and for payment of attorneys fees.
Driver Gerosano was charged criminally for reckless imprudence resulting to multiple physical
injuries with damage to property before the Municipal Circuit Trial Court (MCTC) of
Pamplona-Amlan and San Jose, Negros Oriental. On November 16, 1987, the MCTC
rendered its decision6 finding him guilty of the crime charged and was sentenced to four
months and one day to two years and four months and to pay the costs.
On February 18, 1993, the RTC rendered its judgment in the civil case,7 the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, ordering defendants
Gerosano and Estacion, to pay plaintiff, jointly or solidarily, the following:
1. P129,584.20 for actual damages in the form of medical and hospitalization expenses;
2. P50,000.00 for moral damages, consisting of mental anguish, moral shock, serious anxiety
and wounded feelings;
3. P10,000.00 for attorneys fees; and
4. P5,000.00 for litigation expenses.
SO ORDERED.8
The trial court ruled that the negligence of Gerosano, petitioners driver, is the direct and
proximate cause of the incident and of the injuries suffered by respondent Noe; that
Gerosanos gross negligence and reckless imprudence had been confirmed by the Judgment
in Criminal Case No. 463; that based on the findings of the police investigator, the faulty
brakes caused the cargo truck to bump the Fiera; that the Traffic Accident Report showed that
the tire mark of the cargo truck measuring 48 feet is visibly imprinted on the road where the
incident took place indicating that the said vehicle was speeding fast; that the existence of
one tire mark of the cargo truck proved that the said vehicle had a faulty brake, otherwise, it
would have produced two tire marks on the road; and that the photographs taken right after
the incident also showed who the guilty party was.
The trial court did not give credence to the argument of petitioner and his driver that the truck
was properly checked by a mechanic before it was dispatched for a trip. It found that petitioner
is negligent in maintaining his vehicle in good condition to prevent any accident to happen;
that petitioner is liable under Article 2180 of the Civil Code as employer of driver Gerosano for
being negligent in the selection and supervision of his driver as well as for maintaining and
operating a vehicle that was not roadworthy; and that petitioner and his driver are solidarily
liable for all the natural and probable consequences of their negligent acts or omissions. The
trial court dismissed the third party complaint filed by petitioner and his driver against
respondents Bandoquillo and Quinquillera.

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Dissatisfied, only petitioner appealed to the CA. On April 17, 2000, the CA rendered the
assailed decision which affirmed in toto the decision of the trial court. Petitioners motion for
reconsideration was denied in a Resolution dated August 16, 2000.
Hence, the herein petition for review.
Petitioner submits the following issues for resolution:9
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONER
LARRY ESTACION EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A
FAMILY TO PREVENT DAMAGE DESPITE ABUNDANCE OF EVIDENCE TO THAT
EFFECT;
WHETHER THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER
LARRY ESTACION EXERCISED DUE DILIGENCE IN THE SELECTION AND
SUPERVISION OF HIS EMPLOYEE AND IN MAINTAINING HIS CARGO TRUCK
ROADWORTHY AND IN GOOD OPERATING CONDITION;
WHETHER THE COURT OF APPEALS ERRED IN EXONERATING RESPONDENTS
CECILIA BANDOQUILLO AND GEMINIANO QUINQUILLERA.
In his Memorandum, petitioner contends that he was able to establish that he observed the
diligence of a good father of a family not only in the selection of his employees but also in
maintaining his truck roadworthy and in good operating condition; that the CA erred in
exonerating respondents Bandoquillo and Quinquillera, owner and driver, respectively of the
Fiera from liability when their negligence was the proximate cause of respondent Noes
injuries; that respondent Noes act of standing in the rear carrier of the Fiera is in itself
negligence on his part which was aggravated by the fact that respondent Quinquillera
overtook the cargo truck driven by Gerosano on the curve and suddenly cut into the latters
lane; that due to the overloading of passengers, Gerosano was not able to see the brake
lights of the Fiera when it suddenly stopped to pick up passengers; that overloading is in
violation of the applicable traffic rules and regulations and Article 2185 is explicit when it
provides that "unless there is proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the mishap, he was violating any traffic
regulation"; that since the Fiera driver was negligent, there arises a presumption that
respondent Bandoquillo, as owner of the Fiera, is negligent in the selection and supervision of
her employee; that assuming petitioner Estacion and his driver are not entirely blameless, the
negligence of Quinquillera is sufficient basis why the respective liabilities should be
delineated vis--vis their degree of negligence consistent with Article 217910 of the Civil Code.
Respondent Noe filed his Memorandum alleging that the first and second issues raised are
factual in nature which are beyond the ambit of a petition for review; that petitioner failed to
overcome the presumption of negligence thus he is liable for the negligence of his driver
Gerosano; and that the third issue is best addressed to respondents Bandoquillo and
Quinquillera.
Respondents Bandoquillo and Quinquillera failed to file their memorandum despite receipt of
our Resolution requiring them to submit the same.
We find it apropos to resolve first the third issue considering that the extent of the liability of
petitioner and his driver is dependent on whether respondents Bandoquillo and Quinquillera

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are the ones negligent in the vehicular mishap that happened in the afternoon of October 16,
1982 where respondent Noe was injured, resulting in the amputation of his left leg.
At the outset, the issue raised is factual in nature. Whether a person is negligent or not is a
question of fact which we cannot pass upon in a petition for review on certiorari, as our
jurisdiction is limited to reviewing errors of law.11As a rule, factual findings of the trial court,
affirmed by the CA, are final and conclusive and may not be reviewed on appeal. The
established exceptions are: (1) when the inference made is manifestly mistaken, absurd or
impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded
entirely on speculations, surmises or conjectures; (4) when the judgment of the CA is based
on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in
making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (8) when the CA manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and (9) when the findings of fact of the CA are premised
on the absence of evidence and are contradicted by the evidence on record.12
On the basis of the records of this case, we find that there is cogent reason for us to review
the factual findings of the lower courts to conform to the evidence on record and consider this
case as an exception to the general rule.
The trial court and the appellate court had made a finding of fact that the proximate cause of
the injury sustained by respondent Noe was the negligent and careless driving of petitioners
driver, Gerosano, who was driving at a fast speed with a faulty brake when the accident
happened. We see no cogent reason to disturb the trial courts finding in giving more
credence to the testimony of respondent Noe than the testimony of Gerosano, petitioners
truck driver.
The correctness of such finding is borne by the records. In his testimony, Gerosano said that
he was driving the truck at a speed of about 40 kilometers per hour;13 that the Fiera was
behind him but upon reaching the curve, i.e., after passing San Jose going to Dumaguete, the
Fiera overtook him and blocked his way;14 that he was 10 meters from the Fiera prior to the
impact15 when he applied the brakes16 and tried to evade the Fiera but he still hit it.17
We agree with the trial court and the appellate court when they found that the truck was
running at a fast speed because if Gerosano was really driving at a speed of 40 kilometers per
hour and considering that the distance between the truck and the Fiera in front was about 10
meters, he had more than enough time to slacken his speed and apply his break to avoid
hitting the Fiera. However, from the way the truck reacted to the application of the brakes, it
showed that Gerosano was driving at a fast speed because the brakes skidded a lengthy 48
feet as shown in the sketch of police investigator Rubia of the tire marks visibly printed on the
road.
Moreover, the photographs taken after the incident and the testimony of Gerosano as to the
extent of damage to the truck, i.e. the trucks windshield was broken and its hood was
damaged after the impact,18 further support the finding of both courts that Gerosano was
driving at a fast pace.
The accident was further caused by the faulty brakes of the truck. Based on the sketch report,
there was only one tire mark of the right tire of the cargo truck during the incident which, as
testified to by police investigator Rubia, meant that the brakes of the truck were not aligned

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otherwise there would be two tire marks impressions on the road.19 Although petitioner
contends that there are other factors to explain why only one skid mark was found at the place
of the incident, such as the angle and edges of the road as well as the balance of the weight
of the cargo laden in the truck, he failed to show that indeed those factors were present to
prove his defense. Such claim cannot be given credence considering that investigator Rubia
testified that the body of the truck was very much on the road, i.e., not over the shoulder of the
road,20 and the road was straight.21 Indeed, it is the negligent act of petitioners driver of
driving the cargo truck at a fast speed coupled with faulty brakes which was the proximate
cause of respondent Noes injury.
Petitioners claim that right after overtaking the cargo truck, the Fiera driver suddenly stopped
to pick up three passengers from the side of the road; that the overloading of passengers
prevented his truck driver from determining that the Fiera had pulled over to pick up
passengers as the latters brakelights were obstructed by the passengers standing on the rear
portion of the Fiera were not substantiated at all. Respondent Quinquillera, the driver of the
Fiera, testified that the distance from the curve of the road when he stopped and picked up
passengers was estimated to be about 80 to 90 feet.22 In fact, from the sketch drawn by
investigator Rubia, it showed a distance of 145 feet from the curve of the road to the speed
tire mark (which measured about 48 feet) visibly printed on the road to the Fiera. This means
that the Fiera driver did not stop immediately after the curve as what petitioner claims.
Moreover, Gerosano admitted that his truck was at a distance of 10 meters prior to the impact.
The distance between the two vehicles was such that it would be impossible for Gerosano not
to have seen that the Fiera had pulled over to pick up passengers.
However, we agree with petitioner that respondent Noes act of standing on the rear carrier of
the Fiera exposing himself to bodily injury is in itself negligence on his part. We find that the
trial court and the CA erred when they failed to consider that respondent Noe was also guilty
of contributory negligence. Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the standard to
which he is required to conform for his own protection. 23
It has been established by the testimony of respondent Noe that he was with four or five other
persons standing on the rear carrier of the Fiera since it was already full. Respondent Noes
act of standing on the left rear carrier portion of the Fiera showed his lack of ordinary care and
foresight that such act could cause him harm or put his life in danger. It has been held that "to
hold a person as having contributed to his injuries, it must be shown that he performed an act
that brought about his injuries in disregard of warning or signs of an impending danger to
health and body.24 Respondent Noes act of hanging on the Fiera is definitely dangerous to
his life and limb.
We likewise find merit in petitioners contention that respondent Quinquillera, the Fiera driver,
was also negligent. There is merit to petitioners claim that there was overloading which is in
violation of traffic rules and regulations. Respondent Noe himself had testified that he was
standing at the rear portion of the Fiera because the Fiera was already full. Respondent
Quinquillera should not have taken more passengers than what the Fiera can accommodate.
If the Fiera was not overloaded, respondent Noe would not have been standing on the rear
carrier and sustained such extent of injury.
Furthermore, we find that respondent Quinquillera was negligent in allowing respondent Noe
to stand on the Fieras rear portion. Section 32(c) of Article III of Republic Act No. 4136,
otherwise known as "The Land Transportation and Traffic Code" provides:

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(c) Riding on running boards No driver shall allow any person to ride on running board, step
board or mudguard of his motor vehicle for any purpose while the vehicle is in motion.
Respondent Quinquilleras act of permitting respondent Noe to hang on the rear portion of the
Fiera in such a dangerous position creates undue risk of harm to respondent Noe.
Quinquillera failed to observe that degree of care, precaution and vigilance that the
circumstances justly demand. Thus, respondent Noe suffered injury.25Since respondent
Quinquillera is negligent, there arises a presumption of negligence on the part of his employer,
respondent Bandoquillo, in supervising her employees properly. Such presumption was not
rebutted at all by Bandoquillo. Thus, the CA erred in affirming the dismissal of the third party
complaint filed by petitioner against respondents Quinquillera and Bandoquillo.
Petitioner contends that he was able to establish that he exercised the due diligence of a good
father of a family in the selection of his employees as well as in the maintenance of his cargo
truck in good operating condition. He claims that in addition to looking at Gerosanos drivers
license, he accompanied the latter in his first two trips, during which he ascertained
Gerosanos competence as a driver, petitioner being a driver himself; that the truck driven by
Gerosano has never figured in any accident prior to the incident involved; that upon his
acquisition of the cargo truck on March 16, 1982, only 7 months prior to the incident, the same
was thoroughly checked up and reconditioned; and that he had in his employ a mechanic who
conducted periodic check-ups of the engine and brake system of the cargo truck.
We are not persuaded.
Article 2180 of the Civil Code provides:
Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts
or omissions, but also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
xxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
As the employer of Gerosano, petitioner is primarily and solidarily liable for
the quasi-delict committed by the former. Petitioner is presumed to be negligent in the
selection and supervision of his employee by operation of law and may be relieved of
responsibility for the negligent acts of his driver, who at the time was acting within the scope
of his assigned task, only if he can show that he observed all the diligence of a good father of
a family to prevent damage.26
In Yambao v. Zuniga,27 we have clarified the meaning of the diligence of a good father of a
family, thus:

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The "diligence of a good father" referred to in the last paragraph of the aforecited statute
means diligence in the selection and supervision of employees. Thus, when an employee,
while performing his duties, causes damage to persons or property due to his own negligence,
there arises the juris tantum presumption that the employer is negligent, either in the selection
of the employee or in the supervision over him after the selection. For the employer to avoid
the solidary liability for a tort committed by his employee, an employer must rebut the
presumption by presenting adequate and convincing proof that in the selection and
supervision of his employee, he or she exercises the care and diligence of a good
father of a family. x x x
Petitioners claim that she exercised due diligence in the selection and supervision of her
driver, Venturina, deserves but scant consideration. Her allegation that before she hired
Venturina she required him to submit his drivers license and clearances is worthless,
in view of her failure to offer in evidence certified true copies of said license and
clearances. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under
the rules of evidence. x x x
In any case, assuming arguendo that Venturina did submit his license and clearances when
he applied with petitioner in January 1992, the latter still fails the test of due diligence in the
selection of her bus driver. Case law teaches that for an employer to have exercised the
diligence of a good father of a family, he should not be satisfied with the applicants
mere possession of a professional drivers license; he must also carefully examine the
applicant for employment as to his qualifications, his experience and record of service.
Petitioner failed to present convincing proof that she went to this extent of verifying
Venturinas qualifications, safety record, and driving history. The presumption juris tantum
that there was negligence in the selection of her bus driver, thus, remains unrebutted.
Nor did petitioner show that she exercised due supervision over Venturina after his selection.
For as pointed out by the Court of Appeals, petitioner did not present any proof that she
drafted and implemented training programs and guidelines on road safety for her
employees. In fact, the record is bare of any showing that petitioner required Venturina
to attend periodic seminars on road safety and traffic efficiency.Hence, petitioner cannot
claim exemption from any liability arising from the recklessness or negligence of Venturina.
In sum, petitioners liability to private respondents for the negligent and imprudent acts of her
driver, Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner,
having failed to rebut the legal presumption of negligence in the selection and supervision of
her driver, is responsible for damages, the basis of the liability being the relationship of pater
familias or on the employers own negligence. x x x28 (Emphasis supplied)
Petitioner failed to show that he examined driver Gerosano as to his qualifications, experience
and service records. In fact, the testimony of driver Gerosano in his cross-examination
showed the non-observance of these requirements. Gerosano testified that petitioner was his
first employer in Dumaguete and that he was accepted by petitioner on the very day he
applied for the job;29 that his drivers license was issued in Mindanao where he came
from30 and that while petitioner asked him about his driving record in Mindanao, he did not
present any document of his driving record.31 Such admission clearly established that
petitioner did not exercise due diligence in the selection of his driver Gerosano.
Moreover, the fact that petitioners driver Gerosano was driving in an efficient manner when
petitioner was with him in his first two trips would not conclusively establish that Gerosano
was not at all reckless. It could not be considered as due diligence in the supervision of his

132

driver to exempt petitioner from liability. In the supervision of his driver, petitioner must show
that he had formulated training programs and guidelines on road safety for his driver which
the records failed to show. We find that petitioner failed to rebut the presumption of
negligence in the selection and supervision of his employees.
Moreover, there was also no proof that he exercised diligence in maintaining his cargo truck
roadworthy and in good operating condition. While petitioners mechanic driver testified that
he made a routine check up on October 15, 1982, one day before the mishap happened, and
found the truck operational, there was no record of such inspection.
Turning now to the award of damages, since there was contributory negligence on the part of
respondent Noe, petitioners liability should be mitigated in accordance with Article 2179 of
the Civil Code which provides:
When the plaintiffs own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.
The underlying precept of the above article on contributory negligence is that a plaintiff who is
partly responsible for his own injury should not be entitled to recover damages in full but must
bear the consequences of his own negligence. The defendant must thus be held liable only
for the damages actually caused by his negligence.32
In Phoenix Construction, Inc., v. Intermediate Appellate Court,33 where we held that the legal
and proximate cause of the accident and of Dionisios injuries was the wrongful and negligent
manner in which the dump truck was parked but found Dionisio guilty of contributory
negligence on the night of the accident, we allocated most of the damages on a 20-80 ratio. In
said case, we required Dionisio to bear 20% of the damages awarded by the appellate court,
except as to the award of exemplary damages, attorneys fees and costs.
In the present case, taking into account the contributing negligence of respondent Noe, we
likewise rule that the demands of substantial justice are satisfied by distributing the damages
also on a 20-80 ratio excluding attorneys fees and litigation expenses.34 Consequently, 20%
should be deducted from the actual and moral damages awarded by the trial court in favor of
respondent Noe, that is: 20% of P129,584.20 for actual damages isP25,916.84 and 20%
of P50,000.00 for moral damages is P10,000.00. Thus, after deducting the same, the award
for actual damages should be P103,667.36 and P40,000.00 for moral damages or 80% of the
damages so awarded.
Petitioner and respondents Bandoquillo and Quinquillera are jointly and severally liable for the
80% of the damages as well as attorneys fees and litigation expenses conformably with our
pronouncement in Tiu v. Arriesgado35 where we held:
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly
and severally liable for said amount, conformably with the following pronouncement of the
Court in Fabre, Jr. v. Court of Appeals:
The same rule of liability was applied in situations where the negligence of the driver of the
bus on which plaintiff was riding concurred with the negligence of a third party who was the
driver of another vehicle, thus causing an accident. In Anuran v. Buo, Batangas Laguna
Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v.

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Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver
of the vehicle were jointly and severally held liable to the injured passenger or the latters heirs.
The basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus:
"Nor should it make difference that the liability of petitioner [bus owner] springs from contract
while that of respondents [owner and driver of other vehicle] arises from quasi delict. As early
as 1913, we already ruled inGutierrez v. Gutierrez, 56 Phil. 177, that in case of injury to a
passenger due to the negligence of the driver of the bus on which he was riding and of the
driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and
severally liable for damages. Some members of the Court, though, are of the view that under
the circumstances they are liable on quasi delict."36
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision of the
Court of Appeals dated April 17, 2000 as well as its Resolution dated August 16, 2000
are AFFIRMED with MODIFICATION to the effect that the dispositive portion of the Decision
dated February 18, 1993 of the Regional Trial Court of Dumaguete City in Civil Case No. 8122,
should read as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered, ordering defendants
Gerosano and Estacion, as well as third party defendants Bandoquillo and Quinquillera, to
pay plaintiff, jointly and solidarily, the following:
1. P103,667.36 for actual damages in the form of medical and hospitalization expenses;
2. P40,000.00 for moral damages, consisting of mental anguish, moral shock, serious anxiety
and wounded feelings;
3. P10,000.00 for attorneys fees; and
4. P5,000.00 for litigation expenses.

1 avvp hi l .ne t

SO ORDERED."

134

G.R. No. 97412 July 12, 1994


EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained
on a shipment of goods can be a solidary, or joint and several, liability of the common carrier,
the arrastre operator and the customs broker; (b) whether the payment of legal interest on an
award for loss or damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable rate of interest,
referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by
the insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under
Bill
of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in
bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad
Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims

135

were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K,
L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all
the rights of action of said consignee against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate
court said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was
discharged in good order from the vessel unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred after the shipment was turned over
to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already in bad order (p.
11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in damage and bad order condition
when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of defendants
(in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's
pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained losses/damages. The
two drums were shipped in good order and condition, as clearly shown by the Bill of Lading
and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B
and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were sustained
while in the respective and/or successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident
when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to
dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1)
fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally
Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was
found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages
was

136

15 kgs. The report went on to state that when the drums reached the consignee, one drum
was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force
and effect even if the goods are temporarily unloaded and stored in transit in the warehouse
of the carrier at the place of destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant
Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs.
3-Eastern) states that on December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from October
1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is
lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained damage while
in the successive possession of appellants, and therefore they are liable to the appellee, as
subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court
a quo.

of

Appeals

thus

affirmed in

toto the

judgment

of

the

court

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE
ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

137

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE


RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM
THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are
not all that novel. Indeed, we do have a fairly good number of previous decisions this Court
can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines,
52 Phil. 863). 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 (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of
Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of
fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are
exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of
properly delivering the goods to the consignee has, too, been passed upon by the Court.
In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in
holding the carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]).
Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such responsibility also devolves upon
the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier,
or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not
having been able to rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual finding of both the court a quo and the appellate court, we take note,
is that "there is sufficient evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily liable with it.

138

It is over the issue of legal interest adjudged by the appellate court that deserves more than
just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The
early
case
of Malayan
Insurance
Co.,
Inc.,
vs. Manila
Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the
lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu
of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering
the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee
Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint
was filed on 28 December 1962 until full payment thereof. The appellants then assailed,inter alia,
the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the
legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial.
The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered
upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29,
1956, if the suit were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25
Phil. 447;
Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of
Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly
and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is
the value of the boat F B Pacita III together with its accessories, fishing gear and equipment
minus P80,000.00 which is the value of the insurance recovered and the amount of
P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as
of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay
attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
(Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully
paid. When the appellate court's decision became final, the case was remanded to the lower

139

court for execution, and this was when the trial court issued its assailed resolution which
applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition
for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments,
in the absence of express contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately. (Emphasis found in the text)

should have, instead, been applied. This Court 6 ruled:


The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any money, goods or credits does not
fall within the coverage of the said law for it is not within the ambit of the authority granted to
the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an
Action for Damages for injury to persons and loss of property and does not involve any loan,
much less forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of the New Civil Code which
reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of interest agreed upon, and in the absence of stipulation, the legal interest
which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on
28 July 1986. The case was for damages occasioned by an injury to person and loss of property.
The trial court awarded private respondent Pedro Manabat actual and compensatory damages in
the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint
until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of
damages
arising
from
the
collapse
of
a
building,
ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification
of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision.
When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special
and environmental circumstances of this case, we deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with

140

the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of
the building (including interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent
interest per annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta).
(Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank
Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any
money,
goods
or
credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143
SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
instant case, there is neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the judgment. It is
delay in the payment of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total
sum, from the filing of the complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the
then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded
by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April
1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from
notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while
recognizing the right of the private respondent to recover damages, held the award, however, for
moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The
Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the
petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as
moral
damages,
with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which
arose from a breach of employment contract. For having been illegally dismissed, the petitioner
was awarded by the trial court moral and exemplary damages without, however, providing any
legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental
dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly
and severally, the amounts stated in the dispositive portion of the decision, including the sum

141

of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the
date of the filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to
the trial court, and an entry of judgment was made. The writ of execution issued by the trial
court directed that only compensatory damages should earn interest at 6% per annum from
the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the
trial judge, a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate"from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416]
does not apply to actions based on a breach of employment contract like the case at bar.
(Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed
from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of
land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of money as just compensation for their
lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6%
legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits
but expropriation of certain parcels of land for a public purpose, the payment of which is
without stipulation regarding interest, and the interest adjudged by the trial court is in the
nature of indemnity for damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore, since the kind of interest involved in
the joint judgment of the lower court sought to be enforced in this case is interest by way of
damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can
perhaps be classified into two groups according to the similarity of the issues involved and the
corresponding rulings rendered by the court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular imposing
the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits,
as well as to judgments involving such loan or forbearance of money, goods or credits, and that
the 6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time frame in the computation
of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.

142

The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, 17depending on whether or not the amount involved is a loan or forbearance,
on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be from
the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the
decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not
known until definitely ascertained, assessed and determined by the courts after proof,' then,
interest 'should be from the date of the decision.'" American Express International
v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be
"computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision until the judgment
amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called
for different applications, guided by the rule that the courts are vested with discretion,
depending on the equities of each case, on the award of interest. Nonetheless, it may not be
unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 23 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the
court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

143

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with
the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount
due
computed
from
the
decision,
dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.

144

G.R. No. 162467

May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,


vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 20032 Decision of the Court of Appeals and the 26 February
2004 Resolution3 of the same court denying petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a
shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an "open
cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix), a
non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the
underwriting manager/agent of Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set
sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey
report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the
pineapple shipment were so damaged that they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGees Marine Claims Insurance Adjuster evaluated the claim and recommended that
payment in the amount of $210,266.43 be made. A check for the recommended amount was
sent to Del Monte Produce; the latter then issued a subrogation receipt6 to Phoenix and
McGee.
Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision dated
20 October 1999, held that the only participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction and supervision of the ships officers,
who would not have accepted the cargoes on board the vessel and signed the foremans
report unless they were properly arranged and tightly secured to withstand voyage across the
open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever happened to
the cargoes after it had loaded and stowed them. Moreover, citing the survey report, it was
found by the RTC that the cargoes were damaged on account of a typhoon which M/V
Mistrau had encountered during the voyage. It was further held that Phoenix and McGee had
no cause of action against Mindanao Terminal because the latter, whose services were

145

contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with
the assured Del Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.9 The actual damages were awarded as reimbursement
for the expenses incurred by Mindanao Terminals lawyer in attending the hearings in the
case wherein he had to travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorneys fees of 20% of the
claim."11 It sustained Phoenixs and McGees argument that the damage in the cargoes was
the result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as
the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and stowing
the cargoes. It further held that even with the absence of a contractual relationship between
Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could
be based on quasi-delict under Article 2176 of the Civil Code.12
Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in
its 26 February 200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao
Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three
questions have to be answered: first, whether Phoenix and McGee have a cause of action
against Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring company,
is under obligation to observe the same extraordinary degree of diligence in the conduct of its
business as required by law for common carriers15 and warehousemen;16 and third, whether
Mindanao Terminal observed the degree of diligence required by law of a stevedoring
company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the negligent and careless loading and
stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix
and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party
to the contract of service between Mindanao Terminal and Del Monte, still the insurance
carriers may have a cause of action in light of the Courts consistent ruling that the act that
breaks the contract may be also a tort.17 In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract18 . In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship
between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part
of the defendant should be sufficient to establish a cause of action arising from quasi-delict.19
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree
of diligence which is to be observed in the performance of an obligation then that which is
expected of a good father of a family or ordinary diligence shall be required. Mindanao

146

Terminal, a stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in
the case at bar. There is no specific provision of law that imposes a higher degree of diligence
than ordinary diligence for a stevedoring company or one who is charged only with the loading
and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee that
Mindanao Terminal was bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading
and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the
cargoes. The case ofSumma Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a shipment in its custody and the
extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein, a
vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with
Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a bundle of
PC 8 U blades, was discharged from the vessel to the custody of the private respondent, the
exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship's checker and a representative of private
respondent. When Semirara inspected the shipment at house, it discovered that the bundle of
PC8U blades was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a warehouseman[22 ].
In the performance of its obligations, an arrastre operator should observe the same
degree of diligence as that required of a common carrier and a warehouseman as
enunciated under Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts
Law, respectively. Being the custodian of the goods discharged from a vessel, an
arrastre operator's duty is to take good care of the goods and to turn them over to the
party entitled to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which
refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The responsibility of the
arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually
performed by longshoremen. On the other hand, stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel.
1 avv ph i1

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

147

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in
equipoise or there is any doubt on which side the evidence preponderates the party having
the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed
fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must
fail.26
1 avv ph i1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The
Court of Appeals did not make any new findings of fact when it reversed the decision of the
trial court. The only participation of Mindanao Terminal was to load the cargoes on board M/V
Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as ropes,
pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del
Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the
area assignments of the goods in the vessels hold, prepared by Del Monte Produce and the
officers of M/V Mistrau.31 The loading and stowing was done under the direction and
supervision of the ship officers. The vessels officer would order the closing of the hatches
only if the loading was done correctly after a final inspection.32 The said ship officers would not
have accepted the cargoes on board the vessel if they were not properly arranged and tightly
secured to withstand the voyage in open seas. They would order the stevedore to rectify any
error in its loading and stowing. A foremans report, as proof of work done on board the vessel,
was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer
of M/V Mistrau after they were satisfied that the cargoes were properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey
report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey
report,36 found that the cause of the damage was improper stowage37 due to the manner the
cargoes were arranged such that there were no spaces between cartons, the use of
cardboards as support system, and the use of small rope to tie the cartons together but not by
the negligent conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted
by Phoenix and McGee in their Comment38 before us, the latter is merely a stevedoring
company which was tasked by Del Monte to load and stow the shipments of fresh banana and
pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it should load and
stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel.
In other words, the work of the stevedore was under the supervision of the shipper and
officers of the vessel. Even the materials used for stowage, such as ropes, pallets, and
cardboards, are provided for by the vessel. Even the survey report found that it was because
of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V
Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and
bruise in extensive extent.39 Even the deposition of Byeong was not supported by the
conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage occurred
aboard the carrying vessel during sea transit, being caused by ships heavy rolling and

148

pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs
on 12th October, 1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family,
the grant of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of petitioner. None
of the circumstances enumerated in Article 2208 of the Civil Code exists. The present case is
clearly not an unfounded civil action against the plaintiff as there is no showing that it was
instituted for the mere purpose of vexation or injury. It is not sound public policy to set a
premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages to Mindanao
Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the
trial of this case in Davao City, the lawyer of Mindanao Terminal incurred expenses for plane
fare, hotel accommodations and food, as well as other miscellaneous expenses, as he
attended the trials coming all the way from Manila. But there is no showing that Phoenix and
McGee made a false claim against Mindanao Terminal resulting in the protracted trial of the
case necessitating the incurrence of expenditures.42
l a wph i l. ne t

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

149

G.R. No. 95582 October 7, 1991


DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y
MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY,
FERNANDO CUDLAMAT, MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE
CUDIAMAT, SAMUEL CUDIAMAT and LIGAYA CUDIAMAT, all Heirs of the late Pedrito
Cudiamat represented by Inocencia Cudiamat, respondents.
Francisco S. Reyes Law Office for petitioners.
Antonio C. de Guzman for private respondents.

REGALADO, J.:p
On May 13, 1985, private respondents filed a complaint 1 for damages against petitioners for the death of
Pedrito Cudiamat as a result of a vehicular accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet.
Among others, it was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a passenger bus belonging to
petitioner corporation in a reckless and imprudent manner and without due regard to traffic rules and regulations and safety to
persons and property, it ran over its passenger, Pedrito Cudiamat. However, instead of bringing Pedrito immediately to the nearest
hospital, the said driver, in utter bad faith and without regard to the welfare of the victim, first brought his other passengers and
cargo to their respective destinations before banging said victim to the Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and continued to observe the
extraordinary diligence required in the operation of the transportation company and the
supervision of the employees, even as they add that they are not absolute insurers of the
safety of the public at large. Further, it was alleged that it was the victim's own carelessness
and negligence which gave rise to the subject incident, hence they prayed for the dismissal of
the complaint plus an award of damages in their favor by way of a counterclaim.
On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners, with
this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat
was negligent, which negligence was the proximate cause of his death. Nonetheless,
defendants in equity, are hereby ordered to pay the heirs of Pedrito Cudiamat the sum of
P10,000.00 which approximates the amount defendants initially offered said heirs for the
amicable settlement of the case. No costs.
SO ORDERED. 2
Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a
decision 3 in CA-G.R. CV No. 19504 promulgated on August 14, 1990, set aside the decision of the lower court, and ordered
petitioners to pay private respondents:

1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of the victim
Pedrito Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;

150

3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and
compensatory damages;
4. The costs of this suit. 4
Petitioners' motion for reconsideration was denied by the Court of Appeals in its resolution
dated October 4, 1990,5 hence this petition with the central issue herein being whether respondent court erred in
reversing the decision of the trial court and in finding petitioners negligent and liable for the damages claimed.

It is an established principle that the factual findings of the Court of Appeals as a rule are final
and may not be reviewed by this Court on appeal. However, this is subject to settled
exceptions, one of which is when the findings of the appellate court are contrary to those of
the trial court, in which case a reexamination of the facts and evidence may be undertaken. 6
In the case at bar, the trial court and the Court of Appeal have discordant positions as to who
between the petitioners an the victim is guilty of negligence. Perforce, we have had to conduct
an evaluation of the evidence in this case for the prope calibration of their conflicting factual
findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following findings:
This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a moving vehicle,
especially with one of his hands holding an umbrella. And, without having given the driver or
the conductor any indication that he wishes to board the bus. But defendants can also be
found wanting of the necessary diligence. In this connection, it is safe to assume that when
the deceased Cudiamat attempted to board defendants' bus, the vehicle's door was open
instead of being closed. This should be so, for it is hard to believe that one would even
attempt to board a vehicle (i)n motion if the door of said vehicle is closed. Here lies the
defendant's lack of diligence. Under such circumstances, equity demands that there must be
something given to the heirs of the victim to assuage their feelings. This, also considering that
initially, defendant common carrier had made overtures to amicably settle the case. It did offer
a certain monetary consideration to the victim's heirs. 7
However, respondent court, in arriving at a different opinion, declares that:
From the testimony of appellees'own witness in the person of Vitaliano Safarita, it is evident
that the subject bus was at full stop when the victim Pedrito Cudiamat boarded the same as it
was precisely on this instance where a certain Miss Abenoja alighted from the bus. Moreover,
contrary to the assertion of the appellees, the victim did indicate his intention to board the bus
as can be seen from the testimony of the said witness when he declared that Pedrito
Cudiamat was no longer walking and made a sign to board the bus when the latter was still at
a distance from him. It was at the instance when Pedrito Cudiamat was closing his umbrella at
the platform of the bus when the latter made a sudden jerk movement (as) the driver
commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the appellee-driver in
prematurely stepping on the accelerator and in not waiting for the passenger to first secure his
seat especially so when we take into account that the platform of the bus was at the time
slippery and wet because of a drizzle. The defendants-appellees utterly failed to observe their
duty and obligation as common carrier to the end that they should observe extra-ordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by
them according to the circumstances of each case (Article 1733, New Civil Code). 8

151

After a careful review of the evidence on record, we find no reason to disturb the above
holding of the Court of Appeals. Its aforesaid findings are supported by the testimony of
petitioners' own witnesses. One of them, Virginia Abalos, testified on cross-examination as
follows:
Q It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the incident,
there is a crossing?
A The way going to the mines but it is not being pass(ed) by the bus.
Q And the incident happened before bunkhouse 56, is that not correct?
A It happened between 54 and 53 bunkhouses. 9
The bus conductor, Martin Anglog, also declared:
Q When you arrived at Lepanto on March 25, 1985, will you please inform this Honorable
Court if there was anv unusual incident that occurred?
A When we delivered a baggage at Marivic because a person alighted there between
Bunkhouse 53 and 54.
Q What happened when you delivered this passenger at this particular place in Lepanto?
A When we reached the place, a passenger alighted and I signalled my driver. When we
stopped we went out because I saw an umbrella about a split second and I signalled again the
driver, so the driver stopped and we went down and we saw Pedrito Cudiamat asking for help
because he was lying down.
Q How far away was this certain person, Pedrito Cudiamat, when you saw him lying down
from the bus how far was he?
A It is about two to three meters.
Q On what direction of the bus was he found about three meters from the bus, was it at the
front or at the back?
A At the back, sir. 10 (Emphasis supplied.)
The foregoing testimonies show that the place of the accident and the place where one of the
passengers alighted were both between Bunkhouses 53 and 54, hence the finding of the
Court of Appeals that the bus was at full stop when the victim boarded the same is correct.
They further confirm the conclusion that the victim fell from the platform of the bus when it
suddenly accelerated forward and was run over by the rear right tires of the vehicle, as shown
by the physical evidence on where he was thereafter found in relation to the bus when it
stopped. Under such circumstances, it cannot be said that the deceased was guilty of
negligence.
The contention of petitioners that the driver and the conductor had no knowledge that the
victim would ride on the bus, since the latter had supposedly not manifested his intention to
board the same, does not merit consideration. When the bus is not in motion there is no

152

necessity for a person who wants to ride the same to signal his intention to board. A public
utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it
becomes the duty of the driver and the conductor, every time the bus stops, to do no act that
would have the effect of increasing the peril to a passenger while he was attempting to board
the same. The premature acceleration of the bus in this case was a breach of such duty. 11
It is the duty of common carriers of passengers, including common carriers by railroad train,
streetcar, or motorbus, to stop their conveyances a reasonable length of time in order to
afford passengers an opportunity to board and enter, and they are liable for injuries suffered
by boarding passengers resulting from the sudden starting up or jerking of their conveyances
while they are doing so. 12
Further, even assuming that the bus was moving, the act of the victim in boarding the same
cannot be considered negligent under the circumstances. As clearly explained in the
testimony of the aforestated witness for petitioners, Virginia Abalos, th bus had "just started"
and "was still in slow motion" at the point where the victim had boarded and was on its
platform. 13
It is not negligence per se, or as a matter of law, for one attempt to board a train or streetcar
which is moving slowly. 14 An ordinarily prudent person would have made the attempt board the moving conveyance
under the same or similar circumstances. The fact that passengers board and alight from slowly moving vehicle is a matter of
common experience both the driver and conductor in this case could not have been unaware of such an ordinary practice.

The victim herein, by stepping and standing on the platform of the bus, is already considered
a passenger and is entitled all the rights and protection pertaining to such a contractual
relation. Hence, it has been held that the duty which the carrier passengers owes to its
patrons extends to persons boarding cars as well as to those alighting therefrom. 15
Common carriers, from the nature of their business and reasons of public policy, are bound to
observe extraordina diligence for the safety of the passengers transported by the according to
all the circumstances of each case. 16 A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence very cautious persons, with a due regard for all the circumstances. 17

It has also been repeatedly held that in an action based on a contract of carriage, the court
need not make an express finding of fault or negligence on the part of the carrier in order to
hold it responsible to pay the damages sought by the passenger. By contract of carriage, the
carrier assumes the express obligation to transport the passenger to his destination safely
and observe extraordinary diligence with a due regard for all the circumstances, and any
injury that might be suffered by the passenger is right away attributable to the fault or
negligence of the carrier. This is an exception to the general rule that negligence must be
proved, and it is therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. 18
Moreover, the circumstances under which the driver and the conductor failed to bring the
gravely injured victim immediately to the hospital for medical treatment is a patent and
incontrovertible proof of their negligence. It defies understanding and can even be stigmatized
as callous indifference. The evidence shows that after the accident the bus could have
forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted to first
proceed to Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the
serious condition of the victim. The vacuous reason given by petitioners that it was the wife of
the deceased who caused the delay was tersely and correctly confuted by respondent court:

153

... The pretension of the appellees that the delay was due to the fact that they had to wait for
about twenty minutes for Inocencia Cudiamat to get dressed deserves scant consideration. It
is rather scandalous and deplorable for a wife whose husband is at the verge of dying to have
the luxury of dressing herself up for about twenty minutes before attending to help her
distressed and helpless husband. 19
Further, it cannot be said that the main intention of petitioner Lardizabal in going to Bunk 70
was to inform the victim's family of the mishap, since it was not said bus driver nor the
conductor but the companion of the victim who informed his family thereof. 20 In fact, it was only after
the refrigerator was unloaded that one of the passengers thought of sending somebody to the house of the victim, as shown by the
testimony of Virginia Abalos again, to wit:

Q Why, what happened to your refrigerator at that particular time?


A I asked them to bring it down because that is the nearest place to our house and when I
went down and asked somebody to bring down the refrigerator, I also asked somebody to call
the family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?
A Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of Mr.
Cudiamat.
Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A No sir. 21
With respect to the award of damages, an oversight was, however, committed by respondent
Court of Appeals in computing the actual damages based on the gross income of the victim.
The rule is that the amount recoverable by the heirs of a victim of a tort is not the loss of the
entire earnings, but rather the loss of that portion of the earnings which the beneficiary would
have received. In other words, only net earnings, not gross earnings, are to be considered,
that is, the total of the earnings less expenses necessary in the creation of such earnings or
income and minus living and other incidental expenses. 22
We are of the opinion that the deductible living and other expense of the deceased may fairly
and reasonably be fixed at P500.00 a month or P6,000.00 a year. In adjudicating the actual or
compensatory damages, respondent court found that the deceased was 48 years old, in good
health with a remaining productive life expectancy of 12 years, and then earning P24,000.00 a
year. Using the gross annual income as the basis, and multiplying the same by 12 years, it
accordingly awarded P288,000. Applying the aforestated rule on computation based on the
net earnings, said award must be, as it hereby is, rectified and reduced to P216,000.00.
However, in accordance with prevailing jurisprudence, the death indemnity is hereby
increased to P50,000.00. 23
WHEREFORE, subject to the above modifications, the challenged judgment and resolution of
respondent Court of Appeals are hereby AFFIRMED in all other respects.
SO ORDERED.

154

G.R. No. 140698

June 20, 2003

ROGELIO ENGADA, Petitioner,


vs.
HON. COURT OF APPEALS, Former Fourteenth Division, Manila, and PEOPLE OF THE
PHILIPPINES,Respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal of the decision1 dated May 31, 1999 of the Court of
Appeals in CA-G.R. CR No. 18358, which affirmed with modification the judgment2 dated
August 25, 1994, of the Regional Trial Court of Iloilo City, Branch 29, in Criminal Case No.
36223. The RTC found petitioner guilty beyond reasonable doubt of simple imprudence
resulting in physical injuries and damage to property, and sentenced him to (a) suffer
imprisonment for one month and one day of arresto mayor, (b) pay private complainant, Mrs.
Sheila Seyan, the amount of fifty one thousand pesos (P51,000) for the total destruction of the
Toyota Tamaraw jeepney, and one hundred ten thousand pesos (P110,000) for her hospital
and medical expenses, and (c) pay the costs of suit. The CA increased the prison term
imposed on petitioner to four months of arresto mayor.
The facts culled from the records are as follows:
On November 29, 1989, at about 1:30 in the afternoon, Edwin Iran was driving a blue Toyota
Tamaraw jeepney bound for Iloilo City. On board was Sheila Seyan, the registered owner of
the Tamaraw. While traversing the road along Barangay Acquit, Barotac Nuevo, the Tamaraw
passengers allegedly saw from the opposite direction a speeding Isuzu pick-up, driven by
petitioner Rogelio Engada. The pick-up had just negotiated a hilly gradient on the highway.
When it was just a few meters away from the Tamaraw, the Isuzu pick-ups right signal light
flashed, at the same time, it swerved to its left, encroaching upon the lane of the Tamaraw
and headed towards a head-on collision course with it. Seyan shouted at Iran to avoid the
pick-up. Iran swerved to his left but the pick-up also swerved to its right. Thus, the pick-up
collided with the Tamaraw, hitting the latter at its right front passenger side. The impact
caused the head and chassis of the Tamaraw to separate from its body. Seyan was thrown
out of the Tamaraw and landed on a ricefield. The pick-up stopped diagonally astride the
center of the road.
Seyan and Iran were brought to Barotac Nuevo Medicare Hospital.3 Seyan was profusely
bleeding from her nose and was in a state of shock with her eyes closed. In the afternoon of
the same day, November 29, 1989, she was transferred to St. Pauls Hospital in Iloilo City
where she was confined. Her medical certificate revealed that she suffered a fracture on the
right femur, lacerated wound on the right foot, multiple contusions, abrasions, blunt abdominal
injury, and lacerations of the upper-lower pole of the right kidney.4 She was discharged from
the hospital only on January 15, 1990.
Seyan incurred P130,000 in medical expenses. The Toyota Tamaraw jeepney ended up in
the junk heap. Its total loss was computed at P80,000.
A criminal complaint for damage to property through reckless imprudence with serious
physical injuries was filed with the Municipal Trial Court of Barotac Nuevo against petitioner

155

Rogelio Engada and Edwin Iran.5 Probable cause was found against petitioner, while the
complaint against Iran was dismissed.6
Consequently, an Information was filed against petitioner charging him with serious physical
injuries and damage to property through reckless imprudence, thus:
That on or about November 29, 1989, in the Municipality of Barotac Nuevo, Province of Iloilo,
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused
Rogelio Engada driving an Isuzu Pick-up with Plate No. SAR 117 owned by the Land Bank of
the Philippines, did then and there wilfully, unlawfully and with reckless imprudence drive said
pick-up in a careless, reckless and imprudent manner with disregard of traffic laws and
regulations, and as a result of such negligent and reckless driving the Isuzu Pick-up driven by
the accused bumped a Toyota Tamaraw jeep with Plate No. FBF 601 owned by Joelito and
Sheila Seyan and driven by Edwin Iran thereby causing damage to the Toyota Tamaraw in
the amount of P80,000.00 and serious physical injuries to Mrs. Sheila Seyan who was riding
said vehicle, the injuries barring complications will heal in more than 30 days.
CONTRARY TO LAW.7
After trial, the court rendered on August 25, 1994 a decision, disposing as follows:
WHEREFORE, the Court, finding the accused guilty beyond reasonable doubt of Simple
Imprudence resulting [in] physical injuries and damage to property defined and penalized in
Article 263, paragraph 4 and in relation with Article 365, paragraph 2 of the Revised Penal
Code, hereby sentences the accused Rogelio Engada to suffer imprisonment of ONE (1)
MONTH and ONE (1) DAY of arresto mayor.
Accused is further ordered to pay complainant Mrs. Sheila Seyan the amount of P51,000.00
for the total destruction of the Toyota Tamaraw Jeepney and P110,000.00 for indemnification
of hospital and medical expenses, and to pay the cost of the suit.
SO ORDERED.8
Petitioner appealed to the Court of Appeals. On May 31, 1999, the CA dismissed the appeal
and affirmed withmodification the trial courts decision, thus:
WHEREFORE, the instant appeal is hereby DISMISSED. Accordingly, the appealed decision
is hereby AFFIRMED with modification as to the penalty imposed upon the accused who is
hereby sentenced to suffer imprisonment of FOUR (4) MONTHS of arresto mayor.
SO ORDERED.9
Petitioner filed a motion for reconsideration, but it was denied. Hence, the instant petition,
wherein petitioner raises the issue of:
WHETHER OR NOT THE FINDINGS OF RESPONDENT COURT OF APPEALS ARE
SUPPORTED BY THE EVIDENCE OR BASED ON A MISAPPREHENSION OF FACTS
RESULTING IN A MANIFESTLY MISTAKEN INFERENCE SPECIFICALLY ON WHAT WAS
THE PROXIMATE CAUSE OF THE ACCIDENT AND WHOSE ACT WAS IT.10

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Petitioner claims innocence and seeks acquittal. He contends that in this case we should
relax the rule that only legal questions can be raised in a petition for review under Rule 45 of
the Rules of Court. According to him, the Court of Appeals misapprehended the facts, and
erred in its conclusion as to the proximate cause of the collision. He insists that the Court of
Appeals erred when it found him negligent for occupying the lane of the Tamaraw jeepney,
and then failing to return to his original lane at the safest and earliest opportunity.
1 wph i1

Petitioner further contends that the CA failed to consider that he already relayed his intention
to go back to his lane by flashing the pick-ups right signal light. He submits that at that
moment Iran, the driver of the Tamaraw, had no more reason to swerve to his left. Had Iran
not swerved to the left, according to petitioner, the collision would have been avoided. It was
Iran who was clearly negligent, says petitioner. Citing our ruling in McKee v. Intermediate
Appellate Court,11 petitioner avers that although his act of occupying the Tamaraws lane was
the initial act in the chain of events, Irans swerving to the left after petitioner flashed his right
turn signal, constituted a sufficient intervening event, which proximately caused the eventual
injuries and damages to private complainant.
Petitioner also claims that the Court of Appeals erred when it found that the pick-up
approached the Tamaraw at a fast speed. He maintains that this was not borne by the
evidence on record.
The Office of the Solicitor General, as counsel for the state, counters that the Court of
Appeals did not err in convicting the accused, now petitioner herein. Petitioners negligence
was the proximate cause of the accident, according to the OSG, for the following reasons:
First, petitioner for no justifiable reason occupied the opposite lane. Second, while on the
wrong lane, petitioner was driving the Isuzu pick-up fast, and he returned to his own lane only
at the last minute. This left Iran, the driver of the Tamaraw, with no opportunity to reflect on
the safest way to avoid the accident. Irans swerving to the left was his reaction to petitioners
wrongful act, which appropriately calls for the application of the emergency rule. The rationale
of this rule is that a person who is confronted with a sudden emergency might have no time for
thought, and he must make a prompt decision based largely upon impulse or instinct. Thus,
he cannot be held to the same standard of conduct as one who had an opportunity to reflect,
even though it later appears that he made the wrong decision. Clearly, under the emergency
rule petitioner cannot shift the blame to Iran, concludes the OSG.
As to petitioners claim that there was no evidence showing that the pick-up was running very
fast, the OSG avers that this is rebutted by the testimony of Seyan and Iran who both testified
that petitioner drove the pick-up at a fast speed when it encroached on their lane immediately
before the collision.
Did the Court of Appeals err in finding that the action of petitioner, Rogelio Engada, was the
proximate cause of the collision? This is the crux of the present petition.
In our view, petitioners attempt to pin the blame on Edwin Iran, the driver of the Tamaraw, for
the vehicular collision is unfounded. Iran swerved to the left only to avoid petitioners pick-up,
which was already on a head to head position going against Irans Tamaraw jeepney
immediately before the vehicles collided. This fact has been established by the evidence on
record. No convincing proof was adduced by petitioner that the driver of the Tamaraw, Iran,
could have avoided a head-on collision.
We note that petitioner admitted his Isuzu pick-up intruded into the lane of the Tamaraw
jeepney. Prosecution witness Nelson Alobin, one of those who went to the scene of the

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incident immediately, testified that when he arrived at the place where the collision took place,
he saw the pick-up positioned diagonally at the center of the road.12 Its head was towards the
direction of Barotac Nuevo and the rear tires were just a few inches beyond the center of the
lane.13 Moving backwards facing Barotac Nuevo, at two arms length away from the pick-up,
Alobin also saw a tire mark, 12 inches long and located at the left side of the center line going
to the right side.14
The above circumstance corroborates the testimony of both Seyan and Iran that, immediately
before the collision, the pick-up was not on its proper lane but on the other lane (the left lane
rather than the right) directly on collision course with the Tamaraw jeepney. The tire mark
reveals the short distance between the two vehicles when the Isuzu pick-up attempted to
return to its proper lane.
It is a settled rule that a driver abandoning his proper lane for the purpose of overtaking
another vehicle in an ordinary situation has the duty to see to it that the road is clear and he
should not proceed if he cannot do so in safety.15 This rule is consistent with Section 41,
paragraph (a) of R.A. 4136 as amended, otherwise known as The Land Transportation and
Traffic Code, which provides:
Sec. 41. Restrictions on overtaking and passing. (a) The driver of a vehicle shall not drive to
the left side of the center line of a highway in overtaking or passing another vehicle
proceeding in the same direction, unless such left side is clearly visible and is free of
oncoming traffic for a sufficient distance ahead to permit such overtaking or passing to be
made in safety.
In the present case, there was only a distance of 30 meters from the Tamaraw jeepney when
the Isuzu pick-up abandoned its lane and swerved to the left of the center line.16 In addition,
petitioner was running at a fast clip while traversing this lane. This was testified to by Seyan
and Iran, unrebutted by petitioner. The resulting damage to the Tamaraw jeepney, at the point
where the head and chassis were separated from the body, bolsters this conclusion that
petitioner was speeding. In our view, petitioner was negligent in several ways, and his
negligence was the proximate cause of the collision. In abandoning his lane, he did not see to
it first that the opposite lane was free of oncoming traffic and was available for a safe passage.
Further, after seeing the Tamaraw jeepney ahead, petitioner did not slow down, contrary to
the rule set in Batangas Laguna Tayabas Bus Co. v. IAC,17 thus:
[O]r if, after attempting to pass, the driver of the overtaking vehicle finds that he cannot
make the passage in safety, the latter must slacken his speed so as to avoid the danger of a
collision, even bringing his car to a stop if necessary.
For failing to observe the duty of diligence and care imposed on drivers of vehicles
abandoning their lane, petitioner must be held liable.
Iran could not be faulted when in his attempt to avoid the pick-up, he swerved to his left.
Petitioners acts had put Iran in an emergency situation which forced him to act quickly. An
individual who suddenly finds himself in a situation of danger and is required to act without
much time to consider the best means that may be adopted to avoid the impending danger, is
not guilty of negligence if he fails to undertake what subsequently and upon reflection may
appear to be a better solution, unless the emergency was brought by his own negligence.18

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Petitioner tries to extricate himself from liability by invoking the doctrine of last clear chance.
He avers that between him and Iran, the latter had the last clear chance to avoid the collision,
hence Iran must be held liable.
The doctrine of last clear chance states that a person who has the last clear chance or
opportunity of avoiding an accident, notwithstanding the negligent acts of his opponent, is
considered in law solely responsible for the consequences of the accident.19 But as already
stated on this point, no convincing evidence was adduced by petitioner to support his
invocation of the abovecited doctrine. Instead, what has been shown is the presence of an
emergency and the proper application of the emergency rule. Petitioners act of swerving to
the Tamaraws lane at a distance of 30 meters from it and driving the Isuzu pick-up at a fast
speed as it approached the Tamaraw, denied Iran time and opportunity to ponder the situation
at all. There was no clear chance to speak of. Accordingly, the Court of Appeals did not err in
holding petitioner responsible for the vehicular collision and the resulting damages, including
the injuries suffered by Mrs. Sheila Seyan and the total loss of the Tamaraw jeepney. It also
did not err in imposing on petitioner the sentence of four (4) months of arresto mayor.20
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the
Court of Appeals in CA-G.R. CR No. 18358 is AFFIRMED. Costs against petitioner.
SO ORDERED.

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G.R. No. 153076

June 21, 2007

LAPANDAY AGRICULTURAL and DEVELOPMENT CORPORATION (LADECO), HENRY


BERENGUEL, and APOLONIO R. DEOCAMPO, petitioners,
vs.
MICHAEL RAYMOND ANGALA, respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 25 July 2001 Decision2 and 11 March
2002 Resolution3 of the Court of Appeals in CA-G.R. CV No. 51134.
The Antecedent Facts
On 4 May 1993, at about 2:45 p.m., a Datsun crewcab with plate no. PEC-903 driven by
Apolonio Deocampo (Deocampo) bumped into a 1958 Chevy pick-up with plate no. MAM-475
owned by Michael Raymond Angala (respondent) and driven by Bernulfo Borres (Borres).
Lapanday Agricultural and Development Corporation (LADECO) owned the crewcab which
was assigned to its manager Manuel Mendez (Mendez). Deocampo was the driver and
bodyguard of Mendez. Both vehicles were running along Rafael Castillo St., Agdao, Davao
City heading north towards Lanang, Davao City. The left door, front left fender, and part of the
front bumper of the pick-up were damaged.
Respondent filed an action for Quasi-Delict, Damages, and Attorneys Fees against LADECO,
its administrative officer Henry Berenguel4 (Berenguel) and Deocampo. Respondent alleged
that his pick-up was slowing down to about five to ten kilometers per hour (kph) and was
making a left turn preparatory to turning south when it was bumped from behind by the
crewcab which was running at around 60 to 70 kph. The crewcab stopped 21 meters from the
point of impact. Respondent alleged that he heard a screeching sound before the impact.
Respondent was seated beside the driver and was looking at the speedometer when the
accident took place. Respondent testified that Borres made a signal because he noticed a
blinking light while looking at the speedometer.5
Respondent sent a demand letter to LADECO for the payment of the damages he incurred
because of the accident but he did not receive any reply. Thus, respondent filed the case
against LADECO, Berenguel, and Deocampo.
Deocampo alleged that the pick-up and the crewcab he was driving were both running at
about 40 kph. The pick-up was running along the outer lane. The pick-up was about 10
meters away when it made a U-turn towards the left. Deocampo testified that he did not see
any signal from the pick-up.6 Deocampo alleged that he tried to avoid the pick-up but he was
unable to avoid the collision. Deocampo stated that he did not apply the brakes because he
knew the collision was unavoidable. Deocampo admitted that he stepped on the brakes only
after the collision.
The Ruling of the Trial Court

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In its 3 March 1995 Decision,7 the Regional Trial Court of Davao City, Branch 15 (trial court)
ruled:
WHEREFORE, judgment is hereby rendered ordering the defendants LADECO and Apolonio
Deocampo to solidarily pay the plaintiffs the following sums:
1. Twenty three thousand two hundred (P23,200.00) pesos as actual damages.
2. Ten thousand (P10,000.00) pesos as moral damages.
3. Ten thousand (P10,000.00) pesos as attorneys fees.
4. Costs of suit.
SO ORDERED.8
The trial court found that the crewcab was running very fast while following the pick-up and
that the crewcabs speed was the proximate cause of the accident. The trial court observed
that the crewcab stopped 21 meters away from the point of impact despite Deocampos claim
that he stepped on the brakes moments after the collision. The trial court ruled that
Deocampo had the last opportunity to avoid the accident.
The trial court found that Berenguel was not liable because he was not the owner of the
crewcab.
LADECO and Deocampo (petitioners)9 filed a motion for reconsideration. The trial court
denied petitioners motion in its 13 June 1995 Order.10
Petitioners filed an appeal before the Court of Appeals.
The Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the trial courts decision.
The Court of Appeals sustained the finding of the trial court that Deocampo was negligent.
The Court of Appeals applied the doctrine of last clear chance and ruled that Deocampo had
the responsibility of avoiding the pick-up.
The Court of Appeals also sustained the solidary liability of LADECO and Deocampo. The
Court of Appeals ruled that under Article 2180 of the Civil Code, the negligence of the driver is
presumed to be the negligence of the owner of the vehicle.
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, premises considered, the appeal is DISMISSED for lack of merit, and the
assailed Decision of the Court a quo in Civil Case No. 22067-93 is AFFIRMED in toto. Costs
against defendants-appellants.
SO ORDERED.11

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Petitioners filed a motion for reconsideration. In its 11 March 2002 Resolution, the Court of
Appeals denied the motion for lack of merit.
Hence, the petition before this Court.
The Issues
The issues before the Court are the following:
1. Whether the provisions of Section 45(b) of Republic Act No. 413612 (RA 4136) and Article
2185 of the Civil Code apply to this case; and
2. Whether respondent is entitled to the damages awarded.
The Ruling of this Court
The petition is partly meritorious.
Both Drivers are Negligent
Both the trial court and the Court of Appeals found that Deocampo was at fault because he
was driving very fast prior to the collision. The Court of Appeals sustained the trial courts
finding that Deocampo was running more than the normal cruising speed. Both the trial court
and the Court of Appeals noted that the crewcab stopped 21 meters away from the point of
impact. Deocampo admitted that he stepped on the brakes only after the collision.
Petitioners allege that Borres did not take the proper lane before executing the U-turn.
Petitioners allege that Borres violated Section 45(b) of RA 4136 and it was his recklessness
that was the proximate cause of the accident.
Section 45(b) of RA 4136 states:
Sec. 45. Turning at intersections. x x x
(b) The driver of a vehicle intending to turn to the left shall approach such intersection in the
lane for traffic to the right of and nearest to the center line of the highway, and, in turning, shall
pass to the left of the center of the intersection, except that, upon highways laned for traffic
and upon one-way highways, a left turn shall be made from the left lane of traffic in the
direction in which the vehicle is proceeding.
Petitioners further allege that since Borres was violating a traffic rule at the time of the
accident, respondent and Borres were the parties at fault. Petitioners cite Article 2185 of the
Civil Code, thus:
Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor
vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.
We rule that both parties were negligent in this case. Borres was at the outer lane when he
executed a U-turn. Following Section 45(b) of RA 4136, Borres should have stayed at the
inner lane which is the lane nearest to the center of the highway. However, Deocampo was
equally negligent. Borres slowed down the pick-up preparatory to executing the U-turn.

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Deocampo should have also slowed down when the pick-up slowed down. Deocampo
admitted that he noticed the pick-up when it was still about 20 meters away from
him.13 Vehicular traffic was light at the time of the incident. The pick-up and the crewcab were
the only vehicles on the road.14 Deocampo could have avoided the crewcab if he was not
driving very fast before the collision, as found by both the trial court and the Court of Appeals.
We sustain this finding since factual findings of the Court of Appeals affirming those of the trial
court are conclusive and binding on this Court.15 Further, the crewcab stopped 21 meters from
the point of impact. It would not have happened if Deocampo was not driving very fast.
Doctrine of Last Clear Chance Applies
Since both parties are at fault in this case, the doctrine of last clear chance applies.
The doctrine of last clear chance states that where both parties are negligent but the negligent
act of one is appreciably later than that of the other, or where it is impossible to determine
whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid
the loss but failed to do so is chargeable with the loss.16 In this case, Deocampo had the last
clear chance to avoid the collision. Since Deocampo was driving the rear vehicle, he had full
control of the situation since he was in a position to observe the vehicle in front of
him.17Deocampo had the responsibility of avoiding bumping the vehicle in front of him.18 A
U-turn is done at a much slower speed to avoid skidding and overturning, compared to
running straight ahead.19 Deocampo could have avoided the vehicle if he was not driving very
fast while following the pick-up. Deocampo was not only driving fast, he also admitted that he
did not step on the brakes even upon seeing the pick-up. He only stepped on the brakes after
the collision.
Petitioners are Solidarily Liable
LADECO alleges that it should not be held jointly and severally liable with Deocampo because
it exercised due diligence in the supervision and selection of its employees. Aside from this
statement, LADECO did not proffer any proof to show how it exercised due diligence in the
supervision and selection of its employees. LADECO did not show its policy in hiring its
drivers, or the manner in which it supervised its drivers. LADECO failed to substantiate its
allegation that it exercised due diligence in the supervision and selection of its employees.
Hence, we hold LADECO solidarily liable with Deocampo.
Respondent is Entitled to Moral Damages
We sustain the award of moral damages. Moral damages are awarded to allow a plaintiff to
obtain means, diversion, or amusement that will serve to alleviate the moral suffering he has
undergone due to the defendants culpable action.20 The trial court found that respondent,
who was on board the pick-up when the collision took place, suffered shock, serious anxiety,
and fright when the crewcab bumped his pick-up. We sustain the trial court and the Court of
Appeals in ruling that respondent sufficiently showed that he suffered shock, serious anxiety,
and fright which entitle him to moral damages.
Both the trial court and the Court of Appeals failed to give any justification for the award of
attorneys fees. Awards of attorneys fees must be based on findings of fact and of law and
stated in the decision of the trial court.21Further, no premium should be placed on the right to
litigate.22 Hence, we delete the award of attorneys fees.

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WHEREFORE, we AFFIRM the 25 July 2001 Decision and 11 March 2002 Resolution of the
Court of Appeals in CA-G.R. CV No. 51134 with MODIFICATION by deleting the award of
attorneys fees.
SO ORDERED.

164